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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant To Section 13 Or 15(d) Of The Securities
Exchange Act Of 1934
For the fiscal year ended December 31, 1998
OR
[ ] Transition Report Pursuant To Section 13 Or 15(d) Of The Securities
Exchange Act Of 1934
Commission file number 0-22725
CRESCENT OPERATING, INC.
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(Exact name of registrant as specified in its charter)
Delaware 75-2701931
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
306 West 7th Street, Suite 1025
Fort Worth, Texas 76102
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 339-2200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
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(Title of class)
Preferred Share Purchase Rights
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(Title of class)
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 [ X ] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the 9,372,701 shares of $0.01 par value common
stock held by non-affiliates of the registrant on March 30, 1999 was $37.5
million based upon the closing price of $4.00 on The Nasdaq Stock Market.
Number of shares of Common Stock outstanding as of March 30, 1999: 11,404,477
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be filed with the Securities and Exchange
Commission for registrant's 1998 Annual Meeting of Shareholders to be held in
June 1999 are incorporated by reference into Part III of this Form 10-K.
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TABLE OF CONTENTS
PART I.
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Item 1. Business............................................................................... 3
Item 2. Properties............................................................................. 24
Item 3. Legal Proceedings...................................................................... 25
Item 4. Submission of Matters to a Vote of Security Holders.................................... 25
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................. 25
Item 6. Selected Financial Data................................................................ 27
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................................. 27
Item 7A. Quantitative and Qualitative Disclosures about Market Risk............................. 35
Item 8 Financial Statements and Supplementary Data............................................ 35
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................................................. 36
PART III.
Item 10. Directors and Executive Officers of the Registrant..................................... 36
Item 11. Executive Compensation................................................................. 36
Item 12. Security Ownership of Certain Beneficial Owners and Management......................... 36
Item 13. Certain Relationships and Related Transactions......................................... 36
PART IV.
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K...................... 36
</TABLE>
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This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Although the Company believes that
the expectations reflected in such forward-looking statements are based upon
reasonable assumptions, the Company's actual results could differ materially
from those set forth in the forward-looking statements. Certain factors that
might cause such a difference include the following: The Company's inability to
generate cash flow sufficient to meet debt service payments and other operating
expenses; the lack of continued availability of equity and debt financing that
may be necessary for expansion or continued operations (including the inability
to refinance so-called balloon payments of principal on existing debt) at rates
and on terms that are satisfactory to the Company; the underperformance or
non-performance of the Company's business operations and investments; the
impact of changes in the industries in which the Company's businesses and
investments operate or changes in the economic, demographic and other
competitive conditions affecting such businesses and investments; the inability
of the Company to identify or pursue suitable business or investment
opportunities; and the impact of any changes in federal tax laws which would
permit real estate investment trusts to perform certain services that are
currently prohibited, such as services provided by the Company to tenants of
real property owned by Crescent Real Estate Equities Company. Given these
uncertainties, readers are cautioned not to place undue reliance on such
statements. The Company undertakes no obligation to update these
forward-looking statements to reflect any future events or circumstances.
PART I
ITEM 1. BUSINESS
THE COMPANY
Crescent Operating, Inc. ("Crescent Operating" or the "Company"), a Delaware
corporation, was formed on April 1, 1997, by Crescent Real Estate Equities
Company ("Crescent Equities" or "CEI") and its subsidiary Crescent Real Estate
Equities Limited Partnership ("Crescent Partnership"). Effective June 12, 1997
Crescent Equities distributed shares of Crescent Operating common stock to
shareholders of Crescent Equities and unit holders of Crescent Partnership and,
on that date, Crescent Operating became a public company. Crescent Operating
was formed to be the lessee and operator of certain assets owned or to be
acquired by Crescent Partnership. The relationship between the Company and
Crescent Partnership is governed by the "Intercompany Agreement" which provides
the Company and Crescent Partnership with rights to participate in certain
transactions. The Company also engages in other business enterprises not
related to Crescent Equities or the Intercompany Agreement, such as the
Equipment Sales and Leasing segment. Unless the context otherwise requires, the
terms "Crescent Operating", "the Company", "Crescent Equities", "CEI" and
"Crescent Partnership" include the subsidiaries of each and, in the case of
"CEI" and "Crescent Equities", includes "Crescent Partnership".
The Company's operations began on May 9, 1997 with the purchase from
Carter-Crowley Properties, Inc. ("Carter-Crowley") of 100% of the common stock
of Moody-Day, Inc. ("Moody-Day"), an equipment sales, leasing and servicing
company which subsequently changed its corporate name to Crescent Machinery
Company ("Crescent Machinery"), and a limited partner interest in Hicks Muse
Tate & Furst Equity Fund II, LP, a private venture capital fund ("Hicks-Muse",
and together with Moody-Day, the "Carter-Crowley Asset Group"). This Annual
Report on Form 10-K was prepared on the basis that the Carter-Crowley Asset
Group is the Company's "Predecessor". As Crescent Operating did not have any
activity prior to May 9, 1997, the data included relating to periods prior to
May 9, 1997 is only with regard to the Predecessor.
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Crescent Operating's assets and operations are comprised of five business
segments: (i) Equipment Sales and Leasing, (ii) Hospitality, (iii) Refrigerated
Warehousing, (iv) Land Development and (v) Healthcare. Within these segments,
the Company, through various entities, owned the following (collectively
referred to as the "Assets"):
o THE EQUIPMENT SALES AND LEASING SEGMENT consisted of a wholly-owned
interest in Crescent Machinery Company, a construction equipment sales,
leasing and service company with 16 locations in seven states.
o THE HOSPITALITY SEGMENT consisted of (i) the Company's lessee interests in
the Denver Marriott City Center, the Hyatt Regency Beaver Creek, the Hyatt
Regency Albuquerque, Canyon Ranch-Tucson, Canyon Ranch-Lenox, the Ventana
Country Inn, the Sonoma Mission Inn and Spa, the Sonoma Golf Course, the
Four Seasons Hotel in Houston, Texas and the Austin Omni, (ii) a
two-thirds interest in the Houston Center Athletic Club Venture and (iii)
a 5% economic interest in a company that participates in the future use of
the "Canyon Ranch" name.
o THE REFRIGERATED WAREHOUSING SEGMENT consisted of an indirect 2% interest
in each of four corporations (collectively referred to as "AmeriCold
Logistics") that currently own or operate 101 refrigerated storage
properties with an aggregate storage capacity of approximately 530.1
million cubic feet. This segment was significantly reorganized subsequent
to December 31, 1998, see "Recent Developments".
o THE LAND DEVELOPMENT SEGMENT consisted of (i) a 4.65% economic interest in
Desert Mountain, a master planned, luxury residential and recreational
community in northern Scottsdale, Arizona, (ii) a 42.5% general partner
interest in The Woodlands Operating Company, L.P., which provides
management, advisory, landscaping and maintenance services to The
Woodlands, Texas and is the lessee of The Woodlands Resort and Conference
Center, (iii) a 2.125% economic interest in The Woodlands Land Development
Company L.P., which owns approximately 9,000 acres for commercial and
residential development as well as a realty office, an athletic center,
and interests in both a title company and a mortgage company, (iv) a 50%
economic interest in COPI Colorado, LP, a company that has a 10% economic
interest in Crescent Management Development Corp., which invests in
entities that develop or manage residential and resort properties
(primarily in Colorado) and provides support services to such properties
and (v) a 5% economic interest in an entity which owns a 6.19% interest in
the construction and operation of a new multipurpose entertainment and
sports center (the "Arena Project") in downtown Dallas, Texas and manages
the operations of the existing arena as well as a 2.6% economic interest
in Hillwood/1642, Ltd., an entity participating in the development of the
land surrounding the Arena Project.
o THE HEALTHCARE SEGMENT consisted of a 50% member interest in Charter
Behavioral Health Systems, LLC ("CBHS"), a limited liability company which
operates approximately 90 behavioral healthcare facilities in 32 states.
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EQUIPMENT
SALES REFRIGERATED LAND
AND LEASING HOSPITALITY WAREHOUSING DEVELOPMENT
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Revenues .................................... $ 85,365 $ 229,491 $ -- $ 178,392
Operating expenses .......................... 79,011 222,832 88 178,372
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Income (loss) from operations ............... 6,354 6,659 (88) 20
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Investment income (loss) .................... -- 130 3,961 25,858
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Other (income) expense
Interest expense ....................... 3,098 402 -- 7,700
Interest income ........................ (156) (348) -- (3,365)
Other .................................. (166) (75) -- 425
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Total other (income) expense ................ 2,776 (21) -- 4,760
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Income (loss) before income
taxes and minority interest ............ 3,578 6,810 3,873 21,118
Income tax provision (benefit) .............. 1,539 2,724 -- 7,465
------------- ------------- ------------- -------------
Income (loss) before minority
interests .............................. 2,039 4,086 3,873 13,653
Minority interests .......................... -- 3 (3,679) (12,664)
------------- ------------- ------------- -------------
Net income (loss) ........................... $ 2,039 $ 4,089 $ 194 $ 989
============= ============= ============= =============
Net income (loss) per share,
basic .................................. $ 0.18 $ 0.36 $ 0.02 $ 0.09
============= ============= ============= =============
Net income (loss) per share,
diluted ................................ $ 0.17 $ 0.35 $ 0.02 $ 0.08
============= ============= ============= =============
EBITDA Calculation: (1)
Net income (loss) ...................... $ 2,039 $ 4,089 $ 194 $ 989
Interest expense, net .................. 2,942 229 904 224
Income tax provision (benefit) ......... 1,539 2,724 39 807
Depreciation and amortization .......... 8,290 890 1,386 1,332
------------- ------------- ------------- -------------
EBITDA ...................................... $ 14,810 $ 7,932 $ 2,523 $ 3,352
============= ============= ============= =============
</TABLE>
<TABLE>
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HEALTHCARE OTHER TOTAL
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Revenues .................................... $ -- $ -- $ 493,248
Operating expenses .......................... -- 3,059 483,362
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Income (loss) from operations ............... -- (3,059) 9,886
------------- ------------- -------------
Investment income (loss) .................... (5,390) 3,125 27,684
------------- ------------- -------------
Other (income) expense
Interest expense ....................... -- 7,062 18,262
Interest income ........................ -- (7) (3,876)
Other .................................. -- (2) 182
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Total other (income) expense ................ -- 7,053 14,568
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Income (loss) before income
taxes and minority interest ............ (5,390) (6,987) 23,002
Income tax provision (benefit) .............. (2,156) (4,051) 5,521
------------- ------------- -------------
Income (loss) before minority
interests .............................. (3,234) (2,936) 17,481
Minority interests .......................... -- -- (16,340)
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Net income (loss) ........................... $ (3,234) $ (2,936) $ 1,141
============= ============= =============
Net income (loss) per share,
basic .................................. $ (0.29) $ (0.26) $ 0.10
============= ============= =============
Net income (loss) per share,
diluted ................................ $ (0.27) $ (0.25) $ 0.10
============= ============= =============
EBITDA Calculation: (1)
Net income (loss) ...................... $ (3,234) $ (2,936) $ 1,141
Interest expense, net .................. 431 7,055 11,785
Income tax provision (benefit) ......... (2,156) (4,051) (1,098)
Depreciation and amortization .......... 476 6 12,380
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EBITDA ...................................... $ (4,483) $ 74 $ 24,208
============= ============= =============
</TABLE>
(1) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. Amounts are calculated based on the Company's ownership
percentage of the EBITDA components. Management believes that EBITDA can be
a meaningful measure of the Company's operating performance, cash
generation and ability to service debt. However, EBITDA should not be
considered as an alternative to either: (i) net earnings (determined in
accordance with GAAP); (ii) operating cash flow (determined in accordance
with GAAP); or (iii) liquidity. There can be no assurance that the
Company's calculation of EBITDA is comparable to similarly titled items
reported by other companies.
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RECENT DEVELOPMENTS
EQUIPMENT SALES AND LEASING
Effective March 4, 1999, the Company acquired certain assets of Westco Tractor &
Equipment, Inc., a company engaged in equipment sales, leasing and servicing,
located in Santa Rosa, California. The purchase price of approximately $2.7
million was comprised of $0.5 million cash and the assumption of liabilities of
$2.2 million.
HOSPITALITY
Effective December 31, 1998, the Company's leases of the Hospitality Properties
(as later defined) were amended to increase base rentals as compensation for
capital improvements funded by Crescent Partnerships.
Effective July 28, 1998, the Company obtained a 5% interest in CRL Investments,
Inc. ("CRL"). CRL has interests in entities which (i) control the future use of
the "Canyon Ranch" name and (ii) are constructing the Canyon Ranch day spa in
the Venetian Hotel in Las Vegas, Nevada. Through March 23, 1999, CRL has
invested $4.7 million in the Canyon Ranch day spa project.
REFRIGERATED WAREHOUSING
Effective March 12, 1999, Crescent Operating sold 80% of its 2% interest in
AmeriCold Logistics to Crescent Partnership for $13.2 million and received the
right to require Crescent Partnership to purchase the remaining 20% for $3.4
million at any time during the next two years, subject to compliance with
certain regulatory matters. This transaction results in approximately a $2.0
million gain to be recognized by Crescent Operating in 1999. Crescent Operating,
through a wholly-owned limited liability company, then entered into a new
partnership ("AmeriCold Operations") owned 60% by Vornado Operating, Inc.
("Vornado Operating") and 40% by Crescent Operating. AmeriCold Operations
purchased all of the non-real estate related assets of AmeriCold REIT (formerly
AmeriCold Logistics) encompassing the operations of the refrigerated warehouse
properties for $48.7 million. As a result of this transaction, AmeriCold REIT no
longer has an interest in the operations of the refrigerated warehousing
operations. This transaction required an initial capital contribution of
approximately $15.5 million from Crescent Operating and a commitment to fund an
additional $4.0 million in the future, all of which has or will be funded from a
new $19.5 million 9% loan from Crescent Partnership. AmeriCold Operations has
leased the refrigerated warehouse properties ("Refrigerated Warehouses") from
AmeriCold REIT under 15 year leases which call for base and percentage rent. As
the operations of AmeriCold Logistics have been assumed by AmeriCold Operations,
the Company will hereafter refer to the operations of AmeriCold Logistics as
AmeriCold Operations.
LAND DEVELOPMENT
As of March 23, 1999, COPI Colorado had purchased approximately 1.1 million
shares of Crescent Operating common stock at a total purchase price of $4.2
million. The average price paid for such shares, excluding brokers' commissions,
was $3.88 per share.
Effective January 1, 1999, Crescent Development Management Corp. ("CDMC")
increased its $40 million line of credit to $48 million and entered into a new
$40 million credit line with Crescent Partnership for new development projects.
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OTHER
On March 26, 1999, the Company signed a definitive agreement to sell its
investment in Hicks-Muse for $8.1 million to an unrelated party. The sale will
result in a $0.3 million gain to be recognized in first quarter of 1999.
Effective March 1, 1999, the Board of Directors of Crescent Operating created
two new directorships. William A. Abney, an attorney engaged in private practice
in Marshall, Texas, was appointed as a director of Crescent Operating to fill
one of the new vacancies. The Board expects to fill the other vacancy during the
second quarter of 1999.
On December 11, 1998, the Company received notice from The Nasdaq Stock Market
("Nasdaq") that the Company has failed to maintain a closing bid price of
greater than or equal to $5.00 in accordance with Nasdaq Marketplace Rule 4450
(b)(4) under Maintenance Standard (2) for continued listing on the National
Market System (NMS). The Company will have a hearing with Nasdaq on May 6, 1999
regarding this issue. The result of this hearing will determine whether the
Company can continue its NMS listing. Pending the outcome of the hearing, the
Company's common stock will continue to be listed for trading on NMS. In the
event that the Company does not meet the NMS maintenance requirement prior to
the hearing date or otherwise prevail at the hearing, the Company will request
an extension or ask to have its shares listed on the Nasdaq SmallCap Market.
While the Company believes that it will satisfy the requirements for listing on
the Nasdaq SmallCap Market, there can be no assurances that Nasdaq will approve
listing of the Company's shares on such Market.
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STRATEGY
Crescent Operating was formed to be the lessee and operator of certain assets
owned or to be acquired by Crescent Partnership. The relationship between the
Company and Crescent Partnership is governed by the "Intercompany Agreement"
which provides the Company and Crescent Partnership with rights to participate
in certain transactions. Crescent Operating's strategy is to continue to take
advantage of those opportunities offered to it by Crescent Partnership which
offer significant profit potential while pursuing the development, growth and
profitable management of its existing business segments. In addition, Crescent
Operating will pursue other opportunities in related or unrelated business
segments where the Company might successfully apply its expertise as a
diversified management company. Specific near-term plans call for Crescent
Operating to continue internal business growth through:
o continued growth of the Equipment Sales and Leasing segment through
strategic acquisitions and increases in same store revenues,
o continued expansion and upgrade of the Hospitality Properties, such as
additional suites at Sonoma Mission Inn and Spa and the addition of a spa
at the Ventana Country Inn currently under construction,
o continued expansion of the Refrigerated Warehouse facilities, and
o continued expansion and growth of the projects that comprise the Land
Development segment.
TRANSACTIONS WITH CRESCENT PARTNERSHIP
Generally, Crescent Operating is involved with Crescent Equities in two types of
transactions: "LESSEE TRANSACTIONS" and "CONTROLLED SUBSIDIARY TRANSACTIONS".
o LESSEE TRANSACTIONS are those in which Crescent Operating enters into a
transaction to lease and operate real property that is owned by Crescent
Partnership but which cannot be operated by Crescent Partnership due to
Crescent Equities status as a REIT. Lessee Transactions include the
Company's leases of Hospitality Properties and the Sonoma Golf Course.
o CONTROLLED SUBSIDIARY TRANSACTIONS are those in which Crescent Operating
invests alongside Crescent Partnership in acquisitions where Crescent
Operating owns all of the voting stock, and Crescent Partnership owns all
of the non-voting stock of a corporate acquisition vehicle which in turn
acquires a target business which cannot be operated by Crescent Partnership
due to Crescent Equities' status as a REIT. The voting stock represents the
control of the entity being purchased and due to its status as a REIT,
Crescent Equities cannot have such ownership. Controlled Subsidiary
Transactions include CRL, Desert Mountain, The Woodlands Land Company, and
the Refrigerated Warehousing segment.
Crescent Operating and Crescent Partnership have entered into the Intercompany
Agreement to provide each other with rights to participate in the types of
transactions mentioned above. The Intercompany Agreement provides, subject to
certain terms, that Crescent Partnership will provide Crescent Operating with a
right of first refusal to become the lessee of any real property acquired by
Crescent Partnership if Crescent Partnership determines that, consistent with
Crescent Equities' status as a REIT, it is required to enter into a "master"
lease arrangement. Crescent Operating's right of first refusal under the
Intercompany Agreement is conditioned upon the ability of Crescent Operating and
Crescent Partnership to negotiate a mutually satisfactory lease arrangement and
the determination of Crescent Partnership, in its sole discretion, that Crescent
Operating is qualified to be the lessee. 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. If a mutually
satisfactory agreement cannot be reached within a 30-day period (or such longer
period to which Crescent Operating and Crescent Partnership may agree), Crescent
Partnership may offer the opportunity to others.
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Under the Intercompany Agreement, Crescent Operating has agreed not to acquire
or make (i) investments in real estate which, for purposes of the Intercompany
Agreement, includes the provision of services related to real estate and
investment in hotel properties, real estate mortgages, real estate derivatives
or entities that invest in real estate assets or (ii) any other investments that
may be structured in a manner that qualifies under the federal income tax
requirements applicable to REITs. Crescent Operating has agreed to notify
Crescent Partnership of, and make available to Crescent Partnership, investment
opportunities developed by Crescent Operating, or of which Crescent Operating
becomes aware but is unable or unwilling to pursue.
EQUIPMENT SALES AND LEASING
OVERVIEW
Crescent Machinery is engaged in the sale, leasing and service of construction
equipment and accessories to the construction and utility industries located
primarily in seven states. The Company has dramatically expanded its equipment
sales and leasing business it acquired initially through Moody-Day.
Historically, construction equipment businesses have been owned and operated
primarily by individuals in a localized area. Crescent Operating believes that
it can consolidate some of these businesses at attractive multiples and gain
significant improvement through purchasing and operating efficiencies. The
Company is establishing regional centers through acquisitions of dealers with
successful operations and experienced management. The Company has focused its
acquisition efforts on dealerships to allow access to equipment at the most
competitive prices, have factory trained service personnel and provide parts and
warranty service for equipment purchased directly by end users of other rental
businesses. Through its relationship with Crescent Equities, the Company may be
able to earn additional revenue from equipment rental and leasing attributable
to Crescent Equities' real estate development activities.
The management of Crescent Machinery is focused on increasing the rental and
leasing components of Crescent Machinery's business, which management believes
have the potential to generate higher profit margins. The Company believes that
Crescent Machinery's status as an equipment dealer affords it a competitive
advantage because Crescent Machinery is able to stock rental and leasing
equipment at prices offered only to equipment dealers and National accounts.
Accordingly, the Company believes that Crescent Machinery is poised to benefit
from the increased margins and profit that could result from the relatively low
unit costs of equipment. Additionally, dealerships have significant advantages
over rental yards in down cycles that occur in the industry. In down cycles,
contractors will retain their equipment longer thus requiring more service and
parts which dealerships can provide.
Crescent Machinery's operations are not notably seasonal, although adverse
weather conditions, such as extended periods of precipitation, could adversely
affect its operations. The months of June through October typically have the
greatest positive impact and the months of January and February typically have
the greatest negative impact on the Company's consolidated results.
Crescent Machinery competes with various large and small companies. Crescent
Machinery believes that the principal competitive factors in its markets for
sale and rental of the construction equipment and accessories it offers are
availability of requested equipment, competitive pricing, product features,
parts and service. Crescent Machinery's products and services are marketed
directly by its sales force. No customer accounted for more than 10% of Crescent
Machinery's gross sales for the period ended December 31, 1998.
Crescent Machinery's acquisition efforts are limited by access to capital to
fund acquisitions and by the Company's depressed stock prices, which adversely
affects the ability of Crescent Machinery to use the Company's stock as
consideration in acquisitions.
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ACQUISITIONS
Acquisitions during 1998 and 1999 were as follows:
o Effective March 4, 1999, the Company acquired certain assets of Westco
Tractor & Equipment, Inc. ("Westco"), a company engaged in equipment sales,
leasing and servicing, located in Santa Rosa, California. The purchase
price of approximately $2.7 million was comprised of $0.5 million cash and
the assumption of liabilities of $2.2 million.
o Effective July 31, 1998, the Company acquired certain assets of 4-K
Equipment Company ("4-K"), a company which is engaged in equipment sales,
leasing and servicing, located in Franklin, Indiana. The purchase price of
$0.2 million was comprised of $0.1 million in cash and the assumption of
$0.1 million of liabilities.
o Effective July 31, 1998, the Company acquired all of the stock of Harvey
Equipment Center, Inc. ("Harvey"), a company which is engaged in equipment
sales, leasing and servicing, located in Van Wert, Ohio. The purchase price
of approximately $8.4 million was comprised of $2.7 million in cash, the
issuance of notes payable by Crescent Operating in the amount of $1.2
million and the assumption of $4.5 million of liabilities. The $1.2 million
notes bear interest at 8.0% per annum and are payable in eight semi-annual
installments of principal and interest of $0.18 million.
o Effective July 1, 1998, the Company acquired all of the stock of Western
Traction Company ("Western Traction"), a company that is engaged in
equipment sales, leasing and servicing, with locations in Sacramento,
California, Union City, California, Fresno, California, Sparks, Nevada and
Honolulu, Hawaii. The purchase price of approximately $52.0 million was
comprised of $6.5 million in cash, the issuance of a note payable by
Crescent Operating in the amount of $7.5 million and the assumption of
liabilities of $38.0 million. The $7.5 million note bears interest at 8.5%
per annum and is payable in 18 monthly installments of principal and
interest of $0.45 million.
o Effective June 8, 1998, the Company acquired all of the stock of Machinery,
Inc., a company that is engaged in equipment sales, leasing and servicing,
with locations in Tulsa and Oklahoma City, Oklahoma. The purchase price of
approximately $2.8 million was comprised of $0.6 million in cash, the
issuance of 38,170 shares of Crescent Operating common stock and the
assumption of $1.5 million of liabilities.
o Effective April 30, 1998, the Company acquired certain assets of Central
Texas Equipment Co. ("Central Texas"), a company which is engaged in
equipment sales, leasing and servicing, located in Austin, Texas. The
purchase price of approximately $9.7 million was comprised of $3.0 million
in cash, the issuance of 128,551 shares of Crescent Operating common stock
and the assumption of $4.1 million of liabilities.
With the completion of the Westco, 4-K, Harvey, Western Traction, Machinery,
Inc., and Central Texas acquisitions, Crescent Machinery has 16 locations in
Texas, California, Nevada, Oklahoma, Ohio, Indiana and Hawaii.
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OPERATIONAL STATISTICS
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For The Year Ended December 31,
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1998 1997 1996 1995 1994
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Revenue:
New and used equipment sales ............. 64% 51% 55% 58% 53%
Rental equipment ......................... 20% 34% 28% 24% 24%
Parts and service ........................ 16% 15% 17% 18% 23%
------- ------- ------- ------- -------
Total revenue ........................ 100% 100% 100% 100% 100%
======= ======= ======= ======= =======
</TABLE>
MARKET INFORMATION
The equipment sales and leasing industry has undergone significant changes
during 1998 with 220 companies representing 860 locations and $2.6 billion in
revenue being acquired by industry consolidators according to the 1999
Consolidation Report by Rental Equipment Register ("RER"). Approximately 25% of
those locations acquired were in California (117) and Texas (91). Fourteen of
the top 50 rental companies were acquired in 1998 which only represented
approximately 8% of the total rental industry. It is estimated that the rental
industry produces $20 billion of revenues each year.
Management believes this consolidation of rental locations will continue due to
the anticipated growth of the rental business and to the large pool of companies
available for consolidation. According to Manfredi & Associates, an Illinois
based construction industry analyst, the rental industry grew from $614 million
in rental income to $15 billion in rental income from 1982 to 1996. Manfredi &
Associates predicts that by the year 2000, 50% of all new construction equipment
will be sold to rental centers.
Additionally, the Transportation Equity Act for the 21st Century ("TEA-21")
provides for record federal highway program funding of $173 billion over the
next six years. This represents a 40% increase over previous funding levels. In
Texas and California, the states in which Crescent Machinery is most active,
percentage increase in federal funding for highway programs over previous levels
is 60% and 45%, respectively. As a large percentage of equipment sold and rented
by Crescent Machinery is used in highway construction, management anticipates
that this increase in federal highway infrastructure spending could have a
favorable impact on Crescent Machinery.
HOSPITALITY
OVERVIEW
The Hospitality segment generally consists of the operations of seven hotels,
two destination health and fitness resorts and a golf course (the "Hospitality
Properties"). Each of such properties is owned by Crescent Partnership or its
affiliates and all except for the Austin Omni are leased to subsidiaries of the
Company under long term leases. In addition to these properties, the Company
also has other investments in the Houston Center Athletic Club Venture ("HCAC")
and in CRL.
The Hospitality Properties make up a small portion of the hospitality industry,
because the Company is focused on the irreplaceable luxury resorts and luxury
business and convention hotels. As Crescent Operating, for the most part, relies
on third-party operators such as Marriott, Hyatt and Four Seasons, the Company
enjoys the advantage of the third-party operators' nationwide advertising,
reservation services and strong management.
The Company has limited the potential impact of downturns in the hospitality
industry on the Company by limiting Crescent Operating's guarantee of base rent
payments. The Company's guarantee related to base rent payments is now limited
to the Hospitality segment, i.e. cash flows from segments other than Hospitality
would not be used to fund rent payments in the event of a downturn in the
economy.
The individual Hospitality Properties are affected by seasonality; however, the
seasonal fluctuations are varied and are determined by both location and the
nature of the business conducted on
11
<PAGE> 12
the property. The effects of seasonality of the Hospitality Properties are
generally offset by each other; however March and October have the greatest
positive impact and November through January have the greatest negative impact
on the Company's consolidated results.
The Company's Hospitality Properties in Denver, Albuquerque, Houston and Austin
are business and convention center hotels that compete against other similar
hotels in their market. The Company believes, however, that its destination
health and fitness resorts are unique properties that have very limited
competition. In addition, the Company believes that each of the remaining
Hospitality Properties experiences limited to no direct competition due to their
high replacement cost and unique concept or location. The Hospitality Properties
do compete, to a limited extent, against business class hotels or middle-market
resorts in their geographic areas, as well as against luxury resorts nationwide
and around the world.
HOTELS AND DESTINATION HEALTH AND FITNESS RESORTS
The hotels and destination health and fitness resorts operated by the Company
are as follows: Hyatt Regency Beaver Creek, Denver Marriott City Center, Hyatt
Regency Albuquerque, Sonoma Mission Inn and Spa, Four Seasons Hotel Houston,
Ventana Country Inn, Canyon Ranch-Tucson and Canyon Ranch-Lenox.
Each of the properties is under lease with Crescent Equities which expire from
December 2004 to December 2007 and generally provide for (i) base rent, with
periodic rent increases, (ii) percentage rent based on a percentage of gross
hotel revenues less food and beverage revenues above a specified amount and
(iii) a percentage of gross food and beverage revenues above a specified amount.
Under the leases, the Company's subsidiaries have assumed the rights and
obligations of the property owner under the respective management agreement with
the hotel operators, as well as the obligation to pay all property taxes and
other charges against the property. As part of each of the lease agreements for
nine of the Hospitality Properties, Crescent Equities has agreed to fund all
capital expenditures relating to furniture, fixtures and equipment reserves
required under the applicable management agreements. The only exception is
Canyon Ranch-Tucson, in which the Company owns all furniture, fixtures and
equipment associated with the property and will fund all related capital
expenditures.
All of the Company's properties, except for the Sonoma Mission Inn and Spa and
the Ventana Country Inn, are managed by third party operators. Sonoma Mission
Inn and Spa and the Ventana Country Inn are managed by the Company with asset
management oversight provided by The Varma Group. Crescent Operating, through
its subsidiaries, has asset management agreements (the "Asset Management
Agreements") with The Varma Group, such that The Varma Group is the exclusive
asset manager of the Company's Hospitality Properties. Johanna Varma is a
principal of The Varma Group and is President of the Hospitality division of the
Company. Under the Asset Management Agreements, the Varma Group's duties
include, among others: (i) preparing operating and capital budgets for the
leased properties; (ii) assembling, organizing and maintaining records of the
properties' operations and activities; (iii) preparing written progress reports
reflecting significant developments affecting the properties; (iv) formulating
policies, strategies and tactics for carrying out the Company's duties under the
leases; (v) obtaining required consents and approvals of associations or other
private entities or persons necessary for the operation of the hotel properties
and related assets and (vi) obtaining required government licenses, permits,
consents and approvals.
As consideration for its services under the Asset Management Agreements which is
cancelable by the Company on January 30, 2000. The Varma Group receives an
annual base fee of approximately $0.7 million, plus annual cost of living
adjustments for its asset management services related to the Hyatt Albuquerque,
the Hyatt Beaver Creek, Sonoma Mission Inn and the Denver City Center Marriott
(the "Covered Properties"). In addition, The Varma Group will be reimbursed for
its costs incurred in providing asset management to the other Hospitality
Properties.
On January 23, 1998, a subsidiary of the Company signed a 10-year lease
agreement with Crescent Partnership for the Austin Omni Hotel. The Austin Omni
Hotel is a 314-room full-service hotel located approximately four blocks from
the state capitol building in Austin, Texas. A subsidiary of the Company and
Crescent Partnership mutually agreed to terminate the Austin Omni Hotel lease
effective December 31, 1998, and the Company received a $75,000 break-up fee in
accordance with the
12
<PAGE> 13
terms of the lease. Effective January 1, 1999, the Company began providing
limited asset management services related to the Austin Omni Hotel for $50,000
per year.
SONOMA GOLF COURSE
Effective October 13, 1998, the Company became the lessee of the Sonoma Golf
Course in California, which is owned by Crescent Equities. This 18-hole
championship golf course is a strategic amenity to the Sonoma Mission Inn and
Spa, which allows the Company to expand its marketing focus to the golf-oriented
guest. The lease is for a 10-year period and provides for the payment to
Crescent Equities of (i) base rent, with periodic rent increases, and (ii)
percentage rent based on annual gross receipts above a specified amount with
periodic increases of such specified amount.
OTHER HOSPITALITY INVESTMENTS
The Company has a two-thirds interest in HCAC, a joint venture that owns the
Houston Center Athletic Club. The athletic club is located on top of the parking
garage next to the Four Seasons Hotel in Houston, Texas and is managed by Club
Corp. of America which pays rent to HCAC.
The Company also has a 5% interest in CRL. CRL has interests in entities which
(i) control the future use of the "Canyon Ranch" name and (ii) are constructing
the Canyon Ranch Day Spa in the Venetian Hotel in Las Vegas, Nevada.
OPERATIONAL STATISTICS
The following table sets forth certain information about the properties in the
Hospitality segment, excluding the Sonoma Golf Course, HCAC and CRL, for the
years ended December 31, 1998 and 1997. The information for the Hospitality
Properties is based on available rooms, except for Canyon Ranch-Tucson and
Canyon Ranch-Lenox, which are destination health and fitness resorts that
measure performance based on available guest nights.
<TABLE>
<CAPTION>
For the year ended December 31,
---------------------------------------------------
Revenue Per
Average Average Daily Available Room
Year Occupancy Rate Rate ("ADR") ("REVPAR")
Completed/ ------------------- --------------------- ---------------------
Renovated Rooms 1998 1998 1998 1997 1997 1997
--------------- ------- -------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Full-Service/Luxury Hotels
Hyatt Regency Beaver Creek.... 1989 276(1) 69% 66% $ 233 $ 229 $ 162 $ 151
Denver Marriott City Center... 1982/1994 613 80 80 124 117 100 94
Hyatt Regency Albuquerque..... 1990 395 69 74 103 98 71 73
Austin Omni Hotel............. 1986 314 77 78 114 103 88 81
Sonoma Mission Inn & Spa...... 1927/1987/1997 198(2) 82 87 235 210 194 183
Four Seasons Hotel Houston.... 1982 399 65 67 181 161 118 108
Ventana Country Inn........... 1975/1982/1988 62 63(3) 84 387 337 245(3) 282
------- -------- ------- -------- --------- -------- ---------
Total/Weighted Average 2,257 74% 75% $ 158 $ 149 $ 116 $ 112
======= ======== ======= ======== ========= ======== =========
Destination Health & Fitness
Resorts
Canyon Ranch-Tucson........... 1980 250(4)
Canyon Ranch-Lenox............ 1989 212(4)
------- -------- ------- -------- --------- -------- ---------
Total/Weighted Average 462 86%(5) 81%(5) $ 508(6) $ 477(6) $ 422(7) $ 370(7)
======= ======== ======= ======== ========= ======== =========
</TABLE>
(1) In 1998, the number of rooms at Hyatt Beaver Creek was reduced to 276 due
to 19 rooms being converted into a 20,000 square foot spa.
(2) Includes, for the period from July 1, 1997 through December 31, 1997, 30
additional rooms completed in July 1997.
(3) Average occupancy and REVPAR decreased from the prior period due to the
closing of the Ventana Country Inn for approximately three months as a
result of the major access road leading to the property being washed out.
(4) Represents available guest nights, which is the maximum number of guests
that the resort can accommodate per night.
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<PAGE> 14
(5) Represents the number of paying and complimentary guests for the period,
divided by the maximum number of available guest nights for the period.
(6) Represents the average daily "all-inclusive" guest package charges for the
period, divided by the average daily number of paying guests for the
period.
(7) Represents the total "all-inclusive" guest package charges for the period,
divided by the maximum number of available guest nights for the period.
The following table sets forth average occupancy rate, average daily rate and
revenue per available room for the Hospitality Properties, excluding the Sonoma
Golf Course, by full-service hotels and destination health and fitness resorts
for each of the years ended December 31, 1994 through 1998. The information for
the Hospitality Properties is based on available rooms, except for Canyon
Ranch-Tucson and Canyon Ranch-Lenox, which are destination health and fitness
resorts that measure performance based on available guest nights and calculate
occupancy, average daily rate and revenue per available room as described in the
notes of the preceding table.
<TABLE>
<CAPTION>
For The Year Ended December 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
FULL-SERVICE/LUXURY HOTELS
Average Occupancy.................... 74% 75% 75% 77% 73%
Average Daily Rate................... $158 $149 $141 $ 122 $ 117
Revenue Per Available Room........... $116 $112 $106 $ 93 $ 85
DESTINATION HEALTH AND FITNESS RESORTS
Average Occupancy.................... 86% 81% 81% 77% 78%
Average Daily Rate................... $508 $477 $446 $437 $418
Revenue Per Available Room........... $422 $370 $345 $321 $312
</TABLE>
MARKET INFORMATION
The following is derived from various industry sources. Average hotel room
rental rates grew 4.4%, 6.2% and 6.3%, in 1998, 1997, and 1996, respectively.
Within the luxury and upscale segments of the industry, average room rental
rates increased approximately 4.0% from 1997 to 1998.
Business and convention travel accounts for about two-thirds of room demand and
has risen along with the improving economy and increased corporate profits.
Domestic leisure travel has also increased, especially among the "baby boomers"
who are not only at the prime age for leisure travel but also have a greater
tendency to travel than previous generations. A healthier, more active senior
population is also contributing to the increased travel. With the aging of the
"baby boomer" generation and the growing interest in quality of life activities,
the resort/spa industry also is experiencing significant growth in the United
States.
The national average annual growth rates in REVPAR, from 1994 through 1998, for
the upscale and luxury hotel segments were 4.6% and 6.7%, respectively,
according to industry sources. This demand comes not only from the business and
convention sector, but also from the leisure traveler who vacations increasingly
at higher-end hotels.
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<PAGE> 15
The following table sets forth hotel REVPAR by price segment for the years 1994
through 1998.
<TABLE>
<CAPTION>
National
Annual
Average
1994 1995 1996 1997 1998 Growth Rate
---- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Luxury(1).................... $79.15 $83.93 $92.31 $98.33 $101.33
% Change.................. 7.8% 6.0% 10.0% 6.5% 3.1% 6.7%
Upscale(2)................... $51.76 $54.28 $57.42 $60.05 $61.65
% Change.................. 5.2% 4.9% 5.8% 4.6% 2.7% 4.6%
Mid-Priced................... $37.57 $39.70 $41.84 $44.20 $45.45
% Change.................. 5.2% 5.7% 5.4% 5.6% 2.8% 4.9%
Economy...................... $27.27 $28.64 $29.63 $30.45 $31.37
% Change.................. 4.2% 5.0% 3.5% 2.8% 3.0% 3.7%
Budget....................... $22.75 $23.77 $24.40 $25.07 $26.70
% Change.................. 4.4% 4.5% 2.7% 2.7% 6.5% 4.2%
</TABLE>
(1) Includes destination health and fitness resorts such as the Canyon Ranch
resorts.
(2) Includes full-service and limited-service hotels.
Source: Compiled from information published by Smith Travel Research
REFRIGERATED WAREHOUSING
OVERVIEW
Effective October 31, 1997, Crescent Operating purchased a 2% indirect interest
in AmeriCold Logistics from Crescent Partnership for approximately $8.0 million.
AmeriCold Logistics was initially comprised of URS Logistics and AmeriCold
Corporation. These companies provide frozen food manufacturers with refrigerated
warehousing and transportation management services and operate public
refrigerated warehouses representing over 394 million cubic feet of cold storage
capacity. The investment was structured such that Vornado Realty Trust
("Vornado") owned 60% of AmeriCold Logistics and Crescent Equities and Crescent
Operating owned the remaining 40% interest, until the March 1999 reorganization
as described below. The 40% interest owned by Crescent Equities and Crescent
Operating was held through corporations in which Crescent Operating owned a 5%
economic interest representing 100% of the voting stock. Based on the voting
control of the entities, Crescent Operating consolidates the 40% equity
investment in AmeriCold Logistics for accounting purposes.
On June 1, 1998, AmeriCold Logistics acquired nine additional refrigerated
warehouse properties from Freezer Services, Inc. which required a capital
contribution from Crescent Operating of approximately $2.3 million. On July 1,
1998, AmeriCold Logistics acquired five additional refrigerated warehouse
properties from Carmar Group, Inc. ("Carmar Group") which required a capital
contribution from Crescent Operating of approximately $2.7 million.
Additionally, during 1998, AmeriCold Logistics refinanced its $607 million of
secured and unsecured debt with a weighted average rate of approximately 12%
with a $550 million non-recourse, ten year loan secured by 58 refrigerated
warehouse properties with an interest rate of 6.89%, which required a capital
contribution from Crescent Operating of approximately $1.5 million. As of
December 31, 1998, AmeriCold Logistics owned and operated approximately 30% of
the total public refrigerated storage space nationwide.
Effective March 12, 1999, Crescent Operating sold 80% of its 2% interest in
AmeriCold Logistics to Crescent Partnership for $13.2 million and received the
right to require Crescent Partnership to purchase the remaining 20% for $3.4
million at any time during the next two years, subject to compliance with
certain regulatory matters. This transaction results in approximately a $2.0
million gain to be recognized by Crescent Operating in 1999. Crescent Operating,
through a wholly-owned limited liability company, then entered into a new
partnership ("AmeriCold Operations") owned 60% by Vornado Operating, Inc.
("Vornado Operating") and 40% by Crescent Operating. AmeriCold Operations
purchased all of the non-real estate related assets of AmeriCold REIT (formerly
AmeriCold Logistics) encompassing the operations of the refrigerated warehouse
properties for $48.7 million. As a result of this transaction, Americold REIT no
longer has an interest in the operations of the refrigerated warehousing
operations. This transaction required an initial capital contribution of
approximately $15.5 million from Crescent Operating and a commitment to fund an
additional $4.0 million in the future, all of which has or will be funded from a
new $19.5 million 9% loan from Crescent Partnership. AmeriCold
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<PAGE> 16
Operations has leased the refrigerated warehouse properties ("Refrigerated
Warehouses") from AmeriCold REIT under 15 year leases which call for base and
percentage rent. As the operations of AmeriCold Logistics have been assumed by
AmeriCold Operations, the Company will hereafter refer to the operations of
AmeriCold Logistics as AmeriCold Operations.
Under the terms of the partnership agreement for AmeriCold Operations, Vornado
Operating has the right to make all decisions relating to the management and
operations of AmeriCold Operations other that certain major decisions that
require the approval of both the Company and Vornado Operating. The partnership
agreement provides for a buy-sell arrangement upon a failure of the Company and
Vornado Operating to agree on any of the specified major decisions which, until
October 30, 2000, can be exercised only by Vornado Operating. During that time,
Vornado Operating shall be entitled to buy the Company's interest at cost plus a
10% per annum return. Major decisions include approval of the annual capital
and operating budgets for AmeriCold Operations, decisions to deviate from the
budget by 10% or more and additional capital contributions.
MARKET INFORMATION
Refrigerated warehouses are comprised of production and distribution facilities.
Production facilities differ from distribution facilities in that they typically
serve one or a small number of customers located nearby. These customers store
large quantities of processed or partially processed products in the facility
until they are further processed or shipped to the next stage of production or
distribution. Distribution facilities primarily serve customers who store a wide
variety of finished products to support shipment to end-users, such as food
retailers and food service companies, in a specific geographic market.
Transportation management services offered by AmeriCold Operations include
freight routing, dispatching, freight rate negotiation, backhaul coordination,
freight bill auditing, network flow management, order consolidation and
distribution channel assessment. AmeriCold Operations' temperature-controlled
logistics expertise and access to both frozen food warehouses and distribution
channels enable its customers to respond quickly and efficiently to
time-sensitive orders from distributors and retailers.
Customers of AmeriCold Operations consist primarily of national, regional and
local frozen food manufacturers, distributors, retailers and food service
organizations including Con-Agra, Inc., H.J. Heinz Company, Kraft Foods, Inc.
and Tyson Foods, Inc. AmeriCold Operations is the largest operator of public
refrigerated storage space in the country in terms of public storage space
operated. The Company believes that AmeriCold Operations does not have any
competitors of comparable size, however, there is competition that is national,
regional and local in nature. AmeriCold Operations operates in an environment in
which breadth of service, warehouse locations, customer mix, warehouse size,
service performance and price are the principal competitive factors. Since
frozen food manufacturers and distributors incur transportation costs which
typically are significantly greater than warehousing costs, breadth of total
logistics services and warehouse location are major competitive factors. In
addition, in certain locations, customers depend upon pooling shipments, which
involves combining their products with the products of others destined for the
same markets. In these cases, the mix of customers in a warehouse can
significantly influence the cost of delivering products to markets. The size of
a warehouse is important because large customers prefer to have all of the
products needed to serve a given market in a single location and to have the
flexibility to increase storage in that single location during seasonal peaks.
If there are several warehouse locations which satisfy a customer mix and size
requirements, AmeriCold Operations believes that customers generally will select
a warehouse facility based upon the types of services available, service
performance and price.
16
<PAGE> 17
OPERATIONAL INFORMATION
The following table shows the location and size of facility for each of the
properties operated by AmeriCold Operations as of December 31, 1998:
<TABLE>
<CAPTION>
Total Cubic Total Cubic
Number of Footage Number of Footage
State Properties (in millions) State Properties (in millions)
- ------------------- ------------- -------------- ------------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Alabama 5 9.5 Mississippi 1 4.7
Arizona 1 2.9 Missouri(1) 2 37.9
Arkansas 6 33.1 Nebraska 2 4.4
California 13 50.3 New Jersey 1 2.7
Colorado 2 3.4 New York 1 11.8
Florida 5 7.5 North Carolina 3 8.5
Georgia 7 41.1 Oklahoma 2 2.1
Idaho 2 18.7 Oregon 6 40.4
Illinois 2 11.6 Pennsylvania 4 50.8
Indiana 1 9.1 South Carolina 1 1.6
Iowa 2 12.5 South Dakota 2 6.3
Kansas(1) 3 40.2 Tennessee 4 13.0
Kentucky 1 2.7 Texas 4 27.2
Maine 1 1.8 Utah 1 8.6
Massachusetts 6 15.2 Virginia 1 1.9
Minnesota 1 5.9 Washington 6 28.7
Wisconsin 2 14.0
--------------
Total 101 530.1
==============
</TABLE>
(1) Both Kansas and Missouri have one underground facility. These underground
facilities approximate 35.2 million and 33.1 million cubic feet,
respectively. It is anticipated that the underground facility in Kansas
will be closed in 1999.
LAND DEVELOPMENT
OVERVIEW
The Land Development segment consists of (i) a 4.65% interest in Desert
Mountain, a master planned, luxury residential and recreational community in
northern Scottsdale, Arizona, (ii) a 42.5% general partner interest in The
Woodlands Operating Company, L.P. ("Woodlands Operating"), which provides
management, advisory, landscaping and maintenance services to entities
affiliated with Crescent Operating and Crescent Equities, (iii) a 2.125%
interest in The Woodlands Land Development Company L.P. ("Landevco"), which owns
approximately 9,000 acres for commercial and residential development as well as
a realty office, an athletic center, and interests in both a title company and a
mortgage company, (iv) a 5% interest in Crescent Development Management Corp.
("CDMC"), whose operations consist principally of investing in partnerships and
other entities that directly or indirectly own, develop or manage residential
and resort properties (primarily in Colorado) or provide services to such
properties and (v) a 5% economic interest in an entity which owns a 6.19%
interest in the construction and operation of a new multipurpose entertainment
and sports center (the "Arena Project") in downtown Dallas, Texas and manages
the operations of the existing arena as well as a 2.6% economic interest in
Hillwood/1642, Ltd., an entity participating in the development of the land
surrounding the Arena Project.
The Land Development segment faces competition from other local developments.
Both Desert Mountain and The Woodlands have golf courses where major tournaments
are played, The Tradition and The Shell Houston Open, respectively, as well as
clubhouses, multiple golf courses and other amenities. The Woodlands is unique
among developments in the Houston area because it functions as a self-contained
community. Management believes that these attributes help to distinguish Desert
Mountain and The Woodlands from their competition. The Woodlands could be
adversely affected by downturns in the Houston economy. Management believes that
Desert Mountain is not directly affected by its local economy, as it is a luxury
development and most of the purchases are not made by local residents.
17
<PAGE> 18
DESERT MOUNTAIN
Pursuant to a purchase agreement dated as of September 29, 1997, the Company
acquired 100% of the voting common stock (the "Voting Stock") of Desert
Mountain Development Corporation ("Desert Mountain Development"). The Voting
Stock was purchased from Crescent Partnership for a cash purchase price of
approximately $2.2 million. The purchase price for the Company's interest in
Desert Mountain Development represents 5% of the total amount invested in
Desert Mountain Development by Crescent Partnership. Crescent Partnership
currently owns 100% of the non-voting common stock of Desert Mountain
Development. Together, the Company and Crescent Partnership own 100% of the
equity in Desert Mountain Development.
Pursuant to the terms of a limited partnership agreement, Desert Mountain
Development is entitled to receive 93% of the net cash flow of Desert Mountain
Properties after certain payments to the sole limited partner, Sonora Partners
Mountain Partnership. The principal owner of Sonora Partners Mountain
Partnership is Lyle Anderson, the original developer of Desert Mountain. Desert
Mountain Partnership has an advisory agreement with the Lyle Anderson Company
pursuant to which Mr. Anderson provides advisory services in connection with
the operation and development of Desert Mountain. At the completion of the
development project, the equity members of the Desert Mountain club will
purchase the club operations from the partners.
Desert Mountain includes The Desert Mountain Club, a private golf, tennis and
fitness club which serves over 1,600 members and offers five Jack Nicklaus
signature 18-hole golf courses. One of these courses is Cochise, the site of
the Senior PGA Tour's The Tradition golf tournament.
THE WOODLANDS OPERATING COMPANY
On July 31, 1997, Crescent Operating, acquired for approximately $0.4 million,
a 42.5% general partner interest in Woodlands Operating. The acquisition was
part of a larger transaction (the "Woodlands Transaction"), pursuant to which
Crescent Equities 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 Woodlands Transaction. WOCOI Investment Company, a wholly-owned
subsidiary of the Company, serves as the managing general partner of Woodlands
Operating.
The Woodlands Corporation was 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 Greater Houston
Builders Association chose The Woodlands as its 1999 Developer of the Year.
Woodlands Operating was formed to provide management, advisory, landscaping and
maintenance services to entities affiliated with Crescent Operating and
Crescent Equities as well as to third parties. Pursuant to the terms of five
written service agreements, Woodlands Operating performs general management,
landscaping and maintenance, construction, design, sales, promotional and other
marketing services for the properties in which Crescent Equities acquired a
direct or indirect interest as a result of the Woodlands Transaction. In
addition, Woodlands Operating monitors certain of the real estate investments
of, and provides 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.
Woodlands Operating also 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 "Conference Center") from The Woodlands Commercial
Properties Company,
18
<PAGE> 19
L.P. ("Woodlands Commercial"), a partnership, the interests of which are owned
by Crescent Equities and the Morgan Stanley Group. Woodlands Operating leases
the Conference Center on a triple net basis and will pay base rent in the
amount of $0.75 million per month during the eight-year term of the lease. The
lease also provides for the payment of percentage rent for each calendar year
in which gross receipts from the operation of the Conference Center exceed
certain amounts.
THE WOODLANDS LAND COMPANY, INC.
On September 29, 1997, the Company acquired from Crescent Partnership, for
approximately $2.2 million, all of the voting stock, representing a 5% economic
interest, in The Woodlands Land Company, Inc. ("LandCo"). Crescent Partnership
currently owns 100% of the non-voting common stock, representing a 95% economic
interest of, LandCo. Together, the Company and Crescent Partnership own 100% of
the equity in LandCo.
LandCo is a residential and commercial development corporation which was
formerly wholly owned by Crescent Partnership. LandCo holds a 42.5% general
partner interest in, and is the managing general partner of, Landevco, a Texas
limited partnership in which certain Morgan Stanley funds hold a 57.5% partner
interest. LandCo's general partner interest in Landevco is subject to
adjustment to up to 52.5%, in the event LandCo achieves certain levels of
profitability and the Morgan Stanley funds receive certain rates of return on
their investment in Landevco. Landevco primarily owns (i) approximately 6,400
acres of land capable of supporting the development of more than 20,000 lots
for single-family homes, (ii) approximately 2,500 acres capable of supporting
more than 21.5 million net rentable square feet of commercial development,
(iii) a realty office, (iv) contract rights relating to the operation of its
property, (v) an athletic center, (vi) a 49% interest in a mortgage company and
(vii) a 50% interest in a title company.
CRESCENT DEVELOPMENT MANAGEMENT CORP.
Effective September 11, 1998, the Company and Gerald W. Haddock, John C. Goff
and Harry H. Frampton, III (collectively, the "CDMC Sellers") entered into a
partnership agreement (the "Partnership Agreement") with the CDMC Sellers to
form COPI Colorado, L.P., a Delaware limited partnership ("COPI Colorado").
COPI Colorado's purpose is to hold and manage the voting stock of CDMC (and,
consequently, to manage CDMC) and to invest in shares of Crescent Operating
common stock. As of September 22, 1998, the Company contributed to COPI
Colorado $9.0 million in cash in exchange for a 50% general partner interest in
COPI Colorado, and each CDMC Seller contributed to COPI Colorado approximately
667 shares of CDMC voting stock in exchange for an approximately 16.67% limited
partner interest in COPI Colorado; as a result, the Company owns a 50% managing
interest in COPI Colorado and the CDMC Sellers collectively own a 50%
investment interest in COPI Colorado. The operating results of CDMC from
September 30, 1998 to December 31, 1998 have been included in the consolidated
results of the Company. Since the acquisition of CDMC by COPI Colorado,
Crescent Equities has committed an additional $48 million toward new projects
at CDMC.
As of March 23, 1999, COPI Colorado had purchased approximately 1.1 million
shares of Crescent Operating common stock at a total purchase price of $4.2
million. The average price paid for such shares, excluding brokers'
commissions, was $3.88 per share.
CDMC's investments include indirect economic interests that vary from 18% to
70% in the following: (i) five residential and commercial developments and
seven residential developments in Colorado; (ii) a Texaco gasoline station and
ancillary auto repair facility, car wash and convenience store in Colorado;
(iii) a timeshare development in Colorado; (iv) a real estate company that
markets and sells timeshare interests; (v) a real estate company that
specializes in the management of resort properties in Colorado, Utah and South
Carolina; (vi) two transportation companies that provide approximately 80% of
the airport shuttle service to Colorado resort areas; and (vii) an interest in
a partnership that owns and manages the Ritz Carlton Hotel in Palm Beach,
Florida.
19
<PAGE> 20
OPERATIONAL STATISTICS
The following table sets forth certain information as of December 31, 1998
relating to the residential development properties.
<TABLE>
<CAPTION>
Total Total Average
Total Lots/Units Lots/Units Closed
Lots/ Developed Closed Sale Price
Units Since Since Per Lot/ Range of Proposed
Land Development Planned Inception Inception Unit Sale Prices Per Lot(1)
---------------- --------- ----------- ----------- ------------ ---------------------
<S> <C> <C> <C> <C> <C>
Desert Mountain............ 2,486 2,050 1,777 $ 430,000(2) $150,000 - $2,500,000
The Woodlands.............. 38,313 20,063 18,730 $ 50,371 $ 14,700 - $ 500,000
CDMC....................... 302 213 185 N/A $ 18,000 - $3,325,000
--------- ----------- -----------
Total Land Development..... 41,101 22,326 20,692
========= =========== ===========
</TABLE>
(1) Based on existing inventory of developed lots and lots to be developed.
(2) Includes golf memberships which are approximately $125,000.
HEALTHCARE
OVERVIEW
As of December 31, 1998, Crescent Operating had completely written off its
investment in CBHS and does not expect to recognize any additional gain or loss
during 1999.
CBHS is the nation's largest operator of acute-care psychiatric hospitals and
other behavioral care treatment facilities. CBHS' psychiatric hospitals are
located in well-populated urban and suburban locations in 32 states. Most of
CBHS' hospitals offer a full continuum of behavioral care in their service
area. The continuum includes inpatient hospitalization, partial
hospitalization, intensive outpatient services and, in some markets,
residential treatment services.
CBHS' hospitals provide structured and intensive treatment programs for mental
health and alcohol and drug dependency disorders in children, adolescents and
adults. The specialization of programs enables the clinical staff to provide
care that is specific to the patient's needs and facilitates monitoring of the
patient's progress. A typical treatment program at a CBHS facility integrates
physicians and other patient-care professionals with structured activities,
providing patients with testing, adjunctive therapies (occupational,
recreational and other), group therapy, individual therapy and educational
programs. A treatment program includes one or more of the types of treatment
settings provided by CBHS' continuum of care. For those patients who do not
have a personal psychiatrist or other specialist, the hospital refers the
patient to a member of its medical staff.
A significant portion of hospital admissions are provided by referrals from
former patients, local marketplace advertising, managed care organizations and
physicians. Professional relationships are an important aspect of the ongoing
business of a behavioral care facility. Management believes the quality of
CBHS' treatment programs, staff employees and physical facilities are important
factors in maintaining good professional relationships.
CBHS was created on June 17, 1997 when Crescent Operating acquired, for $5.0
million, a 50% membership interest in CBHS. CBHS is a limited liability company
which operates approximately 90 behavioral healthcare facilities (the
"Facilities") and is the nation's largest operator of acute-care psychiatric
hospitals and other behavioral health care facilities.
Under CBHS' operating agreement, Crescent Operating and Magellan's wholly owned
subsidiary, Charter, Inc. (collectively, the "Members") each was required to
contribute an additional $2.5 million and to loan $17.5 million to CBHS, in
addition to each member's original investment. During 1997, each of the Members
contributed the additional $2.5 million and made loans (evidenced by promissory
notes) to CBHS in the aggregate principal amount
20
<PAGE> 21
of $17.5 million (the "Initial Amount"). On November 16, 1997, effective
September 30, 1997, each of the promissory notes was exchanged for cumulative
redeemable preferred interests (the "Redeemable Preferred Interests") in CBHS.
Each Redeemable Preferred Interest entitles its holder to a preferred return on
the profits of CBHS, which is to be calculated at the rate of 10% per annum of
the Initial Amount, compounded monthly. CBHS upon approval of at least 80% of
the members of its Governing Board, may redeem all but not less than all of the
Redeemable Preferred Interests, at its option, on or after April 1, 1998, for
cash or promissory notes, or a combination thereof, provided that the holders
of the Redeemable Preferred Interests are treated identically.
On June 17, 1997 CBHS and certain of its subsidiaries entered into a triple-net
operating lease agreement (the "Facilities Lease") with Crescent Real Estate
Funding VII, L.P. ("Crescent Funding"), a subsidiary of Crescent Equities,
under which most of the Facilities are leased from Crescent Funding. The
initial term of the Facilities Lease is 12 years, with four renewal terms of
five years each. CBHS may renew the Facilities Lease at its option upon notice
at least one year prior to the end of the initial term or any renewal term. The
base rent for the first year of the initial term of the Facilities Lease is
$41.7 million. The base rent increases by 5% compounded annually.
Magellan (through a wholly owned subsidiary) has granted a franchise for each
Facility (the "Master Franchise Agreement"), and CBHS has entered into and
caused each subsidiary/lessee of a Facility to enter into a franchise agreement
(the "Subsidiary Franchise Agreements" and, together with the Master Franchise
Agreement, the "Franchise Agreements") for such Facility. Under the Franchise
Agreements, CBHS and its subsidiaries have the right to use the "CHARTER"
System in connection with the management and administration of behavioral
healthcare facilities. Magellan will continue to operate and provide the toll
free 1-800-CHARTER telephone number and call center to provide substantially
the same service to the CBHS franchisees as provided by the call center to the
Facilities when operated by Magellan. The CBHS franchisees will advertise the
1-800-CHARTER telephone number and otherwise use the call center as a means of
assisting customers to locate the places of business of franchisees of
Magellan.
The initial term of the Master Franchise Agreement is 12 years. CBHS has the
right to renew the Master Franchise Agreement for four additional five-year
renewal terms, provided that at the end of the initial term and each renewal
term, the fees will be adjusted to reflect the fair market value of the
franchise utilized by the Facilities as of the renewal date for the
then-applicable renewal term. The Master Franchise Agreement includes an
appraisal mechanism for determining fair market value franchise fees.
Notwithstanding the foregoing, if the fair market value franchise fee as so
determined is not acceptable to Magellan, then Magellan will have the option to
terminate the Master Franchise Agreement at the end of the then-current term
and the Master Franchise Agreement will not be further extended. In all other
events, neither Magellan nor CBHS, has the right to terminate the Master
Franchise Agreement (whether for breach or otherwise) without the consent of
the other and Crescent Funding.
Franchise fees are payable monthly by CBHS under the Master Franchise Agreement
and equal the greater of (i) $78.2 million, subject to increases for inflation;
or (ii) $78.2 million, plus 3% of CBHS Gross Revenues (as defined in the
agreement) over $1 billion and not exceeding $1.2 billion, and 5% of CBHS Gross
Revenues over $1.2 billion. Pursuant to a subordination agreement entered into
by CBHS, Crescent Funding and Magellan, franchise fees, generally, are
subordinated to base rent. CBHS has not made any franchise fee payments to
Magellan since August 1998 and, as a result, is in default under the Master
Franchise Agreement. For the year ended December 31, 1998 and 1997, CBHS paid
franchise fees to Magellan in the amounts of $21.0 million and $42.3 million,
respectively.
In addition to other remedies, whenever franchise fees are past due for any
reason in the amount of $6 million or more, Magellan will have the right to
prohibit any incentive compensation to CBHS management and prohibit any vesting
of CBHS management equity. Whenever fees are past due in the amount of $18
million or more, Magellan will have the right to prohibit any salary increases
for key personnel of CBHS, prohibit any additional hiring by CBHS and prohibit
any new direct or indirect hospital acquisitions or joint venture participation.
If franchise fees are past due in an amount greater than $24 million, Magellan
will have the right to require a 5% cutback on budgeted expenses under the
then-current approved CBHS annual budget, require monthly approval of
expenditures of CBHS by Magellan, including capital and operating expenditures,
and require transfer of control and management of CBHS and CBHS franchisees to
Magellan. As of December 31, 1998, franchise fee arrearages were approximately
$58.5 million.
21
<PAGE> 22
Effective March 3, 1998, the Company signed a definitive agreement (the "Equity
Purchase Agreement") to acquire the 50% membership interest in CBHS currently
owned by Magellan CBHS Holdings, Inc., formerly Charter Behavioral Health
Systems, Inc. ("CBHS Holdings"). Also effective March 3, 1998, CBHS signed a
definitive agreement (the "Purchase Agreement") to acquire from Magellan Health
Services, Inc. ("Magellan") and certain direct and indirect subsidiaries of
Magellan, equity interests in certain entities, intellectual property rights,
including the "Charter" name and 800-CHARTER telephone number, and the assets
of certain staff model clinics. The Company signed a support agreement (the
"Support Agreement"), dated as of March 3, 1998, pursuant to which the Company
agreed, under certain conditions, to assist CBHS in obtaining the funds
required to consummate the transactions contemplated by the Purchase Agreement
to pay expenses incurred in obtaining such funds and to pay a $5 million
termination fee in the event that such transactions were not consummated or the
Purchase Agreement was terminated as a result of CBHS' failure to obtain the
required funds assuming other conditions to closing had been satisfied. The
closing of the transactions contemplated by the Equity Purchase Agreement and
the Purchase Agreement, which was originally scheduled for July 1998, was
subject to certain conditions which were not satisfied.
On August 14, 1998, Magellan exercised its right under the CBHS Operating
Agreement to take management control of CBHS due to arrearages in franchise fee
payments from CBHS. On August 19, 1998, the Company and Magellan each announced
its termination of negotiations with Magellan regarding the acquisition of the
50% interest in CBHS owned by Magellan.
On November 3, 1998, John C. Goff, one of the Company's two representatives on
the Governing Board of CBHS, resigned. Richard P. Knight, the Company's Chief
Financial Officer, has been appointed to fill the vacancy and Jeffrey L.
Stevens was appointed as chairman of the Governing Board.
On November 5, 1998, Magellan Health Services, Inc. ("Magellan") sent a letter
to Crescent Operating alleging that Crescent Operating (i) owes $2.3 million for
the reimbursement of expenses incurred in connection with attempts to obtain
financing for CBHS' payment obligations under that certain Purchase Agreement,
dated as of March 3, 1998, among CBHS, Magellan and certain subsidiaries of
Magellan (the "Purchase Agreement"), (ii) owes Magellan a $5 million termination
fee under a related Support Agreement, dated as of March 3, 1998, between the
Company and Magellan (the "Support Agreement"), in connection with the
termination of the Purchase Agreement and an Equity Purchase Agreement, also
dated as of March 3, 1988, among the Company, certain subsidiaries of Magellan
and Magellan (the "Equity Purchase Agreement") and (iii) may have failed to use
"commercially reasonable efforts" to secure financing for the transactions
contemplated by the Purchase Agreement. Because the Company's obligations under
the Support Agreement and the Equity Purchase Agreement were subject to prior
satisfaction of certain conditions that have not been met, the Company believes
that it is under no obligation to reimburse CBHS for expenses incurred in
connection with attempts to obtain financing for CBHS' payment obligations under
the Purchase Agreement or to pay the $5 million termination fee to Magellan. In
December 1998, Crescent Operating placed $2.5 million in escrow pending the
outcome of the arbitration in an effort to demonstrate its interest in resolving
these issues amicably.
On January 11, 1999, Magellan filed a Demand for Arbitration with the American
Arbitration Association, in which Magellan claimed that the Company had breached
the Support Agreement and Equity Purchase Agreement. The Demand for Arbitration
alleges that the Company had unilaterally abandoned both agreements and had
failed to use commercially reasonable best efforts to obtain financing for the
contemplated transactions. Magellan seeks reimbursement from the Company of all
financing costs, payment of the termination fee, and payment of unspecified
damages for the Company's alleged breach of the Support Agreement.
On January 29, 1999, the Company filed an Answer to the Demand, in which the
Company denies any liability to Magellan. The Answer to the Demand alleges,
among other things, that the parties mutually consented to the termination and
abandonment of the Support Agreement and Equity Purchase Agreement and that the
condition precedent to the Company's obligations under both Agreements did not
occur. The parties have agreed upon an arbitrator, but have agreed to stay all
proceedings in the arbitration until April 15, 1999 while they attempt to
resolve the issues in dispute.
MARKET INFORMATION
In general, the operation of behavioral healthcare programs is characterized by
intense competition. The Company anticipates that competition will become more
intense as pressure to contain the rising costs of health care continues to
intensify, particularly as programs such as those operated by CBHS are
perceived to help contain mental health care costs. Each of the Facilities
competes with other hospitals and behavioral healthcare facilities, some of
which are larger and have greater financial resources than the Facilities. Some
competing facilities are owned and operated by governmental agencies, others by
nonprofit organizations supported by endowments and charitable contributions.
Facilities frequently draw patients from areas outside their immediate locale
and, therefore, the Facilities may, in certain markets, compete with both local
and distant hospitals and other facilities. In addition, the Facilities compete
not only with other psychiatric hospitals, but also with psychiatric units in
general hospitals. With respect to outpatient services, CBHS competes with
private practicing mental health professionals, publicly funded mental health
centers, and partial hospitalization and other intensive outpatient services
programs and facilities. The competitive position of a particular facility is,
to a significant degree, dependent upon the number and
22
<PAGE> 23
quality of physicians who practice at the facility and who are members of its
medical staff. There can be no assurance that CBHS will be able to compete
effectively with its present or future competitors, and any such inability could
have a material adverse effect on the CBHS' business, financial condition and
results of operations.
In an era of cost-containment and the reduction of dollars available for care,
behavioral healthcare providers have focused attention on developing treatment
approaches that respond to payors' increasing demands for shorter stays, lower
costs, and expanded access to care. Changes in the mix of services, the prices
of services, and the intensity of service are all part of this response. These
changes have also been bolstered by a rapidly expanding science base, improved
medications management, and the growing availability of non-hospital treatment
settings in more and more communities that help to make it possible to manage
complex and severe illnesses in less intensive treatment settings. One of the
effects that the behavioral healthcare industry is experiencing is an increasing
percentage of non-inpatient care. According to the National Association of
Psychiatric Health Systems 1997 Annual Survey Report, the most recent available
report, nearly one in four admissions in 1996 was to a service other than
inpatient hospitalization, compared to just one in ten admissions in 1992.
Although non-inpatient services are rapidly growing, total inpatient admissions
also have increased. In general, inpatient and non-inpatient admissions are
increasing, but average length of stay and care costs are decreasing.
Due to these changes in the behavioral healthcare industry, a hospital's
position relative to its competitors may be affected by its ability to obtain
contracts with HMOs, PPOs and other managed care plans for the provision of
health care services. Although such contracts generally provide for discounted
services, pre-admission certification and concurrent length of stay reviews,
they also provide a strong patient referral base. The importance of entering
into contracts with HMOs, PPOs and other managed care companies varies from
market to market and depends upon the market strength of the particular managed
care company.
OPERATIONAL STATISTICS
The underlying data used to create the following table was provided by CBHS
Management.
<TABLE>
<CAPTION>
For the For the
Quarter Ended December 31, Year Ended For the
----------------------------- September 30, 106 Days Ended
1998(4) 1997 1998 September 30, 1997
------------ ------------ ------------ ------------------
<S> <C> <C> <C> <C> <C>
Average Licensed Beds 7,411
Behavioral Healthcare ............ 7,545 7,347 7,206
Long-term Healthcare ............. 70 -- --
Consolidated Net Revenue
(in thousands)(1) ................ $ 182,221 $ 175,228 $ 730,447 $ 213,730
Total Patient Days (2) ................ 345,496 325,147 1,349,165 376,796
Total Equivalent Patient Days(3) ...... 388,797 365,213 1,518,412 424,292
Admissions ............................ 30,148 28,596 122,018 33,912
Average Length of Stay (Days)
Behavioral Healthcare ............ 10.8 10.9 11.1 11.4
Long-term Healthcare ............. 24.8 -- -- --
Consolidated Net Revenue Per Equivalent
Patient Days
Behavioral Healthcare ............ $ 467 $ 480 $ 481 $ 504
Long-term Healthcare ............. $ 601 -- -- --
</TABLE>
- --------------------------------
(1) Includes inpatient and outpatient revenue.
(2) Number of 24-hour periods of inpatient care provided.
(3) Patient days plus outpatient revenue, divided by inpatient average daily
rate.
(4) Amounts include two long-term specialty care operations acquired September
29, 1998.
23
<PAGE> 24
OTHER INVESTMENTS
HICKS MUSE TATE & FURST EQUITY FUND II, LP
As part of the Carter-Crowley transaction, Crescent Operating purchased a
limited partner interest in Hicks-Muse from Crescent Equities for $9.6 million.
As of December 31, 1998, Crescent Operating participated in Hicks-Muse on an
investment-by-investment basis and did not own an interest in all investments
included in the Hicks-Muse portfolio. In connection with the purchase of the
Carter-Crowley Assets, Crescent Operating assumed Carter-Crowley's commitment to
invest $10 million in Hicks-Muse.
On March 26, 1999, the Company signed a definitive agreement to sell its
interest in Hicks-Muse for $8.1 million to an unrelated party. The sale will
result in a $0.3 million gain to be recognized in the first quarter of 1999. The
Company believes that the sale price represented a fair market price for its
interest. All of the sales proceeds will be applied against the Company's
indebtedness to Crescent Partnership, $7.4 million of which was required as a
condition of releasing its security interest in Hicks-Muse.
MAGELLAN WARRANTS
In connection with the transaction in which the Company acquired its 50%
membership interest in CBHS, the Company purchased, for $12.5 million, warrants
to acquire 1,283,311 shares of Magellan common stock for an exercise price of
$30 per share. The Magellan warrants are exercisable in varying increments
beginning on May 31, 1998 and ending on May 31, 2009. Management has written
down its investment in the warrants based on the estimated fair value of the
warrants of $2.7 million at December 31, 1998, using the Black-Scholes pricing
model.
EMPLOYEES
As of December 31, 1998, Crescent Operating and the following consolidated
subsidiaries had the following employees:
<TABLE>
<S> <C>
Crescent Operating-corporate................. 10
Equipment Sales and Leasing segment.......... 297
Hospitality segment.......................... 710
Land Development segment..................... 670
---------
1,687
=========
</TABLE>
The Company has excluded employees of CBHS, Woodlands Operating, Landevco, URS
Logistics and AmeriCold Corporation, as these subsidiaries represent equity
investments for financial reporting purposes.
Prior to December 1, 1998, the Company had no corporate employees but used the
services of Petroleum Financial, Inc. ("PFI") pursuant to a cost plus contract.
That contract was terminated by the Company in December 1998 and the Company
employed persons previously employed by PFI for such services for the Company.
ITEM 2. PROPERTIES
At December 31, 1998, the Company, through its subsidiary, Crescent Machinery,
owned fee simple interests in three properties. The properties are located in
Dallas, Austin and Houston, Texas. The Company, directly or indirectly, also
held leasehold interests in certain facilities, including CBHS' hospital
facilities and the Hospitality Properties (collectively, the "Leased
Properties"). Management believes that each of the owned and the Leased
Properties is adequately maintained and suitable for use in its respective
capacity. The Company or certain of its subsidiaries has entered into lease
agreements in respect of the Leased Properties, pursuant to which each
respective lessee is responsible for routine maintenance of the subject
property.
24
<PAGE> 25
ITEM 3. LEGAL PROCEEDINGS
On November 5, 1998, Magellan sent a letter to Crescent Operating alleging that
Crescent Operating (i) owes $2.3 million for the reimbursement of expenses
incurred in connection with attempts to obtain financing for CBHS' payment
obligations under the Purchase Agreement, (ii) owes Magellan a $5 million
termination fee under the related Support Agreement, in connection with the
termination of the Purchase Agreement and the Equity Purchase Agreement, and
(iii) may have failed to use "commercially reasonable efforts" to secure
financing for the transactions contemplated by the Purchase Agreement. Because
the Company's obligations under the Support Agreement and the Equity Purchase
Agreement were subject to prior satisfaction of certain conditions that have not
been met, the Company believes that it is under no obligation to reimburse CBHS
for expenses incurred in connection with attempts to obtain financing for CBHS'
payment obligations under the Purchase Agreement or to pay the $5 million
termination fee to Magellan. In December 1998, Crescent Operating placed $2.5
million in escrow pending the outcome of the arbitration in an effort to
demonstrate its interest in resolving these issues amicably.
On January 11, 1999, Magellan filed a Demand for Arbitration with the American
Arbitration Association, in which Magellan claimed that the Company had breached
the Support Agreement and Equity Purchase Agreement. The Demand for Arbitration
alleges that the Company had unilaterally abandoned both agreements and had
failed to use commercially reasonable best efforts to obtain financing for the
contemplated transactions. Magellan seeks reimbursement from the Company of all
financing costs, payment of the termination fee, and payment of unspecified
damages for the Company's alleged breach of the Support Agreement.
On January 29, 1999, the Company filed an Answer to the Demand, in which the
Company denies any liability to Magellan. The Answer to the Demand alleges,
among other things, that the parties mutually consented to the termination and
abandonment of the Support Agreement and Equity Purchase Agreement and that the
condition precedent to the Company's obligations under both Agreements did not
occur. The parties have agreed upon an arbitrator, but have agreed to stay all
proceedings in the arbitration until April 15, 1999 while they attempt to
resolve the issues in dispute.
In the ordinary course of business, the Company and its subsidiaries are
subject to claims and litigation, but, except as set forth above, the Company
and its subsidiaries and their respective properties are not subject to any
material pending litigation other than ordinary litigation incidental to their
businesses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of the Registrant's fiscal year ended December 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Effective June 12, 1997, shares of the Company's common stock were distributed
to shareholders of Crescent Equities and unit holders of Crescent Partnership of
record on May 30, 1997. For Crescent Equities shareholders, the distribution was
made on the basis of one share of Crescent Operating common stock for every 10
common shares of beneficial interest of Crescent Equities held on the record
date, and for limited partners of Crescent Partnership, the distribution was
made on the basis of one share of Crescent Operating common stock for every 5
units of limited partnership interest held on the record date. The Company's
common stock, $0.01 par value per share, began trading on the OTC Bulletin Board
on June 13, 1997. Effective September 8, 1997, the Company's common stock was
listed on the NASDAQ National Market under the symbol "COPI".
The following table reflects the high and low bid prices of the common stock for
each calendar quarter indicated.
<TABLE>
<CAPTION>
1998 HIGH LOW
---- ---- ---
<S> <C> <C>
March 31................................ $ 25.00 $ 18.19
June 30................................. $ 24.50 $ 16.50
September 30............................ $ 17.13 $ 3.50
December 31............................. $ 6.875 $ 2.78
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
1997 HIGH LOW
---- ---- ---
<S> <C> <C>
June 13-June 30......................... $ 16.00 $ 3.00
September 30............................ $ 23.63 $ 12.00
December 31............................. $ 28.75 $ 16.13
</TABLE>
o On December 11, 1998, the Company received notice from Nasdaq that the
Company has failed to maintain a closing bid price of greater than or
equal to $5.00 in accordance with Nasdaq Marketplace Rule 4450 (b)(4)
under Maintenance Standard (2) for continued listing on the National Market
System (NMS). The Company will have a hearing with Nasdaq on May 6, 1999
regarding this issue. The result of this hearing will determine whether the
Company can continue its NMS listing. Pending the outcome of the hearing,
the Company's common stock will continue to be listed for trading on NMS.
In the event that the Company does not meet the NMS maintenance requirement
prior to the hearing date or otherwise prevail at the hearing, the Company
will request an extension or that its shares be listed on the Nasdaq
SmallCap Market. While the Company believes that it will satisfy the
requirements for listing on the Nasdaq SmallCap Market, there can be no
assurances that Nasdaq will approve listing of the Company's shares on such
markets.
o On June 11, 1997, prior to entering into the credit agreement with
NationsBank of Texas N.A. ("NationsBank"), Crescent Operating paid a
one-time dividend of approximately $2.4 million to its then sole
stockholder, Crescent Partnership, in connection with the sale of a
limited partner interest in the partnership that owned the Dallas
Mavericks. Crescent Operating intends to use its available funds to pursue
investment and business opportunities. Payment of dividends on Crescent
Operating common stock is prohibited under credit agreements the Company
has entered into with Crescent Partnership and NationsBank.
o On December 17, 1997, the Company issued to Preco Machinery Sales, Inc.,
130,000 unregistered shares of common stock at $18 per share, par value
$.01 per share, in payment of $2.3 million of $4.0 million purchase price
of Preco. The shares were issued in a private placement to fewer than 35
persons who were unaffiliated with the Company, and who either represented
that they were accredited, or that they had sufficient knowledge and
experience in financial and business matters to evaluate the merits and
risks of investing in the Shares. The shares may not be sold or otherwise
transferred unless they are registered under the Securities Act of 1933
(the "Act") and applicable state securities laws or are covered by a
registration exemption. Restrictions on the transfer of the shares are
evidenced by a restrictive legend on the stock certificate representing the
Shares. The Company believes the Shares were exempt from registration at
the time of issuance pursuant to Section 4(2) of the Act.
o On April 30, 1998, the Company issued to Central Texas Equipment Co.,
128,551 unregistered shares of common stock at $20.50 per share, par value
$0.01 per share, in payment of $2.6 million of the $9.7 million purchase
price of Central Texas. The shares were issued in a private placement to
fewer than 35 persons who were unaffiliated with the Company, and who
either represented that they were accredited, or that they had sufficient
knowledge and experience in financial and business matters to evaluate the
merits and risks of investing in the shares. The Shares may not be sold or
otherwise transferred unless they are registered under the Act and
applicable state securities laws or are covered by a registration
exemption. Restrictions on the transfer of the shares are evidenced by a
restrictive legend on the stock certificate representing the Shares. The
Company believes the Shares were exempt from registration at the time of
issuance pursuant to Section 4(2) of the Act.
o On June 8, 1998, the Company issued to Machinery, Inc., 38,170
unregistered shares of common stock at $19.77 per share, par value $0.01
per share, in payment of $0.7 million of the $2.8 million purchase price
of Machinery, Inc. The Shares were issued in a private placement to fewer
than 35 persons who were unaffiliated with the Company, and who either
represented that they were accredited, or that they had sufficient
knowledge and experience in financial and business matters to evaluate the
merits and risks of investing in the shares. The Shares may not be sold or
otherwise transferred unless they are registered under the Act and
applicable state securities laws or are covered by a registration
exemption. Restrictions on the transfer of the shares are evidenced by a
restrictive legend on the stock certificate representing the Shares. The
26
<PAGE> 27
Company believes the shares were exempt from registration at the time of
issuance pursuant to Section 4(2) of the Act.
As of March 30, 1998, there were approximately 286 holders of record of the
common stock of Crescent Operating.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain summary historical financial information
for the Company and for the Predecessor. For purposes of this table, the
Predecessor consists of Moody-Day and Hicks-Muse. The following information
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations in Item 7 and the Financial
Statements and Supplementary Data included in Item 8.
<TABLE>
<CAPTION>
(Dollars In Thousands)
---------------------------------------------------------------------------------------------------
Crescent Operating, Inc. Carter-Crowley Asset Group (Predecessor)
-------------------------------------- ----------------------------------------------------------
For the Period For the Period
From From For the Year Ended December 31,
May 9, 1997 January 1, 1997 --------------------------------------
1998 December 31, 1997 to May 8, 1997 1996 1995 1994
----------- ----------------- ---------------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Revenues ....................... $ 493,248 $ 156,882 $ 4,657 $ 10,394 $ 9,147 $ 7,671
Income (loss) from
operations ................ 9,886 (993) 158 109 89 83
Net income (loss) .............. 1,141 (22,165) 25 (111) 79 43
Income (loss) per share-basic
and diluted .................... .10 (2.00) -- -- -- --
Balance Sheet Data:
Total assets ................... $ 937,333 $ 602,083 $ 17,483 $ 13,230 $ 5,348
Total debt ..................... 371,139 258,129 5,405 3,121 1,375
Total shareholders' equity ..... (16,068) (8,060) 10,925 9,358 3,338
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the "Selected
Financial Data" and the financial statements and notes thereto, appearing
elsewhere in this report. Historical results and percentage relationships set
forth in "Selected Financial Data" should not be taken as indicative of future
operations of the Company.
The following table sets forth financial data for the Company and the
Predecessor. The year ended December 31, 1996 includes only the operations of
the Predecessor. The year ended December 31, 1997 includes operations of the
Predecessor from January 1, 1997 through May 8, 1997, and the operations of the
Company from May 9, 1997 through December 31, 1997.
The year ended December 31, 1998 includes only the operations of the Company.
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<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
(In thousands) December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
REVENUES
Equipment sales & leasing $ 85,365 $ 15,175 $ 10,394
Hospitality 229,491 79,468 --
Land development 178,392 66,897 --
----------------- ----------------- -----------------
Total revenues 493,248 161,540 10,394
----------------- ----------------- -----------------
OPERATING EXPENSES
Equipment sales & leasing 79,011 14,282 10,285
Hospitality direct expenses 170,556 62,542 --
Hospitality properties rent 52,276 16,694 --
Land Development direct expenses 178,372 67,095
General and administrative expenses 3,147 1,761 --
----------------- ----------------- -----------------
Total operating expenses 483,362 162,374 10,285
----------------- ----------------- -----------------
INCOME (LOSS) FROM OPERATIONS 9,886 (834) 109
----------------- ----------------- -----------------
INVESTMENT INCOME (LOSS) 27,684 (16,423) --
----------------- ----------------- -----------------
OTHER (INCOME) EXPENSE
Interest expense 18,262 5,616 357
Interest income (3,876) (1,764) (52)
Other 182 (162) (27)
----------------- ----------------- -----------------
Total other (income) expense 14,568 3,690 278
----------------- ----------------- -----------------
INCOME (LOSS) BEFORE MINORITY
INTERESTS AND INCOME TAXES 23,002 (20,947) (169)
INCOME TAX (PROVISION) BENEFIT (5,521) (626) 58
----------------- ----------------- -----------------
INCOME (LOSS) BEFORE MINORITY INTERESTS 17,481 (21,573) (111)
MINORITY INTERESTS (16,340) (566) --
----------------- ----------------- -----------------
NET INCOME (LOSS) $ 1,141 $ (22,139) $ (111)
================= ================= =================
</TABLE>
YEAR ENDED DECEMBER 31, 1998, COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
Revenues
Equipment Sales and Leasing revenues represent revenues from Crescent
Machinery. Equipment sales and leasing revenues increased approximately $70.2
million to $85.4 million for the year ended December 31, 1998, compared to
$15.2 million for the year ended December 31, 1997. Approximately $65.4 million
of the increase from the prior year relates to the Company's acquisitions of
Preco Machinery Sales, Inc. ("Preco"), which was effective as of December 1,
1997, Central Texas, which was effective as of April 30, 1998, Machinery, Inc.,
which was effective as of June 8, 1998, Western Traction, which was effective
as of July 1, 1998, Harvey, Inc., which was effective as of July 31, 1998 and
4-K, which was effective as of July 31, 1998. The remaining increase in
revenues relates to same store growth at locations owned by the Company prior
to such acquisitions. Same store revenues increased $4.8 million to $17.6
million for the year ended December 31, 1998, primarily as a result of
increased rentals of equipment at existing Crescent Machinery locations.
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<PAGE> 29
Hospitality revenues represent revenues from Hospitality Properties leases.
Hospitality revenues increased approximately $150.0 million to $229.5 million
for the year ended December 31, 1998, compared to $79.5 million for the year
ended December 31, 1997. The increase over the prior period is primarily due to
the fact that the Company was not involved in the Hospitality segment prior to
July 31, 1997.
Land development revenues represent revenues from Desert Mountain and CDMC prior
to the elimination of the 95% minority interest. Land Development revenues of
$178.4 million for the year ended December 31, 1998 represent a $111.5 million
increase over the year ended December 31, 1997 revenues of $66.9 million
primarily due to the fact that the Company was not involved in Desert Mountain
prior to September 29, 1997, or in CDMC prior to September 30, 1998.
Operating Expenses
Equipment Sales and Leasing direct expenses increased $64.7 million to $79.0
million for the year ended December 31, 1998, compared to $14.3 million for the
year ended December 31, 1997. Approximately $62.2 million of the increase for
the year ended December 31, 1998 relates to the Company's acquisitions. The
remaining increase in direct expenses relates to the additional costs incurred
as a result of the increase in equipment sales and leasing revenue.
Hospitality direct expenses represent costs incurred by the full-service hotels,
as well as by the destination, health and fitness resorts and Hospitality
Properties rent paid to Crescent Equities. Hospitality direct expenses increased
$143.6 million to $222.8 million for the year ended December 31, 1998, compared
to $79.2 million for the year ended December 31, 1997. The increase of
Hospitality direct expenses over the prior period amount is due to the fact that
Crescent Operating was not involved in the Hospitality segment until July 31,
1997.
Land Development direct expenses represent operating costs incurred by Desert
Mountain and CDMC prior to the elimination of the 95% minority interest. Land
Development direct expenses of $178.4 million for the year ended December 31,
1998, represent a $111.3 million increase over the year ended December 31, 1997
Land Development direct expenses of $67.1 million primarily due to the fact that
the Company had not invested in Desert Mountain prior to September 29, 1997, or
in CDMC prior to September 30, 1998.
General and administrative expenses of $3.1 million for the year ended December
31, 1998, consists of corporate expenses such as legal and accounting costs,
insurance costs, corporate salaries and general overhead costs. The increase in
general and administrative expenses of $1.3 million over the year ended December
31, 1997 is due to additional costs incurred as a result of the substantial
growth of the Company since the prior year as well as 1998 being the first full
year of operations.
Investment Income (Loss)
Investment income of $27.7 million for the year ended December 31, 1998
consisted of investment income from Hicks-Muse of $3.1 million, equity in income
of Landevco of $19.2 million, equity in income of Woodlands Operating of $1.2
million, equity in income of CDMC projects of $5.6 million and equity in income
of AmeriCold Logistics of $4.0 million, offset by equity in losses of CBHS of
$5.4 million. The investment loss for the year ended December 31, 1997 of $16.4
million primarily represents the Company's share of losses from CBHS. The
overall increase in investment income over the prior year is due to the Company
owning the majority of its investments for less than half of the year in 1997,
as well as the fact that the CBHS investment was written off in early 1998
resulting in no further losses being recognized in connection with CBHS in 1998.
Other (Income) Expense
Interest expense increased $12.6 million to $18.3 million for year ended
December 31, 1998, compared to $5.6 million for the year ended December 31,
1997. The increase over prior periods was primarily the result of an increase
in debt levels at Crescent Operating and Crescent Machinery as a result of
acquisitions late in 1997
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<PAGE> 30
and in 1998, as well as the inclusion of a full year of interest for Desert
Mountain in 1998 as compared to only three months in 1997.
Interest income increased $2.1 million to $3.9 million for the year ended
December 31, 1998, compared to $1.8 million for the year ended December 31,
1997. The increase over prior periods is due primarily to additional interest
income from lot sale notes receivable at Desert Mountain and interest income on
the notes receivable from Landevco, neither of which was acquired until
September 29, 1997.
Income Tax (Provision) Benefit
Income tax provision of approximately $5.5 million for the year ended December
31, 1998 consisted of a $2.7 million tax provision for the Hospitality segment,
a $7.4 million tax provision for the Land Development segment and a $1.5 million
tax provision for the Equipment Sales and Leasing segment, offset by a $2.2
million benefit for the Healthcare segment and a $4.1 million benefit at the
corporate level. The Company generally provides for taxes using an assumed 40%
effective rate on the Company's share of income or loss. The effective rate
presented in the statement of operations is skewed primarily due to the minority
interests in the Company's operations.
Minority Interests
Minority interests of approximately $16.3 million for the year ended December
31, 1998 consisted primarily of the 95% minority interest in the Refrigerated
Warehousing and the Land Development segments. The increase of $15.8 million
over the year ended December 31, 1997 amount of $0.6 million is due to the
acquisitions of the Refrigerated Warehousing and Land Development segments
occurring in October 1997 and September 1997, respectively.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues
Equipment Sales and Leasing revenues represent revenues from Crescent Machinery.
Equipment sales and leasing revenues increased approximately $4.8 million to
$15.2 million for the year ended December 31, 1997, compared to $10.4 million
for the year ended December 31, 1996. Approximately $2.3 million of the increase
from the prior year relates to the Company's acquisition of Preco, which was
effective as of December 1, 1997. The remaining increase in revenues relates
primarily to the expansion of equipment rentals.
Hospitality revenues represent revenues from the Hospitality Properties. As the
Company was not involved in the Hospitality segment prior to July 31, 1997,
Hospitality revenues of $79.5 million for the year ended December 31, 1997
represent 100% of the increase over the year ended December 31, 1996.
Land Development revenues represent revenues from Desert Mountain prior to the
elimination of the 95% minority interest. As the Company was not involved in
Desert Mountain prior to September 29, 1997, Land Development revenues of $66.9
million for the year ended December 31, 1997, represent a 100% increase over the
year ended December 31, 1996.
Operating Expenses
Equipment Sales and Leasing direct expenses increased $4.0 million to $14.3
million for the year ended December 31, 1997, compared to $10.3 million for the
year ended December 31, 1996. Approximately $2.1 million of the increase for the
year ended December 31, 1997 relates to the Company's acquisition of Preco. The
remaining increase in direct expenses relates to the additional costs incurred
as a result of the increase in equipment sales and leasing revenues.
Hospitality direct expenses, represent costs incurred by the full-service
hotels, as well as by the destination, health and fitness resorts and
Hospitality Properties rent paid to Crescent Equities. As the Company was not
involved in the Hospitality segment prior to July 31, 1997, Hospitality direct
expenses of $79.2 million for the year ended December 31, 1997 represent 100%
of the increase over the year ended December 31, 1996.
30
<PAGE> 31
Land Development direct expenses represent operating costs incurred by Desert
Mountain prior to the elimination of the 95% minority interest. As the Company
had not invested in Desert Mountain prior to September 29, 1997, Land
Development direct expenses of $67.1 million for the year ended December 31,
1997 represent a 100% increase over the year ended December 31 1996.
General and administrative expenses of $1.8 million for the year ended December
31, 1997 consisted of corporate expenses such as legal and accounting costs,
insurance costs, corporate salaries and general overhead costs. As the Company
was not formed until May of 1997, there were no corporate general and
administrative expenses for the year ended December 31, 1996.
Investment Income (Loss)
Investment loss of $16.4 million for the year ended December 31, 1997 consisted
primarily of the $19.6 million loss recognized on the Company's investment in
CBHS, offset by investment income in Landevco of $2.4 million and investment
income from Hicks Muse of $0.6 million. As the Company did not have investments
in CBHS or Landevco prior to June 1997, there are no prior year amounts for
comparative purposes.
Other (Income) Expense
Interest expense increased $5.2 million to $5.6 million for year ended December
31, 1997, compared to $0.4 million for the year ended December 31, 1996. The
increase over the prior period was primarily the result of an increase in debt
levels as a result of the formation of the Company in 1997 and various
acquisitions late in 1997.
Interest income increased $1.7 million to $1.8 million for the year ended
December 31, 1997, compared to $0.1 million for the year ended December 31,
1996. The increase over the prior period was due primarily to interest income
from lot sale notes receivable at Desert Mountain and interest income on the
notes receivable from Landevco neither of which was acquired until September 29,
1997.
Minority Interests
Minority interests of approximately $0.6 million for the year ended December 31,
1997 consisted primarily of the 95% minority interest in the Refrigerated
Warehousing and the Land Development segments. In 1996, the Company did not have
investments in the Refrigerated Warehousing or Land Development segments, and,
therefore, did not have minority interests.
Income Tax (Provision) Benefit
Income tax provision of approximately $0.6 million for the year ended December
31, 1997, consisted primarily of the $0.6 million tax provision related to the
Land Development segment. Due to the significant losses related to CBHS, the tax
benefit related to the CBHS losses was reserved for through a valuation
allowance in 1997. The change in tax provision of $0.7 million from the prior
year amount of $0.1 million was due to the fact that the Company only had
operations from the Equipment Sales and Leasing segment in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that equity and debt financing alternatives currently
available to it include public or private issuances of equity to existing
holders, issuances of equity in connection with acquisitions of additional
assets and obtaining additional secured debt from Crescent Partnership, or in
connection with a refinancing of existing secured debt, from other lenders.
However, there can be no assurances that any of these sources will be available
to the Company or that the amount of capital available from these sources will
be adequate to meet the Company's needs or requests.
31
<PAGE> 32
Cash Flows
Net cash flows provided by operating activities for the year ended December 31,
1998 were $31.9 million compared with the net cash provided by operating
activities of $45.6 million and $0.5 million for the years ended December 31,
1997 and 1996, respectively. Significant components of the $31.9 million of cash
provided by operating activities for the year ended December 31, 1998 were an
increase in deferred revenue of $49.1 million, an increase in minority interests
of $16.3 million and $13.7 million of depreciation expense, offset by investment
income of $27.7 million and development of real estate of $22.1 million.
Net cash flows used in investing activities for the year ended December 31, 1998
were $120.4 million compared with the net cash used in investing activities of
$66.7 million and $3.1 million for the years ended December 31, 1997 and 1996,
respectively. Significant components of the $120.4 million of cash used in
investing activities for the year ended December 31, 1998 were $121.1 million
for the acquisition of business interests by minority interests, $30.3 million
for the purchase of property and equipment and $15.8 million for the acquisition
of business interests, net of cash acquired, offset by $21.6 million and $23.9
million of net proceeds from sale and collection of notes receivable and
distributions received, respectively.
Net cash flows provided by financing activities for the year ended December 31,
1998 were $87.9 million compared with the net cash provided by financing
activities of $64.7 million and $2.3 million for the years ended December 31,
1997 and 1996, respectively. Significant components of the $87.9 million of cash
provided by financing activities for the year ended December 31, 1998 were
$120.4 million of capital contributions by minority interests, and $98.1 million
of proceeds from the issuance of long term debt, offset by payments on long-term
debt of $100.0 million.
Financing Attributable to Corporate and Wholly-Owned Subsidiaries
Effective March 12, 1999, the Company agreed to make a permanent reduction in
its $30.4 million 12% line of credit with Crescent Partnership commensurate with
the proceeds from the sale of 80% of the Company's 2% interest in AmeriCold
Logistics. The line of credit is cross-collateralized and cross-defaulted with
the Company's other borrowings from Crescent Partnership. On March 12, 1999, the
Company received $13.2 million of proceeds and correspondingly permanently
reduced the availability under the line of credit from $30.4 million to $17.2
million.
Also effective March 12, 1999, the Company obtained from Crescent Partnership a
$19.5 million line of credit bearing interest at a rate of 9% per annum. The
line of credit has terms similar to the other line of credit with Crescent
Partnership with the exception of the interest rate and is cross-collateralized
and cross-defaulted with the Company's other borrowings from Crescent
Partnership. Upon inception of this line of credit, the Company immediately
borrowed the full $19.5 million with which it contributed approximately $15.5
million to the creation of AmeriCold Operations and used the remaining $4.0
million of proceeds to reduce the amount outstanding under the 12% line of
credit with Crescent Partnership.
The Company funded its contribution to COPI Colorado using the proceeds from a
$9 million term loan from Crescent Equities. The loan bears interest at 12% per
annum, with interest payable quarterly and the full original principal amount
of $9.0 million, together with any accrued but unpaid interest, payable in May
2002. The Company's interest in COPI Colorado secures the loan, which is
cross-collateralized and cross-defaulted with the Company's other borrowings
from Crescent Partnership.
As a part of the acquisition of a two-thirds interest in the HCAC and the
related $5.0 million note, the Company borrowed $1.8 million in the form of two
notes (one for $1.0 million and the other for $0.8 million) from Crescent
Partnership at an interest rate of 8.5% per annum. The $1.0 million note, which
is collateralized by the $5.0 million note the Company purchased as part of the
transaction, was payable on an interest-only basis through its maturity on
September 21, 1998, and was paid in full upon maturity. The $0.8 million note
is collateralized by the two-thirds interest in HCAC and matures September 22,
2002. Monthly principal and interest payments on the $0.8 million loan
commenced in November 1997. As of December 31, 1998, there was $0.6 million
outstanding on the $0.8 million note.
Crescent Machinery has various equipment notes payable under credit facilities
which are collateralized by the equipment financed. The notes are payable in
monthly principal and interest payments and bear interest at 6.0% to
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<PAGE> 33
10.9% per annum. These notes mature between 1998 and 2003. As of December 31,
1998, the outstanding balance on these equipment notes was $78.0 million, with
available credit under the credit facilities of $73.0 million.
In August 1997, the Company obtained a $15.0 million unsecured bank line of
credit from NationsBank. The line of credit is due in August 1999 and bears
interest at the LIBOR rate plus 1%. The $15.0 million available under the line
of credit from NationsBank was fully drawn as of December 31, 1998.
In connection with the formation and capitalization of Crescent Operating in the
second quarter of 1997, Crescent Operating received approximately $14.1 million
in cash from Crescent Partnership and Crescent Partnership loaned Crescent
Operating approximately $35.9 million pursuant to a five-year term loan,
maturing on May 8, 2002, of which approximately $24.2 million was outstanding as
of December 31, 1998. The loan is a recourse loan that is collateralized, to the
extent not prohibited by pre-existing arrangements, by a first lien on the
assets which the Company now owns or may acquire in the future. The loan bears
interest at the rate of 12% per annum, compounded quarterly, with required
quarterly principal and interest payments limited by quarterly cash flow of the
Company as defined in the applicable credit agreement. The Company also obtained
a $20.4 million line of credit from Crescent Partnership in connection with its
formation and capitalization. Effective August 11, 1998, Crescent Operating
increased the line of credit by $10 million to $30.4 million. Its maturity date
and interest rate terms remained unchanged. Advances under the line of credit
bear interest at the same rate as the term loan. The line of credit is payable
on an interest-only basis during its term, which expires on the later of (i) May
21, 2002 or (ii) five years after the last draw under the line of credit (in no
event shall the maturity date be later than June 2007). 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 collateralized, to the extent
not prohibited by pre-existing arrangements, by a first lien on the assets which
the Company now owns or may acquire in the future. As of December 31, 1998,
$27.7 million was outstanding under the line of credit.
Financing Attributable to Non Wholly-Owned Subsidiaries
Desert Mountain Properties also has a credit agreement with Crescent Partnership
pursuant to which Crescent Partnership has advanced funds to Desert Mountain
Properties through a "Junior Note" and a "Senior Note". The Junior Note
evidences a $60.0 million advance from Crescent Partnership to Desert Mountain
Properties and accrues interest at 14% per annum. The Senior Note evidences a
$110.0 million advance from Crescent Partnership to Desert Mountain Properties
and accrues interest at 10% per annum. The principal and interest on both the
Junior Note and the Senior Note are payable in quarterly installments, based on
proceeds from the operations of Desert Mountain Properties. As of December 31,
1998, the outstanding balances of the Junior Note and Senior Note were $60.0
million and $50.7 million, respectively.
Desert Mountain Properties entered into a $35 million credit facility with
National Bank of Arizona in May 1998. The facility is comprised of (i) a $25
million line of credit available for vertical financing related to new home
construction and bears an annual interest at the prime rate and (ii) a $10
million line of credit available for borrowings against certain notes receivable
issued by Desert Mountain Properties and bears an annual interest rate of prime
plus 1%. The credit facility is due in May 1999 with interest payable monthly,
collateralized by land owned by Desert Mountain Properties, deeds of trust on
lots sold and home construction. As of December 31, 1998, the outstanding
balance on the line of credit with National Bank of Arizona was $10.0 million.
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<PAGE> 34
CDMC has a line of credit with Crescent Partnership that was increased from
$28.2 million to $40.2 million effective May 8, 1998. The line of credit is due
August 31, 2004, and bears interest at 11.5% per annum. Principal and interest
payments are due as distributions are received, as defined by the agreement,
from the operating entities in which CDMC invests. The line of credit is
collateralized by CDMC's interests in the East West Resort Development
partnerships, East West Resorts, LLC and CDMC's other property. As of December
31, 1998, $36.0 million was outstanding under the line of credit. CDMC also has
a line of credit with Crescent Partnership for $22.9 million, bearing interest
at 12% per annum, compounded annually. Principal and interest payments are due
as distributions are received, as defined by the agreement, from the operating
entities in which CDMC invests. The line of credit is due January 1, 2003. As of
December 31, 1998, $15.0 million was outstanding on the $22.9 million line of
credit. CDMC also has a term loan with Crescent Partnership for $3.1 million
maturing June 2005. The note bears interest at 12%, with interest payable
quarterly and principal payable annually in accordance with an increasing
schedule. The note is collateralized by CDMC's interests in East West Resorts,
LLC, the East West Development partnerships and CDMC's other property. As of
December 31, 1998, $2.9 million was outstanding on the $3.1 million term note.
Generally, CDMC's loans with Crescent Partnership are cross-collateralized and
cross-defaulted.
The operating entities in which CDMC invests have various construction loans for
East West projects which are collateralized by deeds of trust, security
agreements and a first lien on the assets conveyed. The notes are payable in
monthly principal and interest payments and bear interest at 6% to 9% per annum.
The notes mature between 1998 and 2003. As of December 31, 1998, the outstanding
balance on these construction notes was $32.8 million in the aggregate.
Effective January 1, 1999, CDMC entered into two loan agreements with Crescent
Partnership which increased from $40 million to $48 million the existing credit
line available, for investments in existing East West development projects and
which created a new $40 million credit line for new development projects.
Effective July 28, 1998, CRL obtained from Crescent Partnership a $7.0 million
line of credit bearing interest at a rate of 12% per annum. The line of credit
is due August 1, 2003. The principal and interest are payable as borrower
receives distributions pursuant to the CR License Operating Agreement and the CR
Las Vegas Operating Agreement. As of December 31, 1998, no advances had been
made on the line of credit.
YEAR 2000 ISSUES
The Year 2000 issue has arisen because many computer systems use only the last
two digits, rather than four digits, to refer to any given year. In the absence
of corrective measures, computer systems that use date sensitive software may
interpret a date whose last two digits are "00" as the year 1900, rather than
the year 2000. Upon the arrival of the Year 2000, those computer systems that
are coded with only two digits may fail or cause miscalculations, potentially
causing costly interruptions to business operations. "Year 2000 compliance"
means the ability of hardware and software to interpret and manipulate correctly
date sensitive information up to and beyond the Year 2000. In addition, the Year
2000 issue relates to whether non-information technology systems that depend on
embedded computer technology will recognize the Year 2000. Non-information
technology systems that do not properly recognize such information could
generate erroneous information or fail.
The Company has engaged an independent firm to assist the Company in assessing
its Year 2000 issues. The Company, along with the independent firm, is currently
reviewing information technology systems (such as accounting systems and network
operating systems) and non-information technology systems (such as
microcontrollers). The Company believes that the assessment phase for both
information technology and non-information technology systems is approximately
80% complete and anticipates that the assessment phase will be completed by May
1999.
Upon completion of the assessment phase, the Company will implement a
modification phase. The modification phase will be followed by a testing phase.
Although the initial assessment and testing is not yet complete, the Company has
not yet identified any significant problem areas and believes that the
mission-critical systems are or can be made compliant with minor upgrades.
The Company believes that its greatest economic exposure lies with
its Hospitality and Equipment Sales and Leasing segments. Specifically within
those segments, management believes that the most significant risk associated
with
34
<PAGE> 35
Year 2000 compliance issues relates to any inability of the Company's principal
vendors and suppliers to become Year 2000 compliant in a timely manner. For
example, if the computer systems used by the Company's principal equipment
vendors or hotel suppliers were to fail as a result of a failure to achieve Year
2000 compliance, the Company may experience inventory shortages. Consequently,
the Company could experience business interruptions which potentially could have
a material adverse effect on the Company's operating results and financial
position. The Company is requesting from its principal vendors and suppliers
information regarding their Year 2000 issues and their plans to assure timely
Year 2000 compliance. The Equipment Sales and Leasing segment has received a
letter from JCB, its primary supplier, that JCB is Year 2000 compliant. The
Company will continue working with its vendors, suppliers and other third-party
contractors to assure that the Company will not be subjected to substantial
business interruptions as a result of Year 2000 issues. There can be no
assurance; however, that vendors, suppliers and other third parties will achieve
Year 2000 compliance in a timely manner or that any non-compliance on the part
of such persons will not have an adverse effect on the Company's operations.
Because the Company is still evaluating the status of its systems and those of
third parties with which it conducts business, the Company has not yet developed
a comprehensive contingency plan, and it is difficult to identify the "most
reasonably likely worst-case scenario" at this time. As the Company identifies
significant risks related to the Company's Year 2000 compliance, or if the
Company's Year 2000 compliance program's progress deviates substantially from
the anticipated timeline, the Company will develop appropriate contingency
plans.
Based on the assessment thus far of information technology and non-information
technology systems, the total cost to specifically assess and remediate both
information technology and non-information technology systems if necessary does
not appear to be material to the Company. All Year 2000 compliance costs are
being expensed as incurred.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has fixed and variable rate notes payable and lines of credit which
are subject to market risk related to changes in interest rates. The Company
manages its market risk by attempting to match anticipated inflow of cash from
its operating, investing and financing activities with anticipated outflow of
cash to fund debt payments, investments and other cash requirements. The Company
does not use derivative financial instruments to manage interest rate risk.
As of December 31, 1998, the Company had amounts outstanding under variable rate
notes payable and lines of credit totaling $109.5 million, with a weighted
average interest rate of 7.8% per annum. A hypothetical 10% increase in the
weighted average interest rate on the Company's variable rate notes and lines of
credit would cause a $0.9 million increase in interest expense and a decrease in
the Company's earnings and cash flows of $0.6 million, based on the amount of
variable rate debt outstanding as of December 31, 1998. In the event that
interest rates increase significantly and the Company continues to have
significant amounts outstanding under variable rate notes and credit lines,
depending upon market conditions, the Company may be able to substitute fixed
rate notes for some of its variable rate notes and credit lines to minimize its
exposure to interest rate risk. There can be no assurance, however, that any
such substitution could be arranged on terms that are satisfactory to the
Company.
As of December 31, 1998, the Company had amounts outstanding under fixed rate
notes payable and lines of credit totaling $261.6 million, with a weighted
average interest rate of 11.1% per annum. In the event that interest rates
decrease significantly, and market interest rates are substantially lower than
the rates on the Company's fixed rate notes and credit lines, the Company would
be able to reduce interest expense if it were able to prepay and/or refinance
these instruments. There can be no assurance, however, that the company would be
able to prepay or refinance its debt on terms that are satisfactory to the
Company in a declining interest rate environment.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this Item is contained in the Company's
Consolidated Financial Statements is indicated in the Index on Page F-1 of this
Annual Report on Form 10-K, and is incorporated herein by reference.
35
<PAGE> 36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
Certain information required by Part III is omitted from this report in that the
Company will file a definitive proxy statement with the Securities and Exchange
Commission (the "Commission") pursuant to Regulation 14A ("Proxy Statement") not
later than 120 days after the end of the fiscal year covered by this report, and
certain information to be included therein is incorporated herein by reference.
Only those sections of the Proxy Statement which specifically address the items
set forth herein are incorporated by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed with the Commission for its annual
shareholders' meeting to be held in June 1999.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed with the Commission for its annual
shareholders' meeting to be held in June 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed with the Commission for its annual
shareholders' meeting to be held in June 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's Proxy Statement to be filed with the Commission for its annual
shareholders' meeting to be held in June 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of the Annual Report on Form 10-K:
1. Financial Statements
Information with respect to this Item is contained on pages F-1
to F-68 of this Annual Report on Form 10-K.
2. Financial Statement Schedules
Information with respect to this Item is listed on page F-1 of
this Annual Report on Form 10-K.
3. Exhibits
36
<PAGE> 37
Exhibit Number Description of Exhibits
-------------- ------------------------------------------------
3.1* First Amended and Restated Certificate of
Incorporation
3.2* First Amended and Restated Bylaws
3.3***** Amendment of Article V of First Amended and Restated
Bylaws
3.4****** Repeal of Amendment of Article V of First Amended
and Restated Bylaws
4.1* Specimen stock certificate
4.2* Preferred Share Purchase Rights Plan
4.3****** First Amendment to Preferred Share Purchase Rights
Agreement dated as of September 25, 1998, between
Crescent Operating, Inc. and Bank Boston, N.A., as
Rights Agent.
10.1* Amended Stock Incentive Plan
10.2 Intercompany Agreement between Crescent Operating,
Inc. and Crescent Real Estate Equities Limited
Partnership (filed as Exhibit 10.2 to the Quarterly
Report on Form 10-Q for the Quarter Ended June 30,
1997 of Crescent Operating, Inc. and incorporated
herein by reference)
10.3 Amended and Restated Operating Agreement of Charter
Behavioral Health Systems, LLC (filed as Exhibit
10.3 to the Quarterly Report on Form 10-Q of
Crescent Operating, Inc. for the Quarter Ended June
30, 1997 and incorporated herein by reference.)
10.5** Amended and Restated Credit and Security Agreement,
dated as of May 30, 1997, between Crescent Real
Estate Equities Limited Partnership and Crescent
Operating, Inc., together with related Note
10.6** Line of Credit and Security Agreement, dated as of
May 21, 1997, between Crescent Real Estate Equities
Limited Partnership and Crescent Operating, Inc.,
together with related Line of Credit Note
10.7* Acquisition Agreement, dated as of February 10,
1997, between Crescent Real Estate Equities Limited
Partnership and Carter-Crowley Properties, Inc.
10.10** Security Agreement dated September 22, 1997 between
COI Hotel Group, Inc., as debtor, and Crescent Real
Estate Equities Limited Partnership, as lender,
together with related $1 million promissory note
10.11** Security Agreement dated September 22, 1997 between
COI Hotel Group, Inc., as debtor, and Crescent Real
Estate Equities Limited Partnership, as lender,
together with related $800,000 promissory note
10.12** Amended and Restated Asset Management dated August
31, 1997, to be effective July 31, 1997, between
Wine Country Hotel, LLC and The Varma Group, Inc.
10.13** Amended and Restated Asset Management Agreement
dated August 31, 1997, to be effective July 31,
1997, between RoseStar Southwest, LLC and The Varma
Group, Inc.
10.14** Amended and Restated Asset Management Agreement
dated August 31, 1997, to be effective July 31,
1997, between RoseStar Management LLC and The Varma
Group, Inc.
10.15** Agreement for Financial Services dated July 1, 1997,
between Crescent Real Estate Equities Company and
Petroleum Financial, Inc.
10.16** Credit Agreement dated August 27, 1997, between
Crescent Operating, Inc. and NationsBank of Texas,
N.A. together with related $15.0 million promissory
note
10.17** Support Agreement dated August 27, 1997, between
Richard E. Rainwater, John Goff and Gerald Haddock
in favor of Crescent Real Estate Equities Company
and NationsBank of Texas, N.A.
10.18*** 1997 Crescent Operating, Inc. Management Stock
Incentive Plan (filed herewith)
10.19*** Memorandum of Agreement executed November 16, 1997,
among Charter Behavioral Health Systems, LLC,
Charter Behavioral Health Systems, Inc. and Crescent
Operating, Inc.
10.20*** Purchase Agreement dated August 31, 1997, by and
among Crescent Operating, Inc., RoseStar Management
LLC, Gerald W. Haddock, John C. Goff and Sanjay
Varma
10.21*** Stock Purchase Agreement dated August 31, 1997, by
and among Crescent Operating, Inc., Gerald W.
Haddock, John C. Goff and Sanjay Varma
10.22 Amended and Restated Lease Agreement, dated June 30,
1995 between Crescent
37
<PAGE> 38
Real Estate Equities Limited Partnership and
RoseStar Management LLC, relating to the Denver
Marriott City Center (filed as Exhibit 10.17 to the
Annual Report on Form 10-K of Crescent Real Estate
Equities Company for the Fiscal Year Ended December
31, 1995 (the "1995 10-K") and incorporated herein
by reference)
10.23 Lease Agreement, dated December 19, 1995 between
Crescent Real Estate Equities Limited Partnership
and RoseStar Management LLC, relating to the Hyatt
Regency Albuquerque (filed as Exhibit 10.16 to the
1995 10-K and incorporated herein by reference)
10.24 Form of Amended and Restated Lease Agreement, dated
January 1, 1996, among Crescent Real Estate Equities
Limited Partnership, Mogul Management, LLC and
RoseStar Management LLC, relating to the Hyatt
Regency Beaver Creek (filed as Exhibit 10.12 to the
1995 10-K and incorporated herein by reference)
10.25 Lease Agreement, dated July 26, 1996, between Canyon
Ranch, Inc. and Canyon Ranch Leasing, L.L.C.,
assigned by Canyon Ranch, Inc. to Crescent Real
Estate Equities Limited Partnership pursuant to the
Assignment and Assumption Agreement of Master Lease,
dated July 26, 1996 (filed as Exhibit 10.24 to the
Quarterly Report on Form 10-Q/A of Crescent Real
Estate Equities Company for the Quarter Ended June
30, 1997 (the "1997 10-Q") and incorporated herein
by reference)
10.26 Lease Agreement, dated November 18, 1996 between
Crescent Real Estate Equities Limited Partnership
and Wine Country Hotel, LLC (filed a Exhibit 10.25
to the Annual Report on Form 10-K of Crescent Real
Estate Equities Company for the Fiscal Year Ended
December 31, 1996 and incorporated herein by
reference)
10.27 Lease Agreement, dated December 11, 1996, between
Canyon Ranch-Bellefontaine Associates, L.P. and
Vintage Resorts, L.L.C., as assigned by Canyon
Ranch-Bellefontaine Associates, L.P. to Crescent
Real Estate Funding VI, L.P. pursuant to the
Assignment and Assumption Agreement of Master Lease,
dated December 11, 1996 (filed as Exhibit 10.26 to
the 1997 10-Q and incorporated herein by reference)
10.28 Master Lease Agreement, dated June 16, 1997, between
Crescent Real Estate Funding VII, L.P. and Charter
Behavioral Health Systems, LLC and its subsidiaries,
relating to the Facilities (filed as Exhibit 10.27
to the 1997 10-Q and incorporated herein by
reference)
10.29*** Form of Indemnification Agreement
10.30*** Purchase Agreement, dated as of September 29, 1997,
between Crescent Operating, Inc. and Crescent Real
Estate Equities Limited Partnership, relating to the
purchase of Desert Mountain Development Corporation
(filed herewith)
10.31**** Lease Agreement dated December 19, 1997, between
Crescent Real Estate Equities Limited Partnership,
as Lessor, and Wine Country Hotel, as Lessee, for
lease of Ventana Inn
10.32**** Lease Agreement dated September 22, 1997, between
Crescent Real Estate Equities Limited Partnership,
as lessor, and COI Hotel Group, Inc., as lessee,
for lease of Four Seasons Hotel, Houston
10.33**** Asset Purchase Agreement dated December 19, 1997,
among Crescent Operating, Inc. Preco Machinery
Sales, Inc., and certain individual Preco
shareholders
10.34**** Asset Purchase Agreement dated April 30, 1998,
among Crescent Operating, Inc., Central Texas
Equipment Company, and certain individual Central
Texas shareholders
10.35**** Credit Agreement dated August 29, 1997 between
Crescent Real Estate Equities Limited Partnership,
as lender, and Desert Mountain Properties Limited
Partnership, as borrower, together with related
Senior Note, Junior Note and deed of trust
10.36**** Buy-Out Agreement dated April 24, 1998, between
Crescent Operating, Inc. and Crescent Real Estate
Equities Limited Partnership
10.37***** Stock Acquisition Agreement and Plan of Merger
dated June 4, 1998, among Machinery, Inc., Oklahoma
Machinery, Inc., Crescent Machinery Company,
Crescent Operating, Inc. and certain individual
Machinery shareholders
10.38***** Master Revolving Line of Credit Loan Agreement
(Borrowing Base and Warehouse) dated May 14, 1998,
between Desert Mountain Properties Limited
Partnership and National Bank of Arizona
10.39***** 1997 Management Stock Incentive Plan
10.40****** Credit and Security Agreement, dated as of
September 21, 1998, between Crescent Real Estate
Equities Limited Partnership and Crescent
Operating, Inc., together with related Note
10.41****** First Amendment to Amended and Restated Pledge
Agreement, dated as of September 21, 1998, between
Crescent Real Estate Equities Limited Partnership
and Crescent Operating, Inc.
10.42****** First Amendment to Line of Credit and
Security Agreement, dated as of August 11, 1998,
between Crescent Real Estate Equities Limited
Partnership and Crescent Operating, Inc., together
with related Note
10.43****** First Amendment to Amended and Restated Credit and
Security Agreement, dated as of August 11, 1998,
between Crescent Real Estate Equities Limited
Partnership and Crescent Operating, Inc.
10.44****** Second Amendment to Amended and Restated Credit and
Security Agreement, dated as of September 21,
1988, between Crescent Real Estate Equities
Limited Partnership and Crescent Operating, Inc
10.45****** Second Amendment to Line of Credit and
Security Agreement, dated as of September 21,
1988, between Crescent Real Estate Equities
Limited Partnership and Crescent Operating, Inc.
10.46 Agreement of Limited Partnership of COPI Colorado,
L. P. (filed as Exhibit 10.1 to that Schedule 13D
Statement dated September 28, 1998, filed by COPI
Colorado, L.P., Crescent Operating, Inc., Gerald W.
Haddock, John C. Goff and Harry H. Frampton, III,
and incorporated herein by reference)
10.47 Contribution Agreement effective as of September
11, 1998, by among Crescent Operating, Inc., Gerald
W. Haddock, John C. Goff and Harry H. Frampton, III
(filed as Exhibit 10.2 to that Schedule 13D
Statement dated September 28, 1998, filed by COPI
Colorado, L.P., Crescent Operating, Inc., Gerald
W. Haddock, John C. Goff and Harry H. Frampton,
III, and incorporated herein by reference)
10.48 Agreement Regarding Schedules and Other Matters
made as of September 11, 1998, by and among
Crescent Operating, Inc., Gerald W. Haddock, John
C. Goff and Harry H. Frampton, III (filed as
Exhibit 10.3 to that Schedule 13D Statement dated
September 28, 1998, filed by COPI Colorado, L.P.,
Crescent Operating, Inc., Gerald W. Haddock, John
C. Goff and Harry H. Frampton, III, and
incorporated herein by reference)
10.49****** Stock Purchase Agreement dated as of August 7, 1998
by and among Western Traction Company, The Carlston
Family Trust, Ronald D. Carlston and Crescent
Operating, Inc.
10.50****** Stock Purchase Agreement dated as of July 31, 1998
by and among Harvey Equipment Center, Inc., L and H
Leasing company, William J. Harvey, Roy E. Harvey,
Jr., Betty J. Harvey and Crescent Operating, Inc.
10.51****** Credit Agreement dated as of July 28, 1998, between
Crescent Real Estate Equities Limited Partnership
and CRL Investments, Inc, together with the related
Note.
10.52****** Security Agreement dated as of July 28, 1998,
between Crescent Real Estate Equities Limited
Partnership and CRL Investments, Inc.
10.53****** First Amendment to Credit Agreement effective as of
August 27, 1998, among Crescent Operating, Inc.,
NationsBank, N. A., and the Support Parties
identified therein.
10.54****** Lease Agreement dated as of October 13, 1998,
between Crescent Real Estate Equities Limited
Partnership and Wine Country Golf Club, Inc.,
relating to Sonoma Golf Club
10.55 First Amendment to Lease Agreement effective
December 31, 1998, between Canyon Ranch Leasing,
L. L. C., and Crescent Real Estate Equities Limited
Partnership, relating to Canyon Ranch - Tucson
10.56 First Amendment to Lease Agreement effective April
1, 1996; Second Amendment to Lease Agreement
effective November 22, 1996; Third Amendment to
Lease Agreement effective August 12, 1998; and
Fourth Amendment to Lease Agreement effective
December 31, 1998 between RoseStar Southwest, LLC,
and Crescent Real Estate Funding II L. P., relating
to Hyatt Regency Albuquerque
10.57 First Amendment to Lease Agreement effective
December 31, 1998, between Wine Country Hotel, LLC,
and Crescent Real Estate Equities Limited
Partnership, relating to Sonoma Mission Inn & Spa
10.58 First Amendment to Amended and Restated Lease
Agreement effective December 31, 1998, between
RoseStar Management, LLC, and Crescent Real Estate
Equities Limited Partnership, relating to Marriott
City Center, Denver
10.59 First Amendment to Lease Agreement effective
December 31, 1998, between Wine Country Hotel, LLC,
and Crescent Real Estate Equities Limited
Partnership, relating to Ventana Inn
10.60 First Amendment to Amended and Restated Lease
Agreement effective April 1, 1996 and Second
Amendment to Amended and Restated Lease Agreement
effective December 31, 1998, between RoseStar
Southwest, LLC, and Crescent Real Estate Funding II,
L.P., relating to Hyatt Regency Beaver Creek
10.61 First Amendment to Lease Agreement effective
December 31, 1998, between COI Hotel Group, Inc.
and Crescent Real Estate Equities Limited
Partnership, relating to Four Seasons - Houston
10.63 Master Guaranty effective December 31, 1998, by
Crescent Operating, Inc. for the benefit of
Crescent Real Estate Equities Limited Partnership,
Crescent Real Estate Funding II, L. P., and Crescent
Real Estate Funding VI, L. P., relating to leases
for Hyatt Regency Albuquerque, Hyatt Regency Beaver
Creek, Canyon Ranch-Lenox, Sonoma Mission Inn & Spa,
Canyon Ranch - Tucson, and Marriot City Center
Denver
10.64 Guaranty of Lease effective December 19, 1997, by
Crescent Operating, Inc. for the benefit of
Crescent Real Estate Equities Limited Partnership,
relating to Ventana Inn
10.65 Amended and Restated Guaranty of Lease effective
December 31, 1998, by Crescent Operating, Inc. for
the benefit of Crescent Real Estate Equities
Limited Partnership, relating to Four Seasons Hotel
- Houston
10.66 Amended and Restated Guaranty of Lease effective
December 31, 1998, by Crescent Operating, Inc. for
the benefit of Crescent Real Estate Equities Limited
Partnership, relating to Sonoma Golf Club
10.67 Credit Agreement dated August 11, 1995, between
Crescent Development Management Corp., as borrower,
and Crescent Real Estate Equities Limited
Partnership, as lender; First Amendment to Credit
Agreement dated as of April 15, 1997; Second
Amendment to Credit Agreement dated as of May 8,
1998; and related Note and Security Agreement
10.68 Credit Agreement dated January 1, 1998, between
Crescent Development Management Corp., as borrower,
and Crescent Real Estate Equities Limited
Partnership, as lender, and related Note and
Security Agreement
10.69 $3,100,000 Note dated February 29, 1996, made by
Crescent Development Management Corp. payable to
Crescent Real Estate Equities Limited Partnership
16*** Letter of Arthur Andersen LLP regarding disclosure
in connection with change in certifying accountant
21 List of Subsidiaries of Crescent Operating, Inc
23.1 Consent of Ernst & Young LLP, auditors, to inclusion
of Company and Carter-Crawley Asset Group reports in
S-4 registration statement
23.2 Consent of Arthur Andersen LLP to inclusion of
Carter-Crawley Asset Group report in S-4
registration statement
23.3 Consent of Arthur Andersen LLP to inclusion of
Woodlands reports in S-4 registration statement
23.4 Consent of Arthur Andersen LLP to inclusion of CBHS
report in S-4 registration statement
27 Financial Data Schedule
* Incorporated by Reference to the Company's
registration statement on Form S-1 dated July 12,
1997
** Incorporated by Reference to the Company's September
30, 1997 Form 10-Q
*** Incorporated by Reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
1997
**** Incorporated by Reference to the Company's March
31, 1998 Form 10-Q
***** Incorporated by Reference to the Company's June 30,
1998 Form 10-Q
****** Incorporated by Reference to the Company's
September 30, 1998 Form 10-Q
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of the year
ended December 31, 1998.
38
<PAGE> 39
Form 8-K/A filed on November 14, 1997, to the Form 8-K dated August 31,
1997 and filed on September 15, 1997, including the financial statements
and pro forma disclosure required by Item 7 of Form 8-K.
Form 8-K/A filed on November 25, 1997, to the Form 8-K dated September
29, 1997, and filed on October 14, 1997, updating certain information
regarding the Company's acquisition of an interest in Desert Mountain
Development.
(c) Exhibits Required by Item 601 of Regulation S-K:
Exhibits required are listed under Item 14(a)(3).
(d) Financial Statement Schedules Required by Regulation S-X:
Information with respect to this Item is contained on Pages F-1 to F-68
of this Annual Report on Form 10-K.
39
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 31st day of March,
1999.
CRESCENT OPERATING, INC.
(Registrant)
By /s/ Gerald W. Haddock
---------------------------------------
Gerald W. Haddock
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934 as amended,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Richard E. Rainwater
- ------------------------------------------- Chairman of the Board of Directors March 31, 1999
Richard E. Rainwater
/s/ John C. Goff
- ------------------------------------------- Vice Chairman of the Board of Directors March 31, 1999
John C. Goff
/s/ Gerald W. Haddock
- ------------------------------------------- President and Chief Executive Officer and March 31, 1999
Gerald W. Haddock Director (Principal Executive Officer)
/s/ Jeffrey L. Stevens
- ------------------------------------------- Executive Vice President, Chief Operating March 31, 1999
Jeffrey L. Stevens Officer and Director
/s/ Richard P. Knight
- ------------------------------------------- Chief Financial Officer March 31, 1999
Richard P. Knight (Principal Financial and Accounting Officer)
- ------------------------------------------- Director
William A. Abney
- ------------------------------------------- Director
Anthony M. Frank
/s/ Paul E. Rowsey, III
- ------------------------------------------- Director March 31, 1999
Paul E. Rowsey, III
/s/ Carl F. Thorne
- ------------------------------------------- Director March 31, 1999
Carl F. Thorne
</TABLE>
40
<PAGE> 41
CRESCENT OPERATING, INC.
INDEX TO FINANCIAL STATEMENTS
The following Consolidated Financial Statements of the Registrant are submitted
herewith in response to Item 8 and Item 14(a)1:
<TABLE>
<CAPTION>
PAGE
CRESCENT OPERATING, INC. ----
<S> <C>
Reports of Independent Auditors..................................................................... F-3
Consolidated Balance Sheets......................................................................... F-6
Consolidated Statements of Operations............................................................... F-7
Consolidated Statements of Changes in Shareholders' Equity (Deficit)................................ F-8
Consolidated Statements of Cash Flows............................................................... F-9
Notes to Consolidated Financial Statements.......................................................... F-10
The following Consolidated Financial Statements are submitted herewith in response to Rule 3-09 of
Regulation S-X:
CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC
Report of Independent Public Accountants........................................................... F-33
Consolidated Balance Sheets........................................................................ F-34
Consolidated Statements of Operations.............................................................. F-36
Consolidated Statements of Changes in Members' Capital (Deficit)................................... F-37
Consolidated Statements of Cash Flows.............................................................. F-38
Notes to Consolidated Financial Statements......................................................... F-39
The following financial statement schedule for Charter Behavioral Health
Systems, LLC and its subsidiaries is submitted herewith in response to Item
14(a)2:
Schedule II - Valuation and Qualifying Accounts - CBHS.............................................. F-49
</TABLE>
F-1
<PAGE> 42
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE WOODLANDS OPERATING COMPANY, L.P.
Report of Independent Public Accountants............................................................ F-50
Consolidated Balance Sheets......................................................................... F-51
Consolidated Statements of Earnings................................................................. F-52
Consolidated Statements of Changes in Partners' Equity.............................................. F-53
Consolidated Statements of Cash Flows............................................................... F-54
Notes to Consolidated Financial Statements.......................................................... F-55
THE WOODLANDS LAND DEVELOPMENT COMPANY, L.P.
Report of Independent Public Accountants............................................................ F-58
Consolidated Balance Sheets......................................................................... F-59
Consolidated Statements of Earnings................................................................. F-60
Consolidated Statements of Changes in Partners' Equity.............................................. F-61
Consolidated Statements of Cash Flows............................................................... F-62
Notes to Consolidated Financial Statements.......................................................... F-63
</TABLE>
All other schedules have been omitted since the required information is
presented in the financial statements and the related notes or is not
applicable.
F-2
<PAGE> 43
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Crescent Operating, Inc.
We have audited the accompanying consolidated balance sheets of Crescent
Operating, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, changes in shareholders' equity
(deficit), and cash flows for the year ended December 31, 1998 and the period
from May 9, 1997 through December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Crescent
Operating, Inc. and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for the year
ended December 31, 1998 and the period from May 9, 1997 through December 31,
1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
March 29, 1999
F-3
<PAGE> 44
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Crescent Operating, Inc.
We have audited the accompanying combined statements of operations, changes in
shareholder's equity, and cash flows of Carter-Crowley Asset Group as described
in Note 2 for the period from January 1, 1997 through May 8, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined results of operations and cash flows for
the period from January 1, 1997 through May 8, 1997 of Carter-Crowley Asset
Group in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
March 2, 1998
F-4
<PAGE> 45
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Carter-Crowley Properties, Inc.
We have audited the accompanying combined statements of operations,
shareholder's equity and cash flows of Carter-Crowley Asset Group as described
in Note 2 for the year ended December 31, 1996. These financial statements are
the responsibility of Carter-Crowley Asset Group's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of
Carter-Crowley Asset Group for the year ended December 31, 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
May 14, 1997
F-5
<PAGE> 46
CRESCENT OPERATING, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 42,810 $ 43,401
Accounts receivable, net 35,544 17,099
Inventories 34,203 10,125
Notes receivable 1,671 8,454
Real estate 109,301 43,200
Prepaid expenses and other current assets 5,837 4,715
----------------- -----------------
Total current assets 229,366 126,994
----------------- -----------------
PROPERTY AND EQUIPMENT, NET 162,181 90,979
----------------- -----------------
INVESTMENTS 367,105 218,628
----------------- -----------------
OTHER ASSETS
Real estate 64,301 70,828
Notes receivable 18,332 35,343
Intangible assets, net 87,021 54,525
Other assets 9,027 4,786
----------------- -----------------
Total other assets 178,681 165,482
----------------- -----------------
TOTAL ASSETS $ 937,333 $ 602,083
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 64,749 $ 49,321
Accounts payable - CEI 7,731 6,589
Current portion of long-term debt - CEI 7,668 24,084
Current portion of long-term debt 84,539 18,759
Deferred revenue 46,998 13,687
----------------- -----------------
Total current liabilities 211,685 112,440
LONG-TERM DEBT - CEI, NET OF CURRENT PORTION 220,944 207,799
LONG-TERM DEBT, NET OF CURRENT PORTION 57,988 7,486
OTHER LIABILITIES 34,578 11,152
----------------- -----------------
Total liabilities 525,195 338,877
----------------- -----------------
MINORITY INTERESTS 428,206 271,266
----------------- -----------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value, 10,000 shares authorized,
no shares issued or outstanding -- --
Common stock, $.01 par value, 22,500 shares authorized,
11,402 and 11,211 shares issued, respectively 114 112
Additional paid-in capital 17,667 14,255
Deferred compensation on restricted shares (210) (262)
Accumulated comprehensive income (loss) (9,763) --
Retained deficit (21,024) (22,165)
Treasury stock at cost, 700 and 0 shares, respectively (2,852) --
----------------- -----------------
Total shareholders' equity (deficit) (16,068) (8,060)
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 937,333 $ 602,083
================= =================
</TABLE>
See accompaning notes to the consolidated financial statements.
F-6
<PAGE> 47
CRESCENT OPERATING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Carter-Crowley Asset
Crescent Operating, Inc. Group (Predecessor)
------------------------------------------- -------------------------------------------
For the For the period from For the period from For the
Year Ended May 9, 1997 to January 1, 1997 Year Ended
December 31, 1998 December 31, 1997 to May 8, 1997 December 31, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
REVENUES
Equipment sales & leasing $ 85,365 $ 10,518 $ 4,657 $ 10,394
Hospitality 229,491 79,468 -- --
Land development 178,392 66,896 -- --
------------------ ------------------ ------------------ ------------------
Total revenues 493,248 156,882 4,657 10,394
------------------ ------------------ ------------------ ------------------
OPERATING EXPENSES
Equipment sales & leasing expenses 79,011 9,783 4,499 10,285
Hospitality expenses 170,556 62,542 -- --
Hospitality properties rent - CEI 52,276 16,694 -- --
Land development expenses 178,372 67,095 -- --
General and administrative expenses 3,147 1,761 -- --
------------------ ------------------ ------------------ ------------------
Total operating expenses 483,362 157,875 4,499 10,285
------------------ ------------------ ------------------ ------------------
INCOME (LOSS) FROM OPERATIONS 9,886 (993) 158 109
------------------ ------------------ ------------------ ------------------
INVESTMENT INCOME (LOSS) 27,684 (16,423) -- --
------------------ ------------------ ------------------ ------------------
OTHER (INCOME) EXPENSE
Interest expense 18,262 5,481 135 356
Interest income (3,876) (1,751) (13) (52)
Other 182 (159) (3) (27)
------------------ ------------------ ------------------ ------------------
Total other (income) expense 14,568 3,571 119 277
------------------ ------------------ ------------------ ------------------
INCOME (LOSS) BEFORE MINORITY
INTERESTS AND INCOME TAXES 23,002 (20,987) 39 (168)
INCOME TAX (PROVISION) BENEFIT (5,521) (612) (14) 57
------------------ ------------------ ------------------ ------------------
INCOME (LOSS) BEFORE MINORITY INTERESTS 17,481 (21,599) 25 (111)
MINORITY INTERESTS (16,340) (566) -- --
------------------ ------------------ ------------------ ------------------
NET INCOME (LOSS) $ 1,141 $ (22,165) $ 25 $ (111)
================== ================== ================== ==================
EARNINGS (LOSS) PER SHARE
Basic $ 0.10 $ (2.00)
================== ==================
Diluted $ 0.10 $ (2.00)
================== ==================
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 11,206 11,073
================== ==================
Diluted 11,943 11,073
================== ==================
</TABLE>
See accompaning notes to the consolidated financial statements.
F-7
<PAGE> 48
CRESCENT OPERATING, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(Amounts in thousands)
<TABLE>
<CAPTION>
Common stock Treasury stock
---------------------- ---------------------- Additional
Shares Amount Shares Amount paid-in capital
-------- -------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE at December 31, 1995, (Predecessor) $ 13 13 -- $ -- $ 12,873
Contributed capital -- -- -- -- 3,355
Distributions -- -- -- -- (1,678)
Net loss -- -- -- -- --
-------- ----- ---- ------- --------
BALANCE at December 31, 1996, (Predecessor) 13 13 -- -- 14,550
Contributed capital -- -- -- -- 6,023
Net income -- -- -- -- --
-------- ----- ---- ------- --------
BALANCE at May 8, 1997, (Predecessor) 13 13 -- -- 20,573
Formation transactions:
Elimination of Predecessor's equity (13) (13) -- -- (20,573)
Contributed capital from CEI -- -- -- -- 14,100
Cash dividends -- -- -- -- (2,380)
Common stock issuance 11,026 110 -- -- (110)
Stock options exercised 45 1 -- -- 44
Common stock issued for acquisitions 130 1 -- -- 2,339
Issuance of restricted common stock 10 -- -- -- 262
Net loss -- -- -- -- --
-------- ----- ---- ------- --------
BALANCE at December 31, 1997 11,211 112 -- -- 14,255
Comprehensive income (loss):
Net income -- -- -- -- --
Unrealized loss on Magellan warrants -- -- -- -- --
Comprehensive income (loss)
Stock options exercised 24 -- -- -- 23
Common stock issued for acquisitions 167 2 -- -- 3,389
Amortization of restricted common stock -- -- -- -- --
Purchase of treasury stock -- -- (700) (2,852) --
-------- ----- ---- ------- --------
BALANCE at December 31, 1998 11,402 $ 114 (700) $(2,852) $ 17,667
======== ===== ==== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Deferred
compensation Accumulated
on restricted comprehensive Retained
shares income (loss) deficit Total
------------- ------------- ------------- --------
<S> <C> <C> <C> <C>
BALANCE at December 31, 1995, (Predecessor) $ -- $ -- $ (3,526) $ 9,360
Contributed capital -- -- -- 3,355
Distributions -- -- -- (1,678)
Net loss -- -- (111) (111)
------------- ------------- ------------- --------
BALANCE at December 31, 1996, (Predecessor) -- -- (3,637) 10,926
Contributed capital -- -- -- 6,023
Net income -- -- 25 25
------------- ------------- ------------- --------
BALANCE at May 8, 1997, (Predecessor) -- -- (3,612) 16,974
Formation transactions:
Elimination of Predecessor's equity -- -- 3,612 (16,974)
Contributed capital from CEI -- -- -- 14,100
Cash dividends -- -- -- (2,380)
Common stock issuance -- -- -- --
Stock options exercised -- -- -- 45
Common stock issued for acquisitions -- -- -- 2,340
Issuance of restricted common stock (262) -- -- --
Net loss -- -- (22,165) (22,165)
------------- ------------- ------------- --------
BALANCE at December 31, 1997 (262) -- (22,165) (8,060)
--------
Comprehensive income (loss):
Net income -- -- 1,141 1,141
Unrealized loss on Magellan warrants -- (9,763) -- (9,763)
--------
Comprehensive income (loss) (8,622)
Stock options exercised -- -- -- 23
Common stock issued for acquisitions -- -- -- 3,391
Amortization of restricted common stock 52 -- -- 52
Purchase of treasury stock -- -- -- (2,852)
------------- ------------- ------------- --------
BALANCE at December 31, 1998 $ (210) $ (9,763) $ (21,024) $(16,068)
============= ============= ============= ========
</TABLE>
See accompanying notes to the consolidated financial statements
F-8
<PAGE> 49
CRESCENT OPERATING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Carter-Crowley Asset
Crescent Operating, Inc. Group (Predecessor)
-------------------------------------- -------------------------------------
For the For the period from For the period from For the
year ended May 9, 1997 to January 1, 1997 to year ended
December 31, 1998 December 31, 1997 May 8, 1997 December 31, 1996
----------------- ----------------- ---------------- ------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,141 $ (22,165) $ 25 $ (111)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 13,675 3,575 494 1,368
Amortization 1,072 83 -- --
Provision for deferred income taxes (2,916) 523 14 151
Equity in losses of unconsolidated subsidiaries (27,684) 17,011 -- --
Minority interests in net losses 16,340 566 -- --
Gain on sale of property and equipment (2,887) (161) -- (104)
Gain on sale of partnership -- (110) -- --
Development of real estate (22,061) -- -- --
Net proceeds from sale of real estate 13,633 21,630 -- --
Changes in assets and liabilities, net of
effects from acquistions:
Accounts receivable (4,684) (2,219) 22 (156)
Inventories (6,519) (1,334) (562) (877)
Prepaid expenses and current assets (1,821) (3,508) (47) (2)
Other assets 1,781 -- -- --
Accounts payable and accrued expenses (847) 14,671 129 242
Accounts payable - CEI 800 3,980 212 --
Deferred revenue, current and noncurrent 49,093 10,050 -- --
Other liabilities 3,823 2,819 (105) --
------------- ------------- ------------- -------------
Net cash provided by operating activities 31,939 45,411 182 511
------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business interests, net of cash acquired (15,825) (63,759) -- --
Acquisition of business interests by minority interests (121,076) -- -- --
Purchases of property and equipment (30,288) (13,951) (1,067) (4,376)
Purchase of treasury stock (2,852) -- -- --
Proceeds from sale of property and equipment 4,129 1,022 -- 982
Proceeds from sale of partnership -- 12,550 -- --
Net proceeds from sale and collection of notes receivable 21,575 -- -- --
Distributions received 23,899 -- -- --
Other -- (1,670) 146 268
------------- ------------- ------------- -------------
Net cash used in investing activities (120,438) (65,808) (921) (3,126)
------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of long-term debt 98,057 22,462 -- 4,885
Payments on long-term debt (99,952) (920) (5,140) (2,601)
Proceeds of long-term debt - CEI 42,820 65,058 -- --
Payments on long-term debt - CEI (53,330) (34,568) -- --
Capital contributions by minority interests 120,430 14,100 6,023 --
Distributions to minority interests (20,666) (2,380) -- --
Other 549 45 -- --
------------- ------------- ------------- -------------
Net cash provided by financing activities 87,908 63,797 883 2,284
------------- ------------- ------------- -------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (591) 43,400 144 (331)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 43,401 1 22 353
------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 42,810 $ 43,401 $ 166 $ 22
============= ============= ============= =============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-9
<PAGE> 50
CRESCENT OPERATING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS:
Crescent Operating, Inc. ("Crescent Operating", "COI" or the "Company")
was formed on April 1, 1997, by Crescent Real Estate Equities Company
("Crescent Equities" or "CEI") and its subsidiary Crescent Real Estate
Equities Limited Partnership ("Crescent Partnership") to be the lessee and
operator of certain assets owned or to be acquired by Crescent Partnership
and perform an agreement ("Intercompany Agreement") between Crescent
Operating and Crescent Partnership, pursuant to which each has agreed to
provide the other with rights to participate in certain transactions. On
May 8, 1997, Crescent Partnership contributed $14.1 million in cash to
Crescent Operating. Effective June 12, 1997, Crescent Equities distributed
shares of Crescent Operating common stock to shareholders of Crescent
Equities and unit holders of Crescent Partnership of record on May 30,
1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements of Crescent Operating
include the accounts of the Company and all subsidiaries controlled by the
Company after elimination of material intercompany accounts and minority
interests. Subsidiaries not controlled by the Company, but for which the
Company has the ability to exercise significant influence, are accounted
for on the equity method.
Crescent Machinery Company ("Crescent Machinery"), previously known as
Moody-Day, Inc. ("Moody-Day"), Rosestar Management LLC ("Rosestar"), COI
Hotel Group, Inc. ("COI Hotel"), and WOCOI Investment Company ("WOCOI"),
which are wholly-owned subsidiaries of Crescent Operating, are
consolidated. The Company owns 5% of the Woodlands Land Company, Inc.
("LandCo"), Desert Mountain Development Corporation ("Desert Mountain
Development"), Crescent CS Holdings Corporation ("CS I"), Crescent CS
Holdings II Corporation ("CS II") and CRL Investments, Inc. ("CRL"). The
Company's 5% interests represent 100% of the voting stock of these
entities, and therefore, these entities are consolidated into Crescent
Operating with 95% reported as minority interests. The Company owns 50% of
COPI Colorado, L.P. ("COPI Colorado") which owns 10% of Crescent
Development Management Corp. ("CDMC"). The 10% interest in CDMC represents
100% of the voting stock and therefore CDMC is consolidated into COPI
Colorado which is consolidated into Crescent Operating resulting in 95%
reported as minority interests. The Company's investment in Hicks Muse
Tate & Furst Equity Fund II, L.P. ("Hicks-Muse"), Corporate Arena
Associates, Inc. ("Corporate Arena") and Hillwood/1642, Ltd. ("Hillwood")
are shown at cost and the 50% interest in Charter Behavioral Health
Systems, LLC ("CBHS") is shown on the equity method of accounting.
The combined financial statements of the "Predecessor" include Moody-Day
and Hicks-Muse (collectively, the "Carter-Crowley Asset Group"). As the
Company did not have any activity prior to May 9, 1997, the data included
relating to 1996 and the period in 1997 prior to May 9, is only with
regard to the Predecessor.
USE OF ESTIMATES
The financial statements include estimates and assumptions made by
management that affect the carrying amounts of assets and liabilities,
reported amounts of revenues and expenses and the disclosure of contingent
assets and liabilities. Actual results may differ from these estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents. Cash of $16.1 million resides
with certain subsidiaries and restrictions limit transfers to the parent
F-10
<PAGE> 51
company. The Company also has $2.5 million of cash in escrow which is
restricted pending the outcome of arbitration with Magellan Health
Services, Inc. ("Magellan").
INVENTORIES
Inventories consist of new and used equipment held for sale, equipment
parts, food, beverages and supplies all of which are stated at the lower of
cost or market using the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. The Company uses the
straight-line method of depreciation for financial statement purposes. The
estimated useful lives used in computing depreciation are as follows:
<TABLE>
<S> <C>
Land improvements........................................ 10-15 years
Rental equipment......................................... 2-7 years
Building and improvements................................ 30 years
Transportation equipment................................. 3-5 years
Furniture, fixtures, and other equipment................. 5-10 years
</TABLE>
Expenditures for maintenance and repairs are charged to expense as
incurred. Expenditures for renewals or betterment's are capitalized. The
cost of property replaced, retired, or otherwise disposed of is removed
from the asset account along with the related accumulated depreciation.
Long-lived assets are evaluated when indications of impairment are present,
and provisions for possible losses are recorded when undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying value. The Company did not recognize any losses from impairment
during 1997 or 1998.
REAL ESTATE
Real estate represents raw land, developed land, homes constructed or under
construction, repurchased lots, applicable capitalized interest, and
applicable capitalized general and administrative costs. Real estate is
recorded at cost.
Interest is capitalized based on the average yearly interest percentage
applied to cumulative capital expenditures for property under development.
Approximately $13.2 million and $5.2 million of interest was capitalized
for the year ended December 31, 1998 and the period ended December 31,
1997, respectively. Payroll and related costs associated with the
development of a specific subdivision of land are capitalized. Once sales
of property begin in a specific subdivision, capitalized costs are expensed
as cost of sales.
INTANGIBLE ASSETS
Intangible assets consist of goodwill and membership intangibles. Goodwill
represents the excess of the acquisition costs over the fair value of net
identifiable assets of businesses acquired and is amortized on a
straight-line basis over 6-30 years. Membership intangibles represent the
purchase price values allocated to club memberships to be sold. Intangibles
are evaluated periodically as events or circumstances indicate a possible
inability to recover its carrying amount. Such evaluation is based on
various analyses, including cash flow and profitability projections. The
analyses involve significant management judgment to evaluate the capacity
of an acquired operation to perform within projections. Management believes
that no significant impairment of goodwill or membership intangibles has
occurred.
DEFERRED COMPENSATION ON RESTRICTED SHARES
Deferred compensation on restricted shares issued to employees are being
amortized to expense over the vesting period.
F-11
<PAGE> 52
REVENUE RECOGNITION
Revenues from equipment rentals under operating leases are recognized as
the revenue becomes receivable according to the provisions of the lease.
Revenues from full-service hotels and luxury health resorts are recognized
as services are provided. Club initiation fees and membership conversion
fees at Desert Mountain Development are deferred and recognized on a
straight-line basis over the expected life of the membership. Deposits for
future services are deferred and recognized as revenue in the period
services are provided.
MINORITY INTERESTS
Minority interests represents the non-voting common stock interests owned
by shareholders in LandCo., Desert Mountain Development, CS I, CS II, COPI
Colorado and CRL.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred
taxes related primarily to differences between the treatment of certain
items for financial statement purposes and the treatment of those items for
tax purposes. The deferred tax assets and liabilities represent the future
tax return consequences of those differences, which will either be taxable
or deductible when the assets and liabilities are recovered or settled.
RECLASSIFICATIONS
Certain prior year information has been reclassified to conform to current
year presentation.
STOCK BASED COMPENSATION
The Company measures compensation costs associated with the issue of share
options using the intrinsic method under which compensation costs related
to share options issued pursuant to compensatory plans are measured based
on the difference between the quoted market price of the shares at the
measurement date (originally the date of grant) and the exercise price and
charged to expense over the periods during which the grantee performs the
related services. All share options issued to date by the Company have
exercise prices equal to the market price of the shares at the dates of
grant.
NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, Reporting Comprehensive Income, which
established new rules for the reporting and display of comprehensive income
and its components. SFAS No. 130 requires unrealized gains and losses on
the Company's available-for-sale securities, which prior to adoption would
have been reported separately in stockholders' equity, to be included in
other comprehensive income.
For the fiscal year ended December 31, 1998, the Company adopted SFAS No.
131, Disclosure about Segments of an Enterprise and Related Information,
which established standards for the way that public business enterprises
report information about operating segments in annual financial statements
and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which provides that all derivative
instruments be recognized as either assets or liabilities depending on the
rights or obligations under the contract and that all derivative
instruments be measured at fair value. This pronouncement is effective for
years beginning after June 15, 1999, and will require the Company to record
the net comprehensive income or loss related to the Magellan warrants in
the statement of operations as a reduction or addition to net income for
the year ended December 31, 2000.
F-12
<PAGE> 53
3. ACQUISITIONS:
Initial Capitalization
On May 9, 1997, Crescent Operating acquired (i) all of the stock of
Moody-Day, a construction equipment sales, leasing and servicing company
located in Dallas, Texas, (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 allocation of purchase price was
approximately $4.1 million for Moody-Day, 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 to Crescent Partnership for approximately
$12.5 million.
Equipment Sales & Leasing
Effective December 1, 1997, Crescent Operating acquired certain assets of
Preco Machinery Sales, Inc. ("Preco"), a company that is engaged in
equipment sales, leasing and servicing, located in Houston, Texas. The
purchase price of Preco was approximately $4 million and consisted of a
cash payment of approximately $1.7 million and the issuance of 130,000
restricted shares of Crescent Operating common stock. The transaction was
structured such that Preco became a division of Crescent Machinery.
Effective April 30, 1998, the Company acquired certain assets of Central
Texas Equipment Co. ("Central Texas"), a company which is engaged in
equipment sales, leasing and servicing, located in Austin, Texas. The
purchase price of approximately $9.7 million was comprised of $3.0 million
in cash, 128,551 shares of Crescent Operating common stock and the
assumption of $4.1 million of liabilities.
Effective June 8, 1998, the Company acquired all of the stock of Machinery,
Inc., a company that is engaged in equipment sales, leasing and servicing,
with locations in Tulsa and Oklahoma City, Oklahoma. The purchase price of
approximately $2.8 million was comprised of $0.6 million in cash, 38,170
shares of Crescent Operating common stock and the assumption of $1.5
million of liabilities.
Effective July 1, 1998, the Company acquired all of the stock of Western
Traction Company ("Western Traction"), a company that is engaged in
equipment sales, leasing and servicing, with locations in Sacramento,
California, Union City, California, Fresno, California, Sparks, Nevada and
Honolulu, Hawaii. The purchase price of approximately $52.0 million was
comprised of $6.5 million in cash, a note payable of $7.5 million and the
assumption of liabilities of $38.0 million.
Effective July 31, 1998, the Company acquired all of the stock of Harvey
Equipment Center, Inc. ("Harvey"), a company which is engaged in equipment
sales, leasing and servicing, located in Van Wert, Ohio. The purchase price
of approximately $8.4 million was comprised of $2.7 million in cash, notes
payable of $1.2 million and the assumption of $4.5 million of liabilities.
Effective July 31, 1998, the Company acquired certain assets of 4-K
Equipment Company ("4-K"), a company which is engaged in equipment sales,
leasing and servicing, located in Franklin, Indiana. The purchase price of
$0.2 million was comprised of $0.1 million in cash and the assumption of
$0.1 million of liabilities.
Hospitality
Effective July 31, 1997, Crescent Operating acquired for $2.0 million in
cash the following assets: (i) 100% of the membership interests in Rosestar
and (ii) all of the common stock, $.01 par value, of each of RSSW Corp. and
RSCR Arizona Corp., affiliates of RoseStar. RoseStar and its subsidiaries
are the lessees of 6 hotels owned by Crescent Equities or its affiliates.
These hotels are the Denver Marriott City Center and the Hyatt Regency
Beaver Creek in Colorado, the Hyatt Regency in Albuquerque, New Mexico,
Canyon Ranch in Tucson, Arizona, Canyon Ranch in Lenox, Massachusetts and
The Sonoma Mission Inn & Spa in California.
F-14
<PAGE> 54
On September 22, 1997, COI Hotel, became the lessee of the Four Seasons
Hotel in Houston, Texas, which is owned by Crescent Equities, and acquired
for $2.4 million (i) a two-thirds interest in the Houston Center Athletic
Club Venture ("HCAC"), a joint venture that owns the HCAC and (ii) a $5.0
million note receivable executed by the Houston Center Athletic Club
Venture. The note bears interest at LIBOR plus one percent and interest is
payable in arrears at the end of each twenty-eight (28) day period. The
Company partially financed these transactions with proceeds of $1.8 million
in loans from Crescent Partnership. The Company recorded the note on its
books at its estimated fair value of $5.0 million. The note was collected
during 1998.
On January 23, 1998, a subsidiary of the Company signed a 10-year lease
agreement with Crescent Partnership for the Austin Omni Hotel. The Austin
Omni Hotel is 314-room full service hotel located approximately four blocks
from the state capitol building in Austin, Texas. A subsidiary of the
Company and Crescent Partnership mutually agreed to terminate the Austin
Omni Hotel lease effective December 31, 1998, and the Company received a
$75,000 break-up fee in accordance with the terms of the lease. Effective,
January 1, 1999, the Company began providing limited asset management
services related to the Austin Omni Hotel for $50,000 per year.
Effective July 27, 1998, to enable the Company to invest in the future use
of the "Canyon Ranch" name, the Company contributed $50,500 to obtain a 5%
economic interest, representing all of the voting stock, of CRL
Investments, Inc. ("CRL"). Immediately following such contribution, CRL
exercised its purchase option by paying $1 million to obtain a 10% economic
interest in CR License LLC ("CR License"). CR License is the entity which
owns the rights to use the "Canyon Ranch" name. CRL has the opportunity
over the next two years to pay an additional $5 million to obtain an
additional 20% interest in CR License. Contemporaneously, CRL acquired a
50% interest in CR Las Vegas LLC, an entity that is building a Canyon Ranch
day spa in the Venetian Hotel in Las Vegas. Through CRL and CR License, the
Company has an effective 2.75% economic interest in the Canyon Ranch day
spa project.
Effective October 13, 1998, Wine Country Golf Club, Inc., a wholly-owned
subsidiary of the Company, became the lessee of the Sonoma Golf Course in
California, which is owned by Crescent Equities. This 18-hole championship
golf course is a strategic amenity to the Sonoma Mission Inn and Spa, which
will allow the Company to expand its marketing focus to the golf-oriented
guest. The lease is for a ten-year period and provides for the payment to
Crescent Equities of (i) base rent, with periodic rent increases and (ii)
percentage rent based on annual gross receipts above a specified amount
with periodic increases of such specified amount.
Refrigerated Warehousing
Effective October 31, 1997, Crescent Operating acquired, from Crescent
Partnership, for approximately $8.0 million, 100% of the voting stock,
representing a 5% equity interest, of CS I and CS II. CS I holds a 40%
general partner interest in Vornado Crescent Atlanta Partnership ("Atlanta
Partnership"), which owns URS Logistics, Inc., a company that operates and
manages public refrigerated warehouses in the continental United States. CS
II holds a 40% general partner interest in Vornado Crescent Portland
Partnership ("Portland Partnership"), which owns AmeriCold Corporation, a
company providing integrated logistics services for the frozen food
industry consisting of warehousing and transportation. The Atlanta
Partnership and the Portland Partnership (collectively, the "Vornado
Crescent Partnerships") represent the business venture among Crescent
Operating, Crescent Equities and Vornado Realty Trust ("Vornado") which
owns and operates public refrigerated warehouses. The operations of URS
Logistics, Inc and AmeriCold Corporation are referred to as AmeriCold
Logistics.
In April 1998, AmeriCold Logistics refinanced its $607 million secured and
unsecured debt with a weighted average rate of approximately 12% with a
$550 million non-recourse, ten year loan secured by 58 refrigerated storage
properties with an interest rate of 6.89%, which required a capital
contribution from Crescent Operating of $1.5 million.
On June 1, 1998, AmeriCold Logistics, acquired nine refrigerated storage
properties from Freezer Services, Inc. for approximately $134 million,
which required a capital contribution from Crescent Operating of $2.3
million. On July 1, 1998, AmeriCold Logistics acquired five refrigerated
storage properties from Carmar Group, Inc. for approximately $158 million,
which required a capital contribution from Crescent Operating of $2.7
million. These properties contain approximately 90 million cubic feet of
refrigerated storage space.
Land Development
On July 31, 1997, Crescent Operating, through its newly-formed subsidiary,
WOCOI, acquired for $.4 million, a 42.5% general partner interest in The
Woodlands Operating Company, L.P. ("Woodlands Operating"). Woodlands
Operating was formed to provide management, advisory, landscaping and
maintenance services to entities affiliated with the Company and Crescent
Equities. Woodlands Operating is reimbursed for the costs it incurs plus a
3% or 5% management fee, depending on the type of service provided. The
acquisition of
F-15
<PAGE> 55
Woodlands Operating was part of a larger transaction pursuant to which
Crescent Equities and Crescent Partnership, together with certain Morgan
Stanley funds, acquired The Woodlands Corporation. 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, conference center and country club and other amenities. WOCOI
serves as the managing general partner of Woodlands Operating.
On September 29, 1997, Crescent Operating acquired 100% of the voting
stock, representing a 5% equity interest, of Desert Mountain Development
for $2.2 million. Desert Mountain Development is the sole general partner
of Desert Mountain Properties Limited Partnership ("DMPLP"). DMPLP owns
Desert Mountain, a master planned, luxury residential and recreational
community in northern Scottsdale, Arizona. DMPLP also owns and operates The
Desert Mountain Club that offers five Jack Nicklaus signature 18 hole golf
courses, including Cochise, site of the Senior PGA Tour's The Tradition
tournament.
On September 29, 1997, Crescent Operating acquired 100% of the voting
stock, representing a 5% equity interest, of LandCo, for approximately $1.9
million. LandCo is a newly-formed residential development corporation which
was owned by Crescent Equities. LandCo holds a 42.5% general partner
interest in, and is the managing general partner of, The Woodlands Land
Development Company, L.P. ("Landevco"), which owns approximately 9,000
acres for commercial and residential development, a realty office, an
athletic center, and interests in a title company and a mortgage company.
Effective September 11, 1998, the Company and Gerald W. Haddock, John C.
Goff and Harry H. Frampton, III (collectively, the "CDMC Sellers") entered
into a partnership agreement (the "Partnership Agreement") to form COPI
Colorado, L.P., a Delaware limited partnership ("COPI Colorado"). COPI
Colorado's purpose is to hold and manage the voting stock of CDMC (and,
consequently, to manage CDMC) and to invest in shares of Crescent Operating
common stock. As of September 22, 1998, the Company contributed to COPI
Colorado $9.0 million in cash in exchange for a 50% general partner
interest in COPI Colorado and each CDMC Seller contributed to COPI Colorado
approximately 667 shares of CDMC voting stock in exchange for an
approximately 16.67% limited partner interest in COPI Colorado; as a
result, the Company owns a 50% managing interest in COPI Colorado and the
CDMC Sellers collectively own a 50% investment interest in COPI Colorado.
CDMC's investments include indirect economic interests that vary from 18%
to 70% in the following: (i) five residential and commercial developments
and seven residential developments in Colorado; (ii) a Texaco gasoline
station and ancillary auto repair facility, car wash and convenience store
in Colorado; (iii) a timeshare development in Colorado; (iv) a real estate
company that markets and sells timeshare interests; (v) a real estate
company that specializes in the management of resort properties in
Colorado, Utah and South Carolina; (vi) two transportation companies that
provide approximately 80% of the airport shuttle service to Colorado resort
areas; and (vii) an interest in a partnership that owns and manages the
Ritz Carlton Hotel in Palm Beach, Florida. The operating results of CDMC
from September 30, 1998 to December 31, 1998 have been included in the
consolidated results of the Company.
On September 17, 1998, the Company invested $.8 million to obtain a 2.6%
limited partner interest in Hillwood/1642, Ltd. ("Hillwood"). Hillwood is
involved in developing the acreage surrounding the new multi-sports arena
to be erected in Dallas, Texas for the Dallas Stars, A National Hockey
League club, and the Dallas Mavericks, a National Basketball Association
club.
Healthcare
On June 17, 1997, Crescent Operating acquired, for $5.0 million, a 50%
member interest in CBHS and issued warrants to acquire 282,508 shares of
Crescent Operating common stock with an exercise price of $18.29 per share
to Magellan Health Services, Inc. ("Magellan"). As required by CBHS'
operating agreement, the Company contributed an additional $2.5 million to
CBHS. CBHS is a newly formed limited liability company which operates
approximately 90 behavioral healthcare facilities throughout the United
States. Crescent Operating 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 Magellan warrants is $30 per share,
exercisable in varying increments beginning on May 31, 1998 and ending on
May 31, 2009. In August and September of 1997, Crescent Operating made
loans (evidenced by promissory notes) to CBHS in the aggregate principal
amount of
F-16
<PAGE> 56
$17.5 million (the "Initial Amount"). On November 16, 1997, effective
September 30, 1997, each of the promissory notes was exchanged for
cumulative redeemable preferred interests (the "Redeemable Preferred
Interests") in CBHS. The Redeemable Preferred Interest entitles its holder
to a preferred return on the profits of CBHS, which is to be calculated at
the rate of 10% per annum of the Initial Amount, compounded monthly. CBHS,
upon approval of at least 80% of the members of its Governing Board, may
redeem all, but not less than all, of the Redeemable Preferred Interests,
at its option, on or after April 1, 1998, for cash or promissory notes, or
a combination thereof, provided that the Company and Magellan are treated
identically.
All of the acquisitions during 1997 and 1998 were accounted for as
purchases and operations have been included in the consolidated financial
statements of the Company from the date that management took over the
operational control of the acquired entity.
4. PROPERTY & EQUIPMENT, NET:
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Rental equipment (Crescent Machinery) ............ $ 71,409 $ 13,962
Land and improvements ............................ 47,651 44,029
Buildings and improvements ....................... 23,902 23,493
Construction in progress (CDMC) .................. 15,997 --
Furniture, fixtures, and other equipment ......... 14,201 12,244
Transportation equipment ......................... 3,383 827
----------------- -----------------
176,543 94,555
Less accumulated depreciation .................... (14,362) (3,576)
----------------- -----------------
$ 162,181 $ 90,979
================= =================
</TABLE>
5. INVESTMENTS:
Investments consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1998 December 31,1997
----------------- -----------------
<S> <C> <C>
Investment in Magellan warrants .................. $ 2,737 $ 12,500
Investment in CBHS ............................... -- 5,390
Investment in Landevco ........................... 37,880 31,404
Investment in Woodlands Operating ................ (831) 597
Investment in AmeriCold Logistics ................ 293,868 161,851
Investment in HCAC ............................... 1,011 (2,561)
Investment in Hicks-Muse ......................... 7,802 9,447
Investment in Corporate Arena .................... 901 --
Investment in CR License ......................... 1,000 --
Investment in CDMC projects ...................... 22,737 --
----------------- -----------------
$ 367,105 $ 218,628
================= =================
</TABLE>
F-17
<PAGE> 57
Investment income (loss) consisted of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31,1997
----------------- -----------------
<S> <C> <C>
Equity in loss of CBHS ........................... $ (5,390) $ (19,610)
Equity in income of Landevco ..................... 19,200 2,398
Equity in income of Woodlands Operating .......... 1,121 155
Equity in loss of AmeriCold Logistics ............ 3,961 36
Equity in income of CDMC Projects ................ 5,537 --
Equity in income of HCAC ......................... 130 9
Hicks-Muse income ................................ 3,125 589
----------------- -----------------
$ 27,684 $ (16,423)
================= =================
</TABLE>
6. INTANGIBLE ASSETS:
Intangible assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Goodwill, net - Crescent Machinery ............... $ 7,757 $ --
Goodwill, net - RoseStar ......................... 1,632 1,599
Goodwill, net - CDMC ............................. 35,524 --
Membership intangible, net - DMPLP ............... 42,108 52,926
----------------- -----------------
$ 87,021 $ 54,525
================= =================
</TABLE>
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consisted of the following (in
thousands):
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Accounts payable ................................. $ 26,225 $ 21,380
Accrued salaries and bonuses ..................... 9,088 5,022
Accrued taxes .................................... 9,390 3,701
Land development construction accrual ............ 6,526 4,644
Accrued interest ................................. 2,276 7,374
Accrued transaction costs ........................ 2,189 2,189
Deferred liabilities ............................. 4,141 --
Other accrued expenses ........................... 4,914 5,011
----------------- -----------------
$ 64,749 $ 49,321
================= =================
</TABLE>
8. OTHER LIABILITIES:
Other liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Deferred revenue ................................. $ 29,477 $ 8,503
Deferred tax liability ........................... -- 472
Deferred hospitality rent ........................ 3,808 1,200
Other ............................................ 1,293 977
----------------- -----------------
$ 34,578 $ 11,152
================= =================
</TABLE>
F-18
<PAGE> 58
9. LONG-TERM DEBT:
Following is a summary of the Company's debt financing (in thousands):
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
LONG-TERM DEBT - CORPORATE AND WHOLLY-OWNED SUBSIDIARIES
Equipment notes payable to finance companies due 1998 through 2003,
payments of principal and interest due monthly, bear
interest from 6.9% to 10.9%, collateralized by equipment,
available credit under such notes of $73.0 million (Crescent
Machinery) ................................................................ $ 78,032 $ 11,246
Line of credit in the amount of $30.4 million payable to Crescent
Partnership due the later of May 2002 or five years after the last draw
(in no event shall the maturity date be later than June 2007), bears
interest at 12%, payments of interest only due quarterly, collateralized,
to the extent not prohibited by pre-existing arrangements, by a first
lien on the assets which the Company now owns or may acquire in the
future (Crescent Operating) ............................................... 27,733 13,725
Note payable to Crescent Partnership due May 2002, bears interest at 12%,
payments of principal and interest due quarterly, collateralized, to the
extent not prohibited by pre-existing arrangements, by a first lien on the
assets which the Company now owns or may acquire in the future (Crescent
Operating) ................................................................ 24,223 25,980
Line of credit in the amount of $15.0 million payable to NationsBank due
August 1999, bears interest at LIBOR plus 1% (6.06% and 6.88% at December
31, 1998 and December 31, 1997, respectively), payments of interest only
due monthly (Crescent Operating) .......................................... 15,000 15,000
Note payable to Crescent Partnership due May 2002, bears interest at 12%,
payments of interest only due quarterly, collateralized by a first lien on
the assets which the Company now owns or may acquire in the future
(Crescent Operating) ...................................................... 9,000 --
Note payable to the sellers of Western Traction due January 31, 2000,
bears interest at 8.5%, payments of principal and interest due monthly,
collateralized by stock of Western Traction (Crescent Operating) .......... 5,511 --
Note payable to Crescent Partnership maturing August 2003, bears interest
at 10.75%, payments of principal and interest due monthly, collateralized
by a deed of trust for certain personal property and certain real
property (RoseStar) ....................................................... 1,770 2,052
Notes payable to the sellers of Harvey Equipment due July 31, 2002, bear
interest at 8%, payments of principal and interest due semi-annually
(Crescent Operating) ...................................................... 1,159 --
Note payable to Crescent Partnership maturing September 2002,
</TABLE>
F-19
<PAGE> 59
<TABLE>
<S> <C> <C>
bears interest at 8.5%, payments of principal and interest due monthly,
collateralized by the Company's 2/3 interest in HCAC (COI Hotel) ......... 632 790
Note payable to Crescent Partnership maturing August 2003, bears interest
at 10.75%, payments of principal and interest due monthly, collateralized
by a deed of trust in certain real property and certain personal
property (RoseStar) ...................................................... 479 555
Note payable to Crescent Partnership due November 2006, bears interest at
7.5%, payments of interest only due annually (RoseStar) .................. 197 191
Note payable to Crescent Partnership due September 1998, bears interest at
8.5%, payments of interest only due monthly, collateralized by HCAC $5.0
million note receivable (COI Hotel) ...................................... -- 1,000
----------------- -----------------
Total debt - corporate and wholly-owned subsidiaries ................ 163,736 70,539
----------------- -----------------
LONG-TERM DEBT - NON WHOLLY-OWNED SUBSIDIARIES
Senior note payable to Crescent Partnership maturing December 2005, bears
interest at 10%, payments of principal and interest due quarterly
commencing January 15, 1998 based on sales proceeds from DMPLP,
collateralized by land, improvements and equipment owned by DMPLP
(DMPLP) ................................................................... 50,717 110,000
Junior note payable to Crescent Partnership maturing December 2010, bears
interest at 14%, payments of principal and interest due quarterly
commencing January 15, 1998 based on sales proceeds from DMPLP,
collateralized by land, improvements and
equipment owned by DMPLP (DMPLP) .......................................... 60,000 60,000
Line of credit in the amount of $40.2 million payable to Crescent
Partnership due August 31, 2004, bears interest at 11.5% with principal and
interest payments due as distributions from projects are received, as
defined by the applicable credit agreement, collateralized by CDMC's
interests in East West Resort Development partnerships, East West Resorts,
LLC, and
other CDMC property (CDMC) ............................................... 35,976 --
Construction loans for various East West Resort Development partnership
projects, maturing from 1998 to 2003, bear interest from 6% to 9%, payments
of principal and interest or interest only payable monthly, collateralized
by deeds of trust, security agreements and a first lien on the
related assets (CDMC) ..................................................... 32,825 --
Line of credit in the amount of $22.9 million payable to Crescent Partnership
due January 2003, bears interest at 12%, principal and interest payments due as
distributions from projects are received, as defined by the applicable credit
agreement, collateralized by CDMC's interests in East West Resort Development
partnerships, East West Resorts LLC, and other CDMC property (CDMC) ...... 15,035 --
</TABLE>
F-20
<PAGE> 60
<TABLE>
<S> <C> <C>
Line of credit in the amount of $35 million payable to National Bank of
Arizona due May 1999, bears interest at rates from prime to prime plus 1%
(7.75% to 8.75% at December 31, 1998), payments of interest only due
monthly, collateralized by certain land owned by DMPLP, deeds of trusts on
lots sold and home construction (DMPLP) ................................... 10,000 --
Note payable to Crescent Partnership maturing June 2005, bears interest at
12%, with payments of interest only due quarterly and payments of principal
payable annually in accordance with an increasing amortization schedule,
collateralized by CDMC's interests in East West Resort Development
partnerships, East West Resorts LLC and other CDMC property (CDMC) ....... 2,850 --
Notes payable to Crescent Partnership maturing August 1998, bears interest
at the prime rate plus 1%, payments of principal and interest due monthly
based on lot note receipts collateralized by deeds of trust on lots owned
by DMPLP (DMPLP) .......................................................... -- 17,590
----------------- -----------------
Total debt - non wholly-owned subsidiaries ...................... 207,403 187,590
----------------- -----------------
Total long-term debt ............................................ $ 371,139 $ 258,129
================= =================
Current portion of long-term debt - CEI ................................... $ 7,668 $ 24,085
Current portion of long-term debt ......................................... 84,539 18,759
Long-term debt - CEI, net of current portion .............................. 220,944 207,799
Long-term debt, net of current portion .................................... 57,988 7,486
----------------- -----------------
Total long-term debt ............................................ $ 371,139 $ 258,129
================= =================
</TABLE>
Effective March 12, 1999, the Company agreed to make a permanent reduction
in its $30.4 million 12% line of credit with Crescent Partnership
commensurate with the proceeds from the sale of 80% of the Company's 2%
interest in AmeriCold Logistics. The line of credit is cross-collateralized
and cross-defaulted with the Company's other borrowings from Crescent
Partnership. On March 12, 1999, the Company received $13.2 million of
proceeds and correspondingly permanently reduced the availability under the
line of credit from $30.4 million to $17.2 million.
Also effective March 12, 1999, the Company obtained from Crescent
Partnership a $19.5 million line of credit bearing interest at a rate of 9%
per annum. The line of credit has terms similar to the other line of credit
with Crescent Partnership with the exception of the interest rate and is
cross-collateralized and cross-defaulted with the Company's other borrowings
from Crescent Partnership. Upon inception of this line of credit, the
Company immediately borrowed the full $19.5 million with which it
contributed approximately $15.5 million to the creation of AmeriCold
Operations and used the remaining $4.0 million of proceeds to reduce the
amount outstanding under the $30.4 million 12% line of credit with Crescent
Partnership.
The weighted average interest rate on long-term debt at December 31, 1998
was approximately 10.4%. Substantially all of the Company's assets are
pledged as collateral under various debt agreements. Payment of dividends on
Crescent Operating common stock is prohibited under certain of the debt
agreements. The debt agreements contain certain reporting requirements and
financial covenants, including requirements that the Company maintain
certain financial ratios. As of December 31, 1998, the Company had complied
with all debt covenants.
As of December 31, 1998, combined aggregate principal maturities of all
long-term debt were as follows (in thousands):
<TABLE>
<S> <C>
1999.................................... $ 92,207
2000.................................... 28,732
2001.................................... 26,765
2002.................................... 77,742
2003.................................... 38,941
Thereafter.............................. 106,752
------------
Total................................... $ 371,139
============
</TABLE>
F-21
<PAGE> 61
10. SHAREHOLDERS' EQUITY:
Common Stock
The Company's authorized capital stock consists of 10 million shares of
preferred stock, par value $0.01 per share and 22.5 million shares of
common stock, par value $0.01 per share. At December 31, 1998, there were
11,401,477 shares of common stock issued and no shares of preferred stock
issued.
Preferred Share Purchase Rights
The Board of Directors has adopted a rights plan that provides that each
holder of Crescent Operating common stock also receives a right to
purchase from the Company one-hundredth of a share of Series A Junior
Preferred Stock, par value $0.01, 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 had reserved 225,000 shares of Series A Junior Preferred Stock for
this plan.
Warrants
In conjunction with the acquisition of a 50% member interest in CBHS, the
Company issued warrants to acquire 282,508 shares of Crescent Operating
common stock at an exercise price of $18.29 per share.
Treasury Stock
As of December 31, 1998, COPI Colorado had purchased 700,000 shares of
Crescent Operating common stock, which has been recorded as treasury
stock, at a total purchase price of $2.9 million. The average price paid,
including broker commissions, was $4.07 per share.
11. STOCK OPTION PLANS:
The Company has two stock incentive plans, the 1997 Amended Stock
Incentive Plan (the "Amended Plan") and the 1997 Management Stock
Incentive Plan (the "Management Plan").
The Amended Plan, effective May 8, 1997, initially established the maximum
number of options and/or restricted stock that the Company may grant at
1,000,000 shares. The maximum aggregate number of shares of the Amended
Plan shall increase automatically on January 1 of each year by an amount
equal to 8.5% of the increase in the number of shares of common stock
outstanding since January 1 of the preceding year, subject to certain
adjustment provisions. As of January 1, 1998, the number of shares the
Company may have outstanding under the Amended Plan is 1,000,000.
On May 13, 1997, options were granted to each holder of shares of
restricted stock in Crescent Equities or options in Crescent Equities or
Crescent Partnership an equivalent number of shares of restricted stock or
options in Crescent Operating, based on a ratio of one share of restricted
stock or option to purchase Crescent Operating common stock for each 10
shares of restricted stock in Crescent Equities or options for Crescent
Operating common shares, and one option to purchase Crescent Operating
common stock for each 5 options for units. Under the Amended Plan, the
Company has granted options and restricted shares of 954,167 and 10,000
respectively, through December 31, 1998.
The Management Plan allows for the maximum number of options and/or
restricted stock that the Company may grant to employees, officers,
directors or consultants to be 1,000,000 shares. Under the Management
Plan, the Company has granted no options or restricted shares through
December 31, 1998.
Under both Plans, options are granted at a price no less than the market
value of the shares on the date of grant, vest over a period determined by
the Board of Directors, and expire ten years from the date of grant. The
Company has reserved 1.1 million shares for future options and warrants.
F-22
<PAGE> 62
A summary of the stock option status of the Company's Amended and
Management Plans as of December 31, 1998 and changes during the periods
then ended is presented in the table below:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
--------------- ---------------
<S> <C> <C>
Outstanding as of May 8, 1997 ..... -- --
Granted ........................ 893,567 $ 1.15
Exercised ...................... (45,489) $ 0.99
Forfeited ...................... (499) $ 0.99
Expired ........................ -- --
--------------- ---------------
Outstanding as of December 31, 1997 847,579 $ 1.16
Granted ........................ 60,600 $ 20.42
Exercised ...................... (23,662) $ 0.99
Forfeited ...................... (20,173) $ 0.99
Expired ........................ --
--------------- ---------------
Outstanding as of December 31, 1998 864,344 $ 2.52
=============== ===============
Exercisable as of December 31, 1998 489,213 $ 1.05
</TABLE>
Exercise prices and the weighted-average remaining contractual life for
options outstanding at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Weighted Average
Remaining
Exercise Price Contractual Life
-------------------------- ---------------------------
<S> <C>
$ 0.99 6.4 years
$ 15.50 8.0 years
$19.63 - $20.50 9.0 years
</TABLE>
The Company applies APB No. 25 in accounting for options granted pursuant
to the Amended Plan and the Management Plan (collectively, the "Plans").
Accordingly, no compensation cost has been recognized for the Plans. Had
compensation cost for the Plans been determined based on the fair market
value at the grant dates for awards under the Plans consistent with SFAS
No. 123, the Company's net loss and loss per share would have been
increased to the following pro forma amounts (in thousands):
<TABLE>
<CAPTION>
As Reported Proforma
---------------- ------------------------------------
1998 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net income (loss)..................................... $ 1,141 $ 837 $ (22,258)
Earnings (loss) per share............................. $ 0.10 $ 0.07 $ (2.01)
</TABLE>
For the year ended December 31, 1998 and the period ended December 31,
1997, the weighted average fair value of each option granted was $14.66 and
$0.87, respectively.
The fair value of each option was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions for 1998 and 1997, respectively: risk-free interest rates of
5.4% and 6.7%; expected volatility of 88.3% and 94.7%; expected dividend
yields of 0%; expected lives of 5 years.
F-23
<PAGE> 63
12. EARNINGS PER SHARE:
Earnings per share ("EPS") is calculated as follows (in thousands, except
per share data):
<TABLE>
<CAPTION>
Year ended For the period from May 9, 1997
December 31, 1998 to December 31, 1997
------------------------------------------ --------------------------------------------
Net Wtd. avg. Per share Net Wtd. avg. Per share
Income shares amount income Shares amount
----------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS ........................... $ 1,141 11,206 $ 0.10 $ (22,165) 11,073 $ (2.00)
EFFECT OF DILUTIVE SECURITIES:
Stock Options ....................... -- 737 -- --
----------- ----------- ----------- -----------
DILUTED EPS ......................... $ 1,141 11,943 $ 0.10 $ (22,165) 11,073 $ (2.00)
=========== =========== =========== =========== =========== ===========
</TABLE>
The Company had 70,600 options which were not included in the calculation
of diluted EPS as they were anti-dilutive. Earnings per share for the
Predecessor is not meaningful as the capital structure of the Predecessor
was not comparable to that of the Company.
13. INCOME TAXES:
The components of the Company's income tax provision (benefit) were as
follows (in thousands):
<TABLE>
<CAPTION>
For the Period For the Period
From From Year Ended
Year Ended May 9, 1997 to January 1, 1997 December 31,
December 31, 1998 December 31, 1997 To May 8, 1997 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Current:
Federal .............. $ 6,543 $ 79 $ -- $ (208)
State ................ 935 10 -- --
----------------- ----------------- ----------------- -----------------
7,478 89 -- (208)
----------------- ----------------- ----------------- -----------------
Deferred:
Federal .............. (1,712) 483 14 151
State ................ (245) 40 -- --
----------------- ----------------- ----------------- -----------------
(1,957) 523 14 151
----------------- ----------------- ----------------- -----------------
Total income tax
provision (benefit) $ 5,521 $ 612 $ 14 $ (57)
================= ================= ================= =================
</TABLE>
F-24
<PAGE> 64
Reconciliation's of the federal statutory income tax rate to the effective
tax rate, were as follows:
<TABLE>
<CAPTION>
For the Period For the Period
Year Ended From From
December 31, May 9, 1997 to January 1, 1997 Year Ended
1998 December 31, 1997 To May 8, 1997 December 31, 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Federal statutory income tax rate .. 35.0% (35.0%) 35.0% (35.0%)
State income taxes, net of federal
tax benefit ....................... 5.0 (2.9) -- --
Equity accounting for
AmeriCold Logistics ............. (6.7) -- -- --
Desert Mountain
Minority interest ............... (5.4) -- -- --
Non-deductible expenses ............ 0.7 -- -- --
Change in valuation allowance ...... (6.5) 40.3 -- --
Other, net ......................... 1.9 0.5 -- 0.8
--------------- --------------- --------------- -------------
Effective tax rate ............ 24.0% 2.9% 35.0% (34.2%)
=============== =============== =============== ============
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
were as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Equity in earnings of subsidiaries ....... -- 5,528
Deferred revenue/rental income ........... 10,709 2,018
Accrued expenses ......................... 561 1,633
Inventories .............................. 241 --
Net operating loss carryforwards ......... 10,104 1,000
Other ..................................... 340 337
----------- -----------
Deferred tax asset .................... 21,955 10,516
----------- -----------
Deferred tax liabilities:
Equity in subsidiaries ................... (2,264) --
Prepaid expenses ......................... (1,073) (557)
Depreciable property and equipment ....... (3,643) --
Real estate .............................. (8,956) --
----------- -----------
Deferred tax liability ................ (15,936) (557)
----------- -----------
Valuation allowance ......................... (4,156) (9,762)
----------- -----------
Net deferred tax asset (liability) .... $ 1,863 $ 197
=========== ===========
Current deferred tax asset .................. $ 700 $ 669
Noncurrent deferred tax asset (liability).... 1,163 (472)
----------- -----------
Net deferred tax asset (liability) .... $ 1,863 $ 197
=========== ===========
</TABLE>
At December 31, 1998, the Company had net operating loss carryforwards
("NOLs") of approximately $25.2 million, which will expire in years 2003
through 2018. A valuation allowance has been recorded to offset the portion
of deferred tax assets for which the ultimate realization in future years
is uncertain.
F-25
<PAGE> 65
14. MAGELLAN WARRANTS:
In connection with the transaction in which Crescent Operating acquired its
50% membership interest in CBHS, the Company purchased, for $12.5 million,
warrants to acquire 1,283,311 shares of Magellan common stock for an
exercise price of $30 per share. The Magellan warrants are exercisable in
varying increments over the period which began on May 31, 1998 and ends on
May 31, 2009. Management estimates the fair value of the warrants, using
the Black-Scholes pricing model, to be $2.7 million at December 31, 1998.
As a result, the difference of $9.8 million between the cost and the
estimated fair value of the warrants has been included in the consolidated
financial statements as other comprehensive income (loss).
15. COMMITMENTS AND CONTINGENCIES:
Lease Commitments
The Hospitality segment leases nine hotel and resort properties from
Crescent Equities. Generally, the leases are on a triple net basis during
120-month terms and expire from December 2004 to October 2008. The leases
provide for the payment to Crescent Partnership or its subsidiaries (i)
base rent, with periodic rent increases, (ii) percentage rent based on a
percentage of gross room revenues above a specified amount, and (iii) a
percentage of gross food and beverage revenues above a specified amount.
Base rental expense under the leases is recognized on a straight-line basis
over the terms of the respective leases. The Land Development segment
leases office space, model homes, housekeeping and laundry facilities and
certain equipment. The Equipment Sales and Leasing segment leases rental
delivery and service trucks and land and buildings at various locations.
Total lease expense for all segments during years ended December 31, 1998
and 1997 was approximately $55.4 million and $16.7 million, respectively.
Included in lease expense was percentage rent for the Hotel Properties
for the years ended December 31, 1998 and 1997 of $13.8 million and $4.6
million respectively. Future minimum lease payments due under such leases
as of December 31, 1998, were as follows (in thousands):
<TABLE>
<S> <C>
1999.................... $ 42,122
2000.................... 44,376
2001.................... 44,021
2002.................... 44,156
2003.................... 44,650
Thereafter.............. 128,119
-------------------
$ 347,444
===================
</TABLE>
Contingencies
On November 5, 1998, Magellan Heath Services, Inc. ("Magellan") sent a letter to
Crescent Operating alleging that Crescent Operating (i) owes $2.3 million for
the reimbursement of expenses incurred in connection with attempts to obtain
financing for CBHS' payment obligations under that certain Purchase Agreement,
dated as of March 3, 1998, among CBHS, Magellan and certain subsidiaries of
Magellan (the "Purchase Agreement"), (ii) owes Magellan a $5 million termination
fee under a related Support Agreement, dated as of March 3, 1998, between the
Company and Magellan (the "Support Agreement"), in connection with the
termination of the Purchase Agreement and an Equity Purchase Agreement, also
dated as of March 3, 1998, among the Company, certain subsidiaries of Magellan
and Magellan (the "Equity Purchase Agreement") and (iii) may have failed to use
"commercially reasonable efforts" to secure financing for the transactions
contemplated by the Purchase Agreement. Because the Company's obligations under
the Support Agreement and the Equity Purchase Agreement were subject to prior
satisfaction of certain conditions that have not been met, the Company believes
that it is under no obligation to reimburse CBHS for expenses incurred in
connection with attempts to obtain financing for CBHS' payment obligations under
the Purchase Agreement or to pay the $5 million termination fee to Magellan. In
December 1998, Crescent Operating placed $2.5 million in escrow pending the
outcome of the arbitration in an effort to demonstrate its interest in resolving
these issues amicably.
On January 11, 1999, Magellan filed a Demand for Arbitration with the American
Arbitration Association, in which Magellan claimed that the Company had breached
the Support Agreement and the Equity Purchase Agreement. The Demand for
Arbitration alleges that the Company had unilaterally abandoned both agreements
and had failed to use commercially reasonable best efforts to obtain financing
for the contemplated transactions. Magellan seeks reimbursement from the Company
of all financing costs, payment of the termination fee, and payment of
unspecified damages for the Company's alleged breach of the Support Agreement.
On January 29, 1999, the Company filed an Answer to the Demand in which the
Company denies any liability to Magellan. The Answer to the Demand alleges,
among other things, that the parties mutually consented to the termination and
abandonment of the Support Agreement and Equity Purchase Agreement and that the
condition precedent to the Company's obligations under both Agreements did not
occur. The parties have agreed upon an arbitrator, but have agreed to stay all
proceedings in the arbitration until April 15, 1999 while they attempt to
resolve the issues in dispute.
F-26
<PAGE> 66
In the ordinary course of business, the Company and its subsidiaries are
subject to claims and litigation, but, except as set forth above, the
Company and its subsidiaries and their respective properties are not
subject to any material pending litigation other than ordinary litigation
incidental to their businesses.
16. SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental cash flow information is summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Interest paid, net of amounts capitalized ....... $ 23,360 $ 2,574 $ 353
=========== =========== ===========
Taxes paid (refunded) ........................... $ 4,345 $ 4 $ (20)
=========== =========== ===========
Non-cash investing and financing activities:
In conjunction with the acquisitions by the
Company, liabilities were assumed as follows:
Fair value of assets acquired .......... $ 84,892 597,075 $
Stock issued for the acquisitions ...... (3,391) (2,340) --
Notes payable issued for acquisitions... (8,659) -- --
Cash paid for the acquisitions ......... (26,300) (82,694) --
----------- ----------- -----------
Liabilities assumed ................ $ 46,542 $ 512,041 $ --
=========== =========== ===========
</TABLE>
17. FAIR VALUES OF FINANCIAL INSTRUMENTS:
The carrying amount of cash and cash equivalents, accounts receivable,
inventories, notes receivable, prepaid expenses and other current assets,
and accounts payable and accrued expenses approximates fair value as of
December 31, 1998 because of the short maturity of these instruments.
Similarly, the carrying value of line of credit borrowings approximates fair
value as of that date because the interest rate fluctuates based on
published market rates. In the opinion of management, the interest rates
associated with the long-term debt approximates the market interest rates
for this type of instrument, and as such, the carrying values approximate
fair value at December 31, 1998.
18. BUSINESS SEGMENT INFORMATION:
Crescent Operating's assets and operations are located entirely within the
United States and are comprised of five business segments: (i) Equipment
Sales and Leasing, (ii) Hospitality, (iii) Refrigerated Warehousing, (iv)
Land Development and (v) Healthcare. The Company uses net income as the
measure of segment profit or loss.
The Equipment Sales and Leasing segment is engaged in the sale, leasing and
service of construction equipment and accessories to the construction and
utility industries located primarily in seven states. Crescent Machinery's
leasing activities consist principally of leasing construction equipment and
accessories under various leases, which are primarily short-term operating
leases.
The Hospitality segment generally consists of the operations of seven
hotels, two destination health and fitness resorts and a golf course (the
"Hospitality Properties"). Each of such properties is owned by Crescent
Partnership or its affiliates and all except for the Austin Omni are leased
to subsidiaries of the Company under long term leases. In addition to these
properties, the Company also has other investments in the HCAC and in CRL.
The Refrigerated Warehousing segment consists of a 2% economic interest in
the operations of AmeriCold Logistics. AmeriCold Logistics is the largest
operator of public refrigerated storage space in the country in terms of
public storage space operated.
The Land Development segment consists of (i) a 4.65% economic interest in
Desert Mountain, a master planned, luxury residential and recreational
community in northern Scottsdale, Arizona, (ii) a 42.5% general partner
interest in Woodlands Operating, which provides management, advisory,
landscaping and maintenance services to entities affiliated with Crescent
Operating and Crescent Equities, (iii) a 2.125% economic interest in
F-27
<PAGE> 67
Landevco, which owns approximately 9,000 acres for commercial and
residential development as well as a realty office, an athletic center, and
interests in both a title company and a mortgage company and (iv) a 5%
economic interest in CDMC, whose operations consist principally of
investing in partnerships and other entities that directly or indirectly
own, develop or manage residential and resort properties (primarily in
Colorado) or provide services to such properties.
The Healthcare segment consists of a 50% economic interest in CBHS. CBHS is
the nation's largest operator of acute-care psychiatric hospitals and other
behavioral care treatment facilities. CBHS' psychiatric hospitals are
located in well-populated urban and suburban locations in 32 states. Most
of CBHS' hospitals offer a full continuum of behavioral care in their
service area. The continuum includes inpatient hospitalization, partial
hospitalization, intensive outpatient services and, in some markets,
residential treatment services.
The Other segment consists of an investment in Hicks-Muse, an investment in
Magellan warrants, interest expense on corporate debt and general corporate
operations such as legal and accounting costs, insurance costs, corporate
salaries and general overhead costs.
Business segment information is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Crescent Operating, Inc. Carter-Crowley Asset Group (Predecessor)
---------------------------------------- ----------------------------------------
For the For the Period For the Period For the
Year Ended May 9, 1997 to January 1, 1997 to Year Ended
December 31, 1998 December 31, 1997 May, 8, 1997 December 31, 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Equipment Sales and Leasing ......... $ 85,365 $ 10,518 $ 4,657 $ 10,394
Hospitality ......................... 229,491 79,468 -- --
Land Development .................... 178,392 66,896 -- --
Refrigerated Warehousing ............ -- -- -- --
Healthcare .......................... -- -- -- --
Other ............................... -- -- -- --
----------------- ----------------- ----------------- -----------------
Total revenues ...................... $ 493,248 $ 156,882 $ 4,657 $ 10,394
================= ================= ================= =================
Income (loss) from operations:
Equipment Sales and Leasing ......... $ 6,354 $ 735 $ 158 $ 109
Hospitality ......................... 6,659 232 -- --
Land Development .................... 20 (199) -- --
Refrigerated Warehousing ............ (88) -- -- --
Healthcare .......................... -- -- -- --
Other ............................... (3,059) (1,761) -- --
----------------- ----------------- ----------------- -----------------
Total income (loss) from operations . $ 9,886 $ (993) $ 158 $ 109
================= ================= ================= =================
Depreciation and amortization:
Equipment Sales and Leasing ......... $ 8,222 $ 1,892 $ 494 $ 1,368
Hospitality ......................... 802 366 -- --
Land Development .................... 5,695 112 -- --
Refrigerated Warehousing ............ 10 134 -- --
Healthcare .......................... -- 1,046 -- --
Other ............................... 17 -- -- --
----------------- ----------------- ----------------- -----------------
Total depreciation and amortization . $ 14,746 $ 3,550 $ 494 $ 1,368
================= ================= ================= =================
Equity in income (loss) of equity method
investees:
Equipment Sales and Leasing ......... $ -- $ -- $ -- $ --
Hospitality ......................... 130 9 -- --
Land Development .................... 25,858 2,554 -- --
Refrigerated Warehousing ............ 3,961 36 -- --
Healthcare .......................... (5,390) (19,610) -- --
Other ............................... 3,125 -- -- --
----------------- ----------------- ----------------- -----------------
Total equity in income (loss) of
equity method investees ............ $ 27,684 $ (17,011) $ -- $ --
================= ================= ================= =================
</TABLE>
F-28
<PAGE> 68
<TABLE>
<S> <C> <C> <C> <C>
Interest expense, net:
Equipment Sales and Leasing ... $ 2,942 $ 155 $ 122 $ 304
Hospitality ................... 54 12 -- --
Land Development .............. 4,335 1,020 -- --
Refrigerated Warehousing ...... -- -- -- --
Healthcare .................... -- -- -- --
Other ......................... 7,055 2,543 -- --
--------------- --------------- --------------- ---------------
Total interest expense, net ...... $ 14,386 $ 3,730 $ 122 $ 304
=============== =============== =============== ===============
Income tax expense (benefit)
Equipment Sales and Leasing ... $ 1,539 $ 65 $ 14 $ (57)
Hospitality ................... 2,724 91 -- --
Land Development .............. 7,465 675 -- --
Refrigerated Warehousing ...... -- -- -- --
Healthcare .................... (2,156) (7,844) -- --
Other ......................... (4,051) 7,625 -- --
--------------- --------------- --------------- ---------------
Total income tax expense (benefit) $ 5,521 $ 612 $ 14 $ (57)
=============== =============== =============== ===============
Capital expenditures:
Equipment Sales and Leasing ... $ 28,607 $ 8,613 $ 1,067 $ 4,376
Hospitality ................... 1,635 609 -- --
Land Development .............. -- 3,821 -- --
Refrigerated Warehousing ...... -- -- -- --
Healthcare .................... -- -- -- --
Other ......................... 46 -- -- --
--------------- --------------- --------------- ---------------
Total capital expenditures .... $ 30,288 $ 13,043 $ 1,067 $ 4,376
=============== =============== =============== ===============
Investment in unconsolidated
subsidiaries:
Equipment Sales and Leasing....... $ -- $ --
Hospitality....................... 2,011 (2,561)
Land Development.................. 60,687 32,001
Refrigerated Warehousing.......... 293,868 161,851
Healthcare........................ -- 5,390
Other............................. 10,539 21,947
--------------- ---------------
Total investment in
unconsolidated subsidiaries $ 367,105 $ 218,628
=============== ===============
Identifiable assets:
Equipment Sales and Leasing....... $ 127,215 $ 27,843
Hospitality....................... 38,536 37,552
Land Development.................. 464,634 345,979
Refrigerated Warehousing.......... 293,780 161,851
Healthcare........................ -- 5,390
Other............................. 13,168 23,468
--------------- ---------------
Total identifiable assets......... $ 937,333 $ 602,083
=============== ===============
</TABLE>
19. RELATED PARTY TRANSACTIONS:
INTERCOMPANY AGREEMENT
Generally, Crescent Operating is involved with Crescent Equities in two types of
transactions: "Lessee Transactions" and "Controlled Subsidiary Transactions".
Lessee Transactions are those in which Crescent Operating enters into a
transaction to lease and operate real property that is owned by Crescent
Partnership but which cannot be operated by Crescent Partnership due to Crescent
Equities status as a REIT. Controlled Subsidiary Transactions are those in which
Crescent Operating invests alongside Crescent Partnership in acquisitions where
Crescent Operating owns all of the voting stock, and Crescent Partnership owns
all of the non-voting stock of a corporate acquisition vehicle which in turn
acquires a target business which cannot be operated by Crescent Partnership due
to Crescent Equities' status as a REIT. The voting stock represents the control
of the entity being purchased and due to its status as a REIT, Crescent Equities
cannot have such ownership.
F-29
<PAGE> 69
Crescent Operating and Crescent Partnership have entered into the
Intercompany Agreement to provide each other with rights to participate in
the types of transactions mentioned above. The Intercompany Agreement
provides, subject to certain terms, that Crescent Partnership will provide
Crescent Operating with a right of first refusal to become the lessee of
any real property acquired by Crescent Partnership if Crescent Partnership
determines that, consistent with Crescent Equities' status as a REIT, it is
required to enter into a "master" lease arrangement. Crescent Operating's
right of first refusal under the Intercompany Agreement is conditioned upon
the ability of Crescent Operating and Crescent Partnership to negotiate a
mutually satisfactory lease arrangement and the determination of Crescent
Partnership, in its sole discretion, that Crescent Operating is qualified
to be the lessee. 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. If a mutually
satisfactory agreement cannot be reached within a 30-day period (or such
longer period to which Crescent Operating and Crescent Partnership may
agree), Crescent Partnership may offer the opportunity to others.
Under the Intercompany Agreement, Crescent Operating has agreed not to
acquire or make (i) investments in real estate which, for purposes of the
Intercompany Agreement, includes the provision of services related to real
estate and investment in hotel properties, real estate mortgages, real
estate derivatives or entities that invest in real estate assets or (ii)
any other investments that may be structured in a manner that qualifies
under the federal income tax requirements applicable to REITs. Crescent
Operating has agreed to notify Crescent Partnership of, and make available
to Crescent Partnership, investment opportunities developed by Crescent
Operating, or of which Crescent Operating becomes aware but is unable or
unwilling to pursue.
OTHER TRANSACTIONS
Effective July 31, 1997, Crescent Operating purchased RoseStar from Gerald
Haddock, John Goff and Sanjay Varma. Mr. Haddock is the President, Chief
Executive Officer and Mr. Goff is the Vice-Chairman and director of each
Crescent Operating and Crescent Equities. Mr. Varma is Executive Vice
President of Crescent Equities and together with his wife Johanna Varma,
are the principals of The Varma Group, a corporation that provides asset
management services to RoseStar and COI Hotel.
The Company leases full service hotels and destination health and fitness
resorts from Crescent Partnership, or other subsidiaries of Crescent
Equities, under operating leases. Crescent Partnership has agreed to fund
all capital expenditures relating to furniture, fixtures and equipment
reserves required under applicable management agreements on all properties
except for Canyon Ranch-Tucson. Total rent expense related to these leases
totaled approximately $52.3 million for the year ended December 31, 1998.
In 1997, Crescent Operating had entered into a one-year contract (subject
to automatic renewal for one-year terms unless terminated by either party
60 days prior to any anniversary date of the contract) with Petroleum
Financial Inc. a company previously owned by Jeffrey L. Stevens, the Chief
Operating Officer, Secretary and Director of the Company, pursuant to which
Petroleum Financial Inc. provides certain services to Crescent Operating.
These services include corporate overhead costs such as rent and utilities
in addition to salaries for corporate officers and other personnel who
perform all corporate duties. Crescent Operating paid Petroleum Financial
Inc. in monthly or quarterly installments based on certain costs incurred
by Petroleum Financial Inc., plus 5%. Total amounts paid for services
provided were $941 and $251 for the year ended December 31, 1998 and the
period ended December 31, 1997, respectively. Effective December 1, 1998,
the contract was terminated.
The Company has various debt instruments payable to Crescent Partnership
with an aggregate amount outstanding at December 31, 1998 of $228.6
million. See Note 9 for additional information.
F-30
<PAGE> 70
As part of the Company's acquisition of the Carter-Crowley Asset Group, the
Company acquired a 12.38% limited partner interest in Dallas Basketball
Limited (the "DBL Interest"), the partnership that owns the Dallas
Mavericks. As of June 11, 1997, the Company sold the DBL Interest, for
approximately $12.5 million, to a corporation wholly owned by Crescent
Partnership.
20. SUBSEQUENT EVENTS:
Effective March 12, 1999, Crescent Operating sold 80% of its 2% interest in
AmeriCold Logistics to Crescent Partnership for $13.2 million and received
the right to require Crescent Partnership to purchase the remaining 20% for
$3.4 million at any time during the next two years, subject to compliance
with certain regulatory matters. This transaction results in approximately
a $2.0 million gain to be recognized by Crescent Operating in 1999.
Crescent Operating, through a wholly-owned limited liability company, then
entered into a new partnership ("AmeriCold Operations") owned 60% by
Vornado Operating, Inc. ("Vornado Operating") and 40% by Crescent
Operating. AmeriCold Operations purchased all of the non-real estate
related assets of AmeriCold REIT (formerly AmeriCold Logistics)
encompassing the operations of the refrigerated warehouse properties for
$48.7 million. As a result of this transaction, AmeriCold REIT no longer
has an interest in the operations of the refrigerated warehousing
operations. This transaction required an initial capital contribution of
approximately $15.5 million from Crescent Operating and a commitment to
fund an additional $4.0 million in the future, all of which has or will be
funded from a new $19.5 million 9% loan from Crescent Partnership.
AmeriCold Operations has leased the refrigerated warehouse properties
("Refrigerated Warehouses") from AmeriCold REIT under 15 year leases which
call for base and percentage rent. As the operations of AmeriCold Logistics
have been assumed by AmeriCold Operations, the Company will hereafter refer
to the operations of AmeriCold Logistics as AmeriCold Operations.
Under the terms of the partnership agreement for AmeriCold Operations,
Vornado Operating has the right to make all decisions relating to the
management and operations of AmeriCold Operations other than certain major
decisions that require the approval of both the Company and Vornado
Operating. The partnership agreement provides for a buy-sell arrangement
upon a failure of the Company and Vornado Operating to agree on any of the
specified major decisions which, until October 30, 2000, can be exercised
only by Vornado Operating. During that time, Vornado Operating shall be
entitled to buy the Company's interest at cost plus a 10% per annum return.
Major decisions include approval of the annual capital and operating
budgets for AmeriCold Operations, decision to deviate from the budget by
10% or more and additional capital contributions.
On March 26, 1999, the Company signed a definitive agreement to sell its
investment in Hicks-Muse for $8.1 million. The sale will result in a $0.3
million gain to be recognized in first quarter of 1999.
Effective March 4, 1999, the Company acquired certain assets of Westco
Tractor & Equipment, Inc. ("Westco"), a company engaged in equipment sales,
leasing and servicing, located in Santa Rosa, California. The purchase
price of approximately $2.7 million was comprised of $0.5 million cash and
the assumption of liabilities of $2.2 million. The transaction was treated
as a purchase for accounting purposes and accordingly the results of
operations will be included in the Company's financial statements from the
date of acquisition.
Effective January 1, 1999, CDMC increased its $40 million line of credit
with Crescent Partnership to $48 million and entered into a new $40 million
credit line with Crescent Partnership for new development projects.
21. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
Period Ended December 31, 1998
-------------------------------------------------------------
First Second Third Fourth
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues ......................................... $ 97,377 $ 106,809 $ 111,826 $ 177,236
Income (loss) from operations .................... 3,941 3,405 (2,695) 5,235
Income (loss) before minority interests and income
taxes ......................................... (620) 9,544 (210) 14,288
Minority interests ............................... (487) (3,404) (1,021) (11,428)
Income tax provision (benefit) ................... 71 4,198 (1,321) 2,573
Net income (loss) ................................ (1,178) 1,942 90 287
Basic income (loss) per share .................... (.11) .17 .01 .03
Diluted income (loss) per share .................. (.11) .16 .01 .02
</TABLE>
F-31
<PAGE> 71
<TABLE>
<CAPTION>
Period Ended December 31, 1997
---------------------------------------------
Second (1) Third Fourth
----------- ----------- -----------
<S> <C> <C> <C>
Revenues ......................................... $ 1,708 $ 31,353 $ 123,821
Income (loss) from operations .................... 283 24 (1,298)
Income (loss) before minority interests and income
taxes ....................................... (262) (7,784) (12,941)
Minority interests ............................... -- -- (566)
Income tax provision (benefit) ................... -- -- 613
Net income (loss) ................................ (262) (7,784) (14,120)
Basic loss per share ............................. (.02) (.71) (1.27)
Diluted loss per share ........................... (.02) (.71) (1.27)
</TABLE>
(1) Amounts include operations of the Company from May 9, 1997 (the date the
Company began activity) through June 30, 1997.
F-32
<PAGE> 72
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE MEMBERS OF
CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC:
We have audited the accompanying consolidated balance sheets of Charter
Behavioral Health Systems, LLC (a Delaware limited liability corporation) and
subsidiaries as of September 30, 1997 and 1998, and the related consolidated
statements of operations, changes in members' capital (deficit) and cash flows
for the period June 17, 1997 to September 30, 1997 and for the year ended
September 30, 1998. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Charter Behavioral Health
Systems, LLC and subsidiaries as of September 30, 1997 and 1998, and the results
of their operations and their cash flows for the period June 17, 1997 to
September 30, 1997 and for the year ended September 30, 1998, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index to the
consolidated financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not a required part of the
basic financial statements. The schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
ATLANTA, GEORGIA
DECEMBER 3, 1998
F-33
<PAGE> 73
CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30,
------------------------
1997 1998
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash, including cash equivalents of $15,477 in 1997 and $9,117 in 1998, at cost,
which approximates market value ............................................. $ 23,443 $ 13,493
Accounts receivable, less allowance for doubtful accounts
of $17,605 in 1997 and $33,548 in 1998 ...................................... 107,961 120,187
Accounts receivable from Magellan ................................................ 5,090 --
Supplies ......................................................................... 2,313 2,665
Prepaid expenses ................................................................. 9,385 10,538
Other current assets ............................................................. 345 236
--------- ---------
Total Current Assets ........................................................ 148,537 147,119
Property and Equipment:
Buildings and improvements ....................................................... 11,879 9,616
Equipment ........................................................................ 7,121 11,924
--------- ---------
19,000 21,540
Accumulated depreciation ......................................................... (662) (2,916)
--------- ---------
18,338 18,624
Construction in progress ......................................................... 86 2,524
--------- ---------
Total Property and Equipment ................................................ 18,424 21,148
Other Long-Term Assets .................................................................. 6,471 6,699
Goodwill, net of accumulated amortization of $3 in 1997 and $17 in 1998 ................. 286 294
Deferred Financing Fees, net of accumulated amortization of $115 in 1997 and $513 in 1998 1,876 1,878
--------- ---------
$ 175,594 $ 177,138
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated balance sheets.
F-34
<PAGE> 74
CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30,
------------------------
1997 1998
--------- ---------
<S> <C> <C>
LIABILITIES AND MEMBERS' CAPITAL (DEFICIT)
Current Liabilities:
Accounts payable ................................................. $ 34,864 $ 54,443
Accounts payable to Magellan ..................................... -- 36,857
Accrued liabilities .............................................. 33,578 47,279
Current maturities of long-term debt and capital lease obligations 55 2,800
--------- ---------
Total Current Liabilities ................................... 68,497 141,379
Long-Term Debt and Capital Lease Obligations ............................ 65,860 67,200
Reserve for Unpaid Claims ............................................... 2,686 10,812
Deferred Rent ........................................................... 3,956 17,054
Long-Term Obligations to Lessor ......................................... 803 3,803
Minority Interest and Other Long-Term Liabilities ....................... 36 3,768
Members' Capital (Deficit):
Preferred interests .............................................. 35,000 35,000
Common interests ................................................. 15,000 15,000
Accumulated deficit ............................................. (16,244) (116,878)
--------- ---------
Total Members' Capital (Deficit) ............................ 33,756 (66,878)
--------- ---------
$ 175,594 $ 177,138
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated balance sheets.
F-35
<PAGE> 75
CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
106 Days Ended Year Ended
September 30, September 30,
1997 1998
------------- -------------
<S> <C> <C>
Net revenue .......................................... $ 213,730 $ 730,447
------------- -------------
Costs and expenses:
Salaries, supplies and other operating expenses 170,619 606,628
Franchise fees - Magellan ..................... 22,739 78,584
Crescent Lease expense ........................ 16,919 56,133
Bad debt expense .............................. 17,437 63,895
Depreciation and amortization ................. 668 5,693
Interest, net ................................. 1,592 5,263
Unusual items ................................. -- 11,125
------------- -------------
229,974 827,321
------------- -------------
Loss before minority interest ........................ (16,244) (96,874)
Minority interest .................................... -- 41
------------- -------------
Net loss ............................................. (16,244) (96,915)
Preferred dividend requirement ....................... -- 3,719
------------- -------------
Net loss applicable to common members ................ $ (16,244) $ 100,634)
============= =============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated statements.
F-36
<PAGE> 76
CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' CAPITAL (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
106 DAYS ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1998
------------- -------------
<S> <C> <C>
Preferred Interests:
Balance, beginning of period ...................................... $ -- $ 35,000
Issuance of cumulative redeemable preferred interests - Magellan .. 17,500 --
Issuance of cumulative redeemable preferred interests - COI ....... 17,500 --
------------- -------------
Balance, end of period ............................................ 35,000 35,000
------------- -------------
Common Interests:
Balance, beginning of period ...................................... -- 15,000
Capital contribution - Magellan ................................... 7,500 --
Capital contribution - COI ........................................ 7,500 --
------------- -------------
Balance, end of period ............................................ 15,000 15,000
------------- -------------
Accumulated Deficit:
Balance, beginning of period ...................................... -- (16,244)
Net loss applicable to common members ............................. (16,244) (100,634)
------------- -------------
Balance, end of period ............................................ (16,244) (116,878)
------------- -------------
Total Members' Capital (Deficit) ...................................... $ 33,756 $ (66,878)
============= =============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated statements.
F-37
<PAGE> 77
CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
106 Days Ended Year Ended
September 30, September 30,
1997 1998
-------------- --------------
<S> <C> <C>
Cash Flows From Operating Activities
Net loss ............................................................... $ (16,244) $ (96,915)
------------- -------------
Adjustments to reconcile net loss to net cash used in operating
activities:
(Gain) loss on sale of businesses .................................... (355) 2,688
Depreciation and amortization ........................................ 668 5,693
Non-cash interest expense ............................................ 115 398
Cash flows from changes in assets and liabilities, net of effects from
sales and acquisitions of businesses:
Accounts receivable, net ..................................... (98,504) (5,318)
Accounts receivable/payable to Magellan ...................... (5,090) 41,947
Other current assets ......................................... (5,089) (1,096)
Other long-term assets ....................................... (4,565) (275)
Accounts payable and accrued liabilities ..................... 53,791 30,848
Reserve for unpaid claims .................................... 2,686 8,126
Deferred rent ................................................ 3,956 13,098
Minority interest, net of dividends paid ..................... -- (25)
Other liabilities ............................................ 800 43
------------- -------------
Total adjustments ............................................ (51,587) 96,127
------------- -------------
Net cash used in operating activities ................... (67,831) (788)
------------- -------------
Cash Flows From Investing Activities
Capital expenditures ................................................... (149) (9,549)
Purchase of information systems equipment from Magellan ................ (5,000) --
Purchase of net assets from Magellan ................................... (11,288) --
Proceeds from sale of businesses, net of transaction costs ............. -- 1,160
Acquisition of businesses, net of cash acquired ........................ -- (5,327)
------------- -------------
Net cash used in investing activities ................... (16,437) (13,716)
------------- -------------
Cash Flows From Financing Activities
Payments on debt and capital lease obligations ......................... (16) (46)
Proceeds from issuance of debt, net of issuance costs .................. 98,009 4,600
Proceeds from capital contributions - Magellan ......................... 2,218 --
Proceeds from capital contributions - COI .............................. 7,500 --
------------- -------------
Net cash provided by financing activities ............... 107,711 4,554
------------- -------------
Net increase(decrease) in cash and cash equivalents ........................... 23,443 (9,950)
Cash and cash equivalents at beginning of period .............................. -- 23,443
------------- -------------
Cash and cash equivalents at end of period .................................... $ 23,443 $ 13,493
============= =============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these consolidated statements.
F-38
<PAGE> 78
CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1998
1. ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements of Charter Behavioral Health Systems, LLC
("CBHS" or the "Company"), a Delaware limited liability corporation, include the
accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The Company provides behavioral healthcare services in the United States. The
Company's principal services include group and individual inpatient treatment,
day and partial hospitalization services, group and individual outpatient
treatment and residential services.
On June 17, 1997 the Company began operations pursuant to a series of
transactions (the "Crescent Transactions") between Magellan Health Services,
Inc. ("Magellan"), Crescent Real Estate Equities Limited Partnership
("Crescent") and Crescent Operating, Inc. ("COI"). The Crescent Transactions
provided for the following:
o Magellan sold to Crescent 80 behavioral healthcare facilities (76 operating
and four held for sale) ("Purchased Facilities") and related medical office
buildings formerly operated by Magellan.
o The Company operates the Purchased Facilities and the Contributed
Facilities (defined below) (together the "Facilities"). The Company is
owned equally by Magellan and COI.
o Magellan contributed to the Company certain property and intangible rights
used in connection with the Facilities with a net book value of
approximately $5.0 million in exchange for its equity interest in CBHS. The
property that was contributed by Magellan included five acute care
psychiatric hospitals and other ancillary facilities that Magellan leased
from third parties (together the "Contributed Facilities"). The Company
also purchased certain assets from Magellan relating to Magellan's
information systems subsidiary for $5.0 million.
o COI contributed $5.0 million of cash as its initial equity investment in
the Company.
o CBHS entered into a service agreement with Magellan pursuant to which the
Company manages Magellan's interest in certain joint ventures with
unaffiliated third parties, including joint ventures that operate or manage
ten behavioral healthcare facilities. Magellan is the general partner or
managing entity of such joint ventures.
o CBHS leased the Purchased Facilities from Crescent under an initial 12-year
lease term with four renewal terms of five years each ("Crescent Lease").
CBHS pays annual base rent to Crescent, which was initially $41.7 million
and increases at 5% compounded annually (See Note 5).
o CBHS and certain of its subsidiaries entered into franchise agreements with
Magellan (the "Franchise Agreements") pursuant to which CBHS and such
subsidiaries operate using the "CHARTER' name, services and protocols and
pay Magellan annual franchise fees, subject to increase, of approximately
$78.3 million (See Note 6). The franchise fees due Magellan are subordinate
to the payment of rent due Crescent.
o Both Magellan and COI contributed an additional $2.5 million in cash to the
capital of CBHS. In addition, each made a commitment to loan CBHS up to
$17.5 million each, for a period of five years. Such loans were made to
CBHS by each for $17.5 million ("Member Loans") and, effective September
30, 1997, were converted to cumulative redeemable preferred interests (See
Note 8).
F-39
<PAGE> 79
The Company's financial statements have been prepared assuming that the Company
will continue as a going concern. As shown in the financial statements during
the 106 days ended September 30, 1997 and the year ended September 30, 1998, the
Company has incurred losses from operations, and therefore, the Company has a
significant accumulated deficit at September 30, 1998. The financial statements
do not include any adjustments relating to the recoverability and classification
of liabilities that might be necessary should the Company be unable to continue
as a going concern.
The Company's continuation as a going concern is dependent upon its ability to
generate sufficient cash flows to meet its obligations on a timely basis. The
Company believes its cash flows and profitability are influenced by the cyclical
nature of the behavioral healthcare provider business, with a reduced demand for
certain services generally occurring during the first fiscal quarter around
major holidays and during the summer months comprising the fourth fiscal
quarter. Management has formulated and implemented a business plan to reduce
overhead and add new lines of business to improve the cash flows and the
profitability of the Company. Additionally, the Company is actively pursuing
additional sources of capital and/or borrowings.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
NET REVENUE
Net revenue is based on established billing rates, less estimated allowances for
patients covered by Medicare and other contractual reimbursement programs, and
discounts from established billing rates. Amounts received by the Company for
treatment of patients covered by Medicare and other contractual reimbursement
programs, which may be based on cost of services provided or predetermined
rates, are generally less than the established billing rates of the Company's
hospitals. Final determination of amounts earned under contractual reimbursement
programs is subject to review and audit by the applicable agencies. Net revenue
in fiscal 1998 included a charge of $0.7 million for the settlement and
adjustment of reimbursement issues related to the previous fiscal period.
Management believes that adequate provision has been made for any adjustments
that may result from such reviews.
ADVERTISING COSTS
The production costs of advertising are expensed as incurred. The Company does
not consider any of its advertising costs to be direct-response and,
accordingly, does not capitalize such costs. Advertising costs consist primarily
of radio and television air time, which is amortized as utilized, and printed
media services. Advertising expense was approximately $6.4 million and $20.3
million for the 106 days ended September 30,1997 and for the year ended
September 30, 1998, respectively.
CHARITY CARE
The Company provides healthcare services without charge or at amounts less than
its established rates to patients who meet certain criteria under its charity
care policies. Because the Company does not pursue collection of amounts
determined to be charity care, they are not reported as revenue. For the 106
days ended September 30, 1997 and for the year ended September 30, 1998, the
Company provided, at its established billing rates, approximately $5.3 million
and $28.4 million, respectively, of such care.
F-40
<PAGE> 80
INTEREST, NET
The Company records interest expense net of interest income. Interest income for
the 106 days ended September 30, 1997 and for the year ended September 30, 1998
was approximately $0.2 million and $0.3 million, respectively.
CASH AND CASH EQUIVALENTS
Cash equivalents are short-term, highly liquid interest-bearing investments with
a maturity of three months or less when purchased, consisting primarily of money
market instruments.
CONCENTRATION OF CREDIT RISK
Accounts receivable from patient revenue subject the Company to a concentration
of credit risk with third-party payors that include insurance companies, managed
healthcare organizations and governmental entities. The Company establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of specific payors, historical trends and other information. Management believes
the allowance for doubtful accounts is adequate to provide for normal credit
losses.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for renewals and
improvements are charged to the property accounts. Replacements and maintenance
and repairs that do not improve or extend the lives of the respective assets are
expensed as incurred. Amortization of capital lease assets is included in
depreciation expense. Depreciation is provided on a straight-line basis over the
estimated useful lives of the assets, which is generally three to ten years for
equipment. Leasehold improvements are amortized over the useful lives of the
related assets or the terms of the leases, whichever is shorter. Depreciation
and amortization expense was $0.7 million and $5.7 million for the 106 days
ended September 30, 1997 and for the year ended September 30, 1998,
respectively.
INTANGIBLE ASSETS
Intangible assets are composed principally of goodwill and deferred financing
costs. Goodwill represents the excess of the cost of businesses acquired over
the fair value of the net identifiable assets at the date of acquisition and is
amortized using the straight-line method over 25 years. Deferred financing costs
are the costs incurred by the Company to obtain and amend its credit agreement
(See Note 5) and are amortized over the term of the related agreement (five
years).
The Company continually monitors events and changes in circumstances which could
indicate that carrying amounts of intangible assets may not be recoverable. When
events or changes in circumstances are present that indicate that the carrying
amount of intangible assets may not be recoverable, the Company assesses the
recoverability of intangible assets by determining whether the carrying value of
such intangible assets will be recovered through the future cash flows expected
from the use of the asset and its eventual disposition. No impairment losses on
intangible assets were recorded by the Company for the 106 days ended September
30, 1997 or for the year ended September 30, 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates that the carrying amounts of financial instruments
including cash and cash equivalents, accounts receivable and accounts payable
approximated their fair values as of the date of the balance sheets due to the
relatively short maturity of these instruments.
F-41
<PAGE> 81
3. ACQUISITIONS, JOINT VENTURES AND DIVESTITURES
ACQUISITIONS
On September 28, 1998, the Company acquired four inpatient behavioral healthcare
facilities, two related transitional care businesses and a behavioral healthcare
contract management business (collectively "Acquired Hospitals") from Ramsay
Health Care, Inc. The purchase price for the Acquired Hospitals was
approximately $5.3 million. The Company accounted for the acquisition using the
purchase method of accounting. The operating results of the Acquired Hospitals
are included in the Company's Consolidated Statements of Operations since the
date of acquisition.
JOINT VENTURES
Effective September 2, 1998, the Company entered into a hospital-based
behavioral healthcare joint venture ("Brentwood JV") with Brentwood Behavioral
Healthcare, LLC. The Company contributed certain assets from an existing
behavioral healthcare facility in Shreveport, Louisiana, to the joint venture in
exchange for its 50% interest in the Brentwood JV. The Company subsequently
closed its Shreveport, Louisiana, facility. The Company accounts for its
investment in the Brentwood JV using the equity method.
DIVESTITURES
On September 30, 1997, the Company sold the operations of a 60-bed behavioral
healthcare hospital in Sioux Falls, South Dakota, for $422,000. Proceeds from
the sale were not received until October 2, 1997. The transaction resulted in a
gain of $355,000.
4. UNUSUAL ITEMS
The following table summarizes the unusual items recorded during the year ended
September 30, 1998 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1998
--------------------
<S> <C>
Purchase Terminations........................... $ 4,450
Severance....................................... 3,002
Divestitures.................................... 2,688
Other........................................... 985
--------------------
$ 11,125
====================
</TABLE>
PURCHASE TERMINATIONS
In the first quarter of fiscal 1998, the Company recorded a charge of
approximately $2.1 million related to expenses incurred in connection with a
terminated acquisition of an unrelated entity. In the fourth quarter of fiscal
1998, the Company recorded a charge of approximately $2.3 million related to
expenses incurred in connection with terminated transactions with Magellan and
COI that included (i) the purchase of Magellan's franchise operations relating
to the "CHARTER" system and certain other assets, (ii) termination of the
Franchise Agreements, (iii) the sale of Magellan's equity interest in CBHS to
COI and (iv) review of the potential to obtain new capital for the Company
(collectively the "Magellan Buyout"). See Note 12.
SEVERANCE
The Company recorded charges of approximately $3.0 million during fiscal 1998
related to severance and related benefits for employees who were terminated
during fiscal 1998 pursuant to planned overhead reductions.
F-42
<PAGE> 82
DIVESTITURES
In June 1998, the Company sold a 77-bed behavioral healthcare facility in
Virginia for approximately $0.8 million which resulted in a loss of
approximately $2.7 million.
OTHER
In the fourth quarter of fiscal 1998, the Company accrued approximately $0.8
million for estimated expenses incurred in connection with the settlement of
various litigation matters. Also in the fourth quarter of fiscal 1998, the
Company closed and consolidated one behavioral health care operation in Texas
and recorded charges of approximately $0.2 million related to severance and
related benefits and closure costs.
5. LONG-TERM DEBT AND LEASE OBLIGATIONS
Information with regard to the Company's long-term debt and capital lease
obligations at September 30, 1997 and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------------------
1997 1998
--------------------- --------------------
Revolving Credit Agreement due through 2002
<S> <C> <C>
(6.90234 % to 7.59375 %)...................... $ 65,000 $ 70,000
10.5% Capital lease obligations.................... 915 --
--------------------- --------------------
65,915 70,000
Less amounts due within one year.............. 55 2,800
--------------------- --------------------
$ 65,860 $ 67,200
===================== ====================
</TABLE>
The aggregate scheduled maturities of long-term debt during the five years
subsequent to September 30, 1998 are as follows (in thousands): 1999--$2,800;
2000--$0; 2001--$0, 2002--$67,200; 2003--$0.
The Company's debt is carried at cost which approximates fair market value.
REVOLVING CREDIT AGREEMENTS
On June 17, 1997, the Company entered into a credit agreement (the "Revolving
Credit Agreement") with certain financial institutions for a five-year senior
secured revolving credit facility in an aggregate committed amount of $100
million. Effective September 30, 1998, the Revolving Credit Agreement was
amended to provide for, among other things, modification of financial covenant
levels and increases in interest rates.
The maximum amount allowed to be borrowed under the Revolving Credit Agreement
is based on a working capital calculation. At September 30, 1998, the Company
did not have any amounts available for borrowing under the Revolving Credit
Agreement. The Revolving Credit Agreement is secured by the tangible and
intangible personal property, including accounts receivable, owned by the
Company.
The loans outstanding under the Revolving Credit Agreement bear interest
(subject to certain potential adjustments) at a rate per annum equal to one,
two, three or six-month LIBOR plus 2.75% or the Alternative Base Rate ("ABR"),
as defined, plus 1.75%. Interest on ABR loans is payable at the end of each
fiscal quarter. Interest on LIBOR-based loans is payable at the end of their
respective terms, but at a minimum of every three months.
F-43
<PAGE> 83
COVENANTS
The Revolving Credit Agreement contains a number of restrictive covenants which,
among other things, limit the ability of the Company and certain of its
subsidiaries to incur other indebtedness, engage in transactions with
affiliates, incur liens, make certain restricted payments, and enter into
certain business combinations. The Revolving Credit Agreement also requires the
Company to maintain certain specified financial ratios. The Company was in
compliance with all debt covenants under the Revolving Credit Agreement, as
amended, at September 30, 1998. Budget projections prepared by management for
the fiscal year ending September 30, 1999 estimate that the Company will be in
compliance with all debt covenants under the Revolving Credit Agreement, as
amended, during fiscal 1999. Management believes that its budget projections for
fiscal 1999 are reasonable and achievable, however, there can be no assurances
that such projections will be achieved. If the Company were to fail to achieve
such budget projections during fiscal 1999, the Company could become in
noncompliance with certain debt covenants resulting in an event of default under
the Revolving Credit Agreement.
CRESCENT LEASE
Effective June 17, 1997, the Company entered into an agreement to lease the
Purchased Facilities from Crescent under an initial 12-year lease term with four
renewal terms of five years each. The Crescent Lease requires the Company to pay
all maintenance, property tax and insurance costs.
The base rent for the first year of the initial term was $41.7 million and
increases at 5% compounded annually. The Company accounts for the Crescent Lease
as an operating lease and accordingly, records base rent expense on a
straight-line basis over the lease term. Effective December 1, 1997, Crescent
and the Company amended the Crescent Lease to delete the requirement for the
Company to pay an additional annual rent of $20.0 million. This amendment has no
impact on future commitments for the Company as it remains directly liable for
the capital expenditures and other obligations under the Crescent Lease which
were to be funded by the additional annual rent.
OTHER LEASES
The Company also leases certain of its operating facilities other than the
Purchased Facilities. The leases, which expire at various dates through 2027,
generally require the Company to pay all maintenance, property tax and insurance
costs.
In connection with the purchase of the Acquired Hospitals, CBHS entered into an
agreement to lease a behavioral healthcare facility under an initial eight-year
lease term with two renewal terms of four years each. The lease requires the
Company to pay all maintenance, property tax and insurance costs. The base rent
is $270,000, subject to increases for inflation. The Company accounts for the
lease as an operating lease.
At September 30, 1998, aggregate amounts of future minimum payments under
operating leases were as follows (in thousands): 1999-$49,225; 2000-$49,719;
2001-$50,562; 2002-$52,597; 2003-$54,972; subsequent to 2003-$367,948.
Rent expense for the 106 days ended September 30, 1997 and for the year ended
September 30, 1998 was $20.0 million and $67.4 million, respectively.
6. FRANCHISE FEES - MAGELLAN
Effective June 17, 1997, the Company and certain of its subsidiaries entered
into franchise agreements with Magellan, pursuant to which CBHS and such
subsidiaries operate using the "CHARTER" name, services and protocols.
The franchise agreements provide, among other things, that:
o Magellan agrees to use its commercially reasonable best efforts, subject to
applicable law, to cause CBHS and such subsidiaries to have "preferred
provider" status in connection with Magellan's managed behavioral
healthcare business on a basis substantially consistent with existing
agreements for such business.
F-44
<PAGE> 84
o Magellan agrees to operate or provide a toll free "800" telephone number
and call center as a means of assisting customers to locate the places of
business of franchisees.
o Franchisees were granted a right to a defined territory to engage in the
business of providing behavioral healthcare business, as defined.
o Magellan will provide franchisees with the following assistance: (i)
advertising and marketing assistance including consultation, access to
media buying programs and access to broadcast and other advertising
materials produced by Magellan from time to time for franchisees; (ii) risk
management services, including risk financial planning, loss control and
claims management; (iii) outcomes monitoring; (iv) national and regional
contracting services; and (v) consultation by telephone or at the Magellan
offices with respect to matters relating to the franchisee's business in
which Magellan has expertise, including reimbursement, government
relations, clinical strategies, regulatory matters, strategic planning and
business development.
Franchise fees payable by the Company are the greater of (i) 78.3 million,
subject to increases for inflation; or (ii) $78.3 million, plus 3% of gross
revenues over $1 billion and not exceeding $1.2 billion and 5% of gross revenues
over $1.2 billion. Pursuant to a subordination agreement, franchise fees
generally are subordinated to base rent under the Crescent Lease and the 5%
annual increase.
The initial term of the franchise agreements is 12 years with four renewal terms
of five years each.
Pursuant to the provisions of the Franchise Agreements, the Company must pay
additional franchise fees to Magellan on management contract agreements entered
into during the term of the Franchise Agreements ("Managed Business"). Managed
Business franchise fees payable by the Company are 15% or 30% of the Managed
Business total fees less total direct costs for contract locations within or
outside of the Company's existing franchise territories, respectively. Managed
Business franchise fees expense was $0 and $0.3 million for the 106 days ended
September 30, 1997 and for the year ended September 30, 1998, respectively.
On December 22, 1997, Magellan and the Company entered into a management
agreement relating to the operation of the "call centers" formerly operated by
Magellan. The Company received $5.9 million as consideration for performing the
various obligations relating to the "call centers" for the 18-month period ended
June 21, 1999.
The Company has not made total monthly franchise fee payments to Magellan since
February 1998, and, as a result, is in default under the Franchise Agreements.
Franchise fee arrearages are approximately $38.0 million at September 30, 1998.
In addition to other remedies, whenever franchise fees are past due for any
reason in the amount of $6.0 million or more, Magellan has the right to prohibit
any incentive compensation to CBHS management and prohibit any vesting of CBHS
management equity. Whenever fees are past due in the amount of $18.0 million or
more, Magellan has the right to prohibit any salary increases for key personnel
of CBHS, prohibit any additional hiring by CBHS, and prohibit any new direct or
indirect hospital acquisitions or joint ventures participation. If franchise
fees are past due in an amount greater than $24.0 million, Magellan has the
right to require a 5% cutback on budgeted expenses under the then-current
approved CBHS annual budget, require monthly approval of expenditures of CBHS,
including capital and operating expenditures, and require the transfer of
control and management of CBHS and CBHS franchisees to Magellan.
During the fourth quarter of fiscal 1998, due to the franchise fee arrearages,
Magellan exercised its limited management rights under the franchise agreements
and, with CBHS's board of directors' support, made operational and management
changes at CBHS. Subsequent to September 30, 1998, Magellan notified the CBHS
board of directors that it was relinquishing its exercise of limited management
rights of CBHS.
7. BENEFIT PLAN
The Company has a defined contribution retirement plan (the "401(k) Plan").
Employee participants can elect to voluntarily contribute up to 15% of their
compensation to the 401(k) Plan. The Company makes contributions to the 401(k)
Plan based on employee compensation and contributions. The Company makes a
discretionary contribution of 2% of each employee's compensation and matches 50%
of each employee's contribution up to 3% of their compensation.
F-45
<PAGE> 85
During the year ended September 30, 1998, the Company made contributions of
approximately $2.7 million to the 401(k) Plan.
8. CUMULATIVE REDEEMABLE PREFERRED INTERESTS
Effective September 30, 1997, Magellan and COI each agreed to exchange their
respective Member Loans for cumulative redeemable preferred interest ("Preferred
Interests") in the Company. The Preferred Interests are callable in whole at the
Company's option on or after April 1, 1998, at an amount equal to the initial
amount plus all accrued dividends thereon. Each holder of Preferred Interests
receives preferential allocation of the Company's profits computed at 10% per
annum on a cumulative basis, compounded monthly. In addition, each Preferred
Interests has a similar preferred position in the event of dissolution of the
Company. The Company recorded approximately $3.7 million in fiscal 1998 relating
to this dividend requirement, which is all unpaid and included in Other
Long-Term Liabilities at September 30, 1998.
9. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------------------
1997 1998
----------------- ----------------
<S> <C> <C>
Salaries and wages............................... $ 18,220 $ 20,334
Property taxes................................... 4,874 5,157
Interest......................................... 333 105
Other............................................ 10,151 21,683
----------------- ----------------
$ 33,578 $ 47,279
================= ================
</TABLE>
10. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information for the 106 days ended September 30, 1997 and
for the year ended September 30, 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
106 DAYS ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1998
------------------- -----------------
<S> <C> <C>
Interest paid........................................................ $ 1,291 $ 5,561
Exchange of debt for cumulative preferred interest - COI............. 17,500 --
Exchange of debt for cumulative preferred interest - Magellan........ 17,500 --
Initial capital contribution from Magellan, primarily property and
equipment less assumed liabilities ............................. 5,282 --
Account receivable for the sale of facility.......................... 386 --
Accrued dividend requirement on cumulative redeemable
preferred interests............................................. -- 3,719
Capital lease obligation assigned with sale of facility.............. -- 874
</TABLE>
11. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As part of the Crescent Transactions, (i) certain items of working capital were
purchased from Magellan, (ii) the Company agreed to collect Magellan's patient
accounts receivable outstanding as of the closing date for a fee of 5% of cash
collections and (iii) the Company agreed to manage Magellan's interest in
certain joint ventures for a management fee. Included in net revenues for the
106 days ended September 30, 1997 and for the year ended
F-46
<PAGE> 86
September 30, 1998 are approximately $5.0 million and $2.0 million,
respectively, of these collection fee revenues and approximately $2.1 million
and $5.5 million, respectively, of these joint venture management fees.
The Company had a net receivable from Magellan as of September 30, 1997 of
approximately $5.1 million and a net payable to Magellan as of September 30,
1998 of approximately $36.9 million. This receivable/payable results from (i)
amounts due for the management of Magellan's joint ventures as of September 30,
1997 and 1998, (ii) amounts due for the collection fees on Magellan's patient
account receivable as of September 30, 1997 and 1998, (iii) receivable for the
settlement of working capital related matters as of September 30, 1997 and 1998,
(iv) receivable for the reimbursement effect associated with the collection fees
as of September 30, 1997 and 1998 and (v) payable for the franchise fees as of
September 30, 1998.
Effective April 1, 1998, the Company entered into an agreement with Green Spring
Health Services, Inc. ("Green Spring"), a wholly-owned subsidiary of Magellan,
for managed mental health, substance abuse and employee assistance plan services
for the Company's employees. During fiscal 1998, the Company paid approximately
$0.1 million to Green Spring for these services.
John C. Goff was the Chairman of CBHS and the Vice Chairman of both Crescent and
COI. During fiscal 1998, the Company paid approximately $0.4 million to John
Goff for salary and related benefits. In November 1998, Mr. Goff resigned his
position on the CBHS board. Richard P. Knight, the Chief Financial Officer of
COI, was appointed to fill the vacancy on the CBHS board left by Mr. Goff's
resignation. Jeffrey L. Stevens of COI was subsequently elected Chairman of
CBHS.
12. COMMITMENTS AND CONTINGENCIES
The Company carries general and professional liability insurance from an
unrelated commercial insurance carrier with a self insured retention of $1.5
million per occurrence and $8.0 million in the aggregate, on a claim made basis.
In addition, the Company has an umbrella policy with coverage up to $75.0
million per occurrence and in the aggregate.
Magellan and the predecessor to the Company's Orlando, Florida facility (the
"Orlando Facility") were named as defendants in a complaint entitled United
States of America ex rel. Francine M. Mettevis and Rhea Rowan v. Charter
Hospital of St. Louis, Inc. et al. The action was filed on November 6, 1994 as a
qui tam action in the United States District court for the Middle District of
Florida. Magellan, the Department of Justice, and the Company entered into a
settlement of the action in August 1998. Pursuant to the settlement agreement,
Magellan paid the government $4.75 million and the Company entered into a
Corporate Integrity Agreement for the Orlando Facility whereby the Orlando
Facility will be monitored for five years by the Department of Health and Human
Services ("HHS) and the Office of the Inspector General ("OIG") as well as a
concurrent reviewer. In the settlement agreement, the Company also agreed that
the Orlando Facility would not bill Medicare for the treatment of Medicare
patients for a period of 12 to 15 months beginning August 1, 1998 (the
"Non-Billing Period"). The Company intends to seek indemnification from Magellan
under the Crescent Transactions for all of the fees, costs, expenses and losses
it incurs in connection with the settlement agreement and the Corporate
Integrity Agreement. The Company has been reimbursed by Magellan for losses and
costs it has incurred through October 1998 which relate to the services provided
by the Orlando Facility to Medicare beneficiaries.
In connection with the Magellan Buyout, Magellan and COI entered into a Support
Agreement pursuant to which COI agreed, under certain conditions, to assist the
Company in obtaining the funds required to consummate the contemplated
transactions and to pay expenses incurred in obtaining such funds. On August 19,
1998, Magellan and COI each announced the termination of negotiations regarding
the Magellan Buyout. On November 5, 1998, Magellan notified COI that Magellan
believes COI owes CBHS $2.3 million for the reimbursement of expenses incurred
by the Company in connection with attempts to obtain financing for the
contemplated transactions. COI disputes this matter which will be sent to
arbitration. See Note 4.
In April 1998, following the death of a patient at the Company's Greensboro,
North Carolina facility ("Greensboro Facility"), the North Carolina Department
of Health and Human Services ("NC HHS") conducted a survey of that facility. On
April 14, 1998, the Greensboro Facility received notice that as a result of the
survey, NC HHS was recommending to the Health Care Financing Administration
("HCFA") that the Greensboro Facility be excluded
F-47
<PAGE> 87
from participation in Medicare within 23 days. Similarly, on April 14, 1998,
the Greensboro Facility received notice that as a result of the survey, NC HHS
intended to revoke the Greensboro Facility's state license. In response to such
notices, the Company submitted a plan of correction and refutation of
deficiencies with HCFA and NC HHS, and NC HHS conducted a subsequent visit on
May 4 through May 6, 1998. On May 7, 1998, the Greensboro Facility received
notice from HCFA that based on the findings in the second visit, the date
scheduled for involuntary termination was extended to July 7, 1998. On June 5,
1998, the Greensboro Facility entered into a settlement agreement with NC HHS
which resolved all outstanding regulatory and operational issues with NC HHS
and HCFA arising from the patient's death. The local District Attorney's office
and the North Carolina Board of Nursing ("NCBN") have continued their separate
investigations into this incident. An indictment of one of the Greensboro
Facility's employees has been returned while the NCBN continues its
investigation. At this stage, it is not possible to predict whether any future
action will be taken against the Greensboro Facility or any of its other
employees involved in the patient's death, the likelihood of an unfavorable
outcome, or the amount of any potential loss associated with any such action.
The healthcare industry is subject to numerous laws and regulations. The
subjects of such laws and regulations include, but are not limited to, matters
such as licensure, accreditation, government healthcare program participation
requirements, reimbursement for patient services, and Medicare and Medicaid
fraud and abuse. Recently, government activity has increased with respect to
investigations and / or allegations concerning possible violations of fraud and
abuse and false claims statutes and regulations by healthcare providers.
Entities that are found to have violated these laws and regulations may be
excluded from participating in government healthcare programs, subjected to
fines or penalties or required to repay amounts received from the government for
previously billed patient services. The Office of the Inspector General of the
Department of Health and Human Services and the United States Department of
Justice and certain other governmental agencies are currently conducting
inquiries and / or investigations regarding the compliance by the Company and
certain of its subsidiaries with such laws and regulations. In addition, the
Company is also subject to or party to litigation, claims and civil suits
relating to its operations and business practices. In the opinion of management,
the Company has recorded reserves that are adequate to cover litigation, claims
or assessments that have been or may be asserted against the Company arising out
of such litigation, civil suits and governmental inquires. Furthermore,
management believes that the resolution of such litigation, civil suits and
governmental inquiries will not have a material adverse effect on the Company's
financial position or results of operations; however, there can be no assurance
in this regard.
F-48
<PAGE> 88
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS- DEDUCTIONS- END
CLASSIFICATION OF PERIOD EXPENSE DESCRIBE DESCRIBE OF PERIOD
-------------- --------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
106 days ended September 30, 1997:
Allowance for doubtful accounts $ -- $17,437 $ 39(A) $ 843(B) $17,605
972(C)
------- ------- ------- ------- -------
$ -- $17,437 $ 1,011 $ 843 $17,605
======= ======= ======= ======= =======
Year ended September 30, 1998:
Allowance for doubtful accounts $17,605 $63,895 $ 4,035(A) $51,987(B) $33,548
------- ------- ------- ------- -------
$17,605 $63,895 $ 4,035 $51,987 $33,548
======= ======= ======= ======= =======
</TABLE>
- -------------------
(A) Recoveries of amounts previously charged to income.
(B) Accounts written off.
(C) Allowance for doubtful accounts assumed in purchase of net assets from
Magellan.
F-49
<PAGE> 89
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Executive Committee of
The Woodlands Operating Company, L.P.:
We have audited the accompanying consolidated balance sheets of The Woodlands
Operating Company, L.P. and subsidiary as of December 31, 1998 and 1997, and the
related consolidated statements of earnings, changes in partners' equity and
cash flows for the year ended December 31, 1998, and the period from July 31,
1997 (inception) to December 31, 1997. These financial statements are the
responsibility of The Woodlands Operating Company, L.P.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Woodlands Operating
Company, L.P. and subsidiary as of December 31, 1998 and 1997, and the results
of its operations and its cash flows for the year ended December 31, 1998, and
the period from July 31, 1997 (inception), to December 31, 1997, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
HOUSTON, TEXAS
JANUARY 15, 1999
F-50
<PAGE> 90
THE WOODLANDS OPERATING COMPANY, L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
-------- --------
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents ............... $ 6,231 $ 4,034
Trade receivables ....................... 4,713 5,084
Inventory ............................... 933 1,213
Other ................................... 336 341
-------- --------
12,213 10,672
Property and equipment, at cost less
accumulated depreciation of $331 and $105 1,362 2,638
Other assets ................................ 1,722 35
-------- --------
$ 15,297 $ 13,345
======== ========
LIABILITIES AND EQUITY
Current liabilities
Accounts payable ........................ $ 12,320 $ 5,551
Accrued liabilities ..................... 1,815 4,175
-------- --------
14,135 9,726
Other liabilities ........................... 3,125 2,220
-------- --------
Total liabilities ....................... 17,260 11,946
Commitments and contingencies (Note 2)
Partners' equity (deficit) (Note 3) ......... (1,963) 1,399
-------- --------
$ 15,297 $ 13,345
======== ========
</TABLE>
See accompanying Notes
F-51
<PAGE> 91
THE WOODLANDS OPERATING COMPANY, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM JULY 31, 1997 (INCEPTION) TO DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
REVENUES
Conference Center and Country Club operations $ 47,609 $ 18,169
Management fees and other ................... 27,151 11,476
-------- --------
74,760 29,645
-------- --------
OPERATING EXPENSES
Conference Center and Country Club operations 46,162 18,121
Operating, general and administrative ....... 25,246 11,034
Depreciation and amortization ................... 751 105
-------- --------
72,159 29,260
-------- --------
OPERATING EARNINGS .............................. 2,601 385
OTHER (INCOME) EXPENSE .......................... (37) 20
-------- --------
NET EARNINGS .................................... $ 2,638 $ 365
======== ========
</TABLE>
See accompanying Notes
F-52
<PAGE> 92
THE WOODLANDS OPERATING COMPANY, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM JULY 31, 1997
(INCEPTION) TO DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
WOCOI MS/TWC
Investment Joint MS/TWC,
Company Venture Inc. Total
------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance, July 31, 1997 (Inception) $ 425 $ 558 $ 10 $ 993
Contributions .................... 14 26 1 41
Net earnings ..................... 155 206 4 365
------- ------- ------- -------
Balance, December 31, 1997 ....... 594 790 15 1,399
Distributions .................... (2,550) (3,390) (60) (6,000)
Net earnings ..................... 1,121 1,491 26 2,638
------- ------- ------- -------
Balance, December 31, 1998 ....... $ (835) $(1,109) $ (19) $(1,963)
======= ======= ======= =======
</TABLE>
See accompanying Notes
F-53
<PAGE> 93
THE WOODLANDS OPERATING COMPANY, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM JULY 31, 1997 (INCEPTION) TO
DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings .................................... $ 2,638 $ 365
Adjustments to reconcile net earnings to
cash provided by operating activities
Depreciation and amortization ............. 751 105
Deferred Country Club initiation fees ..... 2,062 776
Other ..................................... (113) (895)
5,338 351
Changes in operating assets and liabilities
Current assets .......................... 656 (1,190)
Accounts payable ........................ 6,769 4,216
Accrued liabilities ..................... (2,360) 562
Other assets ............................ (1,687) (35)
------- -------
Cash provided by operating activities ........... 8,716 3,904
------- -------
INVESTING ACTIVITIES
Capital expenditures ............................ (519) (148)
------- -------
FINANCING ACTIVITIES
Contribution from partners ...................... -- 41
Distributions to partners ....................... (6,000) --
------- -------
Cash provided by (used for) financing activities (6,000) 41
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS ........... 2,197 3,797
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .. 4,034 237
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD ........ $ 6,231 $ 4,034
======= =======
</TABLE>
See accompanying Notes
F-54
<PAGE> 94
THE WOODLANDS OPERATING COMPANY, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONTROL. The Woodlands Operating Company, L.P. ("Woodlands Operating"), The
Woodlands Land Development Company, L.P. ("Woodlands Development") and The
Woodlands Commercial Properties Company, L.P. ("Woodlands Commercial") are owned
by entities controlled by Crescent Real Estate Equities Limited Partnership or
Crescent Operating, Inc. (together "Crescent") and Morgan Stanley Real Estate
Fund II, L.P. ("Morgan Stanley"). Woodlands Development and Woodlands Commercial
are successors to The Woodlands Corporation. Prior to July 31, 1997, The
Woodlands Corporation was a wholly owned subsidiary of Mitchell Energy &
Development Corp. On July 31, 1997 The Woodlands Corporation was acquired by
Crescent and Morgan Stanley and merged into Woodlands Commercial, a Texas
limited partnership. Woodlands Commercial was then divided into two
partnerships: Woodlands Commercial and Woodlands Development. WECCR General
Partnership ("WECCR GP") is a subsidiary of Woodlands Operating. Woodlands
Operating manages assets owned by Woodlands Commercial and Woodlands
Development.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of Woodlands Operating and WECCR GP. All significant transactions and
accounts are eliminated in consolidation.
BUSINESS. Woodlands Operating's activities are concentrated in The Woodlands, a
planned community located north of Houston, Texas. Consequently, these
operations and the associated credit risks may be affected, either positively or
negatively, by changes in economic conditions in this geographical area.
Woodlands Operating provides services to Woodlands Development and Woodlands
Commercial under management and advisory services agreements. These agreements
have an initial term ending December 31, 1998 and are automatically renewable on
an annual basis. Woodlands Development and Woodlands Commercial pay Woodlands
Operating an advisory fee equal 3% above cost. In addition, they reimburse
Woodlands Operating for all cost and expenses incurred on their behalf. For the
year ended December 31, 1998 and the period from July 31, 1997 (inception) to
December 31, 1997, Woodlands Operating recorded revenues of $11,050,000 and
$4,598,000 for services provided to Woodlands Development and $7,343,000 and
$4,235,000 for services provided to Woodlands Commercial.
WECCR GP leases The Woodlands Conference Center, Resort and Country Club ("the
Facilities") from Woodlands Commercial. This agreement has an eight-year term
ending July 31, 2005. WECCR GP operates the Facilities and pays Woodlands
Commercial a base rent of $750,000 per month and a quarterly percentage rent
based on the gross receipts of the Facilities. For the year ended December 31,
1998 and the period from July 31, 1997 (inception) to December 31, 1997, rent
under the lease agreement totaled $12,799,000 and $5,063,000.
DEPRECIATION. Depreciation of operating assets is provided on the straight-line
method over the estimated useful lives of the assets, which range from three to
ten years.
INCOME TAXES. No liability for Federal income taxes is included in the
accompanying financial statements since Woodlands Operating is not a tax-paying
entity and all income and expenses are reported by the partners for tax
reporting purposes.
The tax returns, the qualification of Woodlands Operating for tax purposes and
the amount of distributable partnership income or loss are subject to
examination by Federal taxing authorities. If such examinations result in
changes with respect to partnership qualification or in changes to distributable
partnership income or loss, the tax liability of the partners could be changed
accordingly.
STATEMENTS OF CASH FLOWS. Short-term investments with maturities of three months
or less are considered to be cash equivalents. There were no significant
non-cash investing or financing activities for the year ended December 31, 1998
or for the period from July 31, 1997 (inception) to December 31, 1997.
F-55
<PAGE> 95
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
2. COMMITMENTS AND CONTINGENCIES
LEGAL ACTIONS. Woodlands Operating is a party to claims and legal actions
arising in the ordinary course of business and to recurring examinations by the
Internal Revenue Service and other regulatory agencies. Management believes,
after consultation with outside counsel, that adequate financial statement
accruals have been provided for all known litigation contingencies where losses
are deemed probable. Since the ultimate cost will depend on the outcomes of
these uncertainties, it is possible that additional future charges might be
required that would be significant to the operating results of a particular
period. Based on the status of the cases, Woodlands Operating is unable to
determine a range of such possible additional losses, if any, that might be
incurred in connection with this litigation. Woodlands Operating believes it is
not probable that the ultimate resolution of this litigation will have a
material adverse effect on its financial position and results of operations.
LEASES. Woodlands Operating has various facility and equipment lease agreements.
Rental expenses for operating leases for the year ended December 31, 1998 and
the period from July 31, 1997 (inception) to December 31, 1997 total $1,099,000
and $313,000. Minimum rentals for the five years subsequent to December 31, 1998
total approximately $724,000; $775,000; $756,000; $456,000 and $456,000.
INCENTIVE PLAN. Woodlands Operating instituted an incentive compensation plan
for certain employees effective January 1, 1998. The plan is unfunded and while
certain payments are made currently, a portion of the payment is deferred and
paid only upon the occurrence of certain future events. Woodlands Development
and Woodlands Commercial will reimburse any incentive plan payments made in the
future.
3. PARTNERS' EQUITY
Crescent's entity in Woodlands Operating is WOCOI Investment Company. Morgan
Stanley's entities are MS/TWC Joint Venture and MS TWC, Inc. The partners'
percentage interests are summarized below:
<TABLE>
<CAPTION>
General Limited
Partner Partner
Interest Interest
-------- --------
<S> <C> <C>
WOCOI Investment Company ......................... 42.5%
MS/TWC Joint Venture ............................. 56.5%
MS TWC, Inc ...................................... 1.0%
</TABLE>
The partnership agreement provides, among other things, the following:
(i) Woodlands Operating is governed by an Executive Committee composed of equal
representation from its respective general partners.
(ii) Net income and losses from operations are currently allocated so that
partners' capital accounts stand in the ratio of the percentage interest listed
above.
(iii) Distributions are made to partners based on specified payout percentages
and include cumulative preferred returns to Morgan Stanley's affiliates. The
payout percentage to Morgan Stanley's affiliates is 57.5% until the affiliates
receive distributions equal to their capital contributions and a 12% cumulative
preferred return compounded quarterly. Then, the payout percentage to Morgan
Stanley's affiliates is 50.5% until the affiliates receive distributions equal
to their capital contributions and an 18% cumulative preferred return compounded
quarterly. Thereafter the payout percentage to Morgan Stanley's affiliates is
47.5%.
F-56
<PAGE> 96
(iv) Woodlands Operating will continue to exist until December 31, 2040 unless
terminated earlier due to specified events.
(v) No additional partners may be admitted to Woodlands Operating unless
specific conditions in the partnership agreements are met. Partnership interests
may be transferred to affiliates of Crescent or Morgan Stanley. Crescent has the
right of first refusal to buy the partnership interests of the Morgan Stanley
affiliates at the same terms and conditions offered to a third party purchaser,
or sell its affiliates' interests to the same third party purchaser.
(vi) Crescent and Morgan Stanley have the right to offer to purchase the other
partner's affiliates' partnership interests in the event of failure to make
specified capital contributions or a specified default by the other. Specified
defaults include bankruptcy, breach of partnership covenants, transfer of
partnership interests except as permitted by the partnership agreements, and
fraud or gross negligence.
4. EMPLOYEE SAVINGS PLAN
Woodlands Operating has a 401(k) defined contribution plan that is available to
all full-time employees who meet specified service requirements. The plan is
administered by a third party. Contributions to the plan are based on a match of
employee contributions up to a certain limit. For the year ended December 31,
1998 and the period from July 31, 1997 (inception) to December 31, 1997
Woodlands Operating contributions totaled $582,000 and $240,000.
5. YEAR 2000 COMPLIANCE (UNAUDITED)
Woodlands Operating utilizes and is dependent on computer systems to conduct its
business. These systems include hardware and software developed and maintained
by third parties and purchased software run on in-house networks. A third party
manages the in-house systems under a contractual arrangement. Woodlands
Operating is undertaking a project to determine whether its computer systems are
year 2000 compliant. The project plan has been reviewed by senior management and
involves an assessment of each software application and related hardware.
Vendors will be contacted to assess year 2000 compliance and determine what
corrective measures, if any, are needed. A plan has been developed to make the
necessary corrections, or take some alternative action. The plan is being
implemented and tested to ensure compliance. Systems that have the greatest
impact will be given a higher priority.
Management has not determined the final cost of its year 2000 readiness efforts
or the related potential impact on Woodlands Operating's results of operations.
There can be no assurance that there will not be an adverse impact on Woodlands
Operating's financial position or results of operations if Woodlands Operating's
systems or the systems of other companies on which Woodlands Operating relies
are not compliant in time. However, based on preliminary assessments management
believes the risk of such adverse impact is low.
F-57
<PAGE> 97
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Executive Committee of
The Woodlands Land Development Company, L.P.:
We have audited the accompanying balance sheets of The Woodlands Land
Development Company, L.P., as of December 31, 1998 and 1997, and the related
statements of earnings, changes in partners' equity and cash flows for the year
ended December 31, 1998, and the period from July 31, 1997 (inception), to
December 31, 1997. These financial statements are the responsibility of The
Woodlands Operating Company, L.P.'s management as manager for The Woodlands Land
Development Company, L.P. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Woodlands Land Development
Company, L.P., as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the year ended December 31, 1998, and the
period from July 31, 1997 (inception), to December 31, 1997, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
HOUSTON, TEXAS
JANUARY 15, 1999
F-58
<PAGE> 98
THE WOODLANDS LAND DEVELOPMENT COMPANY, L.P.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ................. $ 2,785 $ 17,791
Trade receivables ......................... 147 117
Other ..................................... 6 37
-------- --------
2,938 17,945
Notes and contracts receivable (Notes 2 and 10) 30,040 20,932
Real estate (Notes 3 and 4) ................... 345,082 345,907
Other assets, net ............................. 2,008 3,863
-------- --------
$380,068 $388,647
======== ========
LIABILITIES AND EQUITY
Liabilities
Current liabilities
Accounts payable ........................ $ 13,367 $ 10,157
Accrued liabilities ..................... 4,580 6,220
-------- --------
17,947 16,377
Acquisition debt (Notes 5 and 10) ......... 235,750 266,000
Notes payable to partners (Notes 6 and 10) 25,000 25,000
Other debt (Notes 5 and 10) ............... 3,405 892
Other liabilities ......................... 8,838 6,486
-------- --------
290,940 314,755
Commitments and contingencies (Notes 4 and 7)
Partners' equity (Note 9) ..................... 89,128 73,892
-------- --------
$380,068 $388,647
======== ========
</TABLE>
See accompanying Notes
F-59
<PAGE> 99
THE WOODLANDS LAND DEVELOPMENT COMPANY, L.P.
STATEMENTS OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM JULY 31, 1997 (INCEPTION) TO
DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
REVENUES
Residential lot sales ...................... $ 77,824 $ 25,532
Commercial land sales ...................... 43,778 8,697
Other (Notes 3 and 4) ...................... 10,349 3,322
--------- ---------
131,951 37,551
--------- ---------
COST AND EXPENSES
Residential lot cost of sales .............. 45,203 17,791
Commercial land cost of sales .............. 17,533 4,361
Operating expenses (Notes 8 and 11) ........ 19,471 6,387
Depreciation and amortization .............. 464 85
--------- ---------
82,671 28,624
--------- ---------
OPERATING EARNINGS .......................... 49,280 8,927
--------- ---------
OTHER (INCOME) EXPENSE
Interest expense (Notes 5 and 6) ........... 24,000 10,696
Interest capitalized ....................... (22,106) (9,170)
Amortization of debt costs ................. 1,243 575
Other ...................................... 329 (187)
--------- ---------
3,466 1,914
--------- ---------
EARNINGS BEFORE THE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE .......... 45,814 7,013
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE (Note 12) ......... 639 --
--------- ---------
NET EARNINGS ................................ $ 45,175 $ 7,013
========= =========
</TABLE>
See accompanying Notes
F-60
<PAGE> 100
THE WOODLANDS LAND DEVELOPMENT COMPANY, L.P.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM JULY 31, 1997 (INCEPTION) TO
DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
The
Woodlands MS/TWC
Land Joint MS/TWC,
Company, Inc. Venture Inc. Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance, July 31, 1997 (Inception) ... $ 30,825 $ 40,353 $ 714 $ 71,892
Contributions ........................ 1,424 2,518 45 3,987
Distributions ........................ (3,825) (5,085) (90) (9,000)
Net earnings ......................... 2,981 3,962 70 7,013
-------- -------- -------- --------
Balance, December 31, 1997 ........... 31,405 41,748 739 73,892
Contributions ........................ 2,575 3,423 60 6,058
Distributions ........................ (15,299) (20,338) (360) (35,997)
Net earnings ......................... 19,199 25,524 452 45,175
-------- -------- -------- --------
Balance, December 31, 1998 ........... $ 37,880 $ 50,357 $ 891 $ 89,128
======== ======== ======== ========
</TABLE>
See accompanying Notes
F-61
<PAGE> 101
THE WOODLANDS LAND DEVELOPMENT COMPANY, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM JULY 31, 1997 (INCEPTION) TO
DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings .............................................. $ 45,175 $ 7,013
Adjustments to reconcile net earnings to
cash provided by operating activities
Cost of land sold ................................... 62,736 22,152
Depreciation and amortization ....................... 464 85
Gain on sale of property ............................ (699) --
Partnership distributions less than earnings ........ (61) (106)
(Increase) decrease in notes and contracts receivable (9,108) 3,371
Other ............................................... (4,697) (3,074)
-------- --------
93,810 29,441
Land development capital expenditures ............... (50,035) (14,098)
Changes in operating assets and liabilities
Current assets .................................... 1 319
Accounts payable and accrued liabilities .......... 1,570 6,155
Other assets ...................................... 1,855 (413)
-------- --------
Cash provided by operating activities ..................... 47,201 21,404
-------- --------
INVESTING ACTIVITIES
Acquisition of commercial property ........................ (10,100) --
Proceeds from sale of property ............................ 4,819 --
-------- --------
Cash used for investing activities ........................ (5,281) --
-------- --------
FINANCING ACTIVITIES
Contributions from partners ............................... 6,058 3,987
Distributions to partners ................................. (35,997) (9,000)
Debt borrowings ........................................... 3,263 --
Debt repayments ........................................... (30,250) --
-------- --------
Cash used for financing activities ........................ (56,926) (5,013)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........... (15,006) 16,391
CASH AND CASH EQUIVALENTS, beginning of period ............. 17,791 1,400
-------- --------
CASH AND CASH EQUIVALENTS, end of period ................... $ 2,785 $ 17,791
======== ========
</TABLE>
See accompanying Notes
F-62
<PAGE> 102
THE WOODLANDS OPERATING COMPANY, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONTROL. The Woodlands Land Development Company, L.P. ("Woodlands Development"),
The Woodlands Commercial Properties Company, L.P. ("Woodlands Commercial"),
WECCR General Partnership ("WECCR GP"), and The Woodlands Operating Company,
L.P. ("Woodlands Operating") are owned by entities controlled by Crescent Real
Estate Equities Limited Partnership or Crescent Operating, Inc. (together
"Crescent") and Morgan Stanley Real Estate Fund II, L.P. ("Morgan Stanley").
Woodlands Development and Woodlands Commercial are successors to The Woodlands
Corporation. Prior to July 31, 1997, The Woodlands Corporation was a wholly
owned subsidiary of Mitchell Energy & Development Corp. On July 31, 1997 The
Woodlands Corporation was acquired by Crescent and Morgan Stanley and merged
into Woodlands Commercial, a Texas limited partnership. Woodlands Commercial was
then divided into two partnerships: Woodlands Commercial and Woodlands
Development. Woodlands Operating manages assets owned by Woodlands Development
as described in Note 8.
The following is a summary of the acquisition transaction on July 31, 1997 (in
thousands):
<TABLE>
<CAPTION>
Woodlands Woodlands WECCR Woodlands (memo only)
Development Commercial GP Operating Combined
-------- -------- ----- -------- --------
<S> <C> <C> <C> <C> <C>
Initial capital contributions ............... $ 71,892 $ 90,073 $ -- $ 993 $162,958
Bank credit agreement borrowings (Note 5).... 266,000 103,000 -- -- 369,000
Notes payable to partners (Note 6) .......... 25,000 -- -- -- 25,000
-------- -------- ----- -------- --------
Acquisition funding sources ................. $362,892 $193,073 $ -- $ 993 $556,958
======== ======== ===== ======== ========
</TABLE>
BUSINESS. Woodlands Development's real estate activities are concentrated in The
Woodlands, a planned community located north of Houston, Texas. Consequently,
these operations and the associated credit risks may be affected, either
positively or negatively, by changes in economic conditions in this geographical
area. Activities associated with The Woodlands include residential and
commercial land sales and the construction of commercial buildings.
REAL ESTATE. Costs associated with the acquisition and development of real
estate, including holding costs consisting principally of interest and ad
valorem taxes, are capitalized as incurred. Capitalization of such holding costs
is limited to properties for which active development continues. Capitalization
ceases upon completion of a property or cessation of development activities.
Where practicable, capitalized costs are specifically assigned to individual
assets; otherwise, costs are allocated based on estimated values of the affected
assets.
LAND SALES. Earnings from sales of real estate are recognized when a third-party
buyer has made an adequate cash down payment and has attained the attributes of
ownership. Notes received in connection with land sales are discounted when the
stated purchase prices are significantly different from those that would have
resulted from similar cash transactions. The cost of land sold is generally
determined as a specific percentage of the sales revenues recognized for each
land development project. These percentages are based on total estimated
development costs and sales revenues for each project.
DEPRECIATION. Depreciation of operating assets is provided on the straight-line
method over the estimated useful lives of the assets, which range from three to
fifty years.
F-63
<PAGE> 103
INCOME TAXES. No liability for Federal income taxes is included in the
accompanying financial statements since the Woodlands Development is not a
tax-paying entity and all income and expenses are reported by the partners for
tax reporting purposes.
The tax returns, the qualification of Woodlands Development for tax purposes and
the amount of distributable partnership income or loss are subject to
examination by Federal taxing authorities. If such examinations result in
changes with respect to partnership qualification or in changes to distributable
partnership income or loss, the tax liability of the partners could be changed
accordingly.
STATEMENTS OF CASH FLOWS. Short-term investments with maturities of three months
or less are considered to be cash equivalents. The reported amounts for proceeds
from issuance of debt and debt repayments exclude the impact of borrowings with
initial terms of three months or less. For the year ended December 31, 1998 and
for the period from July 31, 1997 (inception) to December 31, 1997, Woodlands
Development paid interest totaling $25,361,000 and $7,375,000 related to debt
described in Note 5.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
2. NOTES AND CONTRACTS RECEIVABLE
Notes receivable are carried at cost, net of discounts. At December 31, 1998,
Woodlands Development had one note receivable with an outstanding balance of
$1,453,000 and utility district receivables totaling $28,587,000. The note
receivable has an 8.0% rate. Utility district receivables, the collection of
which is dependent on the ability of utility districts in The Woodlands to sell
bonds, have a market interest rate of approximately 5.0% at December 31, 1998.
3. REAL ESTATE
The following is a summary of real estate at December 31, 1998 and 1997 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Land ...................................... $329,398 $338,856
Commercial properties ..................... 12,670 4,247
Equity investments (Note 4) ............... 2,641 2,634
Other assets .............................. 728 233
-------- --------
345,437 345,970
Accumulated depreciation .................. (355) (63)
-------- --------
$345,082 $345,907
======== ========
</TABLE>
LAND. The principal land development is The Woodlands, a mixed-use,
master-planned community located north of Houston, Texas. Residential land is
divided into seven villages in various stages of development. Each village has
or is planned to contain a variety of housing, neighborhood retail centers,
schools, parks and other amenities. Woodlands Development controls the
development of the residential communities and produces finished lots for sale
to qualified builders. Housing is constructed in a wide choice of pricing and
product styles.
Commercial land is divided into distinct centers that serve or are planned to
serve as locations for office buildings, retail and entertainment facilities,
industrial and warehouse facilities, research and technology facilities, and
college and training facilities. Woodlands Development produces finished sites
for third parties and uses land for its own building development activities.
F-64
<PAGE> 104
COMMERCIAL PROPERTIES. A commercial property owned by Woodlands Development is
leased to a third-party tenant. The lease term is five years. The lease is
accounted for under the operating method. Minimum future lease revenues from the
operating lease excludes contingent rentals that may be received. Tenant rents
include rent for noncancelable operating leases. Contingent rents include
pass-throughs of incremental operating costs. Other commercial properties are
under development at December 31, 1998. Summarized financial information for
commercial properties as of December 31, 1998 and for the year then ended
follows (in thousands):
<TABLE>
<S> <C>
Net book value of assets under operating leases .... $12,327
=======
Revenue from tenants
Tenant rent ..................................... $ 1,470
Contingent rent ................................. 155
-------
$ 1,625
=======
Minimum future lease revenues
1999 ........................................... $ 1,373
2000 ........................................... 1,373
2001 ........................................... 1,373
2002 ........................................... 1,373
2003 ........................................... 229
</TABLE>
4. JOINT VENTURES AND PARTNERSHIPS
During 1998, Woodlands Development's principal partnership interests included
the following:
<TABLE>
<CAPTION>
Ownership Nature of Operations
------------- --------------------
<S> <C> <C>
Mitchell Mortgage Company, LLC................. 49% Mortgage lending
Stewart Title of Montgomery County, Inc. ...... 50% Title company
</TABLE>
Woodlands Development's net investment in each of these entities is included in
the real estate caption on the balance sheets and their share of these entities'
pretax earnings is included in revenues on the statements of earnings. A summary
of their net investment as of December 31, 1998 and their share of pre-tax
earnings for the year then ended follows (in thousands):
<TABLE>
<CAPTION>
Equity in
Net Pre-tax
Investment Earnings
-------------- ------------
<S> <C> <C>
Mitchell Mortgage Company, LLC .................... $ 1,261 $ 472
Stewart Title of Montgomery County, Inc. .......... 1,380 583
------------- ------------
$ 2,641 $ 1,055
</TABLE> ============= ============
F-65
<PAGE> 105
Summarized financial statement information for partnerships in which Woodlands
Development has an ownership interest at December 31, 1998 and for the year then
ended follows (in thousands):
<TABLE>
<S> <C>
Assets ........................................................... $66,730
Debt payable to third parties
Woodlands Development's proportionate share (nonrecourse) .... 29,291
Other parties' proportionate share ............................ 30,487
Accounts payable and deferred credits ........................... 1,312
Owners' equity .................................................. 5,640
Revenues ......................................................... 10,368
Operating earnings ............................................... 2,364
Pre-tax earnings ................................................. 2,364
Woodlands Development's proportionate share
of pre-tax earnings ....................................... 1,055
</TABLE>
5. DEBT
A summary of Woodlands Development's outstanding debt at December 31, 1998 and
1997 follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Bank credit agreement ...................... $ 235,750 $ 266,000
Mortgages payable, at an average
interest rate of 7.8% ..................... 3,405 892
-------------- --------------
$ 239,155 $ 266,892
============== ==============
</TABLE>
The bank credit agreement has a three year term expiring July 31, 2000 with two,
one-year extension options. The interest rate is based on the London Interbank
Offered Rate and averaged 8.1% for the year ended December 31, 1998. Interest is
paid monthly. The credit agreement contains certain restrictions which, among
other things, require the maintenance of specified financial ratios, restrict
indebtedness and sale, lease or transfer of assets, and limit the right of
Woodlands Development to merge with other companies and make distributions to
its partners. Certain assets of Woodlands Development including cash and
receivables secure the credit agreement. Mandatory debt maturities are
$11,875,000 in 1999 and $326,875,000 in 2000. They may be made by Woodlands
Development or Woodlands Commercial or both at their option. Additional
principal payments may be required if sufficient cash is available, and
additional prepayments can also be made at the discretion of Woodlands
Development.
The mortgages payable have debt maturities for the five years subsequent to
December 31, 1998 totaling $109,000; $140,000; $140,000; $151,000 and
$2,723,000.
6. NOTES PAYABLE TO PARTNERS
Woodlands Development has notes payable to its partners totaling $25,000,000.
The notes bear interest at 15%. Interest is payable beginning in October 1998
and quarterly thereafter. All outstanding balances are due in 2007. These notes
are subordinate to the bank credit agreement and mortgages payable described
above.
7. COMMITMENTS AND CONTINGENCIES
CONTINGENT LIABILITIES. At December 31, 1998, Woodlands Development had a
contingent liability of $2,086,000, consisting of a letter of credit.
F-66
<PAGE> 106
LEASES. Rental expense for operating leases for the year ended December 31, 1998
and the period from July 31, 1997 (inception) to December 31, 1997 totaled
$14,000 and $4,000.
LEGAL ACTIONS. Legal actions have been brought or threatened against Woodlands
Development and third parties by various homeowners in The Woodlands related to
flooding in the North Houston area in October 1994. These claimants generally
are seeking reimbursements for property damages, but some are making claims for
deceptive trade practices or mental anguish. Woodlands Development contends that
it was not responsible for these damages, which it believes resulted from a
record, near 500-year flood and were not preventable with the exercise of
ordinary care and generally accepted drainage design, development and
maintenance.
Woodlands Development is also a party to other claims and legal actions arising
in the ordinary course of their business and to recurring examinations by the
Internal Revenue Service and other regulatory agencies.
Management believes, after consultation with outside counsel, that adequate
financial statement accruals have been provided for all known litigation
contingencies where losses are deemed probable. Since the ultimate cost will
depend on the outcomes of the uncertainties discussed in this note, it is
possible, however, that additional future charges might be required that would
be significant to the operating results of a particular period. Based on the
status of the cases, Woodlands Development is unable to determine a range of
such possible additional losses, if any, that might be incurred in connection
with this litigation. Woodlands Development believes it is not probable that the
ultimate resolution of this litigation will have a material adverse effect on
its financial position.
COUNTRY CLUB MEMBERSHIP. As of December 31, 1998, the Woodlands Development had
collected $765,000 for memberships to a new country club, which began
construction at the end of 1998. Because of certain conditions that had to be
satisfied, these funds were being held by Woodlands Development at the end of
the year. Subsequent to year-end, these conditions were satisfied and the funds
were recorded.
8. RELATED PARTY TRANSACTIONS
Woodlands Operating provides services to Woodlands Development under management
and advisory services agreements. These agreements have an initial term ending
December 31, 1998 and are automatically renewable on an annual basis. Woodlands
Development pays Woodlands Operating an advisory fee equal to cost plus 3%. In
addition, Woodlands Development reimburses Woodlands Operating for all cost and
expenses incurred on their behalf. For the year ended December 31, 1998 and the
period from July 31, 1997 (inception) to December 31, 1997, Woodlands
Development recorded expenses of $11,050,000 and $4,598,000 for services
provided by Woodlands Operating.
9. PARTNERS' EQUITY
Crescent's entity in Woodlands Development is The Woodlands Land Company, Inc.
Morgan Stanley's entities are MS/TWC Joint Venture and MS TWC, Inc. The
partners' percentage interests are summarized below:
<TABLE>
<CAPTION>
General Limited
Partner Partner
Interest Interest
-------- --------
<S> <C> <C>
The Woodlands Land Company, Inc. ... 42.5%
MS/TWC Joint Venture ............... 56.5%
MS TWC, Inc ........................ 1.0%
</TABLE>
The partnership agreement provides, among other things, the following:
(i) Woodlands Development is governed by an Executive Committee composed of
equal representation from their respective general partners.
(ii) Net income and losses from operations are currently allocated so that
partners' capital accounts stand in the ratio of the percentage interest listed
above.
F-67
<PAGE> 107
(iii) Distributions are made to partners based on specified payout percentages
and include cumulative preferred returns to Morgan Stanley's affiliates. The
payout percentage to Morgan Stanley's affiliates is 57.5% until the affiliates
receive distributions equal to their capital contributions and a 12% cumulative
preferred return compounded quarterly. Then, the payout percentage to Morgan
Stanley's affiliates is 50.5% until the affiliates receive distributions equal
to their capital contributions and an 18% cumulative preferred return compounded
quarterly. Thereafter the payout percentage to Morgan Stanley's affiliates is
47.5%.
(iv) Woodlands Development will continue to exist until December 31, 2040 unless
terminated earlier due to specified events.
(v) No additional partners may be admitted to Woodlands Development unless
specific conditions in the partnership agreements are met. Partnership interests
may be transferred to affiliates of Crescent or Morgan Stanley. Crescent has the
right of first refusal to buy the partnership interests of the Morgan Stanley
affiliates at the same terms and conditions offered to a third party purchaser,
or sell its affiliates' interests to the same third party purchaser.
(vi) Crescent and Morgan Stanley have the right to offer to purchase the other
partner's affiliates' partnership interests in the event of failure to make
specified capital contributions or a specified default by the other. Specified
defaults include bankruptcy, breach of partnership covenants, transfer of
partnership interests except as permitted by the partnership agreements, and
fraud or gross negligence.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of Woodlands Development's
financial instruments as of December 31, 1998 follows (in thousands):
<TABLE>
<CAPTION>
Carrying Estimated Fair
Amounts Values
-------- ----------
<S> <C> <C>
Notes and contracts receivable............................. $ 30,040 $ 30,040
Debt....................................................... 239,155 238,961
Notes payable to partners.................................. 25,000 33,280
</TABLE>
Fair values of notes and contracts receivable were estimated by discounting
future cash flows using interest rates at which similar loans currently could be
made for similar maturities to borrowers with comparable credit ratings. Fair
values of fixed-rate, long-term debt were based on current interest rates
offered to Woodlands Development for debt with similar remaining maturities. For
floating-rate debt obligations, carrying amounts and fair values were assumed to
be equal because of the nature of these obligations. The carrying amounts of
Woodlands Development's other financial instruments approximate their fair
values.
11. YEAR 2000 COMPLIANCE (UNAUDITED)
Woodlands Development utilizes and is dependent on computer systems to conduct
its business. These systems include hardware and software developed and
maintained by third parties and purchased software run on in-house networks. A
third party manages the in-house systems under a contractual arrangement.
Woodlands Development is undertaking a project to determine whether their
computer systems are year 2000 compliant. The project plan has been reviewed by
Woodlands Development's senior management and involves an assessment of each
software application and related hardware. Vendors will be contacted to assess
year 2000 compliance and determine what corrective measures, if any, are needed.
A plan has been developed to make the necessary corrections, or take some
alternative action. The plan is being implemented and tested to ensure
compliance. Systems that have the greatest impact will be given a higher
priority.
Management has not determined the final cost of its year 2000 readiness efforts
or the related potential impact on Woodlands Development's results of
operations. There can be no assurance that there will not be an adverse impact
on Woodlands Development's financial position or results of operations if
Woodlands Development's systems or
F-68
<PAGE> 108
the systems of other companies on which the Woodlands Development relies are not
compliant in time. However, based on preliminary assessments management believes
the risk of such adverse impact is low.
12. CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1998 Woodlands Development changed its method of accounting
for organization costs to conform to Statement of Position 98-5 "Reporting on
the Costs of Start-Up Activities." In 1998 Woodlands Development expensed
previously capitalized costs that totaled $639,000.
<PAGE> 109
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibits
-------------- ------------------------------------------------
<S> <C>
3.1* First Amended and Restated Certificate of
Incorporation
3.2* First Amended and Restated Bylaws
3.3***** Amendment of Article V of First Amended and Restated
Bylaws
3.4****** Repeal of Amendment of Article V of First Amended
and Restated Bylaws
4.1* Specimen stock certificate
4.2* Preferred Share Purchase Rights Plan
4.3****** First Amendment to Preferred Share Purchase Rights
Agreement dated as of September 25, 1998, between
Crescent Operating, Inc. and Bank Boston, N.A., as
Rights Agent.
10.1* Amended Stock Incentive Plan
10.2 Intercompany Agreement between Crescent Operating,
Inc. and Crescent Real Estate Equities Limited
Partnership (filed as Exhibit 10.2 to the Quarterly
Report on Form 10-Q for the Quarter Ended June 30,
1997 of Crescent Operating, Inc. and incorporated
herein by reference)
10.3 Amended and Restated Operating Agreement of Charter
Behavioral Health Systems, LLC (filed as Exhibit
10.3 to the Quarterly Report on Form 10-Q of
Crescent Operating, Inc. for the Quarter Ended June
30, 1997 and incorporated herein by reference.)
10.5** Amended and Restated Credit and Security Agreement,
dated as of May 30, 1997, between Crescent Real
Estate Equities Limited Partnership and Crescent
Operating, Inc., together with related Note
10.6** Line of Credit and Security Agreement, dated as of
May 21, 1997, between Crescent Real Estate Equities
Limited Partnership and Crescent Operating, Inc.,
together with related Line of Credit Note
10.7* Acquisition Agreement, dated as of February 10,
1997, between Crescent Real Estate Equities Limited
Partnership and Carter-Crowley Properties, Inc.
10.10** Security Agreement dated September 22, 1997 between
COI Hotel Group, Inc., as debtor, and Crescent Real
Estate Equities Limited Partnership, as lender,
together with related $1 million promissory note
10.11** Security Agreement dated September 22, 1997 between
COI Hotel Group, Inc., as debtor, and Crescent Real
Estate Equities Limited Partnership, as lender,
together with related $800,000 promissory note
10.12** Amended and Restated Asset Management dated August
31, 1997, to be effective July 31, 1997, between
Wine Country Hotel, LLC and The Varma Group, Inc.
10.13** Amended and Restated Asset Management Agreement
dated August 31, 1997, to be effective July 31,
1997, between RoseStar Southwest, LLC and The Varma
Group, Inc.
10.14** Amended and Restated Asset Management Agreement
dated August 31, 1997, to be effective July 31,
1997, between RoseStar Management LLC and The Varma
Group, Inc.
10.15** Agreement for Financial Services dated July 1, 1997,
between Crescent Real Estate Equities Company and
Petroleum Financial, Inc.
10.16** Credit Agreement dated August 27, 1997, between
Crescent Operating, Inc. and NationsBank of Texas,
N.A. together with related $15.0 million promissory
note
10.17** Support Agreement dated August 27, 1997, between
Richard E. Rainwater, John Goff and Gerald Haddock
in favor of Crescent Real Estate Equities Company
and NationsBank of Texas, N.A.
10.18*** 1997 Crescent Operating, Inc. Management Stock
Incentive Plan (filed herewith)
10.19*** Memorandum of Agreement executed November 16, 1997,
among Charter Behavioral Health Systems, LLC,
Charter Behavioral Health Systems, Inc. and Crescent
Operating, Inc.
10.20*** Purchase Agreement dated August 31, 1997, by and
among Crescent Operating, Inc., RoseStar Management
LLC, Gerald W. Haddock, John C. Goff and Sanjay
Varma
10.21*** Stock Purchase Agreement dated August 31, 1997, by
and among Crescent Operating, Inc., Gerald W.
Haddock, John C. Goff and Sanjay Varma
10.22 Amended and Restated Lease Agreement, dated June 30,
1995 between Crescent
</TABLE>
<PAGE> 110
<TABLE>
<S> <C>
Real Estate Equities Limited Partnership and
RoseStar Management LLC, relating to the Denver
Marriott City Center (filed as Exhibit 10.17 to the
Annual Report on Form 10-K of Crescent Real Estate
Equities Company for the Fiscal Year Ended December
31, 1995 (the "1995 10-K") and incorporated herein
by reference)
10.23 Lease Agreement, dated December 19, 1995 between
Crescent Real Estate Equities Limited Partnership
and RoseStar Management LLC, relating to the Hyatt
Regency Albuquerque (filed as Exhibit 10.16 to the
1995 10-K and incorporated herein by reference)
10.24 Form of Amended and Restated Lease Agreement, dated
January 1, 1996, among Crescent Real Estate Equities
Limited Partnership, Mogul Management, LLC and
RoseStar Management LLC, relating to the Hyatt
Regency Beaver Creek (filed as Exhibit 10.12 to the
1995 10-K and incorporated herein by reference)
10.25 Lease Agreement, dated July 26, 1996, between Canyon
Ranch, Inc. and Canyon Ranch Leasing, L.L.C.,
assigned by Canyon Ranch, Inc. to Crescent Real
Estate Equities Limited Partnership pursuant to the
Assignment and Assumption Agreement of Master Lease,
dated July 26, 1996 (filed as Exhibit 10.24 to the
Quarterly Report on Form 10-Q/A of Crescent Real
Estate Equities Company for the Quarter Ended June
30, 1997 (the "1997 10-Q") and incorporated herein
by reference)
10.26 Lease Agreement, dated November 18, 1996 between
Crescent Real Estate Equities Limited Partnership
and Wine Country Hotel, LLC (filed a Exhibit 10.25
to the Annual Report on Form 10-K of Crescent Real
Estate Equities Company for the Fiscal Year Ended
December 31, 1996 and incorporated herein by
reference)
10.27 Lease Agreement, dated December 11, 1996, between
Canyon Ranch-Bellefontaine Associates, L.P. and
Vintage Resorts, L.L.C., as assigned by Canyon
Ranch-Bellefontaine Associates, L.P. to Crescent
Real Estate Funding VI, L.P. pursuant to the
Assignment and Assumption Agreement of Master Lease,
dated December 11, 1996 (filed as Exhibit 10.26 to
the 1997 10-Q and incorporated herein by reference)
10.28 Master Lease Agreement, dated June 16, 1997, between
Crescent Real Estate Funding VII, L.P. and Charter
Behavioral Health Systems, LLC and its subsidiaries,
relating to the Facilities (filed as Exhibit 10.27
to the 1997 10-Q and incorporated herein by
reference)
10.29*** Form of Indemnification Agreement
10.30*** Purchase Agreement, dated as of September 29, 1997,
between Crescent Operating, Inc. and Crescent Real
Estate Equities Limited Partnership, relating to the
purchase of Desert Mountain Development Corporation
(filed herewith)
10.31**** Lease Agreement dated December 19, 1997, between
Crescent Real Estate Equities Limited Partnership,
as Lessor, and Wine Country Hotel, as Lessee, for
lease of Ventana Inn
10.32**** Lease Agreement dated September 22, 1997, between
Crescent Real Estate Equities Limited Partnership,
as lessor, and COI Hotel Group, Inc., as lessee,
for lease of Four Seasons Hotel, Houston
10.33**** Asset Purchase Agreement dated December 19, 1997,
among Crescent Operating, Inc. Preco Machinery
Sales, Inc., and certain individual Preco
shareholders
10.34**** Asset Purchase Agreement dated April 30, 1998,
among Crescent Operating, Inc., Central Texas
Equipment Company, and certain individual Central
Texas shareholders
10.35**** Credit Agreement dated August 29, 1997 between
Crescent Real Estate Equities Limited Partnership,
as lender, and Desert Mountain Properties Limited
Partnership, as borrower, together with related
Senior Note, Junior Note and deed of trust
10.36**** Buy-Out Agreement dated April 24, 1998, between
Crescent Operating, Inc. and Crescent Real Estate
Equities Limited Partnership
10.37***** Stock Acquisition Agreement and Plan of Merger
dated June 4, 1998, among Machinery, Inc., Oklahoma
Machinery, Inc., Crescent Machinery Company,
Crescent Operating, Inc. and certain individual
Machinery shareholders
10.38***** Master Revolving Line of Credit Loan Agreement
(Borrowing Base and Warehouse) dated May 14, 1998,
between Desert Mountain Properties Limited
Partnership and National Bank of Arizona
10.39***** 1997 Management Stock Incentive Plan
10.40****** Credit and Security Agreement, dated as of
September 21, 1998, between Crescent Real Estate
Equities Limited Partnership and Crescent
Operating, Inc., together with related Note
10.41****** First Amendment to Amended and Restated Pledge
Agreement, dated as of September 21, 1998, between
Crescent Real Estate Equities Limited Partnership
and Crescent Operating, Inc.
10.42****** First Amendment to Line of Credit and
Security Agreement, dated as of August 11, 1998,
between Crescent Real Estate Equities Limited
Partnership and Crescent Operating, Inc., together
with related Note
10.43****** First Amendment to Amended and Restated Credit and
Security Agreement, dated as of August 11, 1998,
between Crescent Real Estate Equities Limited
Partnership and Crescent Operating, Inc.
10.44****** Second Amendment to Amended and Restated Credit and
Security Agreement, dated as of September 21,
1988, between Crescent Real Estate Equities
Limited Partnership and Crescent Operating, Inc
10.45****** Second Amendment to Line of Credit and
Security Agreement, dated as of September 21,
1988, between Crescent Real Estate Equities
Limited Partnership and Crescent Operating, Inc.
10.46 Agreement of Limited Partnership of COPI Colorado,
L. P. (filed as Exhibit 10.1 to that Schedule 13D
Statement dated September 28, 1998, filed by COPI
Colorado, L.P., Crescent Operating, Inc., Gerald W.
Haddock, John C. Goff and Harry H. Frampton, III,
and incorporated herein by reference)
10.47 Contribution Agreement effective as of September
11, 1998, by among Crescent Operating, Inc., Gerald
W. Haddock, John C. Goff and Harry H. Frampton, III
(filed as Exhibit 10.2 to that Schedule 13D
Statement dated September 28, 1998, filed by COPI
Colorado, L.P., Crescent Operating, Inc., Gerald
W. Haddock, John C. Goff and Harry H. Frampton,
III, and incorporated herein by reference)
10.48 Agreement Regarding Schedules and Other Matters
made as of September 11, 1998, by and among
Crescent Operating, Inc., Gerald W. Haddock, John
C. Goff and Harry H. Frampton, III (filed as
Exhibit 10.3 to that Schedule 13D Statement dated
September 28, 1998, filed by COPI Colorado, L.P.,
Crescent Operating, Inc., Gerald W. Haddock, John
C. Goff and Harry H. Frampton, III, and
incorporated herein by reference)
10.49****** Stock Purchase Agreement dated as of August 7, 1998
by and among Western Traction Company, The Carlston
Family Trust, Ronald D. Carlston and Crescent
Operating, Inc.
10.50****** Stock Purchase Agreement dated as of July 31, 1998
by and among Harvey Equipment Center, Inc., L and H
Leasing company, William J. Harvey, Roy E. Harvey,
Jr., Betty J. Harvey and Crescent Operating, Inc.
10.51****** Credit Agreement dated as of July 28, 1998, between
Crescent Real Estate Equities Limited Partnership
and CRL Investments, Inc, together with the related
Note.
10.52****** Security Agreement dated as of July 28, 1998,
between Crescent Real Estate Equities Limited
Partnership and CRL Investments, Inc.
10.53****** First Amendment to Credit Agreement effective as of
August 27, 1998, among Crescent Operating, Inc.,
NationsBank, N. A., and the Support Parties
identified therein.
10.54****** Lease Agreement dated as of October 13, 1998,
between Crescent Real Estate Equities Limited
Partnership and Wine Country Golf Club, Inc.,
relating to Sonoma Golf Club
10.55 First Amendment to Lease Agreement effective
December 31, 1998, between Canyon Ranch Leasing,
L. L. C., and Crescent Real Estate Equities Limited
Partnership, relating to Canyon Ranch - Tucson
10.56 First Amendment to Lease Agreement effective April
1, 1996; Second Amendment to Lease Agreement
effective November 22, 1996; Third Amendment to
Lease Agreement effective August 12, 1998; and
Fourth Amendment to Lease Agreement effective
December 31, 1998 between RoseStar Southwest, LLC,
and Crescent Real Estate Funding II L. P., relating
to Hyatt Regency Albuquerque
10.57 First Amendment to Lease Agreement effective
December 31, 1998, between Wine Country Hotel, LLC,
and Crescent Real Estate Equities Limited
Partnership, relating to Sonoma Mission Inn & Spa
10.58 First Amendment to Amended and Restated Lease
Agreement effective December 31, 1998, between
RoseStar Management, LLC, and Crescent Real Estate
Equities Limited Partnership, relating to Marriott
City Center, Denver
10.59 First Amendment to Lease Agreement effective
December 31, 1998, between Wine Country Hotel, LLC,
and Crescent Real Estate Equities Limited
Partnership, relating to Ventana Inn
10.60 First Amendment to Amended and Restated Lease
Agreement effective April 1, 1996 and Second
Amendment to Amended and Restated Lease Agreement
effective December 31, 1998, between RoseStar
Southwest, LLC, and Crescent Real Estate Funding II,
L.P., relating to Hyatt Regency Beaver Creek
10.61 First Amendment to Lease Agreement effective
December 31, 1998, between COI Hotel Group, Inc.
and Crescent Real Estate Equities Limited
Partnership, relating to Four Seasons - Houston
10.63 Master Guaranty effective December 31, 1998, by
Crescent Operating, Inc. for the benefit of
Crescent Real Estate Equities Limited Partnership,
Crescent Real Estate Funding II, L. P., and Crescent
Real Estate Funding VI, L. P., relating to leases
for Hyatt Regency Albuquerque, Hyatt Regency Beaver
Creek, Canyon Ranch-Lenox, Sonoma Mission Inn & Spa,
Canyon Ranch - Tucson, and Marriot City Center
Denver
10.64 Guaranty of Lease effective December 19, 1997, by
Crescent Operating, Inc. for the benefit of
Crescent Real Estate Equities Limited Partnership,
relating to Ventana Inn
10.65 Amended and Restated Guaranty of Lease effective
December 31, 1998, by Crescent Operating, Inc. for
the benefit of Crescent Real Estate Equities
Limited Partnership, relating to Four Seasons Hotel
- Houston
10.66 Amended and Restated Guaranty of Lease effective
December 31, 1998, by Crescent Operating, Inc. for
the benefit of Crescent Real Estate Equities Limited
Partnership, relating to Sonoma Golf Club
10.67 Credit Agreement dated August 11, 1995, between
Crescent Development Management Corp., as borrower,
and Crescent Real Estate Equities Limited
Partnership, as lender; First Amendment to Credit
Agreement dated as of April 15, 1997; Second
Amendment to Credit Agreement dated as of May 8,
1998; and related Note and Security Agreement
10.68 Credit Agreement dated January 1, 1998, between
Crescent Development Management Corp., as borrower,
and Crescent Real Estate Equities Limited
Partnership, as lender, and related Note and
Security Agreement
10.69 $3,100,000 Note dated February 29, 1996, made by
Crescent Development Management Corp. payable to
Crescent Real Estate Equities Limited Partnership
16*** Letter of Arthur Andersen LLP regarding disclosure
in connection with change in certifying accountant
21 List of Subsidiaries of Crescent Operating, Inc
23.1 Consent of Ernst & Young LLP, auditors, to inclusion
of Company and Carter-Crawley Asset Group reports in
S-4 registration statement
23.2 Consent of Arthur Andersen LLP to inclusion of
Carter-Crawley Asset Group report in S-4
registration statement
23.3 Consent of Arthur Andersen LLP to inclusion of
Woodlands reports in S-4 registration statement
23.4 Consent of Arthur Andersen LLP to inclusion of CBHS
report in S-4 registration statement
27 Financial Data Schedule
</TABLE>
* Incorporated by Reference to the Company's
registration statement on Form S-1 dated July 12,
1997
** Incorporated by Reference to the Company's September
30, 1997 Form 10-Q
*** Incorporated by Reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
1997
**** Incorporated by Reference to the Company's March
31, 1998 Form 10-Q
***** Incorporated by Reference to the Company's June 30,
1998 Form 10-Q
****** Incorporated by Reference to the Company's
September 30, 1998 Form 10-Q
<PAGE> 1
EXHIBIT 10.55
CANYON RANCH-TUCSON
FIRST AMENDMENT TO LEASE AGREEMENT
This FIRST AMENDMENT TO LEASE AGREEMENT (the "Amendment") is made and
entered into effective as of the 31st day of December, 1998, between CANYON
RANCH LEASING, L.L.C., an Arizona limited liability company ("Lessee") and
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited
partnership ("Lessor").
RECITALS:
WHEREAS, Canyon Ranch, Inc., an Arizona corporation ("Canyon Ranch")
and Lessee entered into that certain Lease Agreement dated as of July 26, 1996
(the "Lease"), pursuant to which Lessee leased from Canyon Ranch a resort
facility and related assets located in Pima County, Arizona, and known as the
"Canyon Ranch-Tucson" (hereinafter called the "Leased Property"); and
WHEREAS, pursuant to that certain Assignment and Assumption of Master
Lease dated as of July 26, 1996, all of Canyon Ranch's interest and estate as
lessor under the Lease was assigned to Lessor, who thereupon assumed all of
Canyon Ranch's liabilities and obligations under the Lease; and
WHEREAS, Lessor has acquired certain additional real property adjacent
to the Leased Property that is to be used for a proposed expansion of the resort
located on the Leased Property; and
WHEREAS, Lessor and Lessee agreed that if Lessor made substantial
capital investments in the Leased Property, the Lease would be amended to
increase the amount of rental payable thereunder and Lessor has made substantial
capital investment in the Leased Property; and
WHEREAS, Lessor has agreed to delete certain provisions of the Lease
that impose minimum net worth requirements on the Lessee and limit the
distributions by Lessee of its earnings to its beneficial owners in
consideration of the delivery of a guaranty of Lessee's obligations under the
Lease by Crescent Operating, Inc. ("COI"); and
WHEREAS, Lessor and Lessee mutually desire to quantify the value of
working capital associated with the Leased Property and transferred from Lessor
to Lessee upon the commencement of the term of the Lease and to evidence their
mutual understanding and agreement of the value of working capital associated
with the Leased Property to be redelivered to Lessor by Lessee at the expiration
or earlier termination of the Lease; and
WHEREAS, Lessor and Lessee desire to amend the Lease to increase the
rental payable thereunder as hereinafter provided, to delete the provisions in
the Lease described above, to evidence their understanding regarding working
capital and to make certain other amendments thereto as hereinafter provided.
<PAGE> 2
AGREEMENT:
NOW THEREFORE, for and in consideration of the sum of Ten and No/100
Dollars ($10.00) and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged by the parties hereto, the
parties hereby agree as follows:
1. Definitions. Capitalized terms used but not defined herein shall
have the meanings assigned to them in the Lease.
2. Amendments to Lease. The Lease is hereby amended as follows:
a. Section 4.1 of the Lease is modified to increase the Base
Rent effective as of January 1, 1998 by the amount of $75,000 per Lease
Year and the Base Rent shall be payable in twelve (12) equal monthly
installments. Accordingly, the monthly Base Rent payable under the
Lease from and after January 1, 1998 is follows: (i) from January 1,
1998 through July 31, 2003, the amount of $341,500.00 per month and
(ii) commencing August 1, 2003, the amount of $392,916.75 per month.
b. The period is deleted at the end of the next to last
sentence of Section 4.2(f) of the Lease and the following clause is
inserted after the words "from Lessee": "; provided, in no event shall
Lessor be required to refund any portion of the Guaranteed Percentage
Rent (as hereinafter defined) previously paid by Lessee to Lessor."
c. A new subsection (i) is inserted at the end of Section 4.2
of the Lease, which shall read in its entirety as follows:
(i) Anything in this Lease to the contrary
notwithstanding, eighty-five percent (85%) of the Percentage
Rent payable in any quarter during the term of this Lease
(herein called the "Guaranteed Percentage Rent") shall not be
subject to adjustment under Section 4.2(f) or Section 4.2(h)
hereof.
d. In consideration of the execution and delivery by COI of a
guaranty of all of Lessee's obligations under the Lease, Section 7.7
and Section 7.9 of the Lease are hereby deleted in their entirety and
shall be of no further force and effect.
e. A new Section 7.11 is added to the Lease, to read in its
entirety as follows:
Section 7.11. Working Capital. At the commencement of
the term of this Lease, there existed working capital
pertaining to the Leased Property (the "Working Capital") in
the initial aggregate positive balance of $344,205.00 (the
"Initial Working Capital Balance"). Within thirty (30) days
following the date of expiration or earlier termination of
this Lease, Lessor and Lessee will work together in good faith
to determine the balance of Working Capital as of such date
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<PAGE> 3
(the "Ending Working Capital Balance"). If the Ending Working
Capital Balance is less than the Initial Working Capital
Balance, Lessee shall pay over to Lessor cash in the amount of
such deficiency, within thirty (30) days of such
determination. If the Ending Working Capital Balance exceeds
the Initial Working Capital Balance, Lessor shall pay over to
Lessee cash in the amount of such excess within thirty (30)
days of such determination. Additionally, both the Initial
Working Capital Balance and the Ending Working Capital Balance
shall be calculated without the inclusion of any "in
circulation" operating or consumable supplies ("In-Circulation
Supplies"). Both Lessee and Lessor agree that the
In-Circulation Supplies represent items in use which Lessee
does not include on its balance sheet as of the Commencement
Date. Lessee and Lessor further agree that although no
accounting value has been placed on In-Circulation Supplies,
such supplies have value and Lessee agrees to have reasonable
amounts of In-Circulation Supplies on hand in a quantity and
quality customary for a property such as the Leased Property.
3. General Provision regarding Working Capital. Notwithstanding any
other provision of the Lease which is to the contrary or which is not consistent
with Section 2.e above, including without limitation, Section 7.4 of the Lease,
Lessor and Lessee agree that Section 2.e above represents the general business
terms under which Lessee has taken over the In-Circulation Supplies and working
capital of the Leased Property and the general terms under which Lessee will
return In-Circulation Supplies and working capital to Lessor at the expiration
or earlier termination of the Lease.
4. Modification Supersedes. Except as modified hereby, the Lease
remains in full force and effect, with no other modifications thereto. If there
arises by virtue of this Amendment any conflict between any provision of this
Amendment and any provision of the Lease, the provisions hereof shall supersede
any such conflicting provision of the Lease, but only to the extent of such
conflict, and all of the provisions of the Lease are hereby modified as
necessary so as to be consistent with the terms of this Amendment.
5. Successors and Assigns. This Amendment shall be binding upon and
shall inure to the benefit of Lessor and Lessee and their respective successors
and permitted assigns.
6. Multiple Counterparts. This Amendment may be executed in multiple
counterparts, each of which is to be deemed an original for all purposes, and in
making proof of this Amendment it shall not be necessary to produce more than
one (1) counterpart hereof. A facsimile or similar transmission of a counterpart
signed by a party hereto will be regarded as signed by such party for purposes
hereof.
7. Captions. The captions, headings and arrangements used in this
Amendment are for convenience only and do not in any way affect, limit, amplify
or otherwise modify the terms and provisions hereof.
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<PAGE> 4
8. Representations of Lessee. Lessee represents and warrants to Lessor
that (i) Lessee is the sole legal and beneficial owner of the leasehold estate
under the Lease and (ii) Lessee has the full power and authority to enter into
this Amendment without the joinder or consent of any other party.
9. Representations of Lessor. Lessor represents and warrants to Lessee
that Lessor has the full power and authority to enter into this Amendment.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 5
IN WITNESS WHEREOF, the parties have duly executed this Amendment to be
effective as of the day and year first above written.
LESSOR:
CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited
partnership
By: Crescent Real Estate Equities, Ltd.,
a Delaware corporation, General
Partner
By:
---------------------------------
Name:
---------------------------
Title:
---------------------------
LESSEE:
CANYON RANCH LEASING, L.L.C., a Delaware
limited liability company
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-5-
<PAGE> 1
EXHIBIT 10.56
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT (the "First Amendment") is
made and entered into as of the 1st day of April, 1996, by and between CRESCENT
REAL ESTATE FUNDING II, L.P. a Delaware limited partnership ("Lessor"), and
ROSESTAR SOUTHWEST, LLC, a Delaware limited liability company ("Lessee").
W I T N E S S E T H:
WHEREAS, on December 19, 1995, CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership ("Crescent"), as Lessor, and
RoseStar Management, LLC, a Texas limited liability company ("RoseStar"), as
Lessee, entered into that certain Lease Agreement (hereinafter referred to as
"Lease") covering a hotel facility and related assets located in the County of
Bernalillo, State of New Mexico, and known as "Hyatt Regency Albuquerque"
(hereinafter referred to as the "Leased Property"); and
WHEREAS, on March 11, 1996, the Leased Property and all of Crescent's
interest and estate as lessor under the Lease were conveyed by Crescent to
Lessor, who thereupon assumed all of Crescent's liabilities and obligations
under the Lease; and
WHEREAS, pursuant to that certain Assignment and Assumption of
Leasehold Estate dated March 29, 1996, all of RoseStar's interest and estate as
lessee under the Lease was sold and assigned to Lessee, who thereupon assumed
all of RoseStar's liabilities and obligations under the Lease; and
WHEREAS, Lessor and Lessee desire to further modify the terms and
conditions of the Lease;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and other good and valuable consideration, the receipt,
accuracy and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Lessor and Lessee agree that Article 7.7 of the Lease is deleted
and replaced by the following new Article 7.7:
7.7 Net Worth. Lessee covenants that Lessee and RoseStar
Management, LLC ("RoseStar") shall at all times during the term of
this Lease maintain a cumulative "net worth" which shall be equal to
no less than $200,000. For purposes hereof, "net worth" shall mean the
sum of (i) the aggregate cash and fair market value of any property
(other than cash) contributed to the capital of Lessee and RoseStar by
the members of Lessee and RoseStar (net of amounts distributed other
than distributions out of earnings of Lessee and RoseStar) and (ii)
the aggregate balances of any line of credit (A) obtained by Lessee or
RoseStar and guaranteed by one or more of the members of Lessee or
RoseStar or (B)
-1-
<PAGE> 2
obtained by the members of Lessee or RoseStar to fund capital
contributions to Lessee or RoseStar (to the extent not already
included in (i)), to the extent such funds may be utilized by Lessee
or RoseStar to perform its obligations under the Lease or any other
lease between Lessor or any entity affiliated with Lessor and Lessee
or RoseStar and to comply with the terms of the Management Agreement,
and (iii) any commitments of the members of Lessee or RoseStar to make
additional capital contributions to Lessee or RoseStar. Lessee shall
provide Lessor with an annual written certification of its compliance
with the foregoing requirement on the Commencement Date and the first
day of each subsequent year of this Lease hereunder; provided,
however, that Lessor may, in addition, request more than once during
any year of this Lease that Lessee provide Lessor with a certification
as of the date of such request of its compliance with the foregoing
requirement. Such certifications must be reasonably satisfactory to
Lessor as to matters certified therein and shall be accompanied by
such supporting financial information as Lessor may reasonably
request.
2. Lessor and Lessee agree that Article 7.9 of the Lessee is deleted
and replaced by the following new Article 7.9:
7.9 Limitation on Distributions. Lessee covenants that, until
such time as Lessee and each affiliate of Lessee such as RoseStar
which has entered into a long-term lease of a hotel either with Lessor
or any affiliate of Lessor such as Crescent Real Estate Equities
Limited Partnership ("Crescent") has accumulated and is holding in
reserve funds in the aggregate which are sufficient in amount to
enable Lessee and each of such affiliated entities to pay at least one
(1) monthly payment of Base Rent under each lease between Lessee and
any of such affiliated entities and Lessor or an affiliate of Lessor
such as Crescent, Lessee shall retain all income generated by the
Leased Property and shall not distribute any earnings to its
beneficial owners except as needed for federal and state income taxes
payable on taxable income from the Leased Property. In no event,
however, shall any amounts be payable to the beneficial owners of
Lessee if any such payment would result in a violation of Lessee's net
worth covenants set forth in Article 7.7 hereinabove.
3. Lessor and Lessee agree that the following Article XXXVIII is added
to the Lease:
ARTICLE XXXVIII
38.1. Business of Lessee. The sole purpose and nature of the
business to be conducted by Lessee is to:
(a) enter into and perform as lessee under this Lease and as
lessee under a long-term lease of the Hyatt Regency Beaver Creek Hotel
located in Avon, Colorado (hereinafter the hotels covered by the
leases described in this subparagraph are collectively referred to as
the "Hotels");
(b) enter into long-term management agreements for the Hotels
with experienced
-2-
<PAGE> 3
and reputable hotel management companies; and
(c) enter into and perform all other contracts and
undertakings, and engage in and carry out all other activities and
transactions, as may be necessary, appropriate, convenient, ancillary,
or incidental to the foregoing purposes (including but not limited to
borrowing and repaying loans, and granting security interests in
receivables, general intangibles and personal property (other than any
property that is part of the Leased Property) to secure such loans,
employing personnel and advisers, constructing and maintaining
improvements at the Hotels, and acquiring, holding, operating,
leasing, disposing of and otherwise dealing with personal property
located at the Hotels). Without limitation, Lessee shall qualify to
transact business in Colorado and New Mexico as a foreign limited
liability company and shall seek and obtain all such licensing and
permitting as may be required in connection with leasing and managing
the Hotels (including but not limited to alcoholic beverage permits
and licenses, if required).
Lessee shall not engage in any business unrelated to the foregoing
purposes and shall not own any assets other than those related to leasing and
managing the Hotels or otherwise in furtherance of the purposes of Lessee as
set forth above in this paragraph 38.1. Lessee shall not incur any indebtedness
other than indebtedness incurred in connection with leasing and managing the
Hotels or otherwise in furtherance of the purposes of Leasee as set forth above
in this paragraph 38.1.
38.2. Single-Purpose Entity.
(a) Lessee at all times since its formation has been, and
will continue to be, a duly formed and existing Delaware limited
liability company and a Single-Purpose Entity (as defined below).
Lessee at all times since its formation has been, and will continue to
be, duly qualified as a foreign limited liability company in each
jurisdiction in which the Hotels are located. RSSW Corp., the Managing
Member of Lessee and hereinafter referred to as "RSSW", at all times
since its formation has been, and will continue to be, a duly formed
and existing Delaware corporation and a Single-Purpose Entity. RSSW at
all times since its formation has been, and will continue to be, duly
qualified as a foreign corporation in each jurisdiction in which the
Hotels are located.
(b) Lessee at all times since its formation has complied, and
will continue to comply, with the provisions of its formation
documents and the laws of the State of Delaware relating to limited
liability companies. RSSW at all times since its formation has
complied, and will continue to comply, with the provision of its
certificate of incorporation and its bylaws and the laws of the State
of Delaware relating to corporations.
(c) All customary formalities regarding the limited liability
company or corporate (as the case may be) existence of each of Lessee
and RSSW have been observed at all times since its formation and will
continue to be observed.
-3-
<PAGE> 4
(d) Each of Lessee and RSSW has at all times since its
formation accurately maintained, and will continue to accurately
maintain, its financial statements, accounting records and other
corporate documents separate from those of its partners, shareholders,
affiliates of its shareholders or partners, and any other person.
Neither Lessee nor RSSW has at any time since its formation
commingled, and neither Leasee nor RSSW will commingle, its assets
with those of its shareholders, partners, any affiliates of its
shareholders or partners, or any other person. Each of Lessee and RSSW
has at all times since its formation accurately maintained, and will
continue to accurately maintain, its own bank accounts and separate
books of account.
(e) Each of Lessee and RSSW has at all times since its
formation paid, and will continue to pay, its own liabilities from its
own separate assets.
(f) Each of Lessee and RSSW has at all times since its
formation identified itself, and will continue to identify itself, in
all dealings with the public, under its own name and as a separate
distinct entity. Neither Lessee nor RSSW has at any time since its
formation identified itself, and neither Lessee nor RSSW will identify
itself, as being a division or a part of any other entity. Neither
Lessee nor RSSW has at any time since its formation identified, and
neither Lessee nor RSSW will identify, its shareholders, partners or
any affiliates of its shareholders or partners, as being a division or
part of it.
(g) Each of Lessee and RSSW has been at all times since its
formation and will continue to be adequately capitalized in light of
the nature of its business.
(h) Neither Lessee nor RSSW has at any time since its
formation assumed or guaranteed, and neither Lessee nor RSSW will
assume or guarantee, the liabilities of its shareholders, members or
partners, any affiliates of its shareholders, members or partners, or
any other persons. Neither Lessee nor RSSW has at any time since its
formation acquired, and neither Lessee nor RSSW will acquire,
obligations or securities of its shareholders, members or partners, or
any affiliates of its shareholders, members or partners. Neither
Lessee nor RSSW has at any time since its formation made, and neither
Lessee nor RSSW will make, loans to its shareholders, members or
partners, or any affiliates of its shareholders, members or partners,
unless such loans are made on terms which are no less favorable to
Lessee or RSSW than would be obtained in a comparable arm's length
transaction with an unrelated third party and Lessee or RSSW acts in
accordance with prudent lending standards to protect itself from
liability in connection with such loans.
(i) Neither Lessee nor RSSW has at any time since its
formation entered into, and neither Lessee nor RSSW has been a party
to, and, neither Lessee nor RSSW will enter into or be a party to, any
transaction with its shareholders, members or partners or any
affiliates of its shareholders, members or partners (other than the
making of distributions to its shareholders, members or partners)
except (x) for this Lease and the lease of the Hyatt Regency
Albuquerque, (y) for loans made by Lessee or RSSW as described in the
last
-4-
<PAGE> 5
sentence of clause (h) above, or (z) in the ordinary course of
business of Lessee or RSSW, as the case may be, on terms which are no
less favorable to Lessee or RSSW, as the case may be, than would be
obtained in a comparable arm's length transaction with an unrelated
third party.
(j) The term "Single Purpose Entity" means a person other
than an individual, which (i) is formed or organized solely for the
purposes set forth in paragraph 38.1 hereinabove, (ii) does not engage
in any business unrelated to the business set forth in paragraph 38.1
hereinabove, (iii) does not have any assets other than those related
to the business described in paragraph 38.1 hereinabove or any
indebtedness other than as permitted by this Lease, (iv) has its own
separate books and records and has its own accounts, in each case
which are separate and apart from the books and records and accounts
of any other person, (v) if a corporation, at all times has an
independent director reasonably acceptable to Lessor, (vi) does not
commingle its assets with the assets of any other person, (vii) does
not guarantee the obligations of any other person and (viii) holds
itself out as being a person separate and apart from any other person.
2. Except as specifically set forth above, all terms and conditions of
the Lease shall remain in full force and effect. All capitalized terms not
otherwise defined herein shall have the meaning given to such terms in the
Lease.
IN WITNESS WHEREOF, the undersigned have executed this First Amendment
as of the date and year first above written.
LESSOR:
CRESCENT REAL ESTATE FUNDING II, L.P.,
a Delaware limited partnership
BY: CRE MANAGEMENT II CORP., a
Delaware corporation, its
General Partner
By: /s/ David M. Dean
----------------------------
Name: David M. Dean
---------------------------
Its: Senior Vice President, Law
---------------------------
LESSEE:
ROSESTAR SOUTHWEST, LLC, a Delaware
limited liability company
-5-
<PAGE> 6
BY: RSSW CORP., a Delaware corporation,
Its Managing Member
By: /s/ Sanjay Varma
----------------------------
Sanjay Varma, President
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<PAGE> 7
JOINDER OF ROSESTAR
RoseStar joins in the execution of this First Amendment in order to
evidence its agreement with the terms and conditions of Paragraphs 1 and 2 of
this First Amendment. RoseStar agrees to cooperate with Lessee in providing the
certifications required of Lessee under Paragraph 1 of this First Amendment.
ROSESTAR MANAGEMENT, LLC, a Texas
limited liability company
By: /s/ Sanjay Varma
----------------------------
Name: Sanjay Varma
---------------------------
Its: President
---------------------------
-7-
<PAGE> 8
SECOND AMENDMENT TO LEASE AGREEMENT
THIS SECOND AMENDMENT TO LEASE AGREEMENT (this "Second Amendment") is
entered into as of the 22nd day of November, 1996 (the "Effective Date"), by
and between CRESCENT REAL ESTATE FUNDING II, L.P., a Delaware limited
partnership ("Landlord"), and ROSESTAR SOUTHWEST, LLC, a Delaware limited
liability company ("Tenant").
RECITALS:
A. Crescent Real Estate Equities Limited Partnership ("CREELP"),
predecessor-in-interest to Landlord, and RoseStar Management, LLC ("Original
Tenant"), predecessor-in-interest to Tenant executed that certain Lease
Agreement dated December 19, 1995 (the "Original Lease"), covering a hotel
facility and related assets located at 201 Third Street NW, Albuquerque,
Bernalillo County, New Mexico, and known as "Hyatt Regency Albuquerque"
(collectively, the "Original Leased Property").
B. The Original Lease has been amended by (i) that certain Assignment
and Assumption of Leasehold Estate dated March 29, 1996 (the "Assignment"),
pursuant to which all of Original Tenant's interest and estate as lessee under
the Original Lease was assigned to Tenant, and Tenant assumed all of Original
Tenant's liabilities and obligations under the Original Lease; and (ii) that
certain First Amendment to Lease Agreement dated April 1,1996 (the "First
Amendment"), pursuant to which several articles of the Original Lease were
revised.
C. The Original Lease, as modified by the Assignment and the First
Amendment, is hereinafter referred to as the "Lease". Unless otherwise
expressly provided herein, capitalized terms used herein shall have the same
meanings as designated in the Lease.
D. Landlord and Tenant desire to further amend and modify the Lease in
certain respects as provided herein.
AGREEMENT:
In consideration of the sum of Ten Dollars ($10.00), the mutual
covenants and agreements contained herein and in the Lease, and for other good
and valuable consideration, the receipt and sufficient of which are hereby
acknowledged, Landlord and Tenant hereby further amend and modify the Lease as
follows:
1. Leased Property. Article II of the Lease is hereby modified and
amended to include as part of the Leased Property an additional 9,573 square
feet of Rentable Area situated on the ground floor level of the retail space
located in the southwestern portion of the project commonly known as
Albuquerque Plaza, as shown on Exhibit A attached hereto (the "Expansion
Space"). From
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<PAGE> 9
and after the Effective Date, the term "Leased Property" wherever used in the
Lease or in this Second Amendment shall mean the Original Leased Property,
together with the Expansion Space. Tenant hereby acknowledges that the
Expansion Space is leased by Tenant subject to all terms and conditions of the
Lease, as amended by this Second Amendment.
2. Net Lease Obligations. Article IV of the Lease is hereby modified
and amended to provide that, commencing on the Effective Date, and continuing
throughout the Term of the Lease, Tenant shall pay to Landlord as Net Lease
Obligations (herein so called) for the Expansion Space (in addition to Base
Rent, Percentage Rent, and all Additional Charges for the Original Leased
Property), the Actual Operating Expenses (hereinafter defined) attributable to
the Expansion Space. Actual Operating Expenses shall include all expenses,
costs and disbursements of every kind and nature incurred or paid by Landlord
in connection with the ownership and/or the operation, maintenance, repair and
security of the Expansion Space. All Net Lease Obligations shall be payable in
accordance with the terms and provisions of the Lease.
3. Condition of Expansion Space. TENANT ACCEPTS THE EXPANSION SPACE IN
ITS "AS IS" CONDITION, AND ACKNOWLEDGES THAT LANDLORD MAKING NO REPRESENTATIONS
OR WARRANTIES WHATSOEVER WITH RESPECT THERETO.
4. Time of the Essence. Time is of the essence with respect to
Tenant's execution and delivery of this Second Amendment to Landlord. If Tenant
falls to execute and deliver a signed copy of this Second Amendment to Landlord
by 5:00 p.m. (Albuquerque, New Mexico time), on November 29, 1996, it shall be
deemed null and void and shall have no force or effect, unless otherwise agreed
in writing by Landlord.
5. Binding Effect. Except as modified by this Second Amendment, the
terms and provisions of the Lease shall remain in full force and effect, and
the Lease, as modified by this Second Amendment, shall be binding upon the
parties hereto, their successors and assigns. This Second Amendment shall
become effective only after the full execution and delivery hereof by Landlord
and Tenant and upon the approval by the holder of any mortgage encumbering the
Building.
[Remainder of page intentionally left blank.]
-2-
<PAGE> 10
EXECUTED as of the day and year first above written.
<TABLE>
<CAPTION>
LANDLORD: TENANT:
<S> <C>
CRESCENT REAL ESTATE FUNDING ROSESTAR SOUTHWEST, LLC
II, L.P. a Delaware limited partnership a Delaware limited liability company
By: CRE Management II Corp., By: /s/ Jeffrey L. Stevens
a Delaware corporation, ---------------------------
its general partner Name: Jeffrey L. Stevens
---------------------------
Title: President
---------------------------
By: /s/ David M. Dean
--------------------------------
Name: David M. Dean
-------------------------------
Title: Senior, Vice President, Law
-------------------------------
</TABLE>
-3-
<PAGE> 11
THIRD AMENDMENT TO LEASE AGREEMENT
THIS THIRD AMENDMENT TO LEASE AGREEMENT (this "Third Amendment") is
entered into as of the 12 day of August 1998, to be effective as of June 1,
1998 (the "Effective Date"), by and between CRESCENT REAL ESTATE FUNDING II,
L.P., a Delaware limited partnership ("Landlord") and ROSESTAR SOUTHWEST,
L.L.C., a Delaware limited liability company ("Tenant")
RECITALS:
A. Crescent Real Estate Equities Limited Partnership,
predecessor-in-interest to Landlord, and RoseStar Management, LLC ("Original
Tenant"), predecessor-in-interest to Tenant executed that certain Lease
Agreement dated December 19, 1995 (the "Original Lease") covering a hotel
facility and related assets located at 201 Third Street NW, Albuquerque,
Bernalillo County, New Mexico, and known as "Hyatt Regency Albuquerque"
(collectively, the "Original Leased Property").
B. The Original Lease has been amended by (i) that certain Assignment
and Assumption of Leasehold Estate dated March 29, 1996 (the "Assignment"),
pursuant to which all of Original Tenant's interest and estate as lessee under
the Original Lease was assigned to Tenant, and Tenant assumed all of Original
Tenant's liabilities and obligations is under the Original Lease; (ii) that
certain First Amendment to Lease Agreement dated April 1, 1996 (the "First
Amendment"), pursuant to which several articles of the Original Lease were
revised, and (iii) that certain Second Amendment to Lease Agreement dated
November 22, 1996, pursuant to which the Original Leased Property was expanded
to include an additional 9,573 square feet of Rentable Area located on the
ground floor level of the retail space located in the southwest portion of the
project commonly known as Albuquerque Plaza.
C. The Original Lease, as modified by the Assignment, the First
Amendment, and the Second Amendment is hereinafter referred to as the "Lease".
Unless otherwise expressly provided herein, capitalized terms used herein shall
have the same meanings as designated in the Lease.
D Landlord and Tenant desire to further amend and modify the Lease in
certain respects as provided herein.
AGREEMENT:
In consideration of the sum of Ten Dollars ($10.00), the mutual
covenants and agreements contained herein and in the Lease, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Landlord and Tenant hereby further amend and modify the Lease as
follows:
-1-
<PAGE> 12
1. Leased Property. Article II of the Lease is hereby modified and
amended to include as part of the Leased Property an additional 1,772 square
feet of Rentable Area situated in Suites E, F, G and H on the ground floor
level of the retail space located in the southwestern portion of the project
commonly known as Albuquerque Plaza, as shown on Exhibit A attached hereto (the
"Second Expansion Space"). Effective as of June 1, 1998 and continuing through
and including May 31, 2000 (the "Second Expansion Space Term"), the term
"Leased Property" wherever used in the Lease or in this Third Amendment shall
mean the Original Leased Property, together with the Expansion Space and the
Second Expansion Space. Tenant hereby acknowledges that the Second Expansion
space is leased by Tenant subject to all terms and conditions of the Lease, as
amended by this Third Amendment.
2. Rent. Commencing on June 1, 1998, and continuing throughout the
Second Expansion Space Term, Tenant shall pay to Landlord, in addition to the
Percentage Rent provided in Section 4.2 of the Lease, an additional payment
(the "Second Expansion Space Percentage Rent") for each month during the Second
Expansion Space Term. The Second Expansion Space Percentage Rent shall be
calculated at the variable Percentage Rent Rate (specified below) of Tenant's
Second Expansion Space Meeting Room Rental Receipts hereinafter defined) per
month pursuant to the following Percentage Rent Schedule:
<TABLE>
<CAPTION>
Percentage Rent Schedule
Second Expansion Space
Meeting Room Rental Receipts Percentage Rent Rate
---------------------------- --------------------
<S> <C>
0- $25,000.00 100 %
$25,000.00 and greater 50 %
</TABLE>
Tenant shall submit to Landlord on or before the thirtieth (30th) day
following each monthly period during the Second Expansion Space Term hereof
(including the thirtieth (30th) day of the month following the end of the
Second Expansion Space Term) at the place then fixed for the payment of rent,
or at such other place designated by Landlord, a written statement signed by
Tenant, and certified by it to be true and correct, showing in reasonable,
accurate detail, (i) the amount of Second Expansion Space Meeting Room Rental
Receipts for each preceding month and fractional month, if any, and (ii) an
updated list of all scheduled appointments by Clients (hereinafter defined) for
the use of the conference rooms located in the Second Expansion Space. As used
herein, the term "Second Expansion Space Meeting Room Rental Receipts" shall
mean (a) the entire amount charged by Tenant for the full price at the time of
the initial transaction for all meeting room rentals whether for cash or
credit; (b) the gross amount received or charged by Tenant for meeting room
rentals pursuant to orders received by telephone, mail, or any other means, and
attributable to the Premises whether or not filled elsewhere; and (c) all gross
room rental income of Tenant from any operation in, at, from or through the use
of the Premises. Excluded from the calculation of Second Expansion Space
Meeting Room Rental Receipts are (i) cash refunded or credit allowed to
customers; and (ii) sales taxes, excise taxes, other similar taxes. Tenant
shall not barter with any Clients (hereinafter
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<PAGE> 13
defined) or enter into any agreement with a Client which would circumvent the
payment of rental for meeting rooms located in the Second Expansion Space.
Tenant shall also submit to Landlord on or before the sixtieth (60th)
day following the end of each year at the place then fixed for the payment of
rent, a written statement signed by Tenant, and certified to be true and
correct showing in reasonably accurate detail, satisfactory in scope to
Landlord, the amount of Meeting Room Rental Receipts during the preceding
calendar year. The written statement shall be duly certified to Landlord by an
authorized officer of Tenant. The accounting statement referred to in this
Paragraph 2 shall be in such form and style and contain such details and
breakdown as the Landlord may reasonably require.
If Tenant fails to timely submit to Landlord either the monthly or
annual written statement described in this Paragraph 2, Landlord may, in
addition to any other remedies Landlord has, retain a certified public
accountant, at Tenant's sole expense, to prepare such statements and to perform
all inspections and audits related thereto.
Tenant shall pay to Landlord at the time of delivery of the monthly
written statement, but in no event later than the thirtieth (30th) day
following each monthly period during the Second Expansion Term, an amount equal
to the Second Expansion Space Meeting Room Rental Receipts during such month
times the applicable Percentage Rent Rate specified in the Percentage Rent
Schedule above.
3. Actual Operating Expenses. Article IV of the Lease is hereby
modified and amended to provide that, commencing on June 1, 1998, and
continuing throughout the Second Expansion Space Term, Tenant shall pay to
Landlord as additional rental for the Second Expansion Space (in addition to
the Second Expansion Space Percentage Rent for the Second Expansion Space, and
in addition to the Base Rent, Percentage Rent, Net Lease Obligations and all
Additional Charges for the Original Leased Property and the Expansion Space),
the Actual Operating Expenses (as defined herein) attributable to the Second
Expansion Space. Actual Operating Expenses shall include all expenses, costs
and disbursements of every kind and nature incurred or paid by Landlord in
connection with the ownership and/or the operation, maintenance, repair and
security of the Second Expansion Space. All Actual Operating Expenses shall be
payable in accordance with the terms and provisions of the Lease.
4. Maintenance of Second Expansion Space. Tenant shall have the right
to clean, maintain and repair the Second Expansion Space so long as Tenant
submits to Landlord plans and specifications and obtains prior written consent
of Landlord before making any alterations to the Second Expansion Space. All
work done by Tenant shall be performed in a good and workmanlike manner by a
contractor approved by Landlord, in compliance with Applicable Laws
(hereinafter defined) and at such times and in such manner as not to cause
interference with construction in progress or with other tenants in the
Building. As used herein, the term "Applicable Laws" shall mean all laws,
statutes, ordinances, regulations, guidelines or requirements now in force or
hereafter enacted and the requirements of any governmental authority having
jurisdiction over the Building,
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<PAGE> 14
board of fire underwriters, utility company serving the Building or other
similar body now or hereafter constituted, relating to or affecting the
condition, use or occupancy of the Premises, including without limitation,
Title III of The Americans with Disabilities Act of 1990, all regulations
issued thereunder, and the Accessibility Guidelines for Buildings and
Facilities issued pursuant thereto, as the same are in effect on the date of
this Third Amendment and as hereafter amended.
5. Termination Option. Tenant will use the Second Expansion Space to
schedule appointments with Tenant's clients ("Clients") for the use of
conference rooms located in the Second Expansion Space. Landlord shall have the
option to terminate the Lease with respect to the Second Expansion Space at
anytime after the earlier to occur of (i) May 31, 2000, or (ii) the last date
that the conference room is booked for use by any of such Clients (the
"Earliest Termination Date"), provided Landlord gives notice thereof to Tenant
not less than ten (10) days prior to the Earliest Termination Date. Such notice
must specify the date (which cannot be prior to the Earliest Termination Date)
on which Landlord desires the termination to become effective (the " Actual
Termination Date"). Tenant must pay in full, on or before the Actual
Termination Date all Second Expansion Space Percentage Rent, Actual Operating
Expenses, additional rent, and all other sums due by Tenant under this Lease
through and including the Actual Termination Date. After Landlord's receipt of
such sums, and so long as Tenant has surrendered the Premises, including the
alterations, improvements and changes, other than Tenant's fixtures remaining
the property of Tenant, broom-clean and in the condition the same were in on
the commencement date for the Second Expansion Space, subject only to (i)
ordinary and customary wear and tear, and (ii) damage resulting from a fire or
other casualty. in the condition required under this Lease, neither party shall
have any rights, liabilities or obligations under this Lease for the period
accruing after the Actual Termination Date, except those which, by the
provisions of the Lease, expressly survive the termination of the Lease, as
modified by this Third Amendment.
6. Condition of Expansion Space. TENANT ACCEPTS THE SECOND EXPANSION
SPACE IN ITS "AS IS" CONDITION, AND ACKNOWLEDGES THAT LANDLORD MAKES NO
REPRESENTATIONS OR WARRANTIES WHATSOEVER WITH RESPECT THERETO.
7. Time of the Essence. Time is of the essence with respect to
Tenant's execution and delivery of this Second Amendment to Landlord. If Tenant
fails to execute and deliver a signed copy of this Second Amendment to Landlord
by 5:00 p.m. (Albuquerque, New Mexico time), on July 27, 1998, it shall be
deemed null and void and shall have no force or effect, unless otherwise agreed
in writing by Landlord. Landlord's acceptance, execution and retrrrn of this
document shall constitute Landlord's agreement to waive Tenant's failure to
meet the foregoing deadline.
8. Binding Effect. Except as modified by this Third Amendment, the
terms and provisions of the Lease shall remain in full force and effect, and
the Lease, as modified by this Third Amendment, shall be binding upon the
parties hereto, their successors and assigns. This Third Amendment shall become
effective only after the full execution and delivery hereof by Landlord and
Tenant and upon the approval by the holder of any mortgage encumbering the
Building.
[Remainder of page intentionally left blank.]
-4-
<PAGE> 15
EXECUTED as of the day and year first above written.
LANDLORD: TENANT:
CRESCENT REAL ESTATE FUNDING ROSESTAR SOUTHWEST, LLC
II, L.P. a Delaware limited partnership a Delaware limited liability company
By: CRE Management II Corp., By: /s/ Jeffrey L. Stevens
a Delaware corporation, ---------------------------
its general partner Name: Jeffrey L. Stevens
---------------------------
Title: President
---------------------------
By: /s/ Howard W. Lovett
--------------------------------
Name: Howard W. Lovett
-------------------------------
Title: Vice President, Corporate
-------------------------------
-5-
<PAGE> 1
EXHIBIT 10.57
SONOMA MISSION INN AND SPA
FIRST AMENDMENT TO LEASE AGREEMENT
This FIRST AMENDMENT TO LEASE AGREEMENT (the "Amendment") is made and
entered into effective as of the 31st day of December, 1998, between WINE
COUNTRY HOTEL, LLC, a Delaware limited liability company ("Lessee") and
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited
partnership ("Lessor").
RECITALS:
WHEREAS, Lessor and Lessee entered into that certain Lease Agreement
dated as of November 18, 1996 (the "Lease"), pursuant to which Lessee leased
from Lessor a hotel facility/resort and related assets located in Sonoma
County, California, and known as the "Sonoma Mission Inn and Spa" (hereinafter
called the "Leased Property"); and
WHEREAS, Lessee has requested that Lessor fund the costs of certain
capital improvements at the Leased Property contemplated by a master plan
submitted to Lessor and consisting of 30 suites, 12,000 square feet of spa
facilities, 224 vehicle parking spaces, 3,000 square feet of meeting space and
general upgrades to the Leased Property (collectively, the "Expansion
Project"); and
WHEREAS, Lessor has agreed to undertake the funding of the Expansion
Program in consideration of and subject to the agreement of Lessee to modify
the Lease to increase the amount of rental payable thereunder; and
WHEREAS, Lessor has agreed to delete certain provisions of the Lease
that impose minimum net worth requirements on the Lessee and limit the
distributions by Lessee of its earnings to its beneficial owners in
consideration of the delivery of a guaranty of Lessee's obligations under the
Lease by Crescent Operating, Inc. ("COI"); and
WHEREAS, Lessor and Lessee mutually desire to quantify the value of
working capital contributed by Lessee for the operation of the Leased Property
upon the commencement of the term of the Lease and to evidence their mutual
understanding and agreement of the value of working capital to be reimbursed to
Lessee by Lessor at the expiration or earlier termination of the Lease; and
WHEREAS, Lessor and Lessee desire to amend the Lease to increase the
rental payable thereunder, to delete the provisions in the Lease described
above, to evidence their understanding regarding working capital and to make
certain other amendments thereto as hereinafter provided.
<PAGE> 2
AGREEMENT:
NOW THEREFORE, for and in consideration of the sum of Ten and No/100
Dollars ($10.00) and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged by the parties hereto, the
parties hereby agree as follows:
1. Definitions. Capitalized terms used but not defined herein shall
have the meanings assigned to them in the Lease.
2. Amendment to Lease. The Lease is hereby amended as follows:
a. Section 4.1 of the Lease is modified to increase the
Base Rent, as follows:
<TABLE>
<CAPTION>
YEAR ANNUAL RENT MONTHLY RENT PAYMENT
---- ----------- --------------------
<S> <C> <C>
2000 $8,200,000.00 $683,333.33
2001 $8,500,000.00 $708,333.33
2002 $9,000,000.00 $750,000.00
2003 $9,000,000.00 $750,000.00
2004 $9,500,000.00 $791,666.67
2005 $9,500,000.00 $791,666.67
2006 *$7,916,666.67 $791,666.67
</TABLE>
*No rent payable November and December 2006 (Lease expires 10/31/2006).
Section 4.1 of the Lease is further modified to provide that the
monthly installments of Base Rent shall be due and payable on the last
day of the month following the end of the month in which such rent
accrues, commencing on December 31, 1998, and continuing on the last
day of each month thereafter, through and including November 30, 2006.
b. The period is deleted at the end of the next to last
sentence of Section 4.2(j) of the Lease and the following clause is
inserted after the words "from Lessee": "; provided, in no event shall
Lessor be required to refund any portion of the Guaranteed Percentage
Rent (as hereinafter defined) previously paid by Lessee to Lessor."
c. A new subsection (l) is inserted at the end of Section 4.2
of the Lease, which shall read in its entirety as follows:
(l) Anything in this Lease to the contrary
notwithstanding, eighty-five percent (85%) of the Percentage
Rent payable in any quarter during the term of this Lease
(herein called the "Guaranteed Percentage Rent") shall not be
subject to adjustment under Section 4.2(j) or Section 4.2(k)
hereof.
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<PAGE> 3
d. If the amount expended by Lessor to fund the Expansion
Project exceeds $17,500,000.00, Lessor and Lessee agree that the Base
Rent will be increased (in addition to the increases set forth in
paragraph 2.a. above) to provide to Lessor a twenty percent (20%)
annual return on such excess funds. The parties agree to further amend
the Lease as necessary to reflect such increase in Base Rent.
e. In consideration of the execution and delivery by COI of a
guaranty of all of Lessee's obligations under the Lease, Section 7.7
and Section 7.9 of the Lease are hereby deleted in their entirety and
shall be of no further force and effect.
f. Section 7.11 of the Lease is hereby deleted in its
entirety and the following substituted in lieu thereof:
7.11 Working Capital. At the commencement of the
term of this Lease, there existed working capital pertaining
to the Leased Property in the categories listed on Exhibit B
attached hereto and made a part hereof (the "Working
Capital") in the initial aggregate negative balance of
($813,952.00) (the "Initial Working Capital Balance"). Within
thirty (30) days after the date of expiration or earlier
termination of this Lease, Lessor and Lessee will work
together in good faith to determine the balance of Working
Capital as of such date (the "Ending Working Capital
Balance"). If the Ending Working Capital Balance is less than
the Initial Working Capital Balance, Lessee shall pay over to
Lessor cash in the amount of such deficiency, within thirty
(30) days of such determination. If the Ending Working
Capital Balance exceeds the Initial Working Capital Balance,
Lessor shall pay over to Lessee cash in the amount of such
excess within thirty (30) days of such determination. For
purposes of comparing the Initial Working Capital Balance and
the Ending Working Capital Balance, (i) the Ending Working
Capital Balance will be less than the Initial Working Capital
Balance if and to the extent that the Ending Working Capital
Balance has a negative balance of more than ($813,952.00),
and that difference will be the "deficiency" to be paid by
Lessee to Lessor; and (ii) the Ending Working Capital Balance
will exceed the Initial Working Capital Balance if the Ending
Working Capital Balance has a negative balance of less than
($813,952.00), has a balance of zero, or has a positive
balance, and the "excess" to be paid by Lessor to Lessee will
be the difference (expressed as a positive number) between
the Ending Working Capital Balance and the Initial Working
Capital Balance. (By way of example and illustration but not
of limitation, if the Ending Working Capital Balance had a
negative balance of ($213,952.00), then Lessor would pay
Lessee $600,000.00; if the Ending Working Capital Balance had
a positive balance of $100,000.00, then Lessor would pay
Lessee $913,952.00.) Additionally, both the Initial Working
Capital Balance and the Ending Working Capital Balance shall
be calculated without the inclusion of any "in circulation"
operating or consumable supplies ("In-Circulation Supplies").
Both Lessee and Lessor agree that the In-Circulation Supplies
represent items in use which Lessee does not include on its
balance sheet
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<PAGE> 4
as of the Commencement Date. Lessee and Lessor further agree
that although no accounting value has been placed on
In-Circulation Supplies, such supplies have value and Lessee
agrees to have reasonable amounts of In-Circulation Supplies
on hand in a quantity and quality customary for a property
such as the Leased Property.
3. General Provision regarding Working Capital. Notwithstanding any
other provision of the Lease which is to the contrary or which is not
consistent with Section 2.f above, including without limitation, Section 7.4 of
the Lease, Lessor and Lessee agree that Section 2.f above represents the
general business terms under which Lessee has taken over the In-Circulation
Supplies and working capital of the Leased Property and the general terms under
which Lessee will return In-Circulation Supplies and working capital to Lessor
at the expiration or earlier termination of the Lease.
4. Modification Supersedes. Except as modified hereby, the Lease
remains in full force and effect, with no other modifications thereto. If there
arises by virtue of this Amendment any conflict between any provision of this
Amendment and any provision of the Lease, the provisions hereof shall supersede
any such conflicting provision of the Lease, but only to the extent of such
conflict, and all of the provisions of the Lease are hereby modified as
necessary so as to be consistent with the terms of this Amendment.
5. Successors and Assigns. This Amendment shall be binding upon and
shall inure to the benefit of Lessor and Lessee and their respective successors
and permitted assigns.
6. Multiple Counterparts. This Amendment may be executed in multiple
counterparts, each of which is to be deemed an original for all purposes, and
in making proof of this Amendment it shall not be necessary to produce more
than one (1) counterpart hereof. A facsimile or similar transmission of a
counterpart signed by a party hereto will be regarded as signed by such party
for purposes hereof.
7. Captions. The captions, headings and arrangements used in this
Amendment are for convenience only and do not in any way affect, limit, amplify
or otherwise modify the terms and provisions hereof.
8. Representations of Lessee. Lessee represents and warrants to Lessor
that (i) Lessee is the sole legal and beneficial owner of the leasehold estate
under the Lease and (ii) Lessee has the full power and authority to enter into
this Amendment without the joinder or consent of any other party.
9. Representations of Lessor. Lessor represents and warrants to Lessee
that Lessor has the full power and authority to enter into this Amendment.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 5
IN WITNESS WHEREOF, the parties have duly executed this Amendment to
be effective as of the day and year first above written.
LESSOR:
CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership
By: Crescent Real Estate Equities, Ltd.,
a Delaware corporation, General Partner
By:
-------------------------------
Name:
-------------------------
Title:
------------------------
LESSEE:
WINE COUNTRY HOTEL, LLC, a Delaware limited
liability company
By:
-------------------------------
Name:
-------------------------
Title:
------------------------
-5-
<PAGE> 1
EXHIBIT 10.58
MARRIOTT CITY CENTER, DENVER
FIRST AMENDMENT TO AMENDED AND RESTATED LEASE AGREEMENT
This FIRST AMENDMENT TO AMENDED AND RESTATED LEASE AGREEMENT (the
"Amendment") is made and entered into effective as of the 31st day of December,
1998, between ROSESTAR MANAGEMENT, LLC, a Delaware limited liability company
("Lessee") and CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware
limited partnership ("Lessor").
RECITALS:
WHEREAS, Lessor and Lessee entered into that certain Amended and
Restated Lease Agreement dated as of June 30, 1995 (the "Lease"), pursuant to
which Lessee leased from Lessor a hotel and related assets located in Denver
County, Colorado, and known as the "Marriott City Center, Denver" (hereinafter
called the "Leased Property"); and
WHEREAS, Lessor has agreed to delete certain provisions of the Lease
that impose minimum net worth requirements on the Lessee and limit the
distributions by Lessee of its earnings to its beneficial owners in
consideration of the delivery of a guaranty of Lessee's obligations under the
Lease by Crescent Operating, Inc. ("COI"); and
WHEREAS, Lessor and Lessee mutually desire to quantify the value of
working capital associated with the Leased Property and transferred from Lessor
to Lessee upon the commencement of the term of the Lease and to evidence their
mutual understanding and agreement of the value of working capital associated
with the Leased Property to be redelivered to Lessor by Lessee at the
expiration or earlier termination of the Lease; and
WHEREAS, Lessor and Lessee desire to amend the Lease to delete the
provisions in the Lease described above, to evidence their understanding
regarding working capital and to make certain other amendments thereto as
hereinafter provided.
AGREEMENT:
NOW THEREFORE, for and in consideration of the sum of Ten and No/100
Dollars ($10.00) and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged by the parties hereto, the
parties hereby agree as follows:
1. Definitions. Capitalized terms used but not defined herein shall
have the meanings assigned to them in the Lease.
<PAGE> 2
2. Amendment to Lease. The Lease is hereby amended as follows:
a. The period is deleted at the end of the next to last
sentence of Section 4.2(l) of the Lease and the following clause is
inserted after the words "from Lessee": "; provided, in no event shall
Lessor be required to refund any portion of the Guaranteed Percentage
Rent (as hereinafter defined) previously paid by Lessee to Lessor."
b. A new subsection (n) is inserted at the end of Section 4.2
of the Lease, which shall read in its entirety as follows:
(n) Anything in this Lease to the contrary
notwithstanding, eighty-five percent (85%) of the Percentage
Rent payable in any quarter during the term of this Lease
(herein called the "Guaranteed Percentage Rent") shall not be
subject to adjustment under Section 4.2(l) or Section 4.2(m)
hereof.
c. In consideration of the execution and delivery by COI of a
guaranty of all of Lessee's obligations under the Lease, Section 7.7
and Section 7.9 of the Lease are hereby deleted in their entirety and
shall be of no further force and effect.
d. A new Section 7.10 is added to the Lease, to read in its
entirety as follows:
Section 7.10. Working Capital. At the commencement
of the term of this Lease, there existed working capital
pertaining to the Leased Property (the "Working Capital") in
the initial aggregate positive balance of $386,452.00 (the
"Initial Working Capital Balance"). Within thirty (30) days
after the date of expiration or earlier termination of this
Lease, Lessor and Lessee will work together in good faith to
determine the balance of Working Capital as of such date (the
"Ending Working Capital Balance"). If the Ending Working
Capital Balance is less than the Initial Working Capital
Balance, Lessee shall pay over to Lessor cash in the amount
of such deficiency, within thirty (30) days of such
determination. If the Ending Working Capital Balance exceeds
the Initial Working Capital Balance, Lessor shall pay over to
Lessee cash in the amount of such excess within thirty (30)
days of such determination. Additionally, both the Initial
Working Capital Balance and the Ending Working Capital
Balance shall be calculated without the inclusion of any "in
circulation" operating or consumable supplies
("In-Circulation Supplies"). Both Lessee and Lessor agree
that the In-Circulation Supplies represent items in use which
Lessee does not include on its balance sheet as of the
Commencement Date. Lessee and Lessor further agree that
although no accounting value has been placed on
In-Circulation Supplies, such supplies have value and Lessee
agrees to have reasonable amounts of In-Circulation Supplies
on hand in a quantity and quality customary for a property
such as the Leased Property.
-2-
<PAGE> 3
3. General Provision regarding Working Capital. Notwithstanding any
other provision of the Lease which is to the contrary or which is not
consistent with Section 2.d above, including without limitation, Section 7.4 of
the Lease, Lessor and Lessee agree that Section 2.d above represents the
general business terms under which Lessee has taken over the In-Circulation
Supplies and working capital of the Leased Property and the general terms under
which Lessee will return In-Circulation Supplies and working capital to Lessor
at the expiration or earlier termination of the Lease.
4. Modification Supersedes. Except as modified hereby, the Lease
remains in full force and effect, with no other modifications thereto. If there
arises by virtue of this Amendment any conflict between any provision of this
Amendment and any provision of the Lease, the provisions hereof shall supersede
any such conflicting provision of the Lease, but only to the extent of such
conflict, and all of the provisions of the Lease are hereby modified as
necessary so as to be consistent with the terms of this Amendment.
5. Successors and Assigns. This Amendment shall be binding upon and
shall inure to the benefit of Lessor and Lessee and their respective successors
and permitted assigns.
6. Multiple Counterparts. This Amendment may be executed in multiple
counterparts, each of which is to be deemed an original for all purposes, and
in making proof of this Amendment it shall not be necessary to produce more
than one (1) counterpart hereof. A facsimile or similar transmission of a
counterpart signed by a party hereto will be regarded as signed by such party
for purposes hereof.
7. Captions. The captions, headings and arrangements used in this
Amendment are for convenience only and do not in any way affect, limit, amplify
or otherwise modify the terms and provisions hereof.
8. Representations of Lessee. Lessee represents and warrants to Lessor
that (i) Lessee is the sole legal and beneficial owner of the leasehold estate
under the Lease and (ii) Lessee has the full power and authority to enter into
this Amendment without the joinder or consent of any other party.
9. Representations of Lessor. Lessor represents and warrants to Lessee
that Lessor has the full power and authority to enter into this Amendment.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties have duly executed this Amendment to
be effective as of the day and year first above written.
LESSOR:
CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited
partnership
By: Crescent Real Estate Equities, Ltd.,
a Delaware corporation, General Partner
By:
--------------------------------
Name:
----------------------------
Title:
---------------------------
LESSEE:
ROSESTAR MANAGEMENT, LLC, a Delaware
limited liability company
By:
-------------------------------------
Name:
--------------------------------
Title:
-------------------------------
-4-
<PAGE> 1
EXHIBIT 10.59
VENTANA INN
FIRST AMENDMENT TO LEASE AGREEMENT
This FIRST AMENDMENT TO LEASE AGREEMENT (the "Amendment") is made and
entered into effective as of the 31st day of December, 1998, between WINE
COUNTRY HOTEL, LLC, a Delaware limited liability company ("Lessee") and
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited
partnership ("Lessor").
RECITALS:
WHEREAS, Lessor and Lessee entered into that certain Lease Agreement
dated as of December 19, 1997 (the "Lease"), pursuant to which Lessee leased
from Lessor the land, buildings, improvements and fixtures located in Big Sur,
Monterey County, California, commonly known as the Ventana Inn or the Ventana
Country Inn (the "Leased Property"); and
WHEREAS, Lessor and Lessee mutually desire to quantify the value of
working capital associated with the Leased Property and transferred from Lessor
to Lessee upon the commencement of the Lease Term and to evidence their mutual
understanding and agreement of the value of working capital associated with the
Leased Property to be redelivered to Lessor by Lessee at the expiration of the
Lease Term or earlier termination of the Lease; and
WHEREAS, Lessor and Lessee desire to amend the Lease to evidence their
understanding regarding working capital and in certain other respects, as
hereinafter provided.
AGREEMENT:
NOW THEREFORE, for and in consideration of the sum of Ten and No/100
Dollars ($10.00) and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged by the parties hereto, the
parties hereby agree as follows:
1. Definitions. Capitalized terms used but not defined herein shall
have the meanings assigned to them in the Lease.
2. Amendment to Lease. The Lease is hereby amended as follows:
a. The period is deleted at the end of the next to last
sentence of Section 4.2(c) of the Lease and the following clause is
inserted after the words "from Lessee": "; provided, in no event shall
Lessor be required to refund any portion of the Guaranteed Percentage
Rent (as hereinafter defined) previously paid by Lessee to Lessor."
b. A new subsection (f) is inserted at the end of Section 4.2
of the Lease, which shall read in its entirety as follows:
<PAGE> 2
(f) Anything in this Lease to the contrary
notwithstanding, eighty-five percent (85%) of the Percentage
Rent payable in any quarter during the term of this Lease
(herein called the "Guaranteed Percentage Rent") shall not be
subject to adjustment under Section 4.2(c) or Section 4.2(e)
hereof.
c. Section 7.7 of the Lease is deleted in its entirety and
the following substituted in lieu thereof:
Section 7.7. Working Capital. At the commencement of
the term of this Lease, there existed working capital
pertaining to the Leased Property (the "Working Capital"), in
the initial aggregate positive balance of $274,786.00 (the
"Initial Working Capital Balance"). Within thirty (30) days
following the date of expiration or earlier termination of
this Lease, Lessor and Lessee will work together in good
faith to determine the balance of Working Capital as of such
date (the "Ending Working Capital Balance"). If the Ending
Working Capital Balance is less than the Initial Working
Capital Balance, Lessee shall pay over to Lessor cash in the
amount of such deficiency, within thirty (30) days of such
determination. If the Ending Working Capital Balance exceeds
the Initial Working Capital Balance, Lessor shall pay over to
Lessee cash in the amount of such excess within thirty (30)
days of such determination. Additionally, both the Initial
Working Capital Balance and the Ending Working Capital
Balance shall be calculated without the inclusion of any "in
circulation" operating or consumable supplies
("In-Circulation Supplies"). Both Lessee and Lessor agree
that the In-Circulation Supplies represent items in use which
Lessee does not include on its balance sheet as of the
Commencement Date. Lessee and Lessor further agree that
although no accounting value has been placed on
In-Circulation Supplies, such supplies have value and Lessee
agrees to have reasonable amounts of In-Circulation Supplies
on hand in a quantity and quality customary for a property
such as the Leased Property.
d. The Exhibit C attached to the Lease is hereby deleted in
its entirety and the Exhibit C attached hereto is substituted in lieu
thereof and incorporated into the Lease for all purposes.
3. General Provision regarding Working Capital. Notwithstanding any
other provision of the Lease which is to the contrary or which is not
consistent with Section 2.c above, including without limitation, Section 7.4(b)
and Section 38.1(d) of the Lease, Lessor and Lessee agree that Section 2.c
above represents the general business terms under which Lessee has taken over
the In-Circulation Supplies and working capital of the Leased Property and the
general terms under which Lessee will return In-Circulation Supplies and
working capital to Lessor at the expiration or earlier termination of the
Lease.
-2-
<PAGE> 3
4. Modification Supersedes. Except as modified hereby, the Lease
remains in full force and effect, with no other modifications thereto. If there
arises by virtue of this Amendment any conflict between any provision of this
Amendment and any provision of the Lease, the provisions hereof shall supersede
any such conflicting provision of the Lease, but only to the extent of such
conflict, and all of the provisions of the Lease are hereby modified as
necessary so as to be consistent with the terms of this Amendment.
5. Successors and Assigns. This Amendment shall be binding upon and
shall inure to the benefit of Lessor and Lessee and their respective successors
and permitted assigns.
6. Multiple Counterparts. This Amendment may be executed in multiple
counterparts, each of which is to be deemed an original for all purposes, and
in making proof of this Amendment it shall not be necessary to produce more
than one (1) counterpart hereof. A facsimile or similar transmission of a
counterpart signed by a party hereto will be regarded as signed by such party
for purposes hereof.
7. Captions. The captions, headings and arrangements used in this
Amendment are for convenience only and do not in any way affect, limit, amplify
or otherwise modify the terms and provisions hereof.
8. Representations of Lessee. Lessee represents and warrants to Lessor
that (i) Lessee is the sole legal and beneficial owner of the leasehold estate
under the Lease and (ii) Lessee has the full power and authority to enter into
this Amendment without the joinder or consent of any other party.
9. Representations of Lessor. Lessor represents and warrants to Lessee
that Lessor has the full power and authority to enter into this Amendment.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties have duly executed this Amendment to
be effective as of the day and year first above written.
LESSOR:
CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership
By: Crescent Real Estate Equities, Ltd.,
a Delaware corporation, General Partner
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
LESSEE:
WINE COUNTRY HOTEL, LLC, a Delaware limited
liability company
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
-4-
<PAGE> 1
EXHIBIT 10.60
FIRST AMENDMENT TO AMENDED AND RESTATED LEASE AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED LEASE AGREEMENT (the
"First Amendment") is made and entered into as of the 1st day of April, 1996,
by and between CRESCENT REAL ESTATE FUNDING II, L.P., a Delaware limited
partnership ("Lessor"), and ROSESTAR SOUTHWEST, LLC, a Delaware limited
liability company ("Lessee").
W I T N E S S E T H:
WHEREAS, on January 3, 1995, CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership ("Crescent"), as Lessor, and MOGUL
MANAGEMENT, LLC, a Texas limited liability company ("Mogul"), entered into that
certain Lease Agreement (hereinafter referred to as the "Original Lease")
covering a hotel and related assets located in the County of Eagle, State of
Colorado, and known as "Hyatt Regency Beaver Creek" (hereinafter referred to as
the "Leased Property"); and
WHEREAS, pursuant to that certain Amendment to Lease Agreement dated
October 6, 1995, the Original Lease was amended to provide for the
subordination of the leasehold estate created by the Original Lease to any lien
or encumbrance that may be placed against all or any part of the Leased
Property and to provide for the approval by Crescent of a proposed merger of
Mogul into RoseStar Management, LLC, a Texas limited liability company
("RoseStar"); and
WHEREAS, on October 6, 1995, the Leased Property and all of Crescent's
interest and estate as lessor under the Original Lease were conveyed by
Crescent to Lessor, who thereupon assumed all of Crescent's liabilities and
obligations under the Original Lease; and
WHEREAS, pursuant to that certain Amended and Restated Lease Agreement
dated January 1, 1996, executed by and between Lessor, Mogul and RoseStar, the
Original Lease was amended and restated (hereinafter the Original Lease as
amended and restated is referred to as the "Lease"); and
WHEREAS, on February 9, 1996, Mogul was merged with and into RoseStar;
and
WHEREAS, pursuant to that certain Assignment and Assumption of
Leasehold Estate dated March 29, 1996, all of RoseStar's interest and estate as
lessee under the Lease was sold and assigned to Lessee, who thereupon assumed
all of RoseStar's liabilities and obligations under the Lease; and
WHEREAS, Lessor and Lese desire to further modify the terms and
conditions of the Lease;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and other good and valuable consideration, the receipt,
accuracy and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Lessor and Lessee agree that Article 7.7 of the Lease is deleted
and replaced by the
<PAGE> 2
following new Article 7.7:
7.7 Net Worth. Lessee covenants that Lessee and RoseStar
shall at all times during the term of this Lease maintain a cumulative
"net worth" which shall be equal to no less than $200,000, For
purposes hereof, "net worth" shall mean the sum of (i) the aggregate
cash and fair market value of any property (other than cash)
contributed to the capital of Lessee and RoseStar by the members of
Lessee and RoseStar (net of amounts distributed other than
distributions out of earnings of Lessee and RoseStar) and (ii) the
aggregate balances of any line of credit (A) obtained by Lessee or
RoseStar and guaranteed by one or more of the members of Lessee or
RoseStar or (B) obtained by the members of Lessee or RoseStar to fund
capital contributions to Lessee or RoseStar (to the extent not already
included in (i)), to the extent such funds may be utilized by Lessee
or RoseStar to perform its obligations under the Lease or any other
lease between Lessor or any entity affiliated with Lessor and Lessee
or RoseStar and to comply with the terms of the Management Agreement,
and (iii) any commitments of the members of Lessee or RoseStar to make
additional capital contributions to Lessee or RoseStar. Lessee or
RoseStar shall provide Lessor with an annual written certification of
its compliance with the foregoing requirement on the Commencement Date
and the first day of each subsequent year of this Lease hereunder;
provided, however, that Lessor may, in addition, request more than
once during any year of this Lease that Lessee or RoseStar provide
Lessor with a certification as of the date of such request of its
compliance with the foregoing requirement. Such certifications must be
reasonably satisfactory to Lessor as to matters certified therein and
shall be accompanied by such supporting financial information as
Lessor may reasonably request.
2. Lessor and Lessee agree that Article 7.9 of the Lease is deleted
and replaced by the following new Article 7.9:
7.9 Limitation on Distributions. Lessee covenants that, until
such time as Lessee and any affiliate of Lessee such as RoseStar which
has entered into a long-term lease of a hotel either with Lessor or
any affiliate of Lessor such as Crescent has accumulated and is
holding in reserve funds in the aggregate which are sufficient in
amount to enable Lessee and each of such affiliated entities to pay at
least one (1) monthly payment of Base Rent under each lease between
Lessee and any of such affiliated entities and Lessor or an affiliate
of Lessor such as Crescent, Lessee shall retain all income generated
by the Leased Property and shall not distribute any earnings to its
beneficial owners except as needed for federal and state income taxes
payable on taxable income from the Leased Property. In no event,
however, shall any amounts be payable to the beneficial owners of
Lessee if any such payment would result in a violation of Lessee's net
worth covenants set forth in Article 7.7 hereinabove.
3. Lessor and Lessee agree that the following Article XXXVIII is added
to the Lease:
-2-
<PAGE> 3
ARTICLE XXXVIII
38.1. Business of Lessee. The sole purpose and nature of the
business to be conducted by Lessee is to:
(a) enter into and perform as lessee under this
Lease and as lessee under a long-term lease of the Hyatt Regency
Albuquerque located in Albuquerque, New Mexico (hereinafter the hotels
covered by the leases described in this subparagraph are collectively
referred to as the "Hotels");
(b) enter into long-term management agreements for
the Hotels with experienced and reputable hotel management companies;
and
(c) enter into and perform all other contracts and
undertakings, and engage in and carry out all other activities and
transactions, as may be necessary, appropriate, convenient, ancillary,
or incidental to the foregoing purposes (including but not limited to
borrowing and repaying loans, and granting security interests in
receivables, general intangibles and personal property (other than any
property that is part of the Leased Property) to secure such loans,
employing personnel and advisers, constructing and maintaining
improvements at the Hotels, and acquiring, holding, operating,
leasing, disposing of and otherwise dealing with personal property
located at the Hotels). Without limitation, Lessee shall qualify to
transact business in Colorado and New Mexico as a foreign limited
liability company and shall seek and obtain all such licensing and
permitting as may be required in connection with leasing and managing
the Hotels (including but not limited to alcoholic beverage permits
and licenses, if required).
Lessee shall not engage in any business unrelated to the
foregoing purposes and shall not own any assets other than those
related to leasing and managing the Hotels or otherwise in furtherance
of the purposes of Lessee as set forth above in this paragraph 38.1.
Lessee shall not incur any indebtedness other than indebtedness
incurred in connection with leasing and managing the Hotels or
otherwise in furtherance of the purposes of Lessee as set forth above
in this paragraph 38.1.
38.2. Single-Purpose Entity.
(a) Lessee at all times since its formation has
been, and will continue to be, a duly formed and existing
Delaware limited liability company and a Single-Purpose
Entity (as defined below). Lessee at all times since its
formation has been, and will continue to be, duly qualified
as a foreign limited liability company in each jurisdiction
in which the Hotels are located. RSSW Corp., the Managing
Member of Lessee and hereinafter referred to as "RSSW", at
all times since its formation has been, and will continue to
be, a duly formed and existing Delaware corporation and a
Single-Purpose Entity. RSSW at all times since its formation
has been, and will continue to be, duly qualified as a
foreign corporation in each jurisdiction in which the Hotels
are located.
-3-
<PAGE> 4
(b) Lessee at all times since its formation has
complied, and will continue to comply, with the provisions of
its formation documents and the laws of the State of Delaware
relating to limited liability companies. RSSW at all times
since its formation has complied, and will continue to
comply, with the provision of its certificate of
incorporation and its bylaws and the laws of the State of
Delaware relating to corporations.
(c) All customary formalities regarding the limited
liability company or corporate (as the case may be) existence
of each of Lessee and RSSW have been observed at all times
since its formation and will continue to be observed.
(d) Each of Lessee and RSSW has at all times since
its formation accurately maintained, and will continue to
accurately maintain, its financial statements, accounting
records and other corporate documents separate from those of
its partners, shareholders, affiliates of its shareholders or
partners, and any other person. Neither Lessee nor RSSW has
at any time since its formation commingled, and neither
Lessee nor RSSW will commingle, its assets with those of its
shareholders, partners, any affiliates of its shareholders or
partners, or any other person. Each of Lessee and RSSW has at
all times since its formation accurately maintained, and will
continue to accurately maintain, its own bank accounts and
separate books of account.
(e) Each of Lessee and RSSW has at all times since
its formation paid, and will continue to pay, its own
liabilities from its own separate assets.
(f) Each of Lessee and RSSW has at all times since
its formation identified itself, and will continue to
identify itself, in all dealings with the public, under its
own name and as a separate distinct entity. Neither Lessee
nor RSSW has at any time since its formation identified
itself, and neither Lessee nor RSSW will identify itself, as
being a division or a part of any other entity. Neither Lessee
nor RSSW has at any time since its formation identified, and
neither Lessee nor RSSW will identify, its shareholders,
partners or any affiliates of its shareholders or partners,
as being a division or pant of it.
(g) Each of Lessee and RSSW has been at all times
since its formation and will continue to be adequately
capitalized in light of the nature of its business.
(h) Neither Lessee nor RSSW has at any time since
its formation assumed or guaranteed, and neither Lessee nor
RSSW will assume or guarantee, the liabilities of its
shareholders, members or partners, any affiliates of its
-4-
<PAGE> 5
shareholders, members or partners, or any other persons.
Neither Lessee nor RSSW has at any time since its formation
acquired, and neither Lessee nor RSSW will acquire,
obligations or securities of its shareholders, members or
partners, or any affiliates of its shareholders, members or
partners. Neither Lessee nor RSSW has at any time since its
formation made, and neither Lessee nor RSSW will make, loans
to its shareholders, members or partners, or any affiliates
of its shareholders, members or partners, unless such loans
are made on terms which are no less favorable to Lessee or
RSSW than would be obtained in a comparable arm's length
transaction with an unrelated third party and Lessee or RSSW
acts in accordance with prudent lending standards to protect
itself from liability in connection with such loans.
(i) Neither Lessee nor RSSW has at any time since
its formation entered into, and neither Lessee nor RSSW has
been a party to, and, neither Lessee nor RSSW will enter into
or be a party to, any transaction with its shareholders,
members or partners or any affiliates of its shareholders,
members or partners (other than the making of distributions
to its shareholders, members or partners) except (x) for this
Lease and the lease of the Hyatt Regency Albuquerque, (y) for
loans made by Lessee or RSSW as described in the last
sentence of clause (h) above, or (z) in the ordinary course
of business of Lessee or RSSW, as the case may be, on terms
which are no less favorable to Lessee or RSSW, as the case
may be, than would be obtained in a comparable arm's length
transaction with an unrelated third party.
(j) The term "Single Purpose Entity" means a person
other than an individual, which (i) is formed or organized
solely for the purposes set forth in paragraph 38.1
hereinabove, (ii) does not engage in any business unrelated
to the business set forth in paragraph 38.1 hereinabove,
(iii) does not have any assets other than those related to
the business described in paragraph 38.1 hereinabove or any
indebtedness other than as permitted by this Lease, (iv) has
its own separate books and records and has its own accounts,
in each case which are separate and apart from the books and
records and accounts of any other person, (v) if a
corporation, at all times has an independent director
reasonably acceptable to Lessor, (vi) does not commingle its
assets with the assets of any other person, (vii) does not
guarantee the obligations of any other person and (viii)
holds itself out as being a person separate and apart from
any other person.
2. Except as specifically set forth above, all terms and conditions of
the Lease shall remain in full force and effect. All capitalized terms not
otherwise defined herein shall have the meaning given to such terms in the
Lease.
IN WITNESS WHEREOF, the undersigned have executed this First Amendment
as of the date and year first above written.
LESSOR:
CRESCENT REAL ESTATE FUNDING II, L.P.,
a Delaware limited partnership
-5-
<PAGE> 6
BY: CRE MANAGEMENT II CORP., a
Delaware corporation, its
General Partner
By: /s/ David M. Dean
----------------------------
Name: David M. Dean
---------------------------
Its: Senior Vice President, Law
---------------------------
LESSEE:
ROSESTAR SOUTHWEST, LLC, a Delaware
limited liability company
BY: RSSW CORP., a Delaware corporation,
Its Managing Member
By: /s/ Sanjay Varma
----------------------------
Sanjay Varma, President
JOINDER OF ROSESTAR
RoseStar joins in the execution of this First Amendment in order to
evidence its agreement with the terms and conditions of Paragraphs 1 and 2 of
this First Amendment. RoseStar agrees to cooperate with Lessee in providing the
certifications required of Lessee under Paragraph 1 of this First Amendment.
ROSESTAR MANAGEMENT, LLC, a Texas
limited liability company
By: /s/ Sanjay Varma
----------------------------
Name: Sanjay Varma, President
----------------------------
Its: President
----------------------------
-6-
<PAGE> 7
HYATT REGENCY BEAVER CREEK
SECOND AMENDMENT TO AMENDED AND RESTATED LEASE AGREEMENT
This SECOND AMENDMENT TO AMENDED AND RESTATED LEASE AGREEMENT (the
"Amendment") is made and entered into effective as of the 31st day of December,
1998, between ROSESTAR SOUTHWEST, LLC, a Delaware limited liability company
("Lessee") and CRESCENT REAL ESTATE FUNDING II, L.P, a Delaware limited
partnership ("Lessor").
RECITALS:
WHEREAS, Crescent Real Estate Equities Limited Partnership, a Delaware
limited partnership ("Crescent") and Mogul Management, LLC ("Mogul") entered
into that certain Lease Agreement dated as of January 3, 1995 (the "Original
Lease Agreement"), pursuant to which Mogul leased from Crescent a hotel facility
and related assets located in Eagle County, Colorado, and known as the "Hyatt
Regency Beaver Creek" (hereinafter called the "Leased Property"); and
WHEREAS, pursuant to that certain Amendment to Lease Agreement dated
October 6, 1995, the Original Lease Agreement was amended to provide for the
subordination of the leasehold estate created by the Original Lease to any lien
or encumbrance that may be placed against all or any part of the Leased Property
and to provide for the approval by Crescent of a proposed merger of Mogul into
RoseStar Management, LLC, a Texas limited liability company ("RoseStar"); and
WHEREAS, on October 6, 1995, the Leased Property and all of Crescent's
interest and estate as lessor under the Original Lease Agreement were conveyed
by Crescent to Lessor, who thereupon assumed all of Crescent's liabilities and
obligations under the Original Lease Agreement; and
WHEREAS, pursuant to that certain Amended and Restated Lease Agreement
dated January 1, 1996 (the "Restated Lease"), executed by and between Lessor,
Mogul and RoseStar, the Original Lease Agreement was amended and restated in its
entirety; and
WHEREAS, on February 9, 1996, Mogul was merged with and into RoseStar;
and
WHEREAS, pursuant to that certain Assignment and Assumption of
Leasehold Estate dated as of March 29, 1996, all of RoseStar's interest and
estate as lessee under the Restated Lease was sold and assigned to Lessee, who
thereupon assumed all of RoseStar's liabilities and obligations under the
Restated Lease; and
WHEREAS, Lessor and Lessee amended the Restated Lease by First
Amendment to Amended and Restated Lease Agreement dated as of April 1, 1996 (the
Restated Lease, as amended, herein called the "Lease"); and
<PAGE> 8
WHEREAS, Lessor and Lessee agreed that if Lessor made substantial
capital investments in the Leased Property, the Lease would be amended to
increase the amount of rental payable thereunder and Lessor has made substantial
capital investment in the Leased Property; and
WHEREAS, Lessor has agreed to delete certain provisions of the Lease
that impose minimum net worth requirements on the Lessee and limit the
distributions by Lessee of its earnings to its beneficial owners in
consideration of the delivery of a guaranty of Lessee's obligations under the
Lease by Crescent Operating, Inc. ("COI"); and
WHEREAS, Lessor and Lessee mutually desire to quantify the value of
working capital contributed by Lessee for the operation of the Leased Property
upon the commencement of the term of the Lease and to evidence their mutual
understanding and agreement of the value of working capital to be reimbursed to
Lessee by Lessor at the expiration or earlier termination of the Lease; and
WHEREAS, Lessor and Lessee desire to amend the Lease to increase the
rental payable thereunder, to delete the provisions in the Lease described
above, to evidence their understanding regarding working capital and to make
certain other amendments thereto as hereinafter provided.
AGREEMENT:
NOW THEREFORE, for and in consideration of the sum of Ten and No/100
Dollars ($10.00) and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged by the parties hereto, the
parties hereby agree as follows:
1. Definitions. Capitalized terms used but not defined herein shall
have the meanings assigned to them in the Lease.
2. Amendments to Lease. The Lease is hereby amended as follows:
a. Section 4.1 of the Lease is modified to increase the Base
Rent, effective as of January 1, 1999, by the amount of $630,000 per
year during the Term. Accordingly, the annual Base Rent payable under
the Lease is as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1999-2000 $4,330,000.00
2001-2003 $4,430,000.00
2004 $4,530,000.00
</TABLE>
b. Section 4.2(a) of the Lease is deleted in its entirety, and
the following inserted in lieu thereof:
-2-
<PAGE> 9
(a) The term "Percentage Rent" as used herein, shall
mean the sum of the following:
(i) the amount determined by multiplying (A)
the amount, if any, by which the aggregate
amount of Gross Sales - Rooms for the
calendar month to which such Percentage
Rent is attributable exceeds the Gross
Sales Floor - Rooms for the applicable
month by (B) the Multiplier - Rooms; plus
(ii) the amount determined by multiplying (A)
the amount, if any, by which the aggregate
amount of Gross Sales - Food & Beverage
for the calendar month to which such
Percentage Rent is attributable exceeds
the Gross Sales Food & Beverage - Rooms
for the applicable month by (B) the
Multiplier - Food & Beverage; plus
(iii) the amount determined by multiplying (A)
thirteen and one-half percent (13.5%) by
(B) the amount of Spa Revenues for the
calendar month to which such Percentage
Rent is attributable.
c. Section 4.2(k) of the Lease is amended by inserting the
words "and Spa Revenues" after the word "Beverage" in line 5 thereof.
d. Section 4.2(l) of the Lease is modified by (1) inserting
the words "and Spa Revenues" after the word "Beverage" in lines 4 and 8
thereof and (2) deleting the period at the end of the next to last
sentence and inserting the following clause after the words "from
Lessee": "; provided, in no event shall Lessor be required to refund
any portion of the Guaranteed Percentage Rent (as hereinafter defined)
previously paid by Lessee to Lessor."
e. A new Section 4.2(n) is inserted in the Lease, to read in
its entirety as follows:
(n) The term "Spa Revenues", as used herein, shall
mean the aggregate dollar amount of all gross income and
receipts from all business done in, on or resulting from
the spa, pool, health club facility and beauty salon
located within the Leased Premises (the "Spa"), including,
without limitation, membership revenues, the actual price
of all services, goods, wares and merchandise (which shall
include, without limitation, food and beverages and other
items permitted to be sold) sold and the actual charges for
all services performed by Tenant or by any subtenant,
licensee or concessionaire in, at, from or arising out of
the use of the Spa, including, but not limited to fees for
Spa Services, membership fees, daily use fees, rentals,
sales of clothing and merchandise, personal training
services, whether
-3-
<PAGE> 10
wholesale or retail, whether for cash or credit, or
otherwise, and including the value of all consideration
other than money received for any of the foregoing. As used
herein, "Spa Services" shall mean ladies and men's hair
dressing, permanent waving, hair dying, manicuring, nail
extensions, pedicures, facials, body services,
electrolysis, aerobics training, weight training, health
and fitness activities, treatment baths and other services
customarily incident to the operation of a spa, pool,
health club facility and beauty salon.
f. A new subsection (o) is inserted at the end of Section 4.2
of the Lease, which shall read in its entirety as follows:
(o) Anything in this Lease to the contrary notwithstanding,
eighty-five percent (85%) of the Percentage Rent payable in any
quarter during the term of this Lease (herein called the
"Guaranteed Percentage Rent") shall not be subject to adjustment
under Section 4.2(l) or Section 4.2(m) hereof.
h. In consideration of the execution and delivery by COI of a
guaranty of all of Lessee's obligations under the Lease, Section 7.7
and Section 7.9 of the Lease are hereby deleted in their entirety and
shall be of no further force and effect.
i. A new Section 7.10 is added to the Lease, to read in its
entirety as follows:
Section 7.10. Working Capital. At the commencement of the
term of this Lease, there existed working capital pertaining to
the Leased Property (the "Working Capital") in the initial
aggregate negative balance of ($276,728.00) (the "Initial Working
Capital Balance"). Within thirty (30) after the date of
expiration or earlier termination of this Lease, Lessor and
Lessee will work together in good faith to determine the balance
of Working Capital as of such date (the "Ending Working Capital
Balance"). If the Ending Working Capital Balance is less than the
Initial Working Capital Balance, Lessee shall pay over to Lessor
cash in the amount of such deficiency, within thirty (30) days of
such determination. If the Ending Working Capital Balance exceeds
the Initial Working Capital Balance, Lessor shall pay over to
Lessee cash in the amount of such excess within thirty (30) days
of such determination. For purposes of comparing the Initial
Working Capital Balance and the Ending Working Capital Balance,
(i) the Ending Working Capital Balance will be less than the
Initial Working Capital Balance if and to the extent that the
Ending Working Capital Balance has a negative balance of more
than ($276,728.00), and that difference will be the "deficiency"
to be paid by Lessee to Lessor; and (ii) the Ending Working
Capital Balance will exceed the Initial Working Capital Balance
if the Ending Working Capital Balance has a negative balance of
less than ($276,728.00), has a balance of zero, or has a positive
balance, and the "excess" to be paid by Lessor to Lessee will be
the difference (expressed as a positive number) between the
Ending Working Capital
-4-
<PAGE> 11
Balance and the Initial Working Capital Balance. (By way of
example and illustration but not of limitation, if the Ending
Working Capital Balance had a negative balance of ($176,728.00),
then Lessor would pay Lessee $100,000.00; if the Ending Working
Capital Balance had a positive balance of $100,000.00, then
Lessor would pay Lessee $376,728.00.) Additionally, both the
Initial Working Capital Balance and the Ending Working Capital
Balance shall be calculated without the inclusion of any "in
circulation" operating or consumable supplies ("In-Circulation
Supplies"). Both Lessee and Lessor agree that the In-Circulation
Supplies represent items in use which Lessee does not include on
its balance sheet as of the Commencement Date. Lessee and Lessor
further agree that although no accounting value has been placed
on In-Circulation Supplies, such supplies have value and Lessee
agrees to have reasonable amounts of In-Circulation Supplies on
hand in a quantity and quality customary for a property such as
the Leased Property.
3. General Provision regarding Working Capital. Notwithstanding any
other provision of the Lease which is to the contrary or which is not consistent
with Section 2.i. above, including without limitation, Sections 7.4(b) and
38.1(d), Lessor and Lessee agree that Section 2.i. above represents the general
business terms under which Lessee has taken over the In-Circulation Supplies and
working capital of the Leased Property and the general terms under which Lessee
will return In-Circulation Supplies and working capital to Lessor at the
expiration or earlier termination of the Lease.
4. Modification Supersedes. Except as modified hereby, the Lease
remains in full force and effect, with no other modifications thereto. If there
arises by virtue of this Amendment any conflict between any provision of this
Amendment and any provision of the Lease, the provisions hereof shall supersede
any such conflicting provision of the Lease, but only to the extent of such
conflict, and all of the provisions of the Lease are hereby modified as
necessary so as to be consistent with the terms of this Amendment.
5. Successors and Assigns. This Amendment shall be binding upon and
shall inure to the benefit of Lessor and Lessee and their respective successors
and permitted assigns.
6. Multiple Counterparts. This Amendment may be executed in multiple
counterparts, each of which is to be deemed an original for all purposes, and in
making proof of this Amendment it shall not be necessary to produce more than
one (1) counterpart hereof. A facsimile or similar transmission of a counterpart
signed by a party hereto will be regarded as signed by such party for purposes
hereof.
7. Captions. The captions, headings and arrangements used in this
Amendment are for convenience only and do not in any way affect, limit, amplify
or otherwise modify the terms and provisions hereof.
-5-
<PAGE> 12
8. Representations of Lessee. Lessee represents and warrants to Lessor
that (i) Lessee is the sole legal and beneficial owner of the leasehold estate
under the Lease and (ii) Lessee has the full power and authority to enter into
this Amendment without the joinder or consent of any other party.
9. Representations of Lessor. Lessor represents and warrants to Lessee
that Lessor has the full power and authority to enter into this Amendment.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-6-
<PAGE> 13
IN WITNESS WHEREOF, the parties have duly executed this Amendment to be
effective as of the day and year first above written.
LESSOR:
CRESCENT REAL ESTATE FUNDING II, L.P.,
a Delaware limited partnership
By: CRE Management II Corp., a Delaware
corporation, General Partner
By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
LESSEE:
ROSESTAR SOUTHWEST, LLC, a Delaware
limited liability company
By: RSSW Corp., a Delaware corporation,
its Managing Member
By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
-7-
<PAGE> 14
CONSENT OF GUARANTOR
The undersigned, as the guarantor of the obligations of the Lessee
under the Lease, as defined in the Second Amendment to Lease Agreement (the
"AMENDMENT") to which this Consent is attached, (a) acknowledges and consents to
the terms of the foregoing Second Amendment, (b) agrees that the execution and
delivery of the Amendment and any other documents in connection therewith will
in no way change or modify the undersigned's obligations under the guaranty
executed by the undersigned in connection with the Lease, and (c) acknowledges
and confirms that such guaranty is in full force and effect and there are no
claims, counterclaims, offsets or defenses to such guaranty.
EXECUTED as of the 31st day of December, 1998.
ROSESTAR MANAGEMENT, LLC, a Texas limited
liability company
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-8-
<PAGE> 15
HYATT REGENCY ALBUQUERQUE
FOURTH AMENDMENT TO LEASE AGREEMENT
This FOURTH AMENDMENT TO LEASE AGREEMENT (the "Amendment") is made and
entered into effective as of the 31st day of December, 1998, between ROSESTAR
SOUTHWEST, LLC, a Delaware limited liability company ("Lessee") and CRESCENT
REAL ESTATE FUNDING II, L.P, a Delaware limited partnership ("Lessor").
RECITALS:
WHEREAS, Crescent Real Estate Equities Limited Partnership, a Delaware
limited partnership ("Crescent") and RoseStar Management, LLC ("RoseStar")
entered into that certain Lease Agreement dated as of December 19, 1995 (the
"Original Lease Agreement"), pursuant to which RoseStar leased from Crescent a
hotel facility and related assets located in Bernalillo County, New Mexico, and
known as the "Hyatt Regency Albuquerque" (hereinafter called the "Leased
Property"); and
WHEREAS, on March 11, 1996, the Leased Property and all of Crescent's
interest and estate as lessor under the Original Lease Agreement were conveyed
by Crescent to Lessor, who thereupon assumed all of Crescent's liabilities and
obligations under the Original Lease Agreement; and
WHEREAS, pursuant to that certain Assignment and Assumption of
Leasehold Estate dated as of March 29, 1996, all of RoseStar's interest and
estate as lessee under the Original Lease Agreement was sold and assigned to
Lessee, who thereupon assumed all of RoseStar's liabilities and obligations
under the Lease; and
WHEREAS, Lessor and Lessee amended the Original Lease Agreement by
First Amendment to Lease Agreement dated as of April 1, 1996, Second Amendment
to Lease Agreement dated as of November 22, 1996 and Third Amendment to Lease
Agreement dated as of August 12, 1998 (the Original Lease Agreement, as amended,
herein called the "Lease"); and
WHEREAS, Lessor and Lessee agreed that if Lessor made substantial
capital investments in the Leased Property, the Lease would be amended to
increase the amount of rental payable thereunder and Lessor has made substantial
capital investment in the Leased Property; and
WHEREAS, Lessor has agreed to delete certain provisions of the Lease
that impose minimum net worth requirements on the Lessee and limit the
distributions by Lessee of its earnings to its beneficial owners in
consideration of the delivery of a guaranty of Lessee's obligations under the
Lease by Crescent Operating, Inc. ("COI"); and
WHEREAS, Lessor and Lessee mutually desire to quantify the value of
working capital associated with the Leased Property and transferred from Lessor
to Lessee upon the commencement
<PAGE> 16
of the term of the Lease and to evidence their mutual understanding and
agreement of the value of working capital associated with the Leased Property to
be redelivered to Lessor by Lessee at the expiration or earlier termination of
the Lease; and
WHEREAS, Lessor and Lessee desire to amend the Lease to increase the
rental payable thereunder as hereinafter provided, to delete the provisions in
the Lease described above, to evidence their understanding regarding working
capital and to make certain other amendments thereto as hereinafter provided.
AGREEMENT:
NOW THEREFORE, for and in consideration of the sum of Ten and No/100
Dollars ($10.00) and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged by the parties hereto, the
parties hereby agree as follows:
1. Definitions. Capitalized terms used but not defined herein shall
have the meanings assigned to them in the Lease.
2. Amendments to Lease. The Lease is hereby amended as follows:
a. Section 4.1 of the Lease is modified to increase the Base
Rent, effective as of July 1, 1998, by the amount of $400,000 per year
during the Term. Accordingly, the annual Base Rent payable under the
Lease is as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1998 $3,700,000.00
1999-2001 $3,800,000.00
2002-2003 $3,900,000.00
2004-2005 $4,000,000.00
</TABLE>
b. The period is deleted at the end of the next to last
sentence of Section 4.2(l) of the Lease and the following clause is
inserted after the words "from Lessee": "; provided, in no event shall
Lessor be required to refund any portion of the Guaranteed Percentage
Rent (as hereinafter defined) previously paid by Lessee to Lessor."
c. A new subsection (n) is inserted at the end of Section 4.2
of the Lease, which shall read in its entirety as follows:
(n) Anything in this Lease to the contrary notwithstanding,
eighty-five percent (85%) of the Percentage Rent payable in any
quarter during the term of this Lease (herein called the
"Guaranteed Percentage Rent") shall not be subject to adjustment
under Section 4.2(l) or Section 4.2(m) hereof.
-2-
<PAGE> 17
d. In consideration of the execution and delivery by COI of a
guaranty of all of Lessee's obligations under the Lease, Section 7.7
and Section 7.9 of the Lease are hereby deleted in their entirety and
shall be of no further force and effect.
e. A new Section 7.10 is added to the Lease, to read in its
entirety as follows:
Section 7.10. Working Capital. At the commencement of the
term of this Lease, there existed working capital pertaining to
the Leased Property (the "Working Capital") in the initial
aggregate positive balance of $377,080.00 (the "Initial Working
Capital Balance"). Within thirty (30) days after the date of
expiration or earlier termination of this Lease, Lessor and
Lessee will work together in good faith to determine the balance
of Working Capital as of such date (the "Ending Working Capital
Balance"). If the Ending Working Capital Balance is less than the
Initial Working Capital Balance, Lessee shall pay over to Lessor
cash in the amount of such deficiency, within thirty (30) days of
such determination. If the Ending Working Capital Balance exceeds
the Initial Working Capital Balance, Lessor shall pay over to
Lessee cash in the amount of such excess within thirty (30) days
of such determination. Additionally, both the Initial Working
Capital Balance and the Ending Working Capital Balance shall be
calculated without the inclusion of any "in circulation"
operating or consumable supplies ("In-Circulation Supplies").
Both Lessee and Lessor agree that the In-Circulation Supplies
represent items in use which Lessee does not include on its
balance sheet as of the Commencement Date. Lessee and Lessor
further agree that although no accounting value has been placed
on In-Circulation Supplies, such supplies have value and Lessee
agrees to have reasonable amounts of In-Circulation Supplies on
hand in a quantity and quality customary for a property such as
the Leased Property.
3. General Provision regarding Working Capital. Notwithstanding any
other provision of the Lease which is to the contrary or which is not consistent
with Section 2.e above, including without limitation, Section 7.4 of the Lease,
Lessor and Lessee agree that Section 2.e above represents the general business
terms under which Lessee has taken over the In-Circulation Supplies and working
capital of the Leased Property and the general terms under which Lessee will
return In-Circulation Supplies and working capital to Lessor at the expiration
or earlier termination of the Lease.
4. Modification Supersedes. Except as modified hereby, the Lease
remains in full force and effect, with no other modifications thereto. If there
arises by virtue of this Amendment any conflict between any provision of this
Amendment and any provision of the Lease, the provisions hereof shall supersede
any such conflicting provision of the Lease, but only to the extent
-3-
<PAGE> 18
of such conflict, and all of the provisions of the Lease are hereby modified as
necessary so as to be consistent with the terms of this Amendment.
5. Successors and Assigns. This Amendment shall be binding upon and
shall inure to the benefit of Lessor and Lessee and their respective successors
and permitted assigns.
6. Multiple Counterparts. This Amendment may be executed in multiple
counterparts, each of which is to be deemed an original for all purposes, and in
making proof of this Amendment it shall not be necessary to produce more than
one (1) counterpart hereof. A facsimile or similar transmission of a counterpart
signed by a party hereto will be regarded as signed by such party for purposes
hereof.
7. Captions. The captions, headings and arrangements used in this
Amendment are for convenience only and do not in any way affect, limit, amplify
or otherwise modify the terms and provisions hereof.
8. Representations of Lessee. Lessee represents and warrants to Lessor
that (i) Lessee is the sole legal and beneficial owner of the leasehold estate
under the Lease and (ii) Lessee has the full power and authority to enter into
this Amendment without the joinder or consent of any other party.
9. Representations of Lessor. Lessor represents and warrants to Lessee
that Lessor has the full power and authority to enter into this Amendment.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
-4-
<PAGE> 19
IN WITNESS WHEREOF, the parties have duly executed this Amendment to be
effective as of the day and year first above written.
LESSOR:
CRESCENT REAL ESTATE FUNDING II, L.P., a
Delaware limited partnership
By: CRE Management II Corp., a Delaware
corporation, General Partner
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
LESSEE:
ROSESTAR SOUTHWEST, LLC, a Delaware
limited liability company
By: RSSW Corp., a Delaware corporation,
its Managing Member
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-5-
<PAGE> 20
CONSENT OF GUARANTOR
The undersigned, as the guarantor of the obligations of the Lessee
under the Lease, as defined in the Fourth Amendment to Lease Agreement (the
"AMENDMENT") to which this Consent is attached, (a) acknowledges and consents to
the terms of the foregoing Third Amendment, (b) agrees that the execution and
delivery of the Amendment and any other documents in connection therewith will
in no way change or modify the undersigned's obligations under the guaranty
executed by the undersigned in connection with the Lease, and (c) acknowledges
and confirms that such guaranty is in full force and effect and there are no
claims, counterclaims, offsets or defenses to such guaranty.
EXECUTED as of the 31st day of December, 1998.
ROSESTAR MANAGEMENT, LLC, a Texas limited
liability company
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
-6-
<PAGE> 1
EXHIBIT 10.61
Four Seasons - Houston
FIRST AMENDMENT TO LEASE AGREEMENT
This FIRST AMENDMENT TO LEASE AGREEMENT (the "Amendment") is made and
entered into effective as of the 31st day of December, 1998, between COI HOTEL
GROUP, INC., a Texas corporation ("Lessee") and CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP, a Delaware limited partnership ("Lessor").
RECITALS:
WHEREAS, Lessor and Lessee entered into that certain Lease Agreement
dated as of September 22, 1997 (the "Lease"), pursuant to which Lessee leased
from Lessor a hotel facility and related assets located in Harris County, Texas,
and known as the "Four Seasons - Houston" (hereinafter called the "Leased
Property"); and
WHEREAS, Lessor and Lessee agreed that if Lessor made substantial
capital investments in the Leased Property, the Lease would be amended to
increase the amount of rental payable thereunder and Lessor has made substantial
capital investment in the Leased Property; and
WHEREAS, Lessor and Lessee mutually desire to quantify the value of
working capital associated with the Leased Property and transferred from Lessor
to Lessee upon the commencement of the term of the Lease and to evidence their
mutual understanding and agreement of the value of working capital associated
with the Leased Property to be redelivered to Lessor by Lessee at the expiration
or earlier termination of the Lease; and
WHEREAS, Lessor and Lessee desire to amend the Lease to increase the
rental payable thereunder, to evidence their understanding regarding working
capital and to make certain other amendments thereto as hereinafter provided.
AGREEMENT:
NOW THEREFORE, for and in consideration of the sum of Ten and No/100
Dollars ($10.00) and other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged by the parties hereto, the
parties hereby agree as follows:
1. Definitions. Capitalized terms used but not defined herein
shall have the meanings assigned to them in the Lease.
2. Amendments to Lease. The Lease is hereby amended as follows:
a. Section 4.1 of the Lease is hereby modified to
increase the Base Rent, effective as of January 1, 1999 by the amount
of $1,000,000 per Lease Year. Accordingly, the annual Base Rent payable
under the Lease as of January 1, 1999 is as follows:
<PAGE> 2
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1999 $6,131,620.00
2000 $6,463,200.00
2001 $6,563,200.00
2002 $6,663,200.00
2003 $6,863,200.00
2004 $6,963,200.00
2005 $7,263,200.00
2006 $7,463,200.00
2007 $7,463,200.00
</TABLE>
b. The definition of Management Agreement in the Lease
is modified to mean that certain Amended and Restated Houston Center
Hotel and Residential Management Agreement dated as of September 22,
1997 between Four Seasons Hotels Limited and Crescent Real Estate
Equities Limited Partnership.
c. The period is deleted at the end of the next to last
sentence of Section 4.2(d) of the Lease and the following clause is
inserted after the words "from Lessee": "; provided, in no event shall
Lessor be required to refund any portion of the Guaranteed Percentage
Rent (as hereinafter defined) previously paid by Lessee to Lessor."
d. A new subsection (g) is inserted at the end of
Section 4.2 of the Lease, which shall read in its entirety as follows:
(g) Anything in this Lease to the contrary
notwithstanding, eighty-five percent (85%) of the Percentage
Rent payable in any quarter during the term of this Lease
(herein called the "Guaranteed Percentage Rent") shall not be
subject to adjustment under Section 4.2(d) or Section 4.2(f)
hereof.
e. A new Section 7.10 is added to the Lease, to read in
its entirety as follows:
Section 7.10. Working Capital. At the commencement of
the term of this Lease, there existed working capital
pertaining to the Leased Property (the "Working Capital") in
the initial aggregate positive balance of $372,984.00 (the
"Initial Working Capital Balance"). Within thirty (30) days
after the date of expiration or earlier termination of this
Lease, Lessor and Lessee will work together in good faith to
determine the balance of Working Capital as of such date (the
"Ending Working Capital Balance"). If the Ending Working
Capital Balance is less than the Initial Working Capital
Balance, Lessee shall pay over to Lessor cash in the amount of
such deficiency, within thirty (30) days of such
determination. If the Ending Working Capital Balance exceeds
the Initial
-2-
<PAGE> 3
Working Capital Balance, Lessor shall pay over to Lessee cash
in the amount of such excess within thirty (30) days of such
determination. Additionally, both the Initial Working Capital
Balance and the Ending Working Capital Balance shall be
calculated without the inclusion of any "in circulation"
operating or consumable supplies ("In-Circulation Supplies").
Both Lessee and Lessor agree that the In-Circulation Supplies
represent items in use which Lessee does not include on its
balance sheet as of the Commencement Date. Lessee and Lessor
further agree that although no accounting value has been
placed on In-Circulation Supplies, such supplies have value
and Lessee agrees to have reasonable amounts of In-Circulation
Supplies on hand in a quantity and quality customary for a
property such as the Leased Property.
3. General Provision regarding Working Capital. Notwithstanding
any other provision of the Lease which is to the contrary or which is not
consistent with Section 2.e above, including without limitation, Section 7.4(a)
and Section 38.1(d) of the Lease, Lessor and Lessee agree that Section 2.e above
represents the general business terms under which Lessee has taken over the
In-Circulation Supplies and working capital of the Leased Property and the
general terms under which Lessee will return In-Circulation Supplies and working
capital to Lessor at the expiration or earlier termination of the Lease.
4. Modification Supersedes. Except as modified hereby, the Lease
remains in full force and effect, with no other modifications thereto. If there
arises by virtue of this Amendment any conflict between any provision of this
Amendment and any provision of the Lease, the provisions hereof shall supersede
any such conflicting provision of the Lease, but only to the extent of such
conflict, and all of the provisions of the Lease are hereby modified as
necessary so as to be consistent with the terms of this Amendment.
5. Successors and Assigns. This Amendment shall be binding upon
and shall inure to the benefit of Lessor and Lessee and their respective
successors and permitted assigns.
6. Multiple Counterparts. This Amendment may be executed in
multiple counterparts, each of which is to be deemed an original for all
purposes, and in making proof of this Amendment it shall not be necessary to
produce more than one (1) counterpart hereof. A facsimile or similar
transmission of a counterpart signed by a party hereto will be regarded as
signed by such party for purposes hereof.
7. Captions. The captions, headings and arrangements used in this
Amendment are for convenience only and do not in any way affect, limit, amplify
or otherwise modify the terms and provisions hereof.
8. Representations of Lessee. Lessee represents and warrants to
Lessor that (i) Lessee is the sole legal and beneficial owner of the leasehold
estate under the Lease and (ii) Lessee has the
-3-
<PAGE> 4
full power and authority to enter into this Amendment without the joinder or
consent of any other party.
9. Representations of Lessor. Lessor represents and warrants to
Lessee that Lessor has the full power and authority to enter into this
Amendment.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties have duly executed this Amendment to be
effective as of the day and year first above written.
LESSOR:
CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership
By: Crescent Real Estate Equities, Ltd.,
a Delaware corporation, General Partner
By:
-------------------------------------
Name:
--------------------------------
Title:
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LESSEE:
COI HOTEL GROUP, INC., a Texas corporation
By:
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Name:
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Title:
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CONSENT OF GUARANTOR
The undersigned, as the guarantor of the obligations of the Lessee
under the Lease, as defined in the First Amendment to Lease Agreement (the
"Amendment") to which this Consent is attached, (a) acknowledges and consents to
the terms of the foregoing First Amendment, (b) agrees that the execution and
delivery of the Amendment and any other documents in connection therewith will
in no way change or modify the undersigned's obligations under the guaranty
executed by the undersigned in connection with the Lease, and (c) acknowledges
and confirms that such guaranty is in full force and effect and there are no
claims, counterclaims, offsets or defenses to such guaranty.
EXECUTED as of the 31st day of December, 1998.
CRESCENT OPERATING, INC., a Delaware
corporation
By:
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Name:
--------------------------------
Title:
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EXHIBIT 10.63
MASTER GUARANTY
This MASTER GUARANTY ("Guaranty") is executed as of December 31, 1998,
by CRESCENT OPERATING, INC., a Delaware corporation ("Guarantor"), for the
benefit of CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited
partnership ("Crescent"), CRESCENT REAL ESTATE FUNDING II, L.P., a Delaware
limited partnership ("Crescent Funding II"), and CRESCENT REAL ESTATE FUNDING
VI, L.P., a Delaware limited partnership ("Crescent Funding VI") (Crescent,
Crescent Funding II and Crescent Funding VI are sometimes herein each
individually and collectively called "Lessor").
R E C I T A L S
A. Affiliates of Guarantor, as lessees (individually, a "Lessee" and
collectively, the "Lessees"), have entered into the Lease Agreements described
in Exhibit A attached hereto (the "Leases") with Lessor with respect to the
land, buildings, improvements and fixtures described in the Leases
(collectively, the "Leased Property");
B. Lessor has agreed to modify the Leases to delete certain provisions
of the Leases that impose minimum net worth requirements on the Lessee and limit
the distributions by each Lessee of its profits to its beneficial owners,
conditioned and contingent upon Guarantor's unconditional guarantee of the
payment and performance of the Guaranteed Obligations (as defined in Section 1.2
below), subject to the limitations and terms set forth in this Guaranty; and
C. Guarantor is the owner of a direct or indirect interest in Lessee,
and Guarantor will directly benefit from the modification of the Leases as
described above.
A G R E E M E N T
NOW, THEREFORE, as an inducement to Lessor to modify the Leases as
described above, and for other good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged, the parties agree as
follows:
ARTICLE I
NATURE AND SCOPE OF GUARANTY
1.1 Guaranty of Obligation.
(a) Subject to the limitations set forth in Section 1.1(b)
hereof, Guarantor irrevocably and unconditionally guarantees to Lessor
(and its successors and assigns), the payment and performance of the
Guaranteed Obligations as and when the same shall be due and payable.
Guarantor irrevocably and unconditionally agrees that it is liable for
the
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Guaranteed Obligations as a primary obligor, and that it shall fully
perform each and every term and provision hereof.
(b) Anything in this Guaranty to the contrary notwithstanding,
the right of recovery by Lessor against Guarantor under this Guaranty
is limited to Guarantor's interests in the Lessees, Wine Country Hotel,
LLC, Wine Country Golf Club, Inc. and COI Hotel Group, Inc., and such
parties permitted successors and assigns (whether by operation of law
or otherwise). Lessor shall not look to any other property or asset of
Guarantor in seeking to enforce Guarantor's obligations under this
Guaranty or to satisfy any judgement for Guarantor's failure to perform
its obligations under this Guaranty.
1.2 Definition of Guaranteed Obligations. As used herein, the term
"Guaranteed Obligations" shall mean all of the obligations and liabilities of
the Lessees under the Leases, including without limitation, the obligation to
pay all Base Rent, Percentage Rent, and Additional Charges (as those terms are
defined in the Leases) as and when due.
1.3 Nature of Guaranty. This Guaranty is an irrevocable, absolute,
continuing guaranty of payment and performance and is not a guaranty of
collection. This Guaranty may not be revoked by Guarantor and shall continue to
be effective with respect to any Guaranteed Obligations arising or created after
any attempted revocation by Guarantor. The fact that at any time or from time to
time the Guaranteed Obligations may be increased or reduced shall not release or
discharge the obligation of Guarantor to Lessor with respect to Guaranteed
Obligations. This Guaranty may be enforced by Lessor and any subsequent owner of
Lessor's interest under the Lease.
1.4 Payment by Guarantor. If all or any part of the Guaranteed
Obligations is not paid when due, Guarantor shall immediately upon demand by
Lessor pay in lawful money of the United States of America the amount due on the
Guaranteed Obligations to Lessor at Lessor's address as set forth herein. Such
demand(s) may be made at any time coincident with or after the time for payment
of all or part of the Guaranteed Obligations, and may be made from time to time
with respect to the same or different items of Guaranteed Obligations. Such
demand shall be deemed made, given and received in accordance with the notice
provisions hereof.
1.5 No Duty to Pursue Others. It shall not be necessary for Lessor
(and Guarantor hereby waives any rights which Guarantor may have to require
Lessor), in order to enforce such payment by Guarantor, first to (i) institute
suit or exhaust its remedies against Lessee or others liable under the Lease or
the Guaranteed Obligations or any other person, (ii) enforce Lessor's rights
against any collateral which shall ever have been given to secure Lessee's
obligations under the Lease, (iii) enforce Lessor's rights against any other
guarantors of the Guaranteed Obligations, (iv) join Lessee or any others liable
on the Guaranteed Obligations in any action seeking to enforce this Guaranty, or
(v) resort to any other means of obtaining payment of the Guaranteed
Obligations. Lessor shall not be required to mitigate damages or take any other
action to reduce, collect or enforce the Guaranteed Obligations.
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1.6 Waivers. Guarantor agrees to the provisions of the Leases, and
hereby waives notice of (i) acceptance of this Guaranty, (ii) any amendment or
extension of the Leases, (iii) the occurrence of any breach by any Lessee or
Event of Default as defined in the Leases, (iv) Lessor's transfer or disposition
of its interest under the Leases, or any part thereof, or (v) any other action
at any time taken or omitted by Lessor, and, generally, all demands and notices
of every kind in connection with this Guaranty, the Leases or relating to any of
the Guaranteed Obligations.
1.7 Payment of Expenses. If Guarantor fails to timely perform any
provisions of this Guaranty, Guarantor shall, immediately upon demand by Lessor,
pay Lessor all costs and expenses (including court costs and reasonable
attorneys' fees) incurred by Lessor in the enforcement hereof or the
preservation of Lessor's rights hereunder. The covenant contained in this
section shall survive the payment and performance of the Guaranteed Obligations.
1.8 Effect of Bankruptcy. If, pursuant to any insolvency,
bankruptcy, reorganization, receivership or other debtor relief law, or any
judgment, order or decision thereunder, Lessor must rescind or restore any
payment, or any part thereof, received by Lessor in satisfaction of the
Guaranteed Obligations, as set forth herein, any prior release or discharge from
the terms of this Guaranty given to Guarantor by Lessor shall be without effect,
and this Guaranty shall remain in full force and effect. Lessees and Guarantor
intend that Guarantor's obligations hereunder shall not be discharged except by
Guarantor's performance of such obligations and then only to the extent of such
performance.
1.9 Deferment of Rights of Subrogation, Reimbursement and
Contribution.
(a) Notwithstanding any payment or payments made by Guarantor
hereunder, Guarantor will not assert or exercise any right of Lessor or
of Guarantor against any Lessee to recover the amount of any payment
made by Guarantor to Lessor by way of subrogation, reimbursement,
contribution, indemnity, or otherwise arising by contract or operation
of law, and Guarantor shall not have any right of recourse to or any
claim against assets or property of any Lessee, whether or not the
obligations of such Lessee have been satisfied, all of such rights
being herein expressly waived by Guarantor. If any amount shall
nevertheless be paid to Guarantor by any Lessee prior to payment in
full of the Obligations (hereinafter defined), such amount shall be
held in trust for the benefit of Lessor and shall forthwith be paid to
Lessor to be credited and applied to the Obligations, whether matured
or unmatured. The provisions of this paragraph shall survive the
termination of this Guaranty, and any satisfaction and discharge of any
Lessee by virtue of any payment, court order or any applicable law.
(b) Notwithstanding the provisions of Section 1.9(a),
Guarantor shall be entitled to (i) all rights of subrogation otherwise
provided by applicable law in respect of any payment it may make or be
obligated to make under this Guaranty and (ii) all claims it would have
against Guarantor in the absence of Section 1.9(a) and to assert and
enforce same, in each case on and after, but at no time prior to, the
date (the "Subrogation Trigger
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Date") which is 91 days after the date on which all sums owed to Lessor
under the Leases (the "Obligations") have been paid in full, if and
only if the existence of Guarantor's rights under this Section 1.9(b)
would not make Guarantor a creditor (as defined in the United States
Bankruptcy Code [the "Bankruptcy Code"]) of any Lessee or any other
Guarantor in any insolvency, bankruptcy, reorganization or similar
proceeding commenced on or prior to the Subrogation Trigger Date.
1.10 Bankruptcy Code Waiver. The parties intend that Guarantor
shall not be deemed to be a "creditor" (as defined in Section 101 of the
Bankruptcy Code) of any Lessee by reason of the existence of this Guaranty, in
the event that such Lessee becomes a debtor in any proceeding under the
Bankruptcy Code, and in connection herewith, Guarantor waives any such right as
a "creditor" under the Bankruptcy Code. After such Lessee's obligations under
its Lease are discharged in full and there shall be no obligations or
liabilities under this Guaranty outstanding, this waiver as to such Lessee shall
be deemed to be terminated.
1.11 "Lessee." The term "Lessee" as used herein shall include any
new or successor corporation, association, partnership (general or limited),
joint venture, trust or other individual or organization formed as a result of
any merger, reorganization, sale, transfer, devise, gift or bequest of any
Lessee or any interest in any Lessee.
ARTICLE II
EVENTS AND CIRCUMSTANCES NOT REDUCING
OR DISCHARGING GUARANTOR'S OBLIGATIONS
2.1 Guarantor's obligations under this Guaranty shall not be
released, diminished, impaired, reduced or adversely affected by any of the
following, and Guarantor waives any common law, equitable, statutory or other
rights (including without limitation rights to notice) which Guarantor might
otherwise have as a result any of the following:
(a) Modifications. Any renewal, extension, or modification of
all or any part of the Guaranteed Obligations or the Leases; provided
Guarantor is notified of same.
(b) Adjustment. Any adjustment, indulgence, forbearance or
compromise that might be granted or given by Lessor to any Lessee or
any Guarantor.
(c) Condition of Lessee or Guarantor. The insolvency,
bankruptcy, arrangement, adjustment, composition, liquidation,
disability, dissolution or lack of power of any Lessee, Guarantor or
any other party at any time liable for the payment of all or part of
the Guaranteed Obligations; or any dissolution of any Lessee or
Guarantor, or any sale, lease or transfer of any or all of the assets
of any Lessee or Guarantor, or any changes in the shareholders,
partners or members of any Lessee or Guarantor; or any reorganization
of any Lessee or Guarantor.
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(d) Invalidity of Guaranteed Obligations. The invalidity,
illegality or unenforceability of all or any part of the Guaranteed
Obligations, or any document or agreement executed in connection with
the Guaranteed Obligations, for any reason whatsoever, including
without limitation the fact that (i) the Guaranteed Obligations, or any
part thereof, exceeds the amount permitted by law, (ii) the act of
creating the Guaranteed Obligations or any part thereof is ultra vires,
(iii) the officers or representatives executing any of the Leases or
otherwise creating the Guaranteed Obligations acted in excess of their
authority, (iv) the Guaranteed Obligations violate applicable usury
laws, (v) any Lessee has valid defenses, claims or offsets (whether at
law, in equity or by agreement) which render the Guaranteed Obligations
wholly or partially uncollectible from such Lessee, (vi) the creation,
performance or repayment of the Guaranteed Obligations (or the
execution, delivery and performance of any document or instrument
representing part of the Guaranteed Obligations or executed in
connection with the Guaranteed Obligations, or given to secure the
repayment of the Guaranteed Obligations) is illegal, uncollectible or
unenforceable, or (vii) any Lease has been forged or otherwise is
irregular or not genuine or authentic, it being agreed that Guarantor
shall remain liable hereon regardless of whether any Lessee or any
other person be found not liable on the Guaranteed Obligations or any
part thereof for any reason.
(e) Release of Obligors. Any full or partial release of the
liability of any Lessee on the Guaranteed Obligations, or any part
thereof, or of any co-guarantors, or any other person or entity now or
hereafter liable, whether directly or indirectly, jointly, severally,
or jointly and severally, to pay, perform, guarantee or assure the
payment of the Guaranteed Obligations, or any part thereof, it being
recognized, acknowledged and agreed by Guarantor that Guarantor may be
required to pay the Guaranteed Obligations in full without assistance
or support of any other party, and Guarantor has not been induced to
enter into this Guaranty on the basis of a contemplation, belief,
understanding or agreement that other parties will be liable to pay or
perform the Guaranteed Obligations, or that Lessor will look to other
parties to pay or perform the Guaranteed Obligations.
(f) Offset. The Leases, the Guaranteed Obligations and the
liabilities and obligations of Guarantor to Lessor hereunder, shall not
be reduced, discharged or released because of or by reason of any
existing or future right of offset, claim or defense of any Lessee
against Lessor, or any other party, or against payment of the
Guaranteed Obligations, whether such right of offset, claim or defense
arises in connection with the Guaranteed Obligations (or the
transactions creating the Guaranteed Obligations) or otherwise.
(g) Merger. The reorganization, merger or consolidation of any
Lessee into or with any other corporation or entity.
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(h) Preference. Any payment by any Lessee to Lessor is held to
constitute a preference under bankruptcy laws, or for any reason Lessor
is required to refund such payment or pay such amount to such Lessee or
someone else.
(i) Other Actions Taken or Omitted. Any other action taken or
omitted to be taken with respect to any of the Leases, the Guaranteed
Obligations, whether or not such action or omission prejudices
Guarantor or increases the likelihood that Guarantor will be required
to pay the Guaranteed Obligations pursuant to the terms hereof, it is
the unambiguous and unequivocal intention of Guarantor that Guarantor
shall be obligated to pay the Guaranteed Obligations when due,
notwithstanding any occurrence, circumstance, event, action, or
omission whatsoever, whether or not contemplated, and whether or not
otherwise or particularly described herein, which obligation shall be
deemed satisfied only upon the full and final payment and satisfaction
of the Guaranteed Obligations.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations. To induce Lessor to modify the Leases as
described above, Guarantor represents and warrants to Lessor as follows:
(a) Benefit. Guarantor is an affiliate of the Lessees, is the
owner of a direct or indirect interest in each of the Lessees, and has
received, or will receive, direct or indirect benefit from the making
of this Guaranty with respect to the Guaranteed Obligations.
(b) Familiarity and Reliance. Guarantor is familiar with, and
has independently reviewed books and records regarding, the financial
condition of the Lessees; however, Guarantor is not relying on such
financial condition or the collateral as an inducement to enter into
this Guaranty.
(c) No Representation by Lessor. Neither Lessor nor any other
party has made any representation, warranty or statement to Guarantor
in order to induce Guarantor to execute this Guaranty.
(d) Guarantor's Financial Condition. As of the date hereof,
and after giving effect to this Guaranty and the contingent obligation
evidenced hereby, Guarantor is, and will be, solvent, and has and will
have assets which, fairly valued, exceed its obligations, liabilities
(including contingent liabilities) and debts, and has and will have
property and assets sufficient to satisfy and repay its obligations and
liabilities.
(e) Legality. The execution, delivery and performance by
Guarantor of this Guaranty and the consummation of the transactions
contemplated hereunder do not, and will not, contravene or conflict
with any law, statute or regulation whatsoever to which Guarantor is
subject or constitute a default (or an event which with notice or lapse
of time
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or both would constitute a default) under, or result in the breach of,
any indenture, mortgage, deed of trust, charge, lien, or any contract,
agreement or other instrument to which Guarantor is a party or which
may be applicable to Guarantor. This Guaranty is a legal and binding
obligation of Guarantor and is enforceable in accordance with its
terms, except as limited by bankruptcy, insolvency or other laws of
general application relating to the enforcement of creditors' rights.
(f) Review of Documents. Guarantor has examined the Leases and
the above-described amendments to the Leases.
3.2 Survival. All representations and warranties made by Guarantor
herein shall survive the execution hereof.
ARTICLE IV
SUBORDINATION OF CERTAIN INDEBTEDNESS
4.1 Subordination of All Guarantor Claims. As used herein, the
term "Guarantor Claims" shall mean all debts and liabilities of any Lessee to
Guarantor, whether such debts and liabilities now exist or are hereafter
incurred or arise, or whether the obligations of any Lessee thereon be direct,
contingent, primary, secondary, several, joint and several, or otherwise, and
irrespective of whether such debts or liabilities be evidenced by note,
contract, open account, or otherwise, and irrespective of the person or persons
in whose favor such debts or liabilities may, at their inception, have been, or
may hereafter be created, or the manner in which they have been or may hereafter
be acquired by Guarantor. The Guarantor Claims shall include without limitation
all rights and claims of Guarantor against any Lessee (arising as a result of
subrogation or otherwise) as a result of Guarantor's payment of all or a portion
of the Guaranteed Obligations to the extent the provisions of Section 2.1(f)
hereof are unenforceable. Upon the occurrence of an Event of Default or the
occurrence of an event which would, with the giving of notice or the passage of
time, or both, constitute an Event of Default, Guarantor shall not receive or
collect, directly or indirectly, from Lessee or any other party any amount upon
the Guarantor Claims.
4.2 Claims in Bankruptcy. In the event of receivership,
bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency
proceedings involving Guarantor as debtor, Lessor shall have the right to prove
its claim in any such proceeding so as to establish its rights hereunder and
receive directly from the receiver, trustee or other court custodian dividends
and payments which would otherwise be payable upon Guarantor Claims. Guarantor
assigns such dividends and payments to Lessor. Should Lessor receive, for
application upon the Guaranteed Obligations, any such dividend or payment which
is otherwise payable to Guarantor, and which, as between any Lessee and
Guarantor, shall constitute a credit upon the Guarantor Claims, then upon
payment to Lessor in full of the Guaranteed Obligations, Guarantor shall become
subrogated to the rights of Lessor to the extent that such payments to Lessor on
the Guarantor Claims have contributed toward the liquidation of the Guaranteed
Obligations, and such subrogation shall be
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with respect to that proportion of the Guaranteed Obligations which would have
been unpaid if Lessor had not received dividends or payments upon the Guarantor
Claims.
4.3 Payments Held in Trust. Notwithstanding anything to the
contrary in this Guaranty, if Guarantor should receive any funds, payments,
claims or distributions which are prohibited by this Guaranty, Guarantor agrees
to hold in trust for Lessor an amount equal to the amount of all funds,
payments, claims or distributions so received, and agrees that it shall have
absolutely no dominion over the amount of such funds, payments, claims or
distributions so received except to pay them promptly to Lessor, and Guarantor
covenants promptly to pay the same to Lessor.
4.4 Liens Subordinate. Any liens, security interests, judgment
liens, charges or other encumbrances upon any of the Lessee's assets securing
payment of the Guarantor Claims shall be and remain inferior and subordinate to
any liens, security interests, judgment liens, charges or other encumbrances
upon such Lessee's assets securing payment of the Guaranteed Obligations,
regardless of whether such encumbrances in favor of Guarantor or Lessor
presently exist or are hereafter created or attach. Without the prior written
consent of Lessor, Guarantor shall not (a) exercise or enforce any creditor's
right it may have against any Lessee, or (b) foreclose, repossess, sequester or
otherwise take steps or institute any action or proceedings (judicial or
otherwise, including without limitation the commencement of, or joinder in, any
liquidation, bankruptcy, rearrangement, debtor's relief or insolvency
proceeding) to enforce any liens, mortgages, deeds of trust, security interest,
collateral rights, judgments or other encumbrances on assets of any Lessee held
by Guarantor.
ARTICLE V
MISCELLANEOUS
5.1 Waiver. No failure to exercise, and no delay in exercising, on
the part of Lessor, any right 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. The rights of Lessor
hereunder shall be in addition to all other rights provided by law. No
modification or waiver of any provision of this Guaranty, nor consent to
departure therefrom, shall be effective unless in writing and no such consent or
waiver shall extend beyond the particular case and purpose involved. No notice
or demand given in any case shall constitute a waiver of the right to take other
action in the same, similar or other instances without such notice or demand.
5.2 Notices. Any notice, demand, statement, request or consent
made hereunder shall be in writing and shall be deemed to be received by the
addressee on the day such notice is tendered to a nationally recognized
overnight delivery service or on the third day following the day such notice is
deposited with the United States Postal Service first class certified mail,
return receipt requested, in either instance, addressed to the address, as set
forth below, of the party to
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whom such notice is to be given, or to such other address as either party shall
in like manner designate in writing. The addresses of the parties are as
follows:
Guarantor: Crescent Operating, Inc.
306 West 7th Street, Suite 1025
Fort Worth, Texas 76102
Attention: Jeffrey L. Stevens
Lessor: c/o Crescent Real Estate Equities Limited Partnership
777 Main Street, Suite 2100
Fort Worth, Texas 76102
Attention: Gerald W. Haddock
President and Chief Executive Officer
5.3 Governing Law; Jurisdiction. This Guaranty shall be governed
by and construed in accordance with the laws of the State of Texas and the
applicable laws of the United States of America. Guarantor hereby irrevocably
submits to the jurisdiction of any court of competent jurisdiction located in
the State of Texas in connection with any proceeding out of or relating to this
Guaranty.
5.4 Invalid Provisions. If any provision of this Guaranty is held
to be illegal, invalid, or unenforceable under present or future laws effective
during the term of this Guaranty, such provision shall be fully severable and
this Guaranty shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Guaranty, and the
remaining provisions of this Guaranty shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Guaranty, unless such continued effectiveness of this
Guaranty, as modified, would be contrary to the basic understandings and
intentions of the parties as expressed herein.
5.5 Amendments. This Guaranty may be amended only by an instrument
in writing executed by the party or an authorized representative of the party
against whom such amendment is sought to be enforced.
5.6 Parties Bound; Assignment. This Guaranty shall be binding upon
and inure to the benefit of the parties hereto and their respective successors,
assigns and legal representatives; provided, however, that Guarantor may not,
without the prior written consent of Lessor, assign any of its rights, powers,
duties or obligations hereunder.
5.7 Headings. Section headings are for convenience of reference
only and shall in no way affect the interpretation of this Guaranty.
5.8 Recitals. The recital and introductory paragraphs hereof are a
part hereof, form a basis for this Guaranty and shall be considered prima facie
evidence of the facts and documents referred to therein.
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5.9 Counterparts. This Guaranty may be executed in as many
counterparts as may be convenient or required. It shall not be necessary that
the signature or acknowledgment of, or on behalf of, each party, or that the
signature of all persons required to bind any party, or the acknowledgment of
such party, appear on each counterpart. All counterparts shall collectively
constitute a single instrument. It shall not be necessary in making proof of
this Guaranty to produce or account for more than a single counterpart
containing the respective signatures of, or on behalf of, and the respective
acknowledgments of, each of the parties hereto. Any signature or acknowledgment
page to any counterpart may be detached from such counterpart without impairing
the legal effect of the signatures or acknowledgments thereon and thereafter
attached to another counterpart identical thereto except having attached to it
additional signature or acknowledgment pages.
5.10 Rights and Remedies. The rights of Lessor hereunder shall be
cumulative of any and all other rights that Lessor may ever have against
Guarantor. The exercise by Lessor of any right or remedy hereunder or under any
other instrument, or at law or in equity, shall not preclude the concurrent or
subsequent exercise of any other right or remedy.
5.11 Entirety. THIS GUARANTY EMBODIES THE FINAL, ENTIRE AGREEMENT
OF GUARANTOR AND LESSOR WITH RESPECT TO GUARANTOR'S GUARANTY OF THE GUARANTEED
OBLIGATIONS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT MATTER HEREOF. THIS GUARANTY IS INTENDED BY GUARANTOR AND LESSOR AS A
FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THE GUARANTY, AND NO COURSE OF
DEALING BETWEEN GUARANTOR AND LESSOR, NO COURSE OF PERFORMANCE, NO TRADE
PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE
USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY
AGREEMENT. THERE ARE NO ORAL AGREEMENTS BETWEEN GUARANTOR AND LESSOR.
5.12 Special State Provisions (Texas). This Guaranty shall be
effective as a waiver of, and Guarantor expressly waives, any and all rights to
which Guarantor may otherwise have been entitled under any suretyship laws in
effect from time to time, including (without limitation) any rights pursuant to
Rule 31 of the Texas Rules of Civil Procedure, Section 17.001 of the Texas Civil
Practice and Remedies Code, and Chapter 34 of the Texas Business and Commerce
Code.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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EXECUTED as of the day and year first above written.
GUARANTOR:
CRESCENT OPERATING, INC., a Delaware
Corporation
By:
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Name:
----------------------------------
Title:
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EXHIBIT A
TO MASTER GUARANTY
1. Lease Agreement covering a hotel facility and related assets located in
Bernalillo County, New Mexico, and known as "Hyatt Regency Albuquerque"
dated as of December 19, 1995, the lessee's interest under which is
currently held by ROSESTAR SOUTHWEST, LLC, a Delaware limited liability
company, and the lessor's interest under which is currently held by
CRESCENT REAL ESTATE FUNDING II, L.P, a Delaware limited partnership, as
such Lease Agreement is or has been amended and assigned from time to
time.
2. Amended and Restated Lease Agreement covering a hotel facility and related
assets located in Eagle County, Colorado, and known as the "Hyatt Regency
Beaver Creek", dated as of January 1, 1996, the lessee's interest under
which is currently held by ROSESTAR SOUTHWEST, LLC, a Delaware limited
liability company, and the lessor's interest under which is currently held
by CRESCENT REAL ESTATE FUNDING II, L.P, a Delaware limited partnership,
as such Amended and Restated Lease Agreement is or has been amended and
assigned from time to time.
3. Lease Agreement covering a resort facility and related assets located in
Berkshire County, Massachusetts, and known as the "Canyon Ranch-Lenox",
dated as of December 11, 1996, the lessee's interest under which is
currently held by WINE COUNTRY HOTEL, LLC, a Delaware limited liability
company, d/b/a VINTAGE RESORTS, LLC, and the lessor's interest under which
is currently held by CRESCENT REAL ESTATE FUNDING VI, L.P, a Delaware
limited partnership, as such Lease Agreement is or has been amended and
assigned from time to time.
4. Lease Agreement covering a hotel facility/resort and related assets
located in Sonoma County, California, and known as the "Sonoma Mission Inn
and Spa", dated as of November 18, 1996, between WINE COUNTRY HOTEL, LLC,
a Delaware limited liability company, as lessee, and CRESCENT REAL ESTATE
EQUITIES LIMITED PARTNERSHIP, a Delaware limited partnership, as lessor,
as such Lease Agreement is amended and assigned from time to time.
5. Lease Agreement covering a resort facility and related assets located in
Pima County, Arizona, and known as the "Canyon Ranch-Tucson", dated as of
July 26, 1996, the lessee's interest under which is currently held by
CANYON RANCH LEASING, L.L.C., an Arizona limited liability company, and
the lessor's interest under which is currently held by CRESCENT REAL
ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited partnership, as
such Lease Agreement is or has been amended and assigned from time to
time.
Exhibit A - Page 1
<PAGE> 13
6. Amended and Restated Lease Agreement covering a hotel facility and related
assets located in Denver County, Colorado, and known as the "Denver
Marriott City Center", dated as of June 30, 1995, between ROSESTAR
MANAGEMENT, LLC, a Delaware limited liability company, as lessee, and
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited
partnership, as lessor, as such Amended and Restated Lease Agreement is
amended and assigned from time to time.
Exhibit A - Page 2
<PAGE> 1
EXHIBIT 10.64
Ventana Inn
Big Sur, California
GUARANTY OF LEASE
This GUARANTY OF LEASE ("Guaranty") is executed as of December 19,
1997, by CRESCENT OPERATING, INC., a Delaware corporation ("Guarantor"), for the
benefit of CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited
partnership ("Lessor").
R E C I T A L S
A. WINE COUNTRY HOTEL, LLC, a Delaware limited liability company
("Lessee"), as lessee, as of the date hereof has entered a Lease Agreement (the
"Lease") with Lessor with respect to the land, buildings, improvements and
fixtures located in Big Sur, Monterey County, California, commonly known as the
Ventana Inn or the Ventana Country Inn (the "Leased Property");
B. Lessor is unwilling to enter into the Lease unless Guarantor
unconditionally guarantees payment and performance of the Guaranteed Obligations
(as defined in Section 1.2 below), subject to the limitations and terms set
forth in this Guaranty; and
C. Guarantor is the owner of a direct or indirect interest in Lessee,
and Guarantor will directly benefit from Lessor's entering into the Lease with
Lessee.
A G R E E M E N T
NOW, THEREFORE, as an inducement to Lessor to enter into the Lease with
Lessee, and for other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
NATURE AND SCOPE OF GUARANTY
ARTICLE I
1.1 Guaranty of Obligation.
(a) Subject to the limitations set forth in Section 1.1(b)
hereof, Guarantor irrevocably and unconditionally guarantees to Lessor
(and its successors and assigns), the payment and performance of the
Guaranteed Obligations as and when the same shall be due and payable.
Guarantor irrevocably and unconditionally agrees that it is liable for
the Guaranteed Obligations as a primary obligor, and that it shall
fully perform each and every term and provision hereof.
<PAGE> 2
(b) Anything in this Guaranty to the contrary notwithstanding,
the right of recovery by Lessor against Guarantor under this Guaranty
is limited to Guarantor's interests in Lessee and the lessees under the
leases listed on Exhibit A attached hereto and made a part hereof, and
such parties permitted successors and assigns (whether by operation of
law or otherwise). Lessor shall not look to any other property or asset
of Guarantor in seeking to enforce Guarantor's obligations under this
Guaranty or to satisfy any judgement for Guarantor's failure to perform
its obligations under this Guaranty.
1.2 Definition of Guaranteed Obligations. As used herein, the term
"Guaranteed Obligations" shall mean all of the obligations and liabilities of
Lessee under the Lease, including without limitation, the obligation to pay all
Base Rent, Percentage Rent, and Additional Charges (as those terms are defined
in the Lease) as and when due.
1.3 Nature of Guaranty. This Guaranty is an irrevocable, absolute,
continuing guaranty of payment and performance and is not a guaranty of
collection. This Guaranty may not be revoked by Guarantor and shall continue to
be effective with respect to any Guaranteed Obligations arising or created after
any attempted revocation by Guarantor. The fact that at any time or from time to
time the Guaranteed Obligations may be increased or reduced shall not release or
discharge the obligation of Guarantor to Lessor with respect to Guaranteed
Obligations. This Guaranty may be enforced by Lessor and any subsequent owner of
Lessor's interest under the Lease.
1.4 Payment by Guarantor. If all or any part of the Guaranteed
Obligations is not paid when due, Guarantor shall immediately upon demand by
Lessor pay in lawful money of the United States of America the amount due on the
Guaranteed Obligations to Lessor at Lessor's address as set forth herein. Such
demand(s) may be made at any time coincident with or after the time for payment
of all or part of the Guaranteed Obligations, and may be made from time to time
with respect to the same or different items of Guaranteed Obligations. Such
demand shall be deemed made, given and received in accordance with the notice
provisions hereof.
1.5 No Duty to Pursue Others. It shall not be necessary for Lessor (and
Guarantor hereby waives any rights which Guarantor may have to require Lessor),
in order to enforce such payment by Guarantor, first to (i) institute suit or
exhaust its remedies against Lessee or others liable under the Lease or the
Guaranteed Obligations or any other person, (ii) enforce Lessor's rights against
any collateral which shall ever have been given to secure Lessee's obligations
under the Lease, (iii) enforce Lessor's rights against any other guarantors of
the Guaranteed Obligations, (iv) join Lessee or any others liable on the
Guaranteed Obligations in any action seeking to enforce this Guaranty, or (v)
resort to any other means of obtaining payment of the Guaranteed Obligations.
Lessor shall not be required to mitigate damages or take any other action to
reduce, collect or enforce the Guaranteed Obligations.
1.6 Waivers. Guarantor agrees to the provisions of the Lease, and
hereby waives notice of (i) acceptance of this Guaranty, (ii) any amendment or
extension of the Lease, (iii) the occurrence
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<PAGE> 3
of any breach by Lessee or Event of Default as defined in the Lease, (iv)
Lessor's transfer or disposition of its interest under the Lease, or any part
thereof, or (v) any other action at any time taken or omitted by Lessor, and,
generally, all demands and notices of every kind in connection with this
Guaranty, the Lease, or relating to any of the Guaranteed Obligations.
1.7 Payment of Expenses. If Guarantor fails to timely perform any
provisions of this Guaranty, Guarantor shall, immediately upon demand by Lessor,
pay Lessor all costs and expenses (including court costs and reasonable
attorneys' fees) incurred by Lessor in the enforcement hereof or the
preservation of Lessor's rights hereunder. The covenant contained in this
section shall survive the payment and performance of the Guaranteed Obligations.
1.8 Effect of Bankruptcy. If, pursuant to any insolvency, bankruptcy,
reorganization, receivership or other debtor relief law, or any judgment, order
or decision thereunder, Lessor must rescind or restore any payment, or any part
thereof, received by Lessor in satisfaction of the Guaranteed Obligations, as
set forth herein, any prior release or discharge from the terms of this Guaranty
given to Guarantor by Lessor shall be without effect, and this Guaranty shall
remain in full force and effect. Lessee and Guarantor intend that Guarantor's
obligations hereunder shall not be discharged except by Guarantor's performance
of such obligations and then only to the extent of such performance.
1.9 Deferment of Rights of Subrogation, Reimbursement and
Contribution.
(a) Notwithstanding any payment or payments made by Guarantor
hereunder, Guarantor will not assert or exercise any right of Lessor or
of Guarantor against Lessee to recover the amount of any payment made
by Guarantor to Lessor by way of subrogation, reimbursement,
contribution, indemnity, or otherwise arising by contract or operation
of law, and Guarantor shall not have any right of recourse to or any
claim against assets or property of Lessee, whether or not the
obligations of Lessee have been satisfied, all of rights being herein
expressly waived by Guarantor. If any amount shall nevertheless be paid
to Guarantor by Lessee prior to payment in full of the Obligations
(hereinafter defined), such amount shall be held in trust for the
benefit of Lessor and shall forthwith be paid to Lessor to be credited
and applied to the Obligations, whether matured or unmatured. The
provisions of this paragraph shall survive the termination of this
Guaranty, and any satisfaction and discharge of Lessee by virtue of any
payment, court order or any applicable law.
(b) Notwithstanding the provisions of Section 1.9(a),
Guarantor shall be entitled to (i) all rights of subrogation otherwise
provided by applicable law in respect of any payment it may make or be
obligated to make under this Guaranty and (ii) all claims it would have
against Guarantor in the absence of Section 1.9(a) and to assert and
enforce same, in each case on and after, but at no time prior to, the
date (the "Subrogation Trigger Date") which is 91 days after the date
on which all sums owed to Lessor under the Lease
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<PAGE> 4
(the "Obligations") have been paid in full, if and only if the
existence of Guarantor's rights under this Section 1.10(b) would not
make Guarantor a creditor (as defined in the United States Bankruptcy
Code [the "Bankruptcy Code"]) of Lessee or any other Guarantor in any
insolvency, bankruptcy, reorganization or similar proceeding commenced
on or prior to the Subrogation Trigger Date.
1.10 Bankruptcy Code Waiver. The parties intend that Guarantor shall
not be deemed to be a "creditor" (as defined in Section 101 of the Bankruptcy
Code) of Lessee by reason of the existence of this Guaranty, in the event that
Lessee becomes a debtor in any proceeding under the Bankruptcy Code, and in
connection herewith, Guarantor waives any such right as a "creditor" under the
Bankruptcy Code. After Lessee's obligations under the Lease are discharged in
full and there shall be no obligations or liabilities under this Guaranty
outstanding, this waiver shall be deemed to be terminated.
1.11 Lessee. The term "Lessee" as used herein shall include any new or
successor corporation, association, partnership (general or limited), joint
venture, trust or other individual or organization formed as a result of any
merger, reorganization, sale, transfer, devise, gift or bequest of Lessee or any
interest in Lessee.
ARTICLE II
EVENTS AND CIRCUMSTANCES NOT REDUCING
OR DISCHARGING GUARANTOR'S OBLIGATIONS
Guarantor's obligations under this Guaranty shall not be released,
diminished, impaired, reduced or adversely affected by any of the following, and
Guarantor waives any common law, equitable, statutory or other rights (including
without limitation rights to notice) which Guarantor might otherwise have as a
result any of the following:
(a) Modifications. Any renewal, extension, or modification of
all or any part of the Guaranteed Obligations or the Lease; provided
Guarantor is notified of same.
(b) Adjustment. Any adjustment, indulgence, forbearance or
compromise that might be granted or given by Lessor to Lessee or any
Guarantor.
(c) Condition of Lessee or Guarantor. The insolvency,
bankruptcy, arrangement, adjustment, composition, liquidation,
disability, dissolution or lack of power of Lessee, Guarantor or any
other party at any time liable for the payment of all or part of the
Guaranteed Obligations; or any dissolution of Lessee or Guarantor, or
any sale, lease or transfer of any or all of the assets of Lessee or
Guarantor, or any changes in the shareholders, partners or members of
Lessee or Guarantor; or any reorganization of Lessee or Guarantor.
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<PAGE> 5
(d) Invalidity of Guaranteed Obligations. The invalidity,
illegality or unenforceability of all or any part of the Guaranteed
Obligations, or any document or agreement executed in connection with
the Guaranteed Obligations, for any reason whatsoever, including
without limitation the fact that (i) the Guaranteed Obligations, or any
part thereof, exceeds the amount permitted by law, (ii) the act of
creating the Guaranteed Obligations or any part thereof is ultra vires,
(iii) the officers or representatives executing the Lease or otherwise
creating the Guaranteed Obligations acted in excess of their authority,
(iv) the Guaranteed Obligations violate applicable usury laws, (v)
Lessee has valid defenses, claims or offsets (whether at law, in equity
or by agreement) which render the Guaranteed Obligations wholly or
partially uncollectible from Lessee, (vi) the creation, performance or
repayment of the Guaranteed Obligations (or the execution, delivery and
performance of any document or instrument representing part of the
Guaranteed Obligations or executed in connection with the Guaranteed
Obligations, or given to secure the repayment of the Guaranteed
Obligations) is illegal, uncollectible or unenforceable, or (vii) the
Lease has been forged or otherwise are irregular or not genuine or
authentic, it being agreed that Guarantor shall remain liable hereon
regardless of whether Lessee or any other person be found not liable on
the Guaranteed Obligations or any part thereof for any reason.
(e) Release of Obligors. Any full or partial release of the
liability of Lessee on the Guaranteed Obligations, or any part thereof,
or of any co-guarantors, or any other person or entity now or hereafter
liable, whether directly or indirectly, jointly, severally, or jointly
and severally, to pay, perform, guarantee or assure the payment of the
Guaranteed Obligations, or any part thereof, it being recognized,
acknowledged and agreed by Guarantor that Guarantor may be required to
pay the Guaranteed Obligations in full without assistance or support of
any other party, and Guarantor has not been induced to enter into this
Guaranty on the basis of a contemplation, belief, understanding or
agreement that other parties will be liable to pay or perform the
Guaranteed Obligations, or that Lessor will look to other parties to
pay or perform the Guaranteed Obligations.
(f) Offset. The Lease, the Guaranteed Obligations and the
liabilities and obligations of Guarantor to Lessor hereunder, shall not
be reduced, discharged or released because of or by reason of any
existing or future right of offset, claim or defense of Lessee against
Lessor, or any other party, or against payment of the Guaranteed
Obligations, whether such right of offset, claim or defense arises in
connection with the Guaranteed Obligations (or the transactions
creating the Guaranteed Obligations) or otherwise.
(g) Merger. The reorganization, merger or consolidation of
Lessee into or with any other corporation or entity.
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<PAGE> 6
(h) Preference. Any payment by Lessee to Lessor is held to
constitute a preference under bankruptcy laws, or for any reason Lessor
is required to refund such payment or pay such amount to Lessee or
someone else.
(i) Other Actions Taken or Omitted. Any other action taken or
omitted to be taken with respect to the Lease, the Guaranteed
Obligations, whether or not such action or omission prejudices
Guarantor or increases the likelihood that Guarantor will be required
to pay the Guaranteed Obligations pursuant to the terms hereof, it is
the unambiguous and unequivocal intention of Guarantor that Guarantor
shall be obligated to pay the Guaranteed Obligations when due,
notwithstanding any occurrence, circumstance, event, action, or
omission whatsoever, whether or not contemplated, and whether or not
otherwise or particularly described herein, which obligation shall be
deemed satisfied only upon the full and final payment and satisfaction
of the Guaranteed Obligations.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations. To induce Lessor to enter into the Lease with
Lessee, Guarantor represents and warrants to Lessor as follows:
(a) Benefit. Guarantor is an affiliate of Lessee, is the owner
of a direct or indirect interest in Lessee, and has received, or will
receive, direct or indirect benefit from the making of this Guaranty
with respect to the Guaranteed Obligations.
(b) Familiarity and Reliance. Guarantor is familiar with, and
has independently reviewed books and records regarding, the financial
condition of Lessee; however, Guarantor is not relying on such
financial condition or the collateral as an inducement to enter into
this Guaranty.
(c) No Representation by Lessor. Neither Lessor nor any other
party has made any representation, warranty or statement to Guarantor
in order to induce Guarantor to execute this Guaranty.
(d) Guarantor's Financial Condition. As of the date hereof,
and after giving effect to this Guaranty and the contingent obligation
evidenced hereby, Guarantor is, and will be, solvent, and has and will
have assets which, fairly valued, exceed its obligations, liabilities
(including contingent liabilities) and debts, and has and will have
property and assets sufficient to satisfy and repay its obligations and
liabilities.
(e) Legality. The execution, delivery and performance by
Guarantor of this Guaranty and the consummation of the transactions
contemplated hereunder do not, and will
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<PAGE> 7
not, contravene or conflict with any law, statute or regulation
whatsoever to which Guarantor is subject or constitute a default (or an
event which with notice or lapse of time or both would constitute a
default) under, or result in the breach of, any indenture, mortgage,
deed of trust, charge, lien, or any contract, agreement or other
instrument to which Guarantor is a party or which may be applicable to
Guarantor. This Guaranty is a legal and binding obligation of Guarantor
and is enforceable in accordance with its terms, except as limited by
bankruptcy, insolvency or other laws of general application relating to
the enforcement of creditors' rights.
(f) Review of Documents. Guarantor has examined the Lease.
3.2 Survival. All representations and warranties made by Guarantor
herein shall survive the execution hereof.
ARTICLE IV
SUBORDINATION OF CERTAIN INDEBTEDNESS
4.1 Subordination of All Guarantor Claims. As used herein, the term
"Guarantor Claims" shall mean all debts and liabilities of Lessee to Guarantor,
whether such debts and liabilities now exist or are hereafter incurred or arise,
or whether the obligations of Lessee thereon be direct, contingent, primary,
secondary, several, joint and several, or otherwise, and irrespective of whether
such debts or liabilities be evidenced by note, contract, open account, or
otherwise, and irrespective of the person or persons in whose favor such debts
or liabilities may, at their inception, have been, or may hereafter be created,
or the manner in which they have been or may hereafter be acquired by Guarantor.
The Guarantor Claims shall include without limitation all rights and claims of
Guarantor against Lessee (arising as a result of subrogation or otherwise) as a
result of Guarantor's payment of all or a portion of the Guaranteed Obligations
to the extent the provisions of Article II(f) hereof are unenforceable. Upon the
occurrence of an Event of Default or the occurrence of an event which would,
with the giving of notice or the passage of time, or both, constitute an Event
of Default, Guarantor shall not receive or collect, directly or indirectly, from
Lessee or any other party any amount upon the Guarantor Claims.
4.2 Claims in Bankruptcy. In the event of receivership, bankruptcy,
reorganization, arrangement, debtor's relief, or other insolvency proceedings
involving Guarantor as debtor, Lessor shall have the right to prove its claim in
any such proceeding so as to establish its rights hereunder and receive directly
from the receiver, trustee or other court custodian dividends and payments which
would otherwise be payable upon Guarantor Claims. Guarantor assigns such
dividends and payments to Lessor. Should Lessor receive, for application upon
the Guaranteed Obligations, any such dividend or payment which is otherwise
payable to Guarantor, and which, as between Lessee and Guarantor, shall
constitute a credit upon the Guarantor Claims, then upon payment to Lessor in
full of the Guaranteed Obligations, Guarantor shall become subrogated to the
rights of Lessor to the
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extent that such payments to Lessor on the Guarantor Claims have contributed
toward the liquidation of the Guaranteed Obligations, and such subrogation shall
be with respect to that proportion of the Guaranteed Obligations which would
have been unpaid if Lessor had not received dividends or payments upon the
Guarantor Claims.
4.3 Payments Held in Trust. Notwithstanding anything to the contrary in
this Guaranty, if Guarantor should receive any funds, payments, claims or
distributions which are prohibited by this Guaranty, Guarantor agrees to hold in
trust for Lessor an amount equal to the amount of all funds, payments, claims or
distributions so received, and agrees that it shall have absolutely no dominion
over the amount of such funds, payments, claims or distributions so received
except to pay them promptly to Lessor, and Guarantor covenants promptly to pay
the same to Lessor.
4.4 Liens Subordinate. Any liens, security interests, judgment liens,
charges or other encumbrances upon Lessee's assets securing payment of the
Guarantor Claims shall be and remain inferior and subordinate to any liens,
security interests, judgment liens, charges or other encumbrances upon Lessee's
assets securing payment of the Guaranteed Obligations, regardless of whether
such encumbrances in favor of Guarantor or Lessor presently exist or are
hereafter created or attach. Without the prior written consent of Lessor,
Guarantor shall not (a) exercise or enforce any creditor's right it may have
against Lessee, or (b) foreclose, repossess, sequester or otherwise take steps
or institute any action or proceedings (judicial or otherwise, including without
limitation the commencement of, or joinder in, any liquidation, bankruptcy,
rearrangement, debtor's relief or insolvency proceeding) to enforce any liens,
mortgages, deeds of trust, security interest, collateral rights, judgments or
other encumbrances on assets of Lessee held by Guarantor.
ARTICLE V
MISCELLANEOUS
5.1 Waiver. No failure to exercise, and no delay in exercising, on the
part of Lessor, any right 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. The rights of Lessor hereunder shall
be in addition to all other rights provided by law. No modification or waiver of
any provision of this Guaranty, nor consent to departure therefrom, shall be
effective unless in writing and no such consent or waiver shall extend beyond
the particular case and purpose involved. No notice or demand given in any case
shall constitute a waiver of the right to take other action in the same, similar
or other instances without such notice or demand.
5.2 Notices. Any notice, demand, statement, request or consent made
hereunder shall be in writing and shall be deemed to be received by the
addressee on the day such notice is tendered to a nationally recognized
overnight delivery service or on the third day following the day such notice is
deposited with the United States Postal Service first class certified mail,
return receipt requested, in either instance, addressed to the address, as set
forth below, of the party to whom such notice is to
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be given, or to such other address as either party shall in like manner
designate in writing. The addresses of the parties are as follows:
Guarantor:
Crescent Operating, Inc.
306 West 7th Street, Suite 1025
Fort Worth, Texas 76102
Attention: Jeffrey L. Stevens
Lessor:
Crescent Real Estate Equities Limited Partnership
777 Main Street, Suite 2100
Fort Worth, Texas 76102
Attention: Gerald W. Haddock, President and Chief Executive Officer
5.3 Governing Law; Jurisdiction. This Guaranty shall be governed by and
construed in accordance with the laws of the State in which the Leased Property
is located and the applicable laws of the United States of America. Guarantor
hereby irrevocably submits to the jurisdiction of any court of competent
jurisdiction located in the state in which the Leased Property is located in
connection with any proceeding out of or relating to this Guaranty.
5.4 Invalid Provisions. If any provision of this Guaranty is held to be
illegal, invalid, or unenforceable under present or future laws effective during
the term of this Guaranty, such provision shall be fully severable and this
Guaranty shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Guaranty, and the
remaining provisions of this Guaranty shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Guaranty, unless such continued effectiveness of this
Guaranty, as modified, would be contrary to the basic understandings and
intentions of the parties as expressed herein.
5.5 Amendments. This Guaranty may be amended only by an instrument in
writing executed by the party or an authorized representative of the party
against whom such amendment is sought to be enforced.
5.6 Parties Bound; Assignment. This Guaranty shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
assigns and legal representatives; provided, however, that Guarantor may not,
without the prior written consent of Lessor, assign any of its rights, powers,
duties or obligations hereunder.
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5.7 Headings. Section headings are for convenience of reference only
and shall in no way affect the interpretation of this Guaranty.
5.8 Recitals. The recital and introductory paragraphs hereof are a part
hereof, form a basis for this Guaranty and shall be considered prima facie
evidence of the facts and documents referred to therein.
5.9 Counterparts. This Guaranty may be executed in as many counterparts
as may be convenient or required. It shall not be necessary that the signature
or acknowledgment of, or on behalf of, each party, or that the signature of all
persons required to bind any party, or the acknowledgment of such party, appear
on each counterpart. All counterparts shall collectively constitute a single
instrument. It shall not be necessary in making proof of this Guaranty to
produce or account for more than a single counterpart containing the respective
signatures of, or on behalf of, and the respective acknowledgments of, each of
the parties hereto. Any signature or acknowledgment page to any counterpart may
be detached from such counterpart without impairing the legal effect of the
signatures or acknowledgments thereon and thereafter attached to another
counterpart identical thereto except having attached to it additional signature
or acknowledgment pages.
5.10 Rights and Remedies. The rights of Lessor hereunder shall be
cumulative of any and all other rights that Lessor may ever have against
Guarantor. The exercise by Lessor of any right or remedy hereunder or under any
other instrument, or at law or in equity, shall not preclude the concurrent or
subsequent exercise of any other right or remedy.
5.11 ENTIRETY. THIS GUARANTY EMBODIES THE FINAL, ENTIRE AGREEMENT OF
GUARANTOR AND LESSOR WITH RESPECT TO GUARANTOR'S GUARANTY OF THE GUARANTEED
OBLIGATIONS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT MATTER HEREOF. THIS GUARANTY IS INTENDED BY GUARANTOR AND LESSOR AS A
FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THE GUARANTY, AND NO COURSE OF
DEALING BETWEEN GUARANTOR AND LESSOR, NO COURSE OF PERFORMANCE, NO TRADE
PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE
USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY
AGREEMENT. THERE ARE NO ORAL AGREEMENTS BETWEEN GUARANTOR AND LESSOR.
5.12 Special State Provisions (Texas). This Guaranty shall be effective
as a waiver of, and Guarantor expressly waives, any and all rights to which
Guarantor may otherwise have been entitled under any suretyship laws in effect
from time to time, including (without limitation) any
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rights pursuant to Rule 31 of the Texas Rules of Civil Procedure, Section 17.001
of the Texas Civil Practice and Remedies Code, and Chapter 34 of the Texas
Business and Commerce Code.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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EXECUTED as of the day and year first above written.
GUARANTOR:
CRESCENT OPERATING, INC., a Delaware Corporation
By:
------------------------------------
Name:
------------------------------
Title:
-----------------------------
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EXHIBIT A
TO GUARANTY OF LEASE
1. Lease Agreement covering a hotel facility and related assets located in
Bernalillo County, New Mexico, and known as "Hyatt Regency Albuquerque"
dated as of December 19, 1995, the lessee's interest under which is
currently held by ROSESTAR SOUTHWEST, LLC, a Delaware limited liability
company, and the lessor's interest under which is currently held by
CRESCENT REAL ESTATE FUNDING II, L.P, a Delaware limited partnership,
as such Lease Agreement is or has been amended and assigned from time
to time.
2. Amended and Restated Lease Agreement covering a hotel facility and
related assets located in Eagle County, Colorado, and known as the
"Hyatt Regency Beaver Creek", dated as of January 1, 1996, the lessee's
interest under which is currently held by ROSESTAR SOUTHWEST, LLC, a
Delaware limited liability company, and the lessor's interest under
which is currently held by CRESCENT REAL ESTATE FUNDING II, L.P, a
Delaware limited partnership, as such Amended and Restated Lease
Agreement is or has been amended and assigned from time to time.
3. Lease Agreement covering a resort facility and related assets located
in Berkshire County, Massachusetts, and known as the "Canyon
Ranch-Lenox", dated as of December 11, 1996, the lessee's interest
under which is currently held by WINE COUNTRY HOTEL, LLC, a Delaware
limited liability company, d/b/a VINTAGE RESORTS, LLC, and the lessor's
interest under which is currently held by CRESCENT REAL ESTATE FUNDING
VI, L.P, a Delaware limited partnership, as such Lease Agreement is or
has been amended and assigned from time to time.
4. Lease Agreement covering a hotel facility/resort and related assets
located in Sonoma County, California, and known as the "Sonoma Mission
Inn and Spa", dated as of November 18, 1996, between WINE COUNTRY
HOTEL, LLC, a Delaware limited liability company, as lessee, and
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited
partnership, as lessor, as such Lease Agreement is amended and assigned
from time to time.
5. Lease Agreement covering a resort facility and related assets located
in Pima County, Arizona, and known as the "Canyon Ranch-Tucson", dated
as of July 26, 1996, the lessee's interest under which is currently
held by CANYON RANCH LEASING, L.L.C., an Arizona limited liability
company, and the lessor's interest under which is currently held by
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited
partnership, as such Lease Agreement is or has been amended and
assigned from time to time.
Exhibit A - Page 1
<PAGE> 14
6. Amended and Restated Lease Agreement covering a hotel facility and
related assets located in Denver County, Colorado, and known as the
"Denver Marriott City Center", dated as of June 30, 1995, between
ROSESTAR MANAGEMENT, LLC, a Delaware limited liability company, as
lessee, and CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a
Delaware limited partnership, as lessor, as such Amended and Restated
Lease Agreement is amended and assigned from time to time.
7. Lease Agreement covering a golf club and related facilities located in
Sonoma County, California, and known as the "Sonoma Golf Club", dated
as of October 13, 1998, between WINE COUNTRY GOLF CLUB, INC., a Texas
corporation, as lessee, and CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership, as lessor, as such Lease
Agreement is amended and assigned from time to time.
8. Lease Agreement covering a hotel facility and related assets located in
Harris County, Texas, and known as the "Four Seasons - Houston", dated
as of September 22, 1997, between COI HOTEL GROUP, INC., a Delaware
corporation, as lessee, and CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership, as lessor, as such Lease
Agreement is amended and assigned from time to time.
Exhibit A - Page 2
<PAGE> 1
EXHIBIT 10.65
Four Seasons Hotel
Houston, Texas
AMENDED AND RESTATED GUARANTY OF LEASE
This AMENDED AND RESTATED GUARANTY OF LEASE ("Guaranty") is executed as
of December 31, 1998 by CRESCENT OPERATING, INC., a Delaware corporation
("Guarantor"), for the benefit of CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership ("Lessor").
R E C I T A L S
A. COI HOTEL GROUP, INC., a Texas corporation ("Lessee"), as
lessee, has entered a Lease Agreement (the "Lease") with Lessor dated as of
September 22, 1997 with respect to the land, buildings, improvements and
fixtures located in Houston, Harris County, Texas, commonly known as the Four
Seasons Hotel (the "Leased Property");
B. Guarantor executed that certain Guaranty dated of even date
with the Lease pursuant to which Guarantor unconditionally guaranteed the
payment and performance of the obligations of Lessee under the Lease (the
"Original Lease"); and
C. Lessor and Lessee are entering into an amendment to the Lease
to be effective as of the date hereof and in connection with such amendment,
Guarantor and Lessee have agreed to certain changes to the Original Guaranty and
wish to amend and restate the Original Guaranty in its entirety to reflect
Guarantor's agreement to unconditionally guarantee the payment and performance
of the Guaranteed Obligations (as defined in Section 1.2 below), subject to the
limitations and terms set forth in this Guaranty; and
D. Guarantor is the owner of a direct or indirect interest in
Lessee, and Guarantor will directly benefit from the amendments to the Lease
described above.
A G R E E M E N T
NOW, THEREFORE, as an inducement to Lessor to enter into the Lease with
Lessee, and for other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
NATURE AND SCOPE OF GUARANTY
1.1 Guaranty of Obligation.
(a) Subject to the limitations set forth in Section 1.1(b)
hereof, Guarantor irrevocably and unconditionally guarantees to Lessor
(and its successors and assigns), the
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payment and performance of the Guaranteed Obligations as and when the
same shall be due and payable. Guarantor irrevocably and
unconditionally agrees that it is liable for the Guaranteed Obligations
as a primary obligor, and that it shall fully perform each and every
term and provision hereof.
(b) Anything in this Guaranty to the contrary
notwithstanding, the right of recovery by Lessor against Guarantor
under this Guaranty is limited to Guarantor's interests in Lessee and
the lessees under the leases listed on Exhibit A attached hereto and
made a part hereof, and such parties permitted successors and assigns
(whether by operation of law or otherwise). Lessor shall not look to
any other property or asset of Guarantor in seeking to enforce
Guarantor's obligations under this Guaranty or to satisfy any judgement
for Guarantor's failure to perform its obligations under this Guaranty.
1.2 Definition of Guaranteed Obligations. As used herein, the term
"Guaranteed Obligations" shall mean all of the obligations and liabilities of
Lessee under the Lease, including without limitation, the obligation to pay all
Base Rent, Percentage Rent, and Additional Charges (as those terms are defined
in the Lease) as and when due.
1.3 Nature of Guaranty. This Guaranty is an irrevocable, absolute,
continuing guaranty of payment and performance and is not a guaranty of
collection. This Guaranty may not be revoked by Guarantor and shall continue to
be effective with respect to any Guaranteed Obligations arising or created after
any attempted revocation by Guarantor. The fact that at any time or from time to
time the Guaranteed Obligations may be increased or reduced shall not release or
discharge the obligation of Guarantor to Lessor with respect to Guaranteed
Obligations. This Guaranty may be enforced by Lessor and any subsequent owner of
Lessor's interest under the Lease.
1.4 Payment by Guarantor. If all or any part of the Guaranteed
Obligations is not paid when due, Guarantor shall immediately upon demand by
Lessor pay in lawful money of the United States of America the amount due on the
Guaranteed Obligations to Lessor at Lessor's address as set forth herein. Such
demand(s) may be made at any time coincident with or after the time for payment
of all or part of the Guaranteed Obligations, and may be made from time to time
with respect to the same or different items of Guaranteed Obligations. Such
demand shall be deemed made, given and received in accordance with the notice
provisions hereof.
1.5 No Duty to Pursue Others. It shall not be necessary for Lessor
(and Guarantor hereby waives any rights which Guarantor may have to require
Lessor), in order to enforce such payment by Guarantor, first to (i) institute
suit or exhaust its remedies against Lessee or others liable under the Lease or
the Guaranteed Obligations or any other person, (ii) enforce Lessor's rights
against any collateral which shall ever have been given to secure Lessee's
obligations under the Lease, (iii) enforce Lessor's rights against any other
guarantors of the Guaranteed Obligations, (iv) join Lessee or any others liable
on the Guaranteed Obligations in any action seeking to enforce this Guaranty, or
(v) resort to any other means of obtaining payment of the Guaranteed
Obligations. Lessor shall not be required to mitigate damages or take any other
action to reduce, collect or enforce the Guaranteed Obligations.
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1.6 Waivers. Guarantor agrees to the provisions of the Lease, and
hereby waives notice of (i) acceptance of this Guaranty, (ii) any amendment or
extension of the Lease, (iii) the occurrence of any breach by Lessee or Event of
Default as defined in the Lease, (iv) Lessor's transfer or disposition of its
interest under the Lease, or any part thereof, or (v) any other action at any
time taken or omitted by Lessor, and, generally, all demands and notices of
every kind in connection with this Guaranty, the Lease, or relating to any of
the Guaranteed Obligations.
1.7 Payment of Expenses. If Guarantor fails to timely perform any
provisions of this Guaranty, Guarantor shall, immediately upon demand by Lessor,
pay Lessor all costs and expenses (including court costs and reasonable
attorneys' fees) incurred by Lessor in the enforcement hereof or the
preservation of Lessor's rights hereunder. The covenant contained in this
section shall survive the payment and performance of the Guaranteed Obligations.
1.8 Effect of Bankruptcy. If, pursuant to any insolvency,
bankruptcy, reorganization, receivership or other debtor relief law, or any
judgment, order or decision thereunder, Lessor must rescind or restore any
payment, or any part thereof, received by Lessor in satisfaction of the
Guaranteed Obligations, as set forth herein, any prior release or discharge from
the terms of this Guaranty given to Guarantor by Lessor shall be without effect,
and this Guaranty shall remain in full force and effect. Lessee and Guarantor
intend that Guarantor's obligations hereunder shall not be discharged except by
Guarantor's performance of such obligations and then only to the extent of such
performance.
1.9 Deferment of Rights of Subrogation, Reimbursement and
Contribution.
(a) Notwithstanding any payment or payments made by
Guarantor hereunder, Guarantor will not assert or exercise any right of
Lessor or of Guarantor against Lessee to recover the amount of any
payment made by Guarantor to Lessor by way of subrogation,
reimbursement, contribution, indemnity, or otherwise arising by
contract or operation of law, and Guarantor shall not have any right of
recourse to or any claim against assets or property of Lessee, whether
or not the obligations of Lessee have been satisfied, all of rights
being herein expressly waived by Guarantor. If any amount shall
nevertheless be paid to Guarantor by Lessee prior to payment in full of
the Obligations (hereinafter defined), such amount shall be held in
trust for the benefit of Lessor and shall forthwith be paid to Lessor
to be credited and applied to the Obligations, whether matured or
unmatured. The provisions of this paragraph shall survive the
termination of this Guaranty, and any satisfaction and discharge of
Lessee by virtue of any payment, court order or any applicable law.
(b) Notwithstanding the provisions of Section 1.9(a),
Guarantor shall be entitled to (i) all rights of subrogation otherwise
provided by applicable law in respect of any payment it may make or be
obligated to make under this Guaranty and (ii) all claims it would have
against Guarantor in the absence of Section 1.9(a) and to assert and
enforce same, in each case on and after, but at no time prior to, the
date (the "Subrogation Trigger Date") which is 91 days after the date
on which all sums owed to Lessor under the Lease (the "Obligations")
have been paid in full, if and only if the existence of Guarantor's
rights under this Section 1.10(b) would not make Guarantor a creditor
(as defined in the United
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<PAGE> 4
States Bankruptcy Code [the "Bankruptcy Code"]) of Lessee or any other
Guarantor in any insolvency, bankruptcy, reorganization or similar
proceeding commenced on or prior to the Subrogation Trigger Date.
1.10 Bankruptcy Code Waiver. The parties intend that Guarantor
shall not be deemed to be a "creditor" (as defined in Section 101 of the
Bankruptcy Code) of Lessee by reason of the existence of this Guaranty, in the
event that Lessee becomes a debtor in any proceeding under the Bankruptcy Code,
and in connection herewith, Guarantor waives any such right as a "creditor"
under the Bankruptcy Code. After Lessee's obligations under the Lease are
discharged in full and there shall be no obligations or liabilities under this
Guaranty outstanding, this waiver shall be deemed to be terminated.
1.11 Lessee. The term "Lessee" as used herein shall include any new
or successor corporation, association, partnership (general or limited), joint
venture, trust or other individual or organization formed as a result of any
merger, reorganization, sale, transfer, devise, gift or bequest of Lessee or any
interest in Lessee.
ARTICLE II
EVENTS AND CIRCUMSTANCES NOT REDUCING
OR DISCHARGING GUARANTOR'S OBLIGATIONS
Guarantor's obligations under this Guaranty shall not be released,
diminished, impaired, reduced or adversely affected by any of the following, and
Guarantor waives any common law, equitable, statutory or other rights (including
without limitation rights to notice) which Guarantor might otherwise have as a
result any of the following:
(a) Modifications. Any renewal, extension, or modification
of all or any part of the Guaranteed Obligations or the Lease; provided
Guarantor is notified of same.
(b) Adjustment. Any adjustment, indulgence, forbearance or
compromise that might be granted or given by Lessor to Lessee or any
Guarantor.
(c) Condition of Lessee or Guarantor. The insolvency,
bankruptcy, arrangement, adjustment, composition, liquidation,
disability, dissolution or lack of power of Lessee, Guarantor or any
other party at any time liable for the payment of all or part of the
Guaranteed Obligations; or any dissolution of Lessee or Guarantor, or
any sale, lease or transfer of any or all of the assets of Lessee or
Guarantor, or any changes in the shareholders, partners or members of
Lessee or Guarantor; or any reorganization of Lessee or Guarantor.
(d) Invalidity of Guaranteed Obligations. The invalidity,
illegality or unenforceability of all or any part of the Guaranteed
Obligations, or any document or agreement executed in connection with
the Guaranteed Obligations, for any reason whatsoever, including
without limitation the fact that (i) the Guaranteed Obligations, or any
part thereof, exceeds the amount permitted by law, (ii) the act of
creating the Guaranteed
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<PAGE> 5
Obligations or any part thereof is ultra vires, (iii) the officers or
representatives executing the Lease or otherwise creating the
Guaranteed Obligations acted in excess of their authority, (iv) the
Guaranteed Obligations violate applicable usury laws, (v) Lessee has
valid defenses, claims or offsets (whether at law, in equity or by
agreement) which render the Guaranteed Obligations wholly or partially
uncollectible from Lessee, (vi) the creation, performance or repayment
of the Guaranteed Obligations (or the execution, delivery and
performance of any document or instrument representing part of the
Guaranteed Obligations or executed in connection with the Guaranteed
Obligations, or given to secure the repayment of the Guaranteed
Obligations) is illegal, uncollectible or unenforceable, or (vii) the
Lease has been forged or otherwise are irregular or not genuine or
authentic, it being agreed that Guarantor shall remain liable hereon
regardless of whether Lessee or any other person be found not liable on
the Guaranteed Obligations or any part thereof for any reason.
(e) Release of Obligors. Any full or partial release of
the liability of Lessee on the Guaranteed Obligations, or any part
thereof, or of any co-guarantors, or any other person or entity now or
hereafter liable, whether directly or indirectly, jointly, severally,
or jointly and severally, to pay, perform, guarantee or assure the
payment of the Guaranteed Obligations, or any part thereof, it being
recognized, acknowledged and agreed by Guarantor that Guarantor may be
required to pay the Guaranteed Obligations in full without assistance
or support of any other party, and Guarantor has not been induced to
enter into this Guaranty on the basis of a contemplation, belief,
understanding or agreement that other parties will be liable to pay or
perform the Guaranteed Obligations, or that Lessor will look to other
parties to pay or perform the Guaranteed Obligations.
(f) Offset. The Lease, the Guaranteed Obligations and the
liabilities and obligations of Guarantor to Lessor hereunder, shall not
be reduced, discharged or released because of or by reason of any
existing or future right of offset, claim or defense of Lessee against
Lessor, or any other party, or against payment of the Guaranteed
Obligations, whether such right of offset, claim or defense arises in
connection with the Guaranteed Obligations (or the transactions
creating the Guaranteed Obligations) or otherwise.
(g) Merger. The reorganization, merger or consolidation of
Lessee into or with any other corporation or entity.
(h) Preference. Any payment by Lessee to Lessor is held to
constitute a preference under bankruptcy laws, or for any reason Lessor
is required to refund such payment or pay such amount to Lessee or
someone else.
(i) Other Actions Taken or Omitted. Any other action taken
or omitted to be taken with respect to the Lease, the Guaranteed
Obligations, whether or not such action or omission prejudices
Guarantor or increases the likelihood that Guarantor will be required
to pay the Guaranteed Obligations pursuant to the terms hereof, it is
the unambiguous and unequivocal intention of Guarantor that Guarantor
shall be obligated to pay the Guaranteed Obligations when due,
notwithstanding any occurrence, circumstance, event, action, or
omission whatsoever, whether or not contemplated, and whether or not
otherwise or
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particularly described herein, which obligation shall be deemed
satisfied only upon the full and final payment and satisfaction of the
Guaranteed Obligations.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations. To induce Lessor to enter into the Lease with
Lessee, Guarantor represents and warrants to Lessor as follows:
(a) Benefit. Guarantor is an affiliate of Lessee, is the
owner of a direct or indirect interest in Lessee, and has received, or
will receive, direct or indirect benefit from the making of this
Guaranty with respect to the Guaranteed Obligations.
(b) Familiarity and Reliance. Guarantor is familiar with,
and has independently reviewed books and records regarding, the
financial condition of Lessee; however, Guarantor is not relying on
such financial condition or the collateral as an inducement to enter
into this Guaranty.
(c) No Representation by Lessor. Neither Lessor nor any
other party has made any representation, warranty or statement to
Guarantor in order to induce Guarantor to execute this Guaranty.
(d) Guarantor's Financial Condition. As of the date
hereof, and after giving effect to this Guaranty and the contingent
obligation evidenced hereby, Guarantor is, and will be, solvent, and
has and will have assets which, fairly valued, exceed its obligations,
liabilities (including contingent liabilities) and debts, and has and
will have property and assets sufficient to satisfy and repay its
obligations and liabilities.
(e) Legality. The execution, delivery and performance by
Guarantor of this Guaranty and the consummation of the transactions
contemplated hereunder do not, and will not, contravene or conflict
with any law, statute or regulation whatsoever to which Guarantor is
subject or constitute a default (or an event which with notice or lapse
of time or both would constitute a default) under, or result in the
breach of, any indenture, mortgage, deed of trust, charge, lien, or any
contract, agreement or other instrument to which Guarantor is a party
or which may be applicable to Guarantor. This Guaranty is a legal and
binding obligation of Guarantor and is enforceable in accordance with
its terms, except as limited by bankruptcy, insolvency or other laws of
general application relating to the enforcement of creditors' rights.
(f) Review of Documents. Guarantor has examined the Lease.
3.2 Survival. All representations and warranties made by Guarantor
herein shall survive the execution hereof.
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ARTICLE IV
SUBORDINATION OF CERTAIN INDEBTEDNESS
4.1 Subordination of All Guarantor Claims. As used herein, the
term "Guarantor Claims" shall mean all debts and liabilities of Lessee to
Guarantor, whether such debts and liabilities now exist or are hereafter
incurred or arise, or whether the obligations of Lessee thereon be direct,
contingent, primary, secondary, several, joint and several, or otherwise, and
irrespective of whether such debts or liabilities be evidenced by note,
contract, open account, or otherwise, and irrespective of the person or persons
in whose favor such debts or liabilities may, at their inception, have been, or
may hereafter be created, or the manner in which they have been or may hereafter
be acquired by Guarantor. The Guarantor Claims shall include without limitation
all rights and claims of Guarantor against Lessee (arising as a result of
subrogation or otherwise) as a result of Guarantor's payment of all or a portion
of the Guaranteed Obligations to the extent the provisions of Article II(f)
hereof are unenforceable. Upon the occurrence of an Event of Default or the
occurrence of an event which would, with the giving of notice or the passage of
time, or both, constitute an Event of Default, Guarantor shall not receive or
collect, directly or indirectly, from Lessee or any other party any amount upon
the Guarantor Claims.
4.2 Claims in Bankruptcy. In the event of receivership,
bankruptcy, reorganization, arrangement, debtor's relief, or other insolvency
proceedings involving Guarantor as debtor, Lessor shall have the right to prove
its claim in any such proceeding so as to establish its rights hereunder and
receive directly from the receiver, trustee or other court custodian dividends
and payments which would otherwise be payable upon Guarantor Claims. Guarantor
assigns such dividends and payments to Lessor. Should Lessor receive, for
application upon the Guaranteed Obligations, any such dividend or payment which
is otherwise payable to Guarantor, and which, as between Lessee and Guarantor,
shall constitute a credit upon the Guarantor Claims, then upon payment to Lessor
in full of the Guaranteed Obligations, Guarantor shall become subrogated to the
rights of Lessor to the extent that such payments to Lessor on the Guarantor
Claims have contributed toward the liquidation of the Guaranteed Obligations,
and such subrogation shall be with respect to that proportion of the Guaranteed
Obligations which would have been unpaid if Lessor had not received dividends or
payments upon the Guarantor Claims.
4.3 Payments Held in Trust. Notwithstanding anything to the
contrary in this Guaranty, if Guarantor should receive any funds, payments,
claims or distributions which are prohibited by this Guaranty, Guarantor agrees
to hold in trust for Lessor an amount equal to the amount of all funds,
payments, claims or distributions so received, and agrees that it shall have
absolutely no dominion over the amount of such funds, payments, claims or
distributions so received except to pay them promptly to Lessor, and Guarantor
covenants promptly to pay the same to Lessor.
4.4 Liens Subordinate. Any liens, security interests, judgment
liens, charges or other encumbrances upon Lessee's assets securing payment of
the Guarantor Claims shall be and remain inferior and subordinate to any liens,
security interests, judgment liens, charges or other encumbrances upon Lessee's
assets securing payment of the Guaranteed Obligations, regardless of whether
such encumbrances in favor of Guarantor or Lessor presently exist or are
hereafter created or attach. Without the prior written consent of Lessor,
Guarantor shall not (a) exercise or enforce any creditor's right it may have
against Lessee, or (b) foreclose, repossess, sequester or otherwise
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<PAGE> 8
take steps or institute any action or proceedings (judicial or otherwise,
including without limitation the commencement of, or joinder in, any
liquidation, bankruptcy, rearrangement, debtor's relief or insolvency
proceeding) to enforce any liens, mortgages, deeds of trust, security interest,
collateral rights, judgments or other encumbrances on assets of Lessee held by
Guarantor.
ARTICLE V
MISCELLANEOUS
5.1 Waiver. No failure to exercise, and no delay in exercising,
on the part of Lessor, any right 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. The rights of Lessor
hereunder shall be in addition to all other rights provided by law. No
modification or waiver of any provision of this Guaranty, nor consent to
departure therefrom, shall be effective unless in writing and no such consent or
waiver shall extend beyond the particular case and purpose involved. No notice
or demand given in any case shall constitute a waiver of the right to take other
action in the same, similar or other instances without such notice or demand.
5.2 Notices. Any notice, demand, statement, request or consent
made hereunder shall be in writing and shall be deemed to be received by the
addressee on the day such notice is tendered to a nationally recognized
overnight delivery service or on the third day following the day such notice is
deposited with the United States Postal Service first class certified mail,
return receipt requested, in either instance, addressed to the address, as set
forth below, of the party to whom such notice is to be given, or to such other
address as either party shall in like manner designate in writing. The addresses
of the parties are as follows:
Guarantor:
Crescent Operating, Inc.
306 West 7th Street, Suite 1025
Fort Worth, Texas 76102
Attention: Jeffrey L. Stevens
Lessor:
Crescent Real Estate Equities Limited Partnership
777 Main Street, Suite 2100
Fort Worth, Texas 76102
Attention: Gerald W. Haddock, President and
Chief Executive Officer
5.3 Governing Law; Jurisdiction. This Guaranty shall be governed
by and construed in accordance with the laws of the State in which the Leased
Property is located and the applicable laws of the United States of America.
Guarantor hereby irrevocably submits to the jurisdiction of any court of
competent jurisdiction located in the state in which the Leased Property is
located in connection with any proceeding out of or relating to this Guaranty.
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5.4 Invalid Provisions. If any provision of this Guaranty is held
to be illegal, invalid, or unenforceable under present or future laws effective
during the term of this Guaranty, such provision shall be fully severable and
this Guaranty shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Guaranty, and the
remaining provisions of this Guaranty shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Guaranty, unless such continued effectiveness of this
Guaranty, as modified, would be contrary to the basic understandings and
intentions of the parties as expressed herein.
5.5 Amendments. This Guaranty may be amended only by an instrument
in writing executed by the party or an authorized representative of the party
against whom such amendment is sought to be enforced.
5.6 Parties Bound; Assignment. This Guaranty shall be binding upon
and inure to the benefit of the parties hereto and their respective successors,
assigns and legal representatives; provided, however, that Guarantor may not,
without the prior written consent of Lessor, assign any of its rights, powers,
duties or obligations hereunder.
5.7 Headings. Section headings are for convenience of reference
only and shall in no way affect the interpretation of this Guaranty.
5.8 Recitals. The recital and introductory paragraphs hereof are
a part hereof, form a basis for this Guaranty and shall be considered prima
facie evidence of the facts and documents referred to therein.
5.9 Counterparts. This Guaranty may be executed in as many
counterparts as may be convenient or required. It shall not be necessary that
the signature or acknowledgment of, or on behalf of, each party, or that the
signature of all persons required to bind any party, or the acknowledgment of
such party, appear on each counterpart. All counterparts shall collectively
constitute a single instrument. It shall not be necessary in making proof of
this Guaranty to produce or account for more than a single counterpart
containing the respective signatures of, or on behalf of, and the respective
acknowledgments of, each of the parties hereto. Any signature or acknowledgment
page to any counterpart may be detached from such counterpart without impairing
the legal effect of the signatures or acknowledgments thereon and thereafter
attached to another counterpart identical thereto except having attached to it
additional signature or acknowledgment pages.
5.10 Rights and Remedies. The rights of Lessor hereunder shall be
cumulative of any and all other rights that Lessor may ever have against
Guarantor. The exercise by Lessor of any right or remedy hereunder or under any
other instrument, or at law or in equity, shall not preclude the concurrent or
subsequent exercise of any other right or remedy.
5.11 ENTIRETY. THIS GUARANTY EMBODIES THE FINAL, ENTIRE AGREEMENT
OF GUARANTOR AND LESSOR WITH RESPECT TO GUARANTOR'S GUARANTY OF THE GUARANTEED
OBLIGATIONS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS, AND
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UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF.
THIS GUARANTY IS INTENDED BY GUARANTOR AND LESSOR AS A FINAL AND COMPLETE
EXPRESSION OF THE TERMS OF THE GUARANTY, AND NO COURSE OF DEALING BETWEEN
GUARANTOR AND LESSOR, NO COURSE OF PERFORMANCE, NO TRADE PRACTICES, AND NO
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS
OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE USED TO CONTRADICT, VARY,
SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY AGREEMENT. THERE ARE NO ORAL
AGREEMENTS BETWEEN GUARANTOR AND LESSOR.
5.12 Special State Provisions (Texas). This Guaranty shall be
effective as a waiver of, and Guarantor expressly waives, any and all rights to
which Guarantor may otherwise have been entitled under any suretyship laws in
effect from time to time, including (without limitation) any rights pursuant to
Rule 31 of the Texas Rules of Civil Procedure, Section 17.001 of the Texas Civil
Practice and Remedies Code, and Chapter 34 of the Texas Business and Commerce
Code.
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EXECUTED as of the day and year first above written.
GUARANTOR:
CRESCENT OPERATING, INC., a Delaware Corporation
By:
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Name:
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Title:
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EXHIBIT A
TO AMENDED AND RESTATED GUARANTY OF LEASE
1. Lease Agreement covering a hotel facility and related assets located in
Bernalillo County, New Mexico, and known as "Hyatt Regency Albuquerque"
dated as of December 19, 1995, the lessee's interest under which is
currently held by ROSESTAR SOUTHWEST, LLC, a Delaware limited liability
company, and the lessor's interest under which is currently held by
CRESCENT REAL ESTATE FUNDING II, L.P, a Delaware limited partnership,
as such Lease Agreement is or has been amended and assigned from time
to time.
2. Amended and Restated Lease Agreement covering a hotel facility and
related assets located in Eagle County, Colorado, and known as the
"Hyatt Regency Beaver Creek", dated as of January 1, 1996, the lessee's
interest under which is currently held by ROSESTAR SOUTHWEST, LLC, a
Delaware limited liability company, and the lessor's interest under
which is currently held by CRESCENT REAL ESTATE FUNDING II, L.P, a
Delaware limited partnership, as such Amended and Restated Lease
Agreement is or has been amended and assigned from time to time.
3. Lease Agreement covering a resort facility and related assets located
in Berkshire County, Massachusetts, and known as the "Canyon
Ranch-Lenox", dated as of December 11, 1996, the lessee's interest
under which is currently held by WINE COUNTRY HOTEL, LLC, a Delaware
limited liability company, d/b/a VINTAGE RESORTS, LLC, and the lessor's
interest under which is currently held by CRESCENT REAL ESTATE FUNDING
VI, L.P, a Delaware limited partnership, as such Lease Agreement is or
has been amended and assigned from time to time.
4. Lease Agreement covering a hotel facility/resort and related assets
located in Sonoma County, California, and known as the "Sonoma Mission
Inn and Spa", dated as of November 18, 1996, between WINE COUNTRY
HOTEL, LLC, a Delaware limited liability company, as lessee, and
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited
partnership, as lessor, as such Lease Agreement is amended and assigned
from time to time.
5. Lease Agreement covering a resort facility and related assets located
in Pima County, Arizona, and known as the "Canyon Ranch-Tucson", dated
as of July 26, 1996, the lessee's interest under which is currently
held by CANYON RANCH LEASING, L.L.C., an Arizona limited liability
company, and the lessor's interest under which is currently held by
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited
partnership, as such Lease Agreement is or has been amended and
assigned from time to time.
Exhibit A - Page 1
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6. Amended and Restated Lease Agreement covering a hotel facility and
related assets located in Denver County, Colorado, and known as the
"Denver Marriott City Center", dated as of June 30, 1995, between
ROSESTAR MANAGEMENT, LLC, a Delaware limited liability company, as
lessee, and CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a
Delaware limited partnership, as lessor, as such Amended and Restated
Lease Agreement is amended and assigned from time to time.
7. Lease Agreement covering a golf club and related facilities located in
Sonoma County, California, and known as the "Sonoma Golf Club", dated
as of October 13, 1998, between WINE COUNTRY GOLF CLUB, INC., a Texas
corporation, as lessee, and CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership, as lessor, as such Lease
Agreement is amended and assigned from time to time.
8. Lease Agreement covering a hotel facility and related assets located in
Monterey County, California, and known as the "Ventana Inn or the
Ventana Country Inn", dated as of December 19, 1997, between WINE
COUNTRY HOTEL, LLC, a Delaware limited liability company, as lessee,
and CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware
limited partnership, as lessor, as such Lease Agreement is amended and
assigned from time to time.
Exhibit A - Page 2
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EXHIBIT 10.66
Sonoma Golf Club
Sonoma, California
AMENDED AND RESTATED GUARANTY OF LEASE
This AMENDED AND RESTATED GUARANTY OF LEASE ("Guaranty") is executed as
of December 31, 1998 by CRESCENT OPERATING, INC., a Delaware corporation
("Guarantor"), for the benefit of CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership ("Lessor").
R E C I T A L S
A. WINE COUNTRY GOLF CLUB, INC., a Texas corporation("Lessee"), as
lessee, has entered a Lease Agreement (the "Lease") with Lessor dated as of
October 13, 1998 with respect to the land, buildings, improvements and fixtures
located in Sonoma County, California, commonly known as the Sonoma Golf Club
(the "Leased Property");
B. Guarantor executed that certain Guaranty dated of even date with the
Lease pursuant to which Guarantor unconditionally guaranteed the payment and
performance of the obligations of Lessee under the Lease (the "Original Lease");
and
C. Guarantor and Lessee have agreed to certain changes to the Original
Guaranty and wish to amend and restate the Original Guaranty in its entirety to
reflect Guarantor's agreement to unconditionally guarantee the payment and
performance of the Guaranteed Obligations (as defined in Section 1.2 below),
subject to the limitations and terms set forth in this Guaranty; and
D. Guarantor is the owner of a direct or indirect interest in Lessee,
and Guarantor will directly benefit from the amendments to the Lease described
above.
A G R E E M E N T
NOW, THEREFORE, as an inducement to Lessor to enter into the Lease with
Lessee, and for other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
NATURE AND SCOPE OF GUARANTY
1.1 Guaranty of Obligation.
(a) Subject to the limitations set forth in Section 1.1(b)
hereof, Guarantor irrevocably and unconditionally guarantees to Lessor
(and its successors and assigns), the
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payment and performance of the Guaranteed Obligations as and when the
same shall be due and payable. Guarantor irrevocably and
unconditionally agrees that it is liable for the Guaranteed Obligations
as a primary obligor, and that it shall fully perform each and every
term and provision hereof.
(b) Anything in this Guaranty to the contrary notwithstanding,
the right of recovery by Lessor against Guarantor under this Guaranty
is limited to Guarantor's interests in Lessee and the lessees under the
leases listed on Exhibit A attached hereto and made a part hereof, and
such parties permitted successors and assigns (whether by operation of
law or otherwise). Lessor shall not look to any other property or asset
of Guarantor in seeking to enforce Guarantor's obligations under this
Guaranty or to satisfy any judgement for Guarantor's failure to perform
its obligations under this Guaranty.
1.2 Definition of Guaranteed Obligations. As used herein, the term
"Guaranteed Obligations" shall mean all of the obligations and liabilities of
Lessee under the Lease, including without limitation, the obligation to pay all
Base Rent, Percentage Rent, and Additional Charges (as those terms are defined
in the Lease) as and when due.
1.3 Nature of Guaranty. This Guaranty is an irrevocable, absolute,
continuing guaranty of payment and performance and is not a guaranty of
collection. This Guaranty may not be revoked by Guarantor and shall continue to
be effective with respect to any Guaranteed Obligations arising or created after
any attempted revocation by Guarantor. The fact that at any time or from time to
time the Guaranteed Obligations may be increased or reduced shall not release or
discharge the obligation of Guarantor to Lessor with respect to Guaranteed
Obligations. This Guaranty may be enforced by Lessor and any subsequent owner of
Lessor's interest under the Lease.
1.4 Payment by Guarantor. If all or any part of the Guaranteed
Obligations is not paid when due, Guarantor shall immediately upon demand by
Lessor pay in lawful money of the United States of America the amount due on the
Guaranteed Obligations to Lessor at Lessor's address as set forth herein. Such
demand(s) may be made at any time coincident with or after the time for payment
of all or part of the Guaranteed Obligations, and may be made from time to time
with respect to the same or different items of Guaranteed Obligations. Such
demand shall be deemed made, given and received in accordance with the notice
provisions hereof.
1.5 No Duty to Pursue Others. It shall not be necessary for Lessor (and
Guarantor hereby waives any rights which Guarantor may have to require Lessor),
in order to enforce such payment by Guarantor, first to (i) institute suit or
exhaust its remedies against Lessee or others liable under the Lease or the
Guaranteed Obligations or any other person, (ii) enforce Lessor's rights against
any collateral which shall ever have been given to secure Lessee's obligations
under the Lease, (iii) enforce Lessor's rights against any other guarantors of
the Guaranteed Obligations, (iv) join Lessee or any others liable on the
Guaranteed Obligations in any action seeking to enforce this Guaranty, or (v)
resort to any other means of obtaining payment of the Guaranteed Obligations.
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Lessor shall not be required to mitigate damages or take any other action to
reduce, collect or enforce the Guaranteed Obligations.
1.6 Waivers. Guarantor agrees to the provisions of the Lease, and
hereby waives notice of (i) acceptance of this Guaranty, (ii) any amendment or
extension of the Lease, (iii) the occurrence of any breach by Lessee or Event of
Default as defined in the Lease, (iv) Lessor's transfer or disposition of its
interest under the Lease, or any part thereof, or (v) any other action at any
time taken or omitted by Lessor, and, generally, all demands and notices of
every kind in connection with this Guaranty, the Lease, or relating to any of
the Guaranteed Obligations.
1.7 Payment of Expenses. If Guarantor fails to timely perform any
provisions of this Guaranty, Guarantor shall, immediately upon demand by Lessor,
pay Lessor all costs and expenses (including court costs and reasonable
attorneys' fees) incurred by Lessor in the enforcement hereof or the
preservation of Lessor's rights hereunder. The covenant contained in this
section shall survive the payment and performance of the Guaranteed Obligations.
1.8 Effect of Bankruptcy. If, pursuant to any insolvency, bankruptcy,
reorganization, receivership or other debtor relief law, or any judgment, order
or decision thereunder, Lessor must rescind or restore any payment, or any part
thereof, received by Lessor in satisfaction of the Guaranteed Obligations, as
set forth herein, any prior release or discharge from the terms of this Guaranty
given to Guarantor by Lessor shall be without effect, and this Guaranty shall
remain in full force and effect. Lessee and Guarantor intend that Guarantor's
obligations hereunder shall not be discharged except by Guarantor's performance
of such obligations and then only to the extent of such performance.
1.9 Deferment of Rights of Subrogation, Reimbursement and
Contribution.
(a) Notwithstanding any payment or payments made by Guarantor
hereunder, Guarantor will not assert or exercise any right of Lessor or
of Guarantor against Lessee to recover the amount of any payment made
by Guarantor to Lessor by way of subrogation, reimbursement,
contribution, indemnity, or otherwise arising by contract or operation
of law, and Guarantor shall not have any right of recourse to or any
claim against assets or property of Lessee, whether or not the
obligations of Lessee have been satisfied, all of rights being herein
expressly waived by Guarantor. If any amount shall nevertheless be paid
to Guarantor by Lessee prior to payment in full of the Obligations
(hereinafter defined), such amount shall be held in trust for the
benefit of Lessor and shall forthwith be paid to Lessor to be credited
and applied to the Obligations, whether matured or unmatured. The
provisions of this paragraph shall survive the termination of this
Guaranty, and any satisfaction and discharge of Lessee by virtue of any
payment, court order or any applicable law.
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(b) Notwithstanding the provisions of Section 1.9(a), Guarantor
shall be entitled to (i) all rights of subrogation otherwise provided
by applicable law in respect of any payment it may make or be obligated
to make under this Guaranty and (ii) all claims it would have against
Guarantor in the absence of Section 1.9(a) and to assert and enforce
same, in each case on and after, but at no time prior to, the date (the
"Subrogation Trigger Date") which is 91 days after the date on which
all sums owed to Lessor under the Lease (the "Obligations") have been
paid in full, if and only if the existence of Guarantor's rights under
this Section 1.10(b) would not make Guarantor a creditor (as defined in
the United States Bankruptcy Code [the "Bankruptcy Code"]) of Lessee or
any other Guarantor in any insolvency, bankruptcy, reorganization or
similar proceeding commenced on or prior to the Subrogation Trigger
Date.
1.10 Bankruptcy Code Waiver. The parties intend that Guarantor shall
not be deemed to be a "creditor" (as defined in Section 101 of the Bankruptcy
Code) of Lessee by reason of the existence of this Guaranty, in the event that
Lessee becomes a debtor in any proceeding under the Bankruptcy Code, and in
connection herewith, Guarantor waives any such right as a "creditor" under the
Bankruptcy Code. After Lessee's obligations under the Lease are discharged in
full and there shall be no obligations or liabilities under this Guaranty
outstanding, this waiver shall be deemed to be terminated.
1.11 Lessee. The term "Lessee" as used herein shall include any new or
successor corporation, association, partnership (general or limited), joint
venture, trust or other individual or organization formed as a result of any
merger, reorganization, sale, transfer, devise, gift or bequest of Lessee or any
interest in Lessee.
ARTICLE II
EVENTS AND CIRCUMSTANCES NOT REDUCING
OR DISCHARGING GUARANTOR'S OBLIGATIONS
Guarantor's obligations under this Guaranty shall not be released,
diminished, impaired, reduced or adversely affected by any of the following, and
Guarantor waives any common law, equitable, statutory or other rights (including
without limitation rights to notice) which Guarantor might otherwise have as a
result any of the following:
(a) Modifications. Any renewal, extension, or modification of all
or any part of the Guaranteed Obligations or the Lease; provided
Guarantor is notified of same.
(b) Adjustment. Any adjustment, indulgence, forbearance or
compromise that might be granted or given by Lessor to Lessee or any
Guarantor.
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(c) Condition of Lessee or Guarantor. The insolvency, bankruptcy,
arrangement, adjustment, composition, liquidation, disability,
dissolution or lack of power of Lessee, Guarantor or any other party at
any time liable for the payment of all or part of the Guaranteed
Obligations; or any dissolution of Lessee or Guarantor, or any sale,
lease or transfer of any or all of the assets of Lessee or Guarantor,
or any changes in the shareholders, partners or members of Lessee or
Guarantor; or any reorganization of Lessee or Guarantor.
(d) Invalidity of Guaranteed Obligations. The invalidity,
illegality or unenforceability of all or any part of the Guaranteed
Obligations, or any document or agreement executed in connection with
the Guaranteed Obligations, for any reason whatsoever, including
without limitation the fact that (i) the Guaranteed Obligations, or any
part thereof, exceeds the amount permitted by law, (ii) the act of
creating the Guaranteed Obligations or any part thereof is ultra vires,
(iii) the officers or representatives executing the Lease or otherwise
creating the Guaranteed Obligations acted in excess of their authority,
(iv) the Guaranteed Obligations violate applicable usury laws, (v)
Lessee has valid defenses, claims or offsets (whether at law, in equity
or by agreement) which render the Guaranteed Obligations wholly or
partially uncollectible from Lessee, (vi) the creation, performance or
repayment of the Guaranteed Obligations (or the execution, delivery and
performance of any document or instrument representing part of the
Guaranteed Obligations or executed in connection with the Guaranteed
Obligations, or given to secure the repayment of the Guaranteed
Obligations) is illegal, uncollectible or unenforceable, or (vii) the
Lease has been forged or otherwise are irregular or not genuine or
authentic, it being agreed that Guarantor shall remain liable hereon
regardless of whether Lessee or any other person be found not liable on
the Guaranteed Obligations or any part thereof for any reason.
(e) Release of Obligors. Any full or partial release of the
liability of Lessee on the Guaranteed Obligations, or any part thereof,
or of any co-guarantors, or any other person or entity now or hereafter
liable, whether directly or indirectly, jointly, severally, or jointly
and severally, to pay, perform, guarantee or assure the payment of the
Guaranteed Obligations, or any part thereof, it being recognized,
acknowledged and agreed by Guarantor that Guarantor may be required to
pay the Guaranteed Obligations in full without assistance or support of
any other party, and Guarantor has not been induced to enter into this
Guaranty on the basis of a contemplation, belief, understanding or
agreement that other parties will be liable to pay or perform the
Guaranteed Obligations, or that Lessor will look to other parties to
pay or perform the Guaranteed Obligations.
(f) Offset. The Lease, the Guaranteed Obligations and the
liabilities and obligations of Guarantor to Lessor hereunder, shall not
be reduced, discharged or released because of or by reason of any
existing or future right of offset, claim or defense of Lessee against
Lessor, or any other party, or against payment of the Guaranteed
Obligations,
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whether such right of offset, claim or defense arises in connection
with the Guaranteed Obligations (or the transactions creating the
Guaranteed Obligations) or otherwise.
(g) Merger. The reorganization, merger or consolidation of Lessee
into or with any other corporation or entity.
(h) Preference. Any payment by Lessee to Lessor is held to
constitute a preference under bankruptcy laws, or for any reason Lessor
is required to refund such payment or pay such amount to Lessee or
someone else.
(i) Other Actions Taken or Omitted. Any other action taken or
omitted to be taken with respect to the Lease, the Guaranteed
Obligations, whether or not such action or omission prejudices
Guarantor or increases the likelihood that Guarantor will be required
to pay the Guaranteed Obligations pursuant to the terms hereof, it is
the unambiguous and unequivocal intention of Guarantor that Guarantor
shall be obligated to pay the Guaranteed Obligations when due,
notwithstanding any occurrence, circumstance, event, action, or
omission whatsoever, whether or not contemplated, and whether or not
otherwise or particularly described herein, which obligation shall be
deemed satisfied only upon the full and final payment and satisfaction
of the Guaranteed Obligations.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations. To induce Lessor to enter into the Lease with
Lessee, Guarantor represents and warrants to Lessor as follows:
(a) Benefit. Guarantor is an affiliate of Lessee, is the owner of
a direct or indirect interest in Lessee, and has received, or will
receive, direct or indirect benefit from the making of this Guaranty
with respect to the Guaranteed Obligations.
(b) Familiarity and Reliance. Guarantor is familiar with, and
has independently reviewed books and records regarding, the financial
condition of Lessee; however, Guarantor is not relying on such
financial condition or the collateral as an inducement to enter into
this Guaranty.
(c) No Representation by Lessor. Neither Lessor nor any other
party has made any representation, warranty or statement to Guarantor
in order to induce Guarantor to execute this Guaranty.
(d) Guarantor's Financial Condition. As of the date hereof, and
after giving effect to this Guaranty and the contingent obligation
evidenced hereby, Guarantor is, and
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will be, solvent, and has and will have assets which, fairly valued,
exceed its obligations, liabilities (including contingent liabilities)
and debts, and has and will have property and assets sufficient to
satisfy and repay its obligations and liabilities.
(e) Legality. The execution, delivery and performance by Guarantor
of this Guaranty and the consummation of the transactions contemplated
hereunder do not, and will not, contravene or conflict with any law,
statute or regulation whatsoever to which Guarantor is subject or
constitute a default (or an event which with notice or lapse of time or
both would constitute a default) under, or result in the breach of, any
indenture, mortgage, deed of trust, charge, lien, or any contract,
agreement or other instrument to which Guarantor is a party or which
may be applicable to Guarantor. This Guaranty is a legal and binding
obligation of Guarantor and is enforceable in accordance with its
terms, except as limited by bankruptcy, insolvency or other laws of
general application relating to the enforcement of creditors' rights.
(f) Review of Documents. Guarantor has examined the Lease.
3.2 Survival. All representations and warranties made by Guarantor
herein shall survive the execution hereof.
ARTICLE IV
SUBORDINATION OF CERTAIN INDEBTEDNESS
4.1 Subordination of All Guarantor Claims. As used herein, the term
"Guarantor Claims" shall mean all debts and liabilities of Lessee to Guarantor,
whether such debts and liabilities now exist or are hereafter incurred or arise,
or whether the obligations of Lessee thereon be direct, contingent, primary,
secondary, several, joint and several, or otherwise, and irrespective of whether
such debts or liabilities be evidenced by note, contract, open account, or
otherwise, and irrespective of the person or persons in whose favor such debts
or liabilities may, at their inception, have been, or may hereafter be created,
or the manner in which they have been or may hereafter be acquired by Guarantor.
The Guarantor Claims shall include without limitation all rights and claims of
Guarantor against Lessee (arising as a result of subrogation or otherwise) as a
result of Guarantor's payment of all or a portion of the Guaranteed Obligations
to the extent the provisions of Article II(f) hereof are unenforceable. Upon the
occurrence of an Event of Default or the occurrence of an event which would,
with the giving of notice or the passage of time, or both, constitute an Event
of Default, Guarantor shall not receive or collect, directly or indirectly, from
Lessee or any other party any amount upon the Guarantor Claims.
4.2 Claims in Bankruptcy. In the event of receivership, bankruptcy,
reorganization, arrangement, debtor's relief, or other insolvency proceedings
involving Guarantor as debtor, Lessor shall have the right to prove its claim in
any such proceeding so as to establish its rights hereunder
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and receive directly from the receiver, trustee or other court custodian
dividends and payments which would otherwise be payable upon Guarantor Claims.
Guarantor assigns such dividends and payments to Lessor. Should Lessor receive,
for application upon the Guaranteed Obligations, any such dividend or payment
which is otherwise payable to Guarantor, and which, as between Lessee and
Guarantor, shall constitute a credit upon the Guarantor Claims, then upon
payment to Lessor in full of the Guaranteed Obligations, Guarantor shall become
subrogated to the rights of Lessor to the extent that such payments to Lessor on
the Guarantor Claims have contributed toward the liquidation of the Guaranteed
Obligations, and such subrogation shall be with respect to that proportion of
the Guaranteed Obligations which would have been unpaid if Lessor had not
received dividends or payments upon the Guarantor Claims.
4.3 Payments Held in Trust. Notwithstanding anything to the contrary in
this Guaranty, if Guarantor should receive any funds, payments, claims or
distributions which are prohibited by this Guaranty, Guarantor agrees to hold in
trust for Lessor an amount equal to the amount of all funds, payments, claims or
distributions so received, and agrees that it shall have absolutely no dominion
over the amount of such funds, payments, claims or distributions so received
except to pay them promptly to Lessor, and Guarantor covenants promptly to pay
the same to Lessor.
4.4 Liens Subordinate. Any liens, security interests, judgment liens,
charges or other encumbrances upon Lessee's assets securing payment of the
Guarantor Claims shall be and remain inferior and subordinate to any liens,
security interests, judgment liens, charges or other encumbrances upon Lessee's
assets securing payment of the Guaranteed Obligations, regardless of whether
such encumbrances in favor of Guarantor or Lessor presently exist or are
hereafter created or attach. Without the prior written consent of Lessor,
Guarantor shall not (a) exercise or enforce any creditor's right it may have
against Lessee, or (b) foreclose, repossess, sequester or otherwise take steps
or institute any action or proceedings (judicial or otherwise, including without
limitation the commencement of, or joinder in, any liquidation, bankruptcy,
rearrangement, debtor's relief or insolvency proceeding) to enforce any liens,
mortgages, deeds of trust, security interest, collateral rights, judgments or
other encumbrances on assets of Lessee held by Guarantor.
ARTICLE V
MISCELLANEOUS
5.1 Waiver. No failure to exercise, and no delay in exercising, on the
part of Lessor, any right 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. The rights of Lessor hereunder shall
be in addition to all other rights provided by law. No modification or waiver of
any provision of this Guaranty, nor consent to departure therefrom, shall be
effective unless in writing and no such consent or waiver shall extend beyond
the particular case and purpose involved. No notice or demand given in any case
shall constitute a waiver of the right to take other action in the same, similar
or other instances without such notice or demand.
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5.2 Notices. Any notice, demand, statement, request or consent made
hereunder shall be in writing and shall be deemed to be received by the
addressee on the day such notice is tendered to a nationally recognized
overnight delivery service or on the third day following the day such notice is
deposited with the United States Postal Service first class certified mail,
return receipt requested, in either instance, addressed to the address, as set
forth below, of the party to whom such notice is to be given, or to such other
address as either party shall in like manner designate in writing. The addresses
of the parties are as follows:
Guarantor:
Crescent Operating, Inc.
306 West 7th Street, Suite 1025
Fort Worth, Texas 76102
Attention: Jeffrey L. Stevens
Lessor:
Crescent Real Estate Equities Limited Partnership
777 Main Street, Suite 2100
Fort Worth, Texas 76102
Attention: Gerald W. Haddock, President and Chief Executive Officer
5.3 Governing Law; Jurisdiction. This Guaranty shall be governed by and
construed in accordance with the laws of the State in which the Leased Property
is located and the applicable laws of the United States of America. Guarantor
hereby irrevocably submits to the jurisdiction of any court of competent
jurisdiction located in the state in which the Leased Property is located in
connection with any proceeding out of or relating to this Guaranty.
5.4 Invalid Provisions. If any provision of this Guaranty is held to be
illegal, invalid, or unenforceable under present or future laws effective during
the term of this Guaranty, such provision shall be fully severable and this
Guaranty shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Guaranty, and the
remaining provisions of this Guaranty shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Guaranty, unless such continued effectiveness of this
Guaranty, as modified, would be contrary to the basic understandings and
intentions of the parties as expressed herein.
5.5 Amendments. This Guaranty may be amended only by an instrument in
writing executed by the party or an authorized representative of the party
against whom such amendment is sought to be enforced.
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5.6 Parties Bound; Assignment. This Guaranty shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
assigns and legal representatives; provided, however, that Guarantor may not,
without the prior written consent of Lessor, assign any of its rights, powers,
duties or obligations hereunder.
5.7 Headings. Section headings are for convenience of reference only
and shall in no way affect the interpretation of this Guaranty.
5.8 Recitals. The recital and introductory paragraphs hereof are a part
hereof, form a basis for this Guaranty and shall be considered prima facie
evidence of the facts and documents referred to therein.
5.9 Counterparts. This Guaranty may be executed in as many counterparts
as may be convenient or required. It shall not be necessary that the signature
or acknowledgment of, or on behalf of, each party, or that the signature of all
persons required to bind any party, or the acknowledgment of such party, appear
on each counterpart. All counterparts shall collectively constitute a single
instrument. It shall not be necessary in making proof of this Guaranty to
produce or account for more than a single counterpart containing the respective
signatures of, or on behalf of, and the respective acknowledgments of, each of
the parties hereto. Any signature or acknowledgment page to any counterpart may
be detached from such counterpart without impairing the legal effect of the
signatures or acknowledgments thereon and thereafter attached to another
counterpart identical thereto except having attached to it additional signature
or acknowledgment pages.
5.10 Rights and Remedies. The rights of Lessor hereunder shall be
cumulative of any and all other rights that Lessor may ever have against
Guarantor. The exercise by Lessor of any right or remedy hereunder or under any
other instrument, or at law or in equity, shall not preclude the concurrent or
subsequent exercise of any other right or remedy.
5.11 ENTIRETY. THIS GUARANTY EMBODIES THE FINAL, ENTIRE AGREEMENT OF
GUARANTOR AND LESSOR WITH RESPECT TO GUARANTOR'S GUARANTY OF THE GUARANTEED
OBLIGATIONS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS,
REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT MATTER HEREOF. THIS GUARANTY IS INTENDED BY GUARANTOR AND LESSOR AS A
FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THE GUARANTY, AND NO COURSE OF
DEALING BETWEEN GUARANTOR AND LESSOR, NO COURSE OF PERFORMANCE, NO TRADE
PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE
USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS
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<PAGE> 11
GUARANTY AGREEMENT. THERE ARE NO ORAL AGREEMENTS BETWEEN GUARANTOR AND LESSOR.
5.12 Special State Provisions (Texas). This Guaranty shall be effective
as a waiver of, and Guarantor expressly waives, any and all rights to which
Guarantor may otherwise have been entitled under any suretyship laws in effect
from time to time, including (without limitation) any rights pursuant to Rule 31
of the Texas Rules of Civil Procedure, Section 17.001 of the Texas Civil
Practice and Remedies Code, and Chapter 34 of the Texas Business and Commerce
Code.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 12
EXECUTED as of the day and year first above written.
GUARANTOR:
CRESCENT OPERATING, INC., a Delaware Corporation
By:
---------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
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<PAGE> 13
EXHIBIT A
TO AMENDED AND RESTATED GUARANTY OF LEASE
1. Lease Agreement covering a hotel facility and related assets located in
Bernalillo County, New Mexico, and known as "Hyatt Regency Albuquerque"
dated as of December 19, 1995, the lessee's interest under which is
currently held by ROSESTAR SOUTHWEST, LLC, a Delaware limited liability
company, and the lessor's interest under which is currently held by
CRESCENT REAL ESTATE FUNDING II, L.P, a Delaware limited partnership,
as such Lease Agreement is or has been amended and assigned from time
to time.
2. Amended and Restated Lease Agreement covering a hotel facility and
related assets located in Eagle County, Colorado, and known as the
"Hyatt Regency Beaver Creek", dated as of January 1, 1996, the lessee's
interest under which is currently held by ROSESTAR SOUTHWEST, LLC, a
Delaware limited liability company, and the lessor's interest under
which is currently held by CRESCENT REAL ESTATE FUNDING II, L.P, a
Delaware limited partnership, as such Amended and Restated Lease
Agreement is or has been amended and assigned from time to time.
3. Lease Agreement covering a resort facility and related assets located
in Berkshire County, Massachusetts, and known as the "Canyon
Ranch-Lenox", dated as of December 11, 1996, the lessee's interest
under which is currently held by WINE COUNTRY HOTEL, LLC, a Delaware
limited liability company, d/b/a VINTAGE RESORTS, LLC, and the lessor's
interest under which is currently held by CRESCENT REAL ESTATE FUNDING
VI, L.P, a Delaware limited partnership, as such Lease Agreement is or
has been amended and assigned from time to time.
4. Lease Agreement covering a hotel facility/resort and related assets
located in Sonoma County, California, and known as the "Sonoma Mission
Inn and Spa", dated as of November 18, 1996, between WINE COUNTRY
HOTEL, LLC, a Delaware limited liability company, as lessee, and
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited
partnership, as lessor, as such Lease Agreement is amended and assigned
from time to time.
5. Lease Agreement covering a resort facility and related assets located
in Pima County, Arizona, and known as the "Canyon Ranch-Tucson", dated
as of July 26, 1996, the lessee's interest under which is currently
held by CANYON RANCH LEASING, L.L.C., an Arizona limited liability
company, and the lessor's interest under which is currently held by
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited
partnership, as such Lease Agreement is or has been amended and
assigned from time to time.
Exhibit A - Page 1
<PAGE> 14
6. Amended and Restated Lease Agreement covering a hotel facility and
related assets located in Denver County, Colorado, and known as the
"Denver Marriott City Center", dated as of June 30, 1995, between
ROSESTAR MANAGEMENT, LLC, a Delaware limited liability company, as
lessee, and CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a
Delaware limited partnership, as lessor, as such Amended and Restated
Lease Agreement is amended and assigned from time to time.
7. Lease Agreement covering a hotel facility and related assets located in
Harris County, Texas, and known as the "Four Seasons - Houston", dated
as of September 22, 1997, between COI HOTEL GROUP, INC., a Delaware
corporation, as lessee, and CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership, as lessor, as such Lease
Agreement is amended and assigned from time to time.
8. Lease Agreement covering a hotel facility and related assets located in
Monterey County, California, and known as the "Ventana Inn or the
Ventana Country Inn", dated as of December 19, 1997, between WINE
COUNTRY HOTEL, LLC, a Delaware limited liability company, as lessee,
and CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware
limited partnership, as lessor, as such Lease Agreement is amended and
assigned from time to time.
Exhibit A - Page 2
<PAGE> 1
EXHIBIT 10.67
$20,166,666
CREDIT AGREEMENT,
dated as of August 11, 1995
between
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
A Delaware limited partnership
as the Lender,
and
CRESCENT DEVELOPMENT MANAGEMENT CORP.,
a Delaware corporation
as the Borrower
<PAGE> 2
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (the "Agreement"), dated as of August 11, 1995,
between CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited
partnership (the "Lender") and CRESCENT DEVELOPMENT MANAGEMENT CORP., a
Delaware corporation (the "Borrower").
ARTICLE I
WHEREAS, the Borrower has applied for and Lender is willing, on the
terms and subject to the conditions hereinafter set forth, to extend to the
Borrower a line of credit loan (the "Loan"), in a maximum aggregate principal
amount at any one time outstanding not to exceed $20,166,666, from time to time
prior to the Commitment Termination Date;
WHEREAS, the proceeds of the Loan will be used from time to time for
working capital purposes of the Borrower in order to provide funds for making
equity investments, as provided for in this Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE II
COMMITMENTS, ADVANCE PROCEDURES AND NOTES
SECTION 2.1 Commitment. On the terms and subject to the conditions of
this Agreement (including Article V), Lender agrees to make advances under the
Loan to the Borrower up to an aggregate amount of Twenty Million One Hundred
Sixty-Six Thound Six Hundred Sixty-Six and No/100 Dollars ($20,166,666) (the
"Commitment Amount") pursuant to Section 2.2. Lender shall not be required to
make any advance under this Loan if, after giving effect thereto, (a) subject
to the revolving feature described in Section 2.3 hereof with respect to Phased
Projects, the aggregate principal amount of all Advances made would exceed the
Commitment Amount or (b) with respect to a Phased Project, the aggregate
Project Equity Advance then outstanding with respect to such Project would
exceed the Project Advance Limit for such Project or (c) with respect to any
Project, the aggregate Project Equity Advance made with respect to such Project
(whether or not all or any portion of such Project Equity Advance remains
outstanding) would exceed the Total Equity for such Project. Notwithstanding
anything in this Agreement to the contrary, (i) Lender shall not be obligated
to advance additional funds with respect to a Project if a default (after
notice and expiration of cure periods) shall occur by a Subpartnership under
the Project Loan Documents, (ii) Lender shall not be obligated to advance
additional funds in excess of the aggregate Commitments pursuant to Approved
Project Plans if there is an Incapacity of Frampton (as defined in the
Partnership Agreement), (iii) Lender shall not be obligated to advance
additional funds if there is an Event of Default (as defined in the Partnership
Agreement) that occurs under the Partnership Agreement and that remains uncured
and (iv) Lender shall not be obligated to advance more than 20% of the
Commitment with respect to a Project until the earlier of that point in time
when (A) the Subpartnership with respect to such Project has entered into a
binding contract for the purchase of real property in connection with the
Project or (B) a Project Loan Commitment has been received from a Project
Lender with respect to the Project.
SECTION 2.2 Advance Procedure. Borrower may from time to time request
that an Advance be made. Each Advance following the Initial Advance shall be in
an amount which is equal to the lesser of (a) the unused amount of the
Commitment, or (b) the allowable Project Equity Advance for the applicable
Project. The request shall be made by delivering a Application for Advance to
the Lender not less than three (3) Business Days prior to the date upon which
such Advance is to be made and, if all such conditions precedent to such
Advance have been satisfied, Lender shall make such Advance directly to the
Borrower by wire transfer to the accounts the Borrower shall have specified in
its Application for Advance.
SECTION 2.3 Revolving Feature of Project Advance Limit. Mandatory
payments made pursuant to Section 3.1.2 hereof with respect to Phased Projects
which are properly designated as Special Mandatory Prepayments shall create
availability under such Project Advance Limit in an amount equal to the
principal portion of such Special Mandatory Payment; provided however, nothing
contained in this sentence shall be construed to increase a Project Advance
Limit above its original amount.
SECTION 2.4 Note. The Loan shall be evidenced by a single promissory
note (the "Note") payable to the order of Lender in the maximum principal
amount of Twenty Million One Hundred Sixty-Six Thousand Six Hundred Sixty-Six
and No/100 Dollars ($20,166,666).
<PAGE> 3
ARTICLE III
PAYMENTS AND INTEREST
SECTION 3.1 Payments. Payments of the Loan shall be made as set forth
in this Section 3.1 and shall be without premium or penalty.
SECTION 3.1.1 Final Maturity. On the Stated Maturity Date, the
Borrower shall repay in full all accrued but unpaid interest and the entire
unpaid principal amount of the Loan.
SECTION 3.1.2 Mandatory Payments. The Borrower shall, within one (1)
Business Day following (a) receipt by Borrower of any Distribution other than a
Tax Distribution, make a mandatory payment of the Loan in an amount equal to
such Distribution less an amount approved by Lender in its reasonable
discretion for unpaid expenses and payables incurred by Borrower in the
ordinary course of business and a reasonable reserve for future expenses and
(b) receipt by Borrower of any payments on an Emergency Loan or a Default Loan,
make a mandatory payment of the Loan in an amount equal to the payments
received (less amounts retained for expenses and payables). All mandatory
payments made under this Section shall be applied first to accrued but unpaid
interest and thereafter to the outstanding principal balance of the Loan. Each
mandatory payment made hereunder which is attributable to a Distribution shall
be accompanied by a certificate from the Borrower to the Lender which
designates whether the mandatory payment is a Special Mandatory Payment. If
Borrower fails to provide such a certificate, Lender shall designate whether
the mandatory payment is a Special Mandatory Payment and such determination
shall be conclusive. Borrower acknowledges to Lender that (i) each
Subpartnership is generally obligated to distribute all net cash flow (other
than tax distributions) to its members (including the Partnership) and (ii) the
Partnership is generally obligated to distribute all net cash flow (other than
tax distributions and amounts established as reserves) to its partners
(including the Borrower). Notwithstanding anything in this Agreement to the
contrary, Lender shall not be obligated to make any additional Advance to
Borrower pursuant to this Agreement if, based on a determination by Lender in
its reasonable discretion, the Partnership or any Subpartnership has failed to
satisfy its obligation to make the distributions described in the preceding
sentence and such failure is continuing.
SECTION 3.1.3 Acceleration of Stated Maturity Date. Immediately upon
any acceleration of the Stated Maturity Date of the Loan pursuant to Section
8.2 or Section 8.3, the Borrower shall repay the Loan to the full extent of
such acceleration.
SECTION 3.2 Interest Provisions. Interest on the outstanding principal
amount of the Loan shall accrue and be payable in accordance with this Section
3.2.
SECTION 3.2.1 Rate. Prior to an Event of Default, the outstanding
principal balance of the Loan shall accrue interest at the rate (the "Interest
Rate") of 11.5%, compounded annually; provided, however, that in no event will
the Interest Rate exceed a rate that would cause the yield to maturity on the
Loan to equal or exceed that rate described in Section 163(i)(1)(B) of the
Code.
SECTION 3.2.2 Post-Maturity Rates. 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 in no event shall the Default Rate exceed the
maximum rate of interest permitted by applicable law.
SECTION 3.2.3 Accrual. At the end of each calendar year during the
term hereof, all interest which has accrued but has not been paid during such
calendar year shall be added to the outstanding principal balance of the Loan
and shall, thereafter, bear interest, prior to an Event of Default, at the
Interest Rate.
ARTICLE IV
CERTAIN OTHER PROVISIONS
SECTION 4.1 Payments, Computations, etc. Unless otherwise expressly
provided, all payments by the Borrower pursuant to this Agreement, the Note or
any other Loan Document shall be made, without setoff, deduction or
counterclaim, not later than 12:00 noon, Fort Worth, Texas time, on the date
due, in same day or immediately available funds, to such account as the Lender
shall specify from time to time by written notice delivered to the Borrower.
Whenever any payment to be made shall otherwise be due on a day which is not a
Business Day, such payment shall be made on the next succeeding Business Day
and such extension of time shall be included in computing interest and fees, if
any, in connection with such payment.
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<PAGE> 4
SECTION 4.2 Setoff. Lender shall, upon the occurrence of any Default
have the right to appropriate and apply to the payment of the Note (whether or
not then due) all amounts then held by such Lender of the Borrower. The rights
of Lender under this Section are in addition to other rights and remedies
(including other rights of setoff under applicable law or otherwise) which
Lender may have. The Borrower hereby waives all rights of setoff, appropriation
and application it may have pursuant to applicable law or otherwise.
SECTION 4.3 Use of Proceeds. The proceeds of the Loan shall be used as
follows:
(a) the Initial Advance shall be used by Borrower to defray
expenses incurred in connection with this transaction; and
(b) each other Advance (other than the Initial Advance) shall be
used by Borrower solely to make capital contributions to the
Partnership, in an amount which does not exceed the Project Equity
Advance for a Project.
ARTICLE V
CONDITIONS TO BORROWING
SECTION 5.1 Initial Advance. The obligations of the Lender to fund the
Initial Advance shall be subject to the prior or concurrent satisfaction of
each of the conditions precedent set forth in this Section 5.1.
SECTION 5.1.1 Application for Advance. The Lender shall have received
an Application for Advance.
SECTION 5.1.2 Resolutions, etc. The Lender shall have received from
Borrower a certificate of resolutions and incumbency as to resolutions of its
Board of Directors then in full force and effect authorizing the execution,
delivery and performance of this Agreement, the Note and each other Loan
Document to be executed by it. SECTION 5.1.3 Delivery of Note. The Lender shall
have received the Note duly executed and delivered by the Borrower.
SECTION 5.1.4 Borrower Security Agreement. The Lender shall have
received executed counterparts of the Borrower's Security Agreement together
with such UCC-1 financing statements and UCC search reports as Lender may
require.
SECTION 5.1.5 Financial Information, etc. The Lender shall have
received, in form and scope reasonably satisfactory to Lender, the financial
statements referred to in Section 6.5.
SECTION 5.1.6 Closing Fees, Expenses, etc. The Lender shall have
received all fees, costs and expenses due and payable pursuant to this
Agreement.
SECTION 5.2 All Advances. The obligation of Lender to fund future
Advances shall be subject to the satisfaction of each of the conditions
precedent set forth in this Section 5.2.
SECTION 5.2.1 Application for Advance. The delivery of an Application
for Advance.
SECTION 5.2.2 Compliance with Warranties, No Default, etc. Both before
and after giving effect to any Advances the following statements shall be true
and correct to the satisfaction of the Lender:
(a) the representations and warranties set forth in this Agreement
shall be true and correct with the same effect as if then made;
(b) no Default shall have then occurred and be continuing.
SECTION 5.2.3 Organic Documents. The Lender shall have received a copy
of the Organic Documents for the Subpartnership which will be capitalized with
the proceeds of the requested Advance.
SECTION 5.2.4 Resolutions, Etc.. The Lender shall have received from
Partnership (in its individual capacity and in its capacity as manager of the
applicable Subpartnership) a certificate of resolutions and
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<PAGE> 5
incumbency authorizing the organization of the Subpartnership, and the
execution, delivery and performance by the Subpartnership of the Project Loan
Documents.
SECTION 5.2.5 Approved Budget. The Lender shall have received a final
Approved Budget with respect to the Project to be constructed by the
Subpartnership in which Partnership proposes to make a capital contribution
with the proceeds of the requested Advance (the "Contemplated Project").
SECTION 5.2.6 Project Loan Commitment. The Lender shall have received
a fully executed copy of the Project Loan Commitment for the Contemplated
Project if there is a Project Loan Commitment for the Contemplated Project at
the time of the delivery of the Application for Advance. In the event there is
not a Project Loan Commitment for the Contemplated Project at the time of the
delivery of the Application for Advance but such Project Loan Commitment is
later received, Borrower shall promptly provide a copy of such commitment to
Lender upon receipt.
SECTION 5.2.7 Evidence of Insurance. The Lender shall have received
adequate evidence that all insurance required by this Agreement is in effect
with respect to the Contemplated Project.
SECTION 5.2.8 Evidence of Approval. The Lender shall have received
evidence, satisfactory to it, that the Project Lender has approved all
conditions precedent to its obligation to advance proceeds of the Project Loan
with respect to the Contemplated Project.
SECTION 5.2.9 Estoppel Letter from Project Lender. If there is a
Project Loan Commitment from a Project Lender at the time of the delivery of
the Application for Advance, the Lender shall have received a duly executed
letter from the Project Lender providing Lender with written notice of any
event of default under the Project Loan Documents with respect to the
Contemplated Project, and a reasonable opportunity in which Lender may cure
such default prior to the exercise by the Project Lender of any remedies
available to it under the Project Loan Documents.
SECTION 5.2.10 Fees and Expenses. The Lender shall have received all
fees, costs and expenses due and payable pursuant to this Agreement.
SECTION 5.2.11 Satisfactory Legal Form. All documents executed or
submitted pursuant hereto shall be reasonably satisfactory in form and
substance to the Lender and its counsel; the Lender shall have received all
other information, approvals, opinions, documents or instruments as the Lender
or its counsel may reasonably request.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to make the Loan
hereunder and to make each Advance pursuant to the Loan, the Borrower
represents and warrants unto the Lender as of the day and year first written
above and on the date of each Advance as set forth in this Article VI.
SECTION 6.1 Organization, etc. The Borrower is a duly formed
corporation under the laws of Delaware, is duly qualified to do business and
has full power and authority and holds all requisite governmental licenses,
permits and other approvals to enter into and perform its obligations under
this Agreement, the Note and each other Loan Document to which it is a party,
and to own and hold its property and to conduct its business substantially as
currently conducted by it.
SECTION 6.2 Due Authorization, Non-Contravention, etc. The execution,
delivery and performance by the Borrower of this Agreement, the Note and each
other Loan Document executed or to be executed by it, are within the Borrower's
corporate powers, have been duly authorized by all necessary action (including
but not limited to any consent of stockholders required by law or its Organic
Documents) and do not (a) contravene the Borrower's Organic Documents; or (b)
contravene any contractual restriction, law or governmental regulation or court
decree or order binding on or affecting the Borrower except for such
contraventions which 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 or any Loan Document.
SECTION 6.3 Government Approval, Regulation, etc. No authorization,
consent or approval or other action by, and no notice to, filing with or
license from, any governmental authority or regulatory body or other Person is
required for the due execution or delivery by the Borrower of this Agreement,
the Note or any other Loan
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<PAGE> 6
Document to which it is a party, or for the consummation and performance of the
transactions contemplated hereby or thereby.
SECTION 6.4 Validity, etc. Each of this Agreement and, upon the due
execution and delivery thereof, the Note and each other Loan Document executed
by the Borrower or Partnership, constitutes the legal, valid and binding
obligation of such parties enforceable in accordance with its respective terms,
except as such enforceability may be limited by applicable bankruptcy,
reorganization, insolvency and other similar laws affecting creditors rights
generally.
SECTION 6.5 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 6.6 No Material Adverse Change. There has been no material
adverse change in the business, financial condition, operations, assets,
revenues, or properties, of the Borrower taken as a whole from the financial
information previously provided to Lender.
SECTION 6.7 No Default Under Indebtedness. No event of default has
occurred and is continuing, and no event has occurred which with the giving of
notice, passage of time or both would become a material event of default under
any of the Indebtedness permitted to be incurred pursuant to Section 7.2.2
hereof.
SECTION 6.8 Litigation, Labor Controversies, etc. There is no pending
or, to the knowledge of the Borrower, threatened litigation, action, proceeding
or labor controversy affecting the Borrower, Partnership or any of its
Subpartnerships which, if adversely determined could reasonably be expected to
have a material adverse effect on Borrower, Partnership, any Subpartnerships,
any Projects or Lender.
SECTION 6.9 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 6.10 ERISA. Neither Borrower, nor, to the best knowledge of
Borrower, any other person has taken any action or failed to take any action
which would subject Borrower, Partnership or any Subpartnership to any
potential liability under ERISA.
SECTION 6.11 Accuracy of Information. All factual information, as
amended, supplemented or modified, furnished by or on behalf of the Borrower in
writing to (or as directed by) the Lender for purposes of or in connection with
this Agreement, any other Loan Document or any transaction contemplated hereby
is true and accurate in all material respects as of the date of execution and
delivery of this Agreement and all other such factual information thereafter
furnished by or on behalf of the Borrower to (or as directed by) the Lender
pursuant to the terms of this Agreement or any other Loan Document is true and
accurate in every material respect on the date as of which such information as
dated or certified, and does not omit any material fact necessary to make such
Information not misleading.
ARTICLE VII
COVENANTS
SECTION 7.1 Affirmative Covenants. Borrower will perform the
obligations set forth in this Section 7.1.
SECTION 7.1.1 Financial Information, Reports, Notices, etc. Borrower
will furnish, or will cause to be furnished, to Lender copies of the following
financial statements, reports, notices and information:
(a) As soon as available and in any event within 45 days after the
end of each Fiscal Quarter of each Fiscal Year of Borrower (including
the final Fiscal Quarter of each Fiscal Year), Borrower will deliver,
or cause to be delivered, balance sheets of Borrower as of the end of
such Fiscal Quarter and statements of income, cash flow and Borrower's
equity for such Fiscal Quarter and for the period commencing at the
end of the previous Fiscal Year and ending with the end of such Fiscal
Quarter, setting forth in each case in comparative form the figures
for the corresponding Fiscal Quarter of the previous Fiscal Year,
certified by the chief financial Officer of Borrower in a manner
acceptable to the Lender.
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<PAGE> 7
(b) if requested by Lender for any Fiscal Year, Borrower will have
prepared at Borrower's expense and Borrower will deliver, or cause to
be delivered, to Lender a copy of an annual audit report for Borrower
including therein balance sheets of Borrower as of the end of such
Fiscal Year and statements of cash flow, income and Borrower's equity
for such Fiscal Year, in each case certified (without qualification)
by independent public accountants reasonably acceptable to the Lender.
(c) a copy of all financial accounting and reports which are to be
provided to the partners of the Partnership pursuant to Article 11 of
the Partnership Agreement.
(d) As soon as possible and in any event within three Business
Days after becoming aware of
(i) the occurrence of any material adverse development with
respect to any Project, Subpartnership, Project Loan or
Partnership's investment in any Subpartnership, or
(ii) copies of any material notices or communications from a
Project Lender or a Governmental Authority with respect to
Borrower, Partnership, a Project or the Project Loan Documents; or
(iii) copies of any material notices or communications from
Partnership, a Subpartnership to a Project Lender or Governmental
Authority with respect to a Project or the Project Loan Documents.
Borrower will deliver, or will cause to be delivered, notice thereof
and copies of all documentation relating thereto.
(e) Borrower will deliver, or will cause to be delivered, such
other information respecting the condition or operations, financial or
otherwise, of the Borrower, Partnership, or any Subpartnerships as the
Lender may from time to time reasonably request.
SECTION 7.1.2 Compliance with Laws, etc. Borrower will, and,
consistent with Borrower's rights and obligations under the Partnership
Agreement, will cause Partnership and each Subpartnership to, comply in all
material respects with all applicable Governmental Requirements such compliance
to include, but not be limited to:
(a) the maintenance and preservation of its existence and
qualification in all foreign jurisdictions where it is required to do
so except where the failure to do so would not be material; and
(b) the payment, before the same become delinquent, of all taxes,
assessments and governmental charges imposed upon it or upon its
property except to the extent they are being diligently contested in
good faith by appropriate proceedings and for which adequate reserves
in accordance with GAAP shall have been set aside on its books.
SECTION 7.1.3 Maintenance of Properties. Borrower will, and,
consistent with Borrower's rights and obligations under the Partnership
Agreement, will cause Partnership and each Subpartnership to, maintain,
preserve, protect and keep its properties (specifically including but not
limited to, the Projects) in good repair, working order and condition, normal
wear and tear excepted, and make necessary and proper repairs, renewals and
replacements so that its business carried on in connection therewith may be
properly conducted at all times.
SECTION 7.1.4 Books and Records. Borrower will, and, consistent with
Borrower's rights and obligations under the Partnership Agreement, will cause
Partnership and each of its Subpartnerships to, keep books and records which
accurately reflect all of its business affairs and transactions in all material
respects. Borrower will, and will cause Partnership and each Subpartnership to,
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. The Borrower shall pay any fees of its independent public
accountant incurred in connection with the Lender's exercise of its rights
pursuant to this Section.
SECTION 7.1.5 Environmental Covenant. Borrower will, and, consistent
with Borrower's rights and obligations under the Partnership Agreement, will
cause Partnership and each of its Subpartnerships to,
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<PAGE> 8
(a) use and operate all of its assets in compliance in all
material respects with all Environmental Laws, keep all necessary and
material permits, approvals, certificates, licenses and other
authorizations required under Environmental Laws in effect and remain
in compliance therewith, and handle all Hazardous Materials in
compliance in all material respects with all Environmental Laws; and
(b) immediately notify the Lender and provide copies upon receipt
of all potentially material written claims, complaints or notices
(excluding routine fee or schedule notices) relating to non-compliance
with, or liabilities or obligations arising under or relating in any
way to, Environmental Laws with respect to its assets.
SECTION 7.1.6 ERISA Compliance. Borrower will, and will cause each of
its ERISA affiliates to, maintain all employee benefit plans in compliance in
all material respects with all applicable law, including any reporting
requirements, and make all contributions due under the terms of each employee
benefit plan or as required by law.
SECTION 7.1.7 Additional Funding Instruments. Borrower acknowledges to
Lender that the Subscribers have contributed (or have executed subscription
agreements requiring the immediate contribution of), in the aggregate, Three
Million and No/100 Dollars ($3,000,000) in cash to the capital of Borrower.
Borrower will, through its Board of Directors, make an Assessment Determination
at that point in time when the aggregate of the accrued but unpaid interest and
the unpaid principal balance of the Loan first equals Twelve Million and No/100
Dollars ($12,000,000) or would exceed such amount if a requested Advance was
made. In such event, the Board of Directors of Borrower shall make written
demand upon each Subscriber to contribute to Borrower cash in an amount equal
to the product realized by multiplying (i) One Million and No/100 Dollars
($1,000,000) by (ii) a fraction, the numerator of which is the number of shares
of common stock of Borrower owned by Subscriber as of the date of the
Assessment Determination and the denominator of which is the number of
outstanding shares of common stock of Borrower as of the date of the Assessment
Determination ("Initial Equity Shortfall Share"). Notwithstanding anything to
the contrary contained in this Agreement, no additional Advance will be made to
Borrower pursuant to this Agreement which would increase the aggregate unpaid
principal and interest on the Loan above Twelve Million and No/100 Dollars
($12,000,000) unless and until each Subscriber has contributed cash to Borrower
in an amount equal to such Subscriber's Initial Equity Shortfall Share.
Borrower will, through its Board of Directors, make an Assessment Determination
at that point in time when the aggregate of the accrued but unpaid interest and
the unpaid principal balance of the Loan first equals Sixteen Million and
No/100 Dollars ($16,000,000) or would exceed such amount if a requested Advance
was made. In such event, the Board of Directors of Borrower shall make written
demand upon each Subscriber to contribute to Borrower cash in an amount equal
to the product realized by multiplying (i) One Million and No/100 Dollars
($1,000,000) by (ii) a fraction, the numerator of which is the number of shares
of common stock of Borrower owned by Subscriber as of the date of the
Assessment Determination and the denominator of which is the number of
outstanding shares of common stock of Borrower as of the date of the Assessment
Determination ("Secondary Equity Shortfall Share"). Notwithstanding anything to
the contrary contained in this Agreement, no additional Advance will be made to
Borrower pursuant to this Agreement which would increase the aggregate unpaid
principal and interest on the Loan above Sixteen Million and No/100 Dollars
($16,000,000) unless and until each Subscriber has contributed cash to Borrower
in an amount equal to such Subscriber's Secondary Equity Shortfall Share.
SECTION 7.2 Negative Covenants. Borrower will comply with the
obligations set forth in this Section 7.2.
SECTION 7.2.1 Business Activities. Borrower will not, and, consistent
with Borrower's rights and obligations under the Partnership Agreement, will
not permit Partnership or any of its Subpartnerships to, engage in any business
activity other than those activities set forth in the Organic Documents for
each such entity.
SECTION 7.2.2 Indebtedness. The Borrower will not, and, consistent
with Borrower's rights and obligations under the Partnership Agreement, will
not permit Partnership or any of its Subpartnerships to, create, incur, assume
or suffer to exist or otherwise become or be liable in respect of any
indebtedness, other than, without duplication, the following:
(a) indebtedness in respect of the Loan and other obligations;
(b) unsecured Indebtedness incurred in the ordinary course of its
business in the nature of open accounts extended by suppliers and
other vendors on normal trade terms in connection with purchases of
goods and services, accrued liabilities, deferred income and deferred
taxes;
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<PAGE> 9
(c) Emergency Loans and Default Loans, as described in the
Partnership Agreement and the Subpartnership Organic Documents;
(d) the Project Loans incurred by Subpartnerships on terms which
are consistent with the requirements of this Agreement; and
(e) other unsecured Indebtedness of the Borrower, Partnership and
the Subpartnerships in an aggregate amount not to exceed $50,000 for
the Borrower, $50,000 for the Partnership and $10,000 for any
Subpartnership.
SECTION 7.2.3 Asset Dispositions, etc. The Borrower will not, and,
consistent with Borrower's rights and obligations under the Partnership
Agreement, will not permit the Partnership or any of its Subpartnerships to,
sell, transfer, lease, contribute, convey or otherwise dispose of all or any
part of its assets to any Person, unless
(a) no Default has occurred and is continuing or would occur after
giving effect thereto; or
(b) such sale, transfer, lease or other disposition is approved by
Lender or is approved in the then current Approved Annual Business
Plan under the Partnership Agreement.
SECTION 7.2.4 Restriction on Distributions. Borrower will not make
dividend distributions to its shareholders at any time when there exists an
outstanding balance on the Loan.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1 Listing of Events of Default. Each of the following events
or occurrences described in this Section 8.1 shall constitute an "Event of
Default." Upon the occurrence of an Event of Default (or any event or state of
facts which, with the giving of notice or the passage of time or both, would
constitute an Event of Default), the Borrower shall give notice thereof to the
Lender.
SECTION 8.1.1 Non-Payment of Obligations. The Borrower shall default
in the payment when due of any principal of the Loan or of any interest in
respect of the Loan.
SECTION 8.1.2 Breach of Warranty. Any representation or warranty made
or deemed to be made hereunder or in any other Loan Document or any other
writing or certificate furnished by or on behalf of the Borrower to the Lender
for the purposes of or in connection with this Agreement or any such other Loan
Document is or shall be incorrect when made in any material respect.
SECTION 8.1.3 Non-Performance of Other Covenants and Obligations.
There shall be a default in the due performance and observance of any other
agreement contained herein or in any other Loan Document executed by Borrower,
and such default shall continue unremedied for a period of 30 days after notice
thereof shall have been given to the Borrower by the Lender.
SECTION 8.1.4 Bankruptcy, Insolvency, etc. The Borrower, Partnership
or any of its Subpartnerships shall
(a) become insolvent or generally fail to pay, or admit in writing
its inability or unwillingness to pay, debts as they become due;
(b) apply for, consent to, or acquiesce in, the appointment of a
trustee, receiver, sequestrator or other custodian for the Borrower,
Partnership or any Subpartnership or any property of any thereof, or
make a general assignment for the benefit of creditors;
(c) absent such application, consent or acquiescence permit or
suffer to exist the appointment of a trustee, receiver, sequestrator
or other custodian for the Borrower, Partnership or any Subpartnership
or for a substantial part of the property of any thereof, and such
trustee, receiver, sequestrator or other custodian shall not be
discharged within 60 days, provided that the Borrower, Partnership and
each Subpartnership hereby expressly authorize the Lender and each
Lender to appear in any court conducting any relevant proceeding
during such 60-day
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<PAGE> 10
period to preserve, protect and defend their rights under the Loan
Documents;
(d) permit or suffer to exist the commencement of any (x)
bankruptcy, reorganization, debt arrangement or other case or
proceeding under any bankruptcy or insolvency law, or (y) any
dissolution, winding up or liquidation proceeding, in respect of the
Borrower, Partnership or any Subpartnership, and, if any such case or
proceeding is not commenced by the Borrower, Partnership or any
Subpartnership, such case or proceeding shall be consented to or
acquiesced in by the Borrower, Partnership or such Subpartnership or
shall result in the entry of an order for relief or, in the event of
any case or proceeding described in clause (x), shall remain for 120
days undismissed, provided that the Borrower, Partnership, each
Subpartnership hereby expressly authorizes the Lender and each Lender
to appear in any court conducting any such case or proceeding during
such 120-day period to preserve, protect and defend their rights under
the Loan Documents; or
(e) take any partnership or corporate action authorizing, or with
intent to further any of the foregoing.
SECTION 8.2 Action if Bankruptcy. If any Event of Default described in
clauses (a) through (d) of Section 8.1.4 shall occur with respect to the
Borrower, Partnership or any of its Subpartnerships, the Commitment (if not
theretofore terminated) to make Advances shall automatically terminate and the
outstanding principal amount of the Loan shall automatically be and become
immediately due and payable, without notice or demand.
SECTION 8.3 Action if Other Event of Default. If any Event of Default
(other than any Event of Default described in Section 8.2) shall occur for any
reason, whether voluntary or involuntary, and be continuing, the Lender, shall
by notice to the Borrower declare all or any portion of the outstanding
principal amount of the Loan and other obligations to be due and payable and
the Commitment (if not theretofore terminated) to be terminated, whereupon the
full unpaid amount of the Loan shall be and become immediately due and payable,
without further notice, demand or presentment and the Commitment shall
terminate.
SECTION 8.4 Rescission of Event of Default. If an Event of Default
occurs hereunder and such Event of Default would not have occurred but for the
default by a Subpartnership (for purposes of this Section, the "Defaulting
Subpartnership") under Section 8.1.4 hereof, (such Events of Default being
described in this Section as "Specified Events of Default") then Lender shall
be required to rescind and annul the Event of Default if and only if, within
twenty (20) Business Days following such Specified Event of Default:
(a) all Defaults and Events of Default, other than the Specified
Events of Default, are remedied or waived to Lender's sole
satisfaction; and
(b) the partners of Partnership have approved of a revised
business plan with respect to the Project owned by the Defaulting
Subpartnership, the Borrower shall, on the basis of such revised
business plan, submit to Lender a revised Annual Business Plan and
Lender shall, in its reasonable discretion, Approve such Annual
Business Plan.
No action taken by Lender pursuant to this provision shall affect any
subsequent Default or Event of Default with respect to the Borrower or impair
any right or remedy consequent thereon.
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.1 Waivers, Amendments, etc. The provisions of this Agreement
and of each other Loan Document may from time to time be amended, modified or
waived, if such amendment, modification or waiver is in writing and consented
to by the Borrower and the Lender. No failure or delay on the part of the
Lender, or the holder of any Note in exercising any power or right under this
Agreement or any other Loan Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power or right preclude any
other or further exercise thereof or the exercise of any other power or right.
No notice to or demand on the Borrower in any case shall entitle it to any
notice or demand in similar or other circumstances. No waiver or approval by
the Lender or the holder of any Note under this Agreement or any other Loan
Document shall, except as may be otherwise stated in such waiver or approval,
be applicable to subsequent transactions. No waiver or approval hereunder shall
require any similar or dissimilar waiver or approval thereafter to be granted
hereunder.
SECTION 9.2 Notices. All notices and other communications provided to
any party hereto under this
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<PAGE> 11
Agreement or any other Loan Document shall be in writing and addressed,
delivered or transmitted to such party at its address or facsimile number set
forth below its signature hereto, or at such other address or facsimile number
as may be designated by such party in a notice to the other parties. Any
notice, if sent via United States Postal Service Express Mail or certified
mail, properly addressed with postage prepaid or if sent via nationally
recognized overnight courier service, properly addressed with delivery fees
prepaid, shall be deemed given when received; any notice, if transmitted by
facsimile, shall be deemed given one business day after receipt of electronic
confirmation of transmission.
SECTION 9.3 Payment of Costs and Expenses. The Borrower agrees to pay
on demand all reasonable expenses of the Lender (including the reasonable fees
and out-of-pocket expenses of counsel to the Lender and of local counsel, if
any, who may be retained by counsel to the Lender) in connection with this
transaction
SECTION 9.4 Indemnification.
(a) In consideration of the execution and delivery of this
Agreement by Lender and the extension of the Commitments, the Borrower
hereby indemnities, exonerates and holds the Lender and each of its
respective trustees, partners, stockholders, officers, directors,
employees, agents, attorneys, consultants and experts (collectively,
the "Indemnified Parties") free and harmless from and against any and
all actions, causes of action, suits, judgments, claims, demands,
losses, costs, liabilities (including, without limitation, strict
liability), penalties, fines and damages, (including, without
limitation, punitive damages), and expenses incurred in connection
therewith (irrespective of whether any such Indemnified Party is a
party to the action for which indemnification hereunder is sought),
including reasonable attorneys, consultants and experts fees and
disbursements (collectively, the "Indemnified Liabilities"), imposed
upon or incurred by the Indemnified Parties or any of them as a result
of, or arising out of, or relating to
(i) any transaction financed or to be financed in whole or in
part, directly or indirectly, with the proceeds of the Loan;
(ii) the entering into and performance of this Agreement and
any other Loan Document by any of the Indemnified Parties;
(iii) the actual or alleged release or presence of any
Hazardous Substance at, to or from any asset or former asset of
Borrower, Partnership or a Subpartnership;
(iv) the actual or alleged violation of any Environmental Law
by any person at or in connection with any current asset or former
asset of Borrower, Partnership or any of its Subpartnerships.
except for any such Indemnified Liabilities arising for the account of
a particular Indemnified Party by reason of the relevant Indemnified
Party's gross negligence or wilful misconduct, and if and to the
extent that the foregoing undertaking may be unenforceable for any
reason, the Borrower hereby agrees to make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities
which is permissible under applicable law, except as aforesaid to the
extent not payable by reason of the Indemnified Party's gross
negligence or wilful misconduct or breach of such obligations.
(b) LENDER SHALL NOT BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY
HEREUNDER OR ANY OTHER PERSON FOR CONSEQUENTIAL DAMAGES WHICH MAY BE
ALLEGED AS A RESULT OF THE AGREEMENT OR ANY OTHER LOAN DOCUMENT.
SECTION 9.5 Severability. Any provision of this Agreement or any other
Loan Document which is prohibited or unenforceable in any jurisdiction shall,
as to such provision and such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such Loan Document or affecting the validity or
enforceability of such provision in any other jurisdiction.
SECTION 9.6 Headings. The various headings of this Agreement and of
each other Loan Document are inserted for convenience only and shall not affect
the meaning or interpretation of this Agreement or such other Loan Document or
any provisions hereof or thereof.
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<PAGE> 12
SECTION 9.7 Execution in Counterparts, Effectiveness, etc. This
Agreement may be executed by the parties hereto in several counterparts, each
of which shall be an original and all of which shall constitute together but
one and the same agreement. This Agreement, together with each other Loan
Document, shall become effective when counterparts hereof executed on behalf of
the Borrower and Lender (or notice thereof satisfactory to the Lender) shall
have been received by the Lender and notice thereof shall have been given by
the Lender to the Borrower.
SECTION 9.8 Governing Law: Entire Agreement. THIS AGREEMENT, THE NOTES
AND EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER
AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD FOR CONFLICT OF
LAWS PRINCIPLES. Except as otherwise provided herein, this Agreement, the Note
and the other Loan Documents constitute the entire understanding among the
parties hereto with respect to the subject matter hereof and supersede any
prior agreements, written or oral, with respect thereto.
SECTION 9.9 Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that the Borrower may not assign or
transfer its rights or obligations hereunder without the prior written consent
of the Lender.
ARTICLE X
DEFINITIONS
SECTION 10.1 Defined Terms. In addition to the terms defined in
previous portions of this Agreement, the following terms when used in this
Agreement shall, except where the context otherwise requires, have the
following meanings (such meanings to be equally applicable to the singular and
plural forms thereof):
"Additional Funding Instruments" means the Additional Funding
Instruments executed by John Goff, Gerald Haddock, Harry Frampton and Lender on
August 11, 1995.
"Advance" means all money advances under the Loan made by Lender
pursuant to an Application for Advance in accordance with Article II.
"Agreement" means, on any date, this Credit Agreement.
"Annual Business Plan" is defined in the Partnership Agreement.
"Application for Advance" means a loan request and certificate duly
executed by the Borrower, in the form which is attached hereto as Exhibit A or
such other form which is approved by Lender from time to time.
"Approved" is defined in the Partnership Agreement.
"Approved Budget" means the Proposed Budget in the Approved Project
Plan, as adjusted and approved by the Partnership, the Borrower (both general
and limited partners) and the Project Lender.
"Approved Project Plan" shall be each of the Approved Project Plans
contemplated by Section 3.2 of the Partnership Agreement which shall, among
other things, include a Proposed Budget and for Projects to be developed in
more than one phase, a Project Advance Limit..
"Assessment Determination" is defined in the Additional Funding
Instruments.
"Borrower" means Crescent Development Management Corp., a Delaware
corporation, and its successors and assigns permitted hereunder.
"Borrower Security Agreement" means the Security Agreement executed
and delivered by Borrower granting Lender a security interest in (a) all
Partner Loans and Default Loans now or hereafter owing to Borrower and all
security therefor, and (b) Borrower's partnership interest in Partnership.
"Business Day" means any day which is neither a Saturday or Sunday nor
a legal holiday which banks are authorized or required to be closed in New
York, New York.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
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<PAGE> 13
"Code" means the Internal Revenue Code of 1986, as amended, reformed
or otherwise modified from time to time.
"Commitment" is defined in the Partnership Agreement.
"Commitment Termination Date" means the earlier of (i) the occurrence
of an Event of Default, (ii) the Stated Maturity Date, or (iii) subject to the
revolving feature described in Section 2.3, the date on which Lender has made
Advances equal to the Commitment Amount.
"Construction Contract" means all construction contracts executed by
the Subpartnership for the construction of a Project.
"Contractor" means the general contractor retained by the
Subpartnership with respect to the construction of a Project.
"Default" means any Event of Default or any condition, occurrence or
event which, after notice or lapse of time or both, would constitute an Event
of Default.
"Default Loan" means each Default Loan made by Borrower pursuant to
Section 3.5 of the Partnership Agreement.
"Distribution" means each Distribution (other than deemed
distributions) made to Borrower pursuant to Section 4.1 or Article X of the
Partnership Agreement.
"Emergency Loan" means each Emergency Loan made by Borrower pursuant
to Section 3.4 of the Partnership Agreement.
"Environmental Laws" means all applicable foreign, federal, state or
local statutes, laws, ordinances, codes, rules, regulations (including, without
limitation, consent decrees and orders and administrative orders) judgments and
permits or other authorizations relating to health, safety or the environment,
including, without limitation, CERCLA and RCRA.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time.
"Event of Default" is defined in Section 8.1.
"Governmental Authority" means the United States, the state, county
and city or other political subdivision in which a Project is located and any
other political subdivision, agency or instrumentality exercising jurisdiction
over the Borrower, Partnership, Subpartnership or a Project.
"Governmental Requirement" means all laws, ordinances, rules and
regulations of any Governmental Authority applicable to Borrower, Partnership,
Subpartnership, or a Project.
"Hazardous Material" means any pollutant, hazardous substance,
radioactive substance, toxic substance, hazardous waste, medical waste,
radioactive waste, special waste, petroleum or petroleum-derived substance or
waste, asbestos, polychlorinated biphenyls, or any hazardous or toxic
constituent thereof and includes, but is not limited to, any substance defined
in or regulated under Environmental Laws.
"Initial Advance" means the first Advance made hereunder, in an amount
not to exceed $1,000.00.
"Loan" is defined in the preamble.
"Loan Document" means this Agreement, the Note, the Partnership
Security Agreement and all other documents evidencing, securing or governing
the Loan.
"Note" means the Line of Credit Note of the Borrower delivered to a
Lender pursuant to this Agreement.
"Organic Document" means, relative to Borrower, any of its
Subsidiaries and any other Obligor, its articles or certificate of
incorporation, as the case may be, its articles of organization, its by-laws
and all
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<PAGE> 14
partnership agreements, operating agreements, shareholder agreements, voting
trusts and similar arrangements applicable to any partnership or limited
liability company interests issued by such person or authorized shares of
capital stock issued by such person.
"Partnership" means East West Resort Development, L.P., a Delaware
limited partnership.
"Partnership Agreement" means that certain Limited Partnership
Agreement of East West Resort Development, L.P. dated August 11, 1995.
"Partnership Security Agreement" means the Security Agreements
executed and delivered by the Partnership from time to time pursuant to this
Agreement granting Lender a security interest in Partnership's interest in the
Subpartnerships.
"Person" means any natural person, corporation, partnership, firm,
association, trust, government, governmental agency or any other entity,
whether acting in an individual, fiduciary or other capacity.
"Phased Project" means an Approved Project that is to be developed in
more than one phase.
"Project" means the land owned or acquired by a Subpartnership
together with the improvements to be constructed thereon, as contemplated by
the Plans.
"Project Advance Limit" means, with respect to each Phased Project the
amount designated as the Commitment for the Project in the Approved Project
Plan and the Approved Budget.
"Project Equity Advance" means the amount advanced hereunder by Lender
to Borrower (in one or more Advances) to enable it to make an equity
contribution to the Partnership.
"Project Lender" means the lender who issues the Project Loan
Commitment.
"Project Loan" means the loan contemplated by the Project Loan
Commitment, the proceeds of which will be used in connection with the
acquisition, construction and development of the Project described in such
Project Loan Commitment.
"Project Loan Commitment" means the commitment issued by the Project
Lender to Subpartnership to make the Project Loan to be secured by a first lien
on the Subpartnership's Project containing only such conditions to funding as
are reasonable and customary.
"Project Loan Documents" means the instruments and documents
evidencing, securing, pertaining to or governing a Project Loan.
"Project Mortgage" means a mortgage or deed of trust and security
agreement securing the payment of the Project Loan and evidencing a first lien
on the Project.
"Proposed Budget" means a budget or cost itemization included in each
Approved Project Plan specifying the cost by item of (a) the real estate which
will comprise a part of the Project, (b) all labor, materials and services
necessary for the construction of the Project in accordance with the Plans and
all Governmental Requirements, and (b) all other expenses anticipated which are
incident to the Project Loan and the construction of the Project. The Proposed
Budget shall include a calculation of the anticipated Total Equity for such
Project.
"RCRA" means the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901, et seq., as in effect from time to time.
"Special Mandatory Payments" means those mandatory payments which have
the following characteristics:
(a) the mandatory payment is attributable to the Borrower's
receipt of a Distribution from Partnership; and
(b) the Distribution from the Partnership to Borrower was
attributable to a distribution received by Partnership from a
Subpartnership due to the sale or transfer by such Subpartnership of
its Project or a portion of its Project.
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<PAGE> 15
"Stated Maturity Date" means August 31, 2004.
"Subpartnership" means each limited liability company, whether now
existing or hereafter formed, in which Partnership has an equity interest.
"Subscriber" is defined in the Additional Funding Instruments to
include John Goff, Gerald Haddock, Harry Frampton and Lender.
"Tax Distribution" means each Distribution made to Borrower pursuant
to Section 4.2 of the Partnership Agreement.
"Total Equity" means, with respect to each Project, 80% of the
difference between the total costs set forth in the Approved Budget as the cost
of the Project and the amount of the Project Loan.
"UCC" means the Uniform Commercial Code as in effect, from time to
time, in the State of Texas.
"United States" or "U.S." means the United States of America, its
fifty States and the District of Columbia.
[INTENTIONALLY LEFT BLANK]
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<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
day and year first above written.
BORROWER: CRESCENT DEVELOPMENT MANAGEMENT
CORP., a Delaware corporation
By:
-----------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
LENDER: CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership
By: Crescent Real Estate Equities, Ltd.,
Sole general partner
By:
-----------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
<PAGE> 17
EXHIBIT A
APPLICATION FOR ADVANCE
This Application for Advance is submitted by the undersigned to
Crescent Real Estate Equities Limited Partnership ("LENDER") pursuant to that
Credit Agreement dated as of August 11, 1995 between Lender and the undersigned
(the "CREDIT AGREEMENT"). Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in the Credit Agreement.
1. The undersigned hereby requests an Advance under the Credit Agreement
in the amount of: $
--------------------------
2. The undersigned hereby warrants and represents the following to
Lender:
A. The Advance is being requested in connection with the following
Project (the "APPLICABLE PROJECT"):
-----------------------------------
B. If the Applicable Project is a Phased Project, the Project
Advance Limit for the Applicable Project is: $
-------------------
C. If the Applicable Project is not a Phased Project, the Total
Equity for the Applicable Project is: $
---------------------
D. Lender has previously made Advances with respect to the
Applicable Project in the aggregate amount of: $
-----------------
E. Both before and after giving effect to the Advance which is
requested hereby, the warranties and representations set forth in
Article VI of the Credit Agreement are true and correct with the
same effect as if made on the date hereof.
CRESCENT DEVELOPMENT MANAGEMENT CORP.
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Exhibit A- Page 17
<PAGE> 18
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as
of April 15, 1997, between CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a
Delaware limited partnership (the "Lender") and CRESCENT DEVELOPMENT MANAGEMENT
CORP., a Delaware corporation (the "Borrower") .
RECITALS
WHEREAS, the Borrower and the Lender entered into that Credit
Agreement dated as of August 11, 1995 (the "Credit Agreement"); defined terms
used herein but not herein defined have the meanings ascribed to those terms in
the Credit Agreement; and
WHEREAS, under the Credit Agreement the Borrower has borrowed funds in
an aggregate principal amount of $________________ for the purposes permitted
under Section 4.3 of the Agreement, including primarily the making of capital
contributions to the Partnership; and
WHEREAS, the Borrower desires contemporaneously herewith to enter into
an amendment to the Partnership Agreement pursuant to which the Borrower's
obligation to make additional capital contributions to the Partnership will
increase; and to partially enable it to enter into and subsequently satisfy
that obligation, the Borrower has requested that Lender agree to increase the
Commitment Amount by Eight Million Dollars ($8,000,000); and
WHEREAS, the Lender is willing, on the terms and subject to the
conditions set forth in the Credit Agreement as amended by this Amendment, to
modify and increase the Commitment Amount and to make the Loan in a maximum
aggregate principal amount at any one time outstanding not to exceed
$28,166,666, from time to time prior to the Commitment Termination Date; and
WHEREAS, except as expressly amended by this Amendment or other
instruments executed pursuant hereto, the Loan Documents shall remain in full
force and effect in accordance with their respective terms;
NOW, THEREFORE, the parties hereto agree as follows:
1. Amendment of Article II (Commitments, Advance Procedures and
Notes). Article II of the Credit Agreement is amended and restated in its
entirety as follows:
"ARTICLE II
COMMITMENTS, ADVANCE PROCEDURES AND NOTES
SECTION 2.1 Commitment. On the terms and subject to the conditions of
this Agreement (including Article V), Lender agrees, from the date hereof to
the Commitment Termination Date, to make advances under the Loan to the
Borrower up to an aggregate outstanding principal amount of Twenty Eight
Million One Hundred Sixty-Six Thousand Six
<PAGE> 19
Hundred Sixty-Six and No/100 Dollars ($28,166,666) (the "Commitment Amount")
pursuant to Section 2.2. Prior to the available Commitment Termination Date,
the Borrower may repay and reborrow up to the full amount of the Commitment
Amount in accordance with the terms hereof. The Lender shall not make any
advances after the Commitment Termination Date. Lender shall not be required to
make any advance under this Loan if, after giving effect thereto, (a) the
aggregate principal amount of all Advances made would exceed the Commitment
Amount or (b) with respect to an Approved Project, the aggregate Project Equity
Advance then outstanding with respect to such Project would exceed the Project
Advance Limit for such Project or (c) with respect to any Project, the
aggregate Project Equity Advance made with respect to such Project (whether or
not all or any portion of such Project Equity Advance remains outstanding)
would exceed the Total Equity for such Project. Notwithstanding anything in
this Agreement to the contrary, (i) Lender shall not be obligated to advance
additional funds with respect to a Project if a default (after notice and
expiration of cure periods) shall occur by a Subpartnership under the Project
Loan Documents, (ii) Lender shall not be obligated to advance additional funds
in excess of the aggregate Commitments pursuant to Approved Project Plans if
there is an Incapacity of Frampton (as defined in the Partnership Agreement),
(iii) Lender shall not be obligated to advance additional funds if there is an
Event of Default (as defined in the Partnership Agreement) that occurs under
the Partnership Agreement and that remains uncured and (iv) Lender shall not be
obligated to advance more than 20% of the Commitment with respect to a Project
until the earlier of that point in time when (A) the Subpartnership with
respect to such Project has entered into a binding contract for the purchase of
real property in connection with the Project or (B) a Project Loan Commitment
has been received from a Project Lender with respect to the Project.
"SECTION 2.2 Advance Procedure. Prior to the Commitment Termination
Date, Borrower may from time to time request that an Advance be made. Each
Advance following the Initial Advance shall be in an amount which is equal to
the lesser of (a) the amount of the Commitment Amount not outstanding, or (b)
the allowable Project Equity Advance for the applicable Project. The request
shall be made by delivering a Application for Advance to the Lender not less
than three (3) Business Days prior to the date upon which such Advance is to be
made and, if all such conditions precedent to such Advance have been satisfied,
Lender shall make such Advance directly to the Borrower by wire transfer to the
accounts the Borrower shall have specified in its Application for Advance.
SECTION 2.3 Note. The Loan shall be evidenced by a single promissory
note (the "Note") payable to the order of Lender in the maximum principal
amount of Twenty-Eight Million One Hundred Sixty-Six Thousand Six Hundred
Sixty-Six and No/100 Dollars ($28,166,666), which modifies, restates, replaces
and substitutes for that Note dated August 11, 1995, made by Borrower in favor
of Lender."
2. Amendment of Section 3.1.2 (Mandatory Payments). Section 3.1.2 of
the Credit Agreement is amended by deleting therefrom the following sentences:
"Each mandatory payment made hereunder which is attributable to a Distribution
shall be accompanied by a certificate from the Borrower to the Lender which
designates whether the mandatory payment is a Special Mandatory Payment. If
Borrower fails to provide such a certificate, Lender shall designate whether
the mandatory payment is a Special Mandatory Payment and such determination
shall be conclusive."
<PAGE> 20
3. Amendment of Section 4.3 (Use of Proceeds). Section 4.3(b) of the
Credit Agreement is amended and restated in its entirety as follows:
"(b) each other advance (other than the Initial Advance) shall be used
by Borrower solely to make capital contributions to the Partnership, in an
amount which does not exceed the Project Equity Advance for a Project;
provided, however, that none of the proceeds from advances requested or made
subsequent to April 14, 1997, may be used by Borrower to make capital
contributions to the Partnership for Projects Approved prior to that date; and
provided further, however, that proceeds from any advance made during any
rolling three year period may be used by Borrower only to make capital
contributions to the Partnership for Approved Projects for which capital
contributions have not been previously made by Borrower during the three year
period ending on the date of such advance."
4. Amendment of Section 7.1.7 (Additional Funding Instruments).
Section 7.1.7 of the Credit Agreement is amended by adding at the end thereof
the following:
"Borrower will, through its Board of Directors, make an Assessment
Determination at that point in time when the aggregate of the accrued but
unpaid interest and the unpaid principal balance of the Loan first equals
Twenty Million and No/100 Dollars ($20,000,000) or would exceed such amount if
a requested Advance was made. In such event, the Board of Directors of Borrower
shall make written demand upon each Subscriber to contribute to Borrower cash
in an amount equal to the product realized by multiplying (i) One Million and
No/100 Dollars ($1,000,000) by (ii) a fraction, the numerator of which is the
number of shares of common stock of Borrower owned by Subscriber as of the date
of the Assessment Determination and the denominator of which is the number of
outstanding shares of common stock of Borrower as of the date of the Assessment
Determination ("Third Equity Shortfall Share"). Notwithstanding anything to the
contrary contained in this Agreement, no additional Advance will be made to
Borrower pursuant to this Agreement which would increase the aggregate unpaid
principal and interest on the Loan above Twenty Million and No/100 Dollars
($20,000,000) unless and until each Subscriber has contributed cash to Borrower
in an amount equal to such Subscriber's Third Equity Shortfall Share. Borrower
will, through its Board of Directors, make an Assessment Determination at that
point in time when the aggregate of the accrued but unpaid interest and the
unpaid principal balance of the Loan first equals Twenty-Four Million and
No/100 Dollars ($24,000,000) or would exceed such amount if a requested Advance
was made. In such event, the Board of Directors of Borrower shall make written
demand upon each Subscriber to contribute to Borrower cash in an amount equal
to the product realized by multiplying (i) One Million and No/100 Dollars
($1,000,000) by (ii) a fraction, the numerator of which is the number of shares
of common stock of Borrower owned by Subscriber as of the date of the
Assessment Determination and the denominator of which is the number of
outstanding shares of common stock of Borrower as of the date of the Assessment
Determination ("Fourth Equity Shortfall Share"). Notwithstanding anything to
the contrary contained in this Agreement, no additional Advance will be made to
Borrower pursuant to this Agreement which would increase the aggregate unpaid
principal and interest on the Loan above Twenty-Four Million and No/100 Dollars
($24,000,000) unless and until each Subscriber has contributed cash to Borrower
in an amount equal to such Subscriber's Fourth Equity Shortfall Share."
<PAGE> 21
5. Amendment of Article IV (Definitions). The definitions of each of
the following terms is amended and restated as follows:
"Additional Funding Instruments" means the Additional Funding
Instruments executed by John Goff, Gerald Haddock, Harry Frampton and Lender on
August 11, 1995 and as of April 15, 1997.
"Commitment Termination Date" means the earlier of (i) the occurrence
of an Event of Default or (ii) April 15, 2000.
"Loan Document" means this Agreement, the Note, the Partnership
Security Agreement and all other documents evidencing, securing or governing
the Loan, as such documents may be amended, renewed, extended, restated or
supplemented from time to time.
"Note" means the Line of Credit Note of the Borrower delivered to a
Lender pursuant to this Agreement and any note subsequently given in exchange,
substitution, modification, renewal or extension therefor.
"Partnership Agreement" means that certain Limited Partnership
Agreement of East West Resort Development, L.P. dated August 11, 1995, as from
time to time amended.
6. Payment of Costs and Expenses. The Borrower agrees to pay on demand
all reasonable expenses of the Lender (including the reasonable fees and
out-of-pocket expenses of counsel to the Lender and of local counsel, if any,
who may be retained by counsel to the Lender) in connection with this Amendment
and the transactions contemplated hereby.
7. Execution in Counterparts, Effectiveness, etc. This Amendment may
be executed by the parties hereto in several counterparts, each of which shall
be an original and all of which shall constitute together but one and the same
agreement. This Amendment, together with each other Loan Document executed in
connection with this Amendment, shall become effective when counterparts hereof
executed on behalf of the Borrower and Lender (or notice thereof satisfactory
to the Lender) shall have been received by the Lender and notice thereof shall
have been given by the Lender to the Borrower.
8. Governing Law: Entire Agreement. THIS AMENDMENT, THE NOTE GIVEN IN
CONNECTION HEREWITH, AND EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A
CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD FOR CONFLICT OF LAWS PRINCIPLES. Except as otherwise provided herein,
this Amendment, the Note given in replacement of that promissory note made
August 11, 1995, and the other Loan Documents constitute the entire
understanding among the parties hereto with respect to the subject matter
hereof and supersede any prior agreements, written or oral, with respect
thereto.
9. REIT Compliance. Borrower acknowledges that Lender's affiliate,
Crescent Real Estate Equities Company ("Crescent"), is a real estate investment
trust under the Internal Revenue Code of 1986, as amended (the "Code").
Borrower agrees that it will not knowingly or intentionally take or omit to
take any action which Borrower knows would or could result in Crescent being
disqualified from treatment as a real estate investment trust under the Code.
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized as of the
day and year first above written.
BORROWER: CRESCENT DEVELOPMENT MANAGEMENT
CORP., a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
LENDER: CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership
By: Crescent Real Estate Equities, Ltd.,
Sole general partner
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 23
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as
of May 8, 1998, between CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a
Delaware limited partnership (the "Lender") and CRESCENT DEVELOPMENT MANAGEMENT
CORP., a Delaware corporation (the "Borrower") .
RECITALS
WHEREAS, the Borrower and the Lender entered into that Credit
Agreement dated as of August 11, 1995, and that First Amendment to Credit
Agreement dated as of April 15, 1997 (the "Credit Agreement"); defined terms
used herein but not herein defined have the meanings ascribed to those terms in
the Credit Agreement; and
WHEREAS, under the Credit Agreement the Borrower has borrowed funds in
an aggregate principal amount of $41,212,547.12 for the purposes permitted
under Section 4.3 of the Agreement, including primarily the making of capital
contributions to the Partnership; and
WHEREAS, the Lender effective February 19, 1996, advanced to the
Borrower a loan in the amount of $3,100,000 (the "East West Resorts Term Loan")
for the purpose of enabling the Borrower to acquire a 50% member's interest in
East West Resorts, LLC, a Delaware limited liability company ("East West
Resorts"); and the Lender pursuant to that Credit Agreement dated as of January
1, 1998 (the "East West Resorts Credit Agreement") extended the Borrower a line
of credit loan (the "East West Resorts Credit Loan") in a maximum aggregate
principal amount at any one time outstanding not to exceed $22,920,000 for the
purpose of enabling the Borrower to make capital contributions to East West
Resorts pursuant to that Second Amended and Restated Operating Agreement of
East West Resorts, and the Borrower has borrowed under the East West Resorts
Credit Loan funds in an aggregate principal amount of $___________ ; and the
East West Resorts Term Loan and the East West Credit Loan together are called
the "East West Loans";
WHEREAS, the Borrower desires contemporaneously herewith to enter into
an amendment to the Partnership Agreement pursuant to which the Borrower's
obligation to make additional capital contributions to the Partnership will
increase; and to partially enable it to enter into and subsequently satisfy
that obligation, the Borrower has requested that Lender agree to increase the
Commitment Amount by Twelve Million Dollars ($12,000,000); and
WHEREAS, the Lender is willing, on the terms and subject to the
conditions set forth in the Credit Agreement as amended by this Amendment
(including but not limited to cross-collateralizing and cross-defaulting the
East West Loans with the Loan), to modify and increase the Commitment Amount
and to make the Loan in a maximum aggregate principal amount at any one time
outstanding not to exceed $40,166,666, from time to time prior to the
Commitment Termination Date; and
<PAGE> 24
WHEREAS, except as expressly amended by this Amendment or other
instruments executed pursuant hereto, the Loan Documents shall remain in full
force and effect in accordance with their respective terms;
NOW, THEREFORE, the parties hereto agree as follows:
1. Amendment of Article II (Commitments, Advance Procedures and
Notes). Article II of the Credit Agreement is amended and restated in its
entirety as follows:
ARTICLE I
COMMITMENTS, ADVANCE PROCEDURES AND NOTES
"SECTION 2.1 Commitment. On the terms and subject to the conditions of
this Agreement (including Article V), Lender agrees, from the date hereof to
the Commitment Termination Date, to make advances under the Loan to the
Borrower up to an aggregate outstanding principal amount of Forty Million One
Hundred Sixty-Six Thousand Six Hundred Sixty-Six and No/100 Dollars
($40,166,666) (the "Commitment Amount") pursuant to Section 2.2. Prior to the
available Commitment Termination Date, the Borrower may repay and reborrow up
to the full amount of the Commitment Amount in accordance with the terms
hereof. The Lender shall not make any advances after the Commitment Termination
Date. Lender shall not be required to make any advance under this Loan if,
after giving effect thereto, (a) the aggregate principal amount of all Advances
made would exceed the Commitment Amount or (b) with respect to an Approved
Project, the aggregate Project Equity Advance then outstanding with respect to
such Project would exceed the Project Advance Limit for such Project or (c)
with respect to any Project, the aggregate Project Equity Advance made with
respect to such Project (whether or not all or any portion of such Project
Equity Advance remains outstanding) would exceed the Total Equity for such
Project. Notwithstanding anything in this Agreement to the contrary, (i) Lender
shall not be obligated to advance additional funds with respect to a Project if
a default (after notice and expiration of cure periods) shall occur by a
Subpartnership under the Project Loan Documents, (ii) Lender shall not be
obligated to advance additional funds in excess of the aggregate Commitments
pursuant to Approved Project Plans if there is an Incapacity of Frampton (as
defined in the Partnership Agreement), (iii) Lender shall not be obligated to
advance additional funds if there is an Event of Default (as defined in the
Partnership Agreement) that occurs under the Partnership Agreement and that
remains uncured and (iv) Lender shall not be obligated to advance more than 20%
of the Commitment with respect to a Project until the earlier of that point in
time when (A) the Subpartnership with respect to such Project has entered into
a binding contract for the purchase of real property in connection with the
Project or (B) a Project Loan Commitment has been received from a Project
Lender with respect to the Project.
"SECTION 2.2 Advance Procedure. Prior to the Commitment Termination
Date, Borrower may from time to time request that an Advance be made. Each
Advance following the Initial Advance shall be in an amount which is equal to
the lesser of (a) the amount of the Commitment Amount not outstanding, or (b)
the allowable Project Equity Advance for the applicable Project. The request
shall be made by delivering a Application for Advance to the
<PAGE> 25
Lender not less than three (3) Business Days prior to the date upon which such
Advance is to be made and, if all such conditions precedent to such Advance
have been satisfied, Lender shall make such Advance directly to the Borrower by
wire transfer to the accounts the Borrower shall have specified in its
Application for Advance.
"SECTION 2.3 Note. The Loan shall be evidenced by a single promissory
note (the "Note") payable to the order of Lender in the maximum principal
amount of Forty Million One Hundred Sixty-Six Thousand Six Hundred Sixty-Six
and No/100 Dollars ($40,166,666), which modifies, restates, replaces and
substitutes for that Note dated April 15, 1997, made by Borrower in favor of
Lender, which itself modified, restated, replaced and substituted for that Note
dated August 11, 1995."
2. Amendment of Section 7.1.7 (Additional Funding Instruments).
Section 7.1.7 of the Credit Agreement is amended by adding at the end thereof
the following:
"Borrower will, through its Board of Directors, make an
Assessment Determination at that point in time when the aggregate of the
accrued but unpaid interest and the unpaid principal balance of the Loan first
equals Twenty-Eight Million and No/100 Dollars ($28,000,000) or would exceed
such amount if a requested Advance was made. In such event, the Board of
Directors of Borrower shall make written demand upon each Subscriber to
contribute to Borrower cash in an amount equal to the product realized by
multiplying (i) One Million and No/100 Dollars ($1,000,000) by (ii) a fraction,
the numerator of which is the number of shares of common stock of Borrower
owned by Subscriber as of the date of the Assessment Determination and the
denominator of which is the number of outstanding shares of common stock of
Borrower as of the date of the Assessment Determination ("Fifth Equity
Shortfall Share"). Notwithstanding anything to the contrary contained in this
Agreement, no additional Advance will be made to Borrower pursuant to this
Agreement which would increase the aggregate unpaid principal and interest on
the Loan above Twenty-Eight Million and No/100 Dollars ($28,000,000) unless and
until each Subscriber has contributed cash to Borrower in an amount equal to
such Subscriber's Fifth Equity Shortfall Share. Borrower will, through its
Board of Directors, make an Assessment Determination at that point in time when
the aggregate of the accrued but unpaid interest and the unpaid principal
balance of the Loan first equals Thirty-Two Million and No/100 Dollars
($32,000,000) or would exceed such amount if a requested Advance was made. In
such event, the Board of Directors of Borrower shall make written demand upon
each Subscriber to contribute to Borrower cash in an amount equal to the
product realized by multiplying (i) One Million and No/100 Dollars ($1,000,000)
by (ii) a fraction, the numerator of which is the number of shares of common
stock of Borrower owned by Subscriber as of the date of the Assessment
Determination and the denominator of which is the number of outstanding shares
of common stock of Borrower as of the date of the Assessment Determination
("Sixth Equity Shortfall Share"). Notwithstanding anything to the contrary
contained in this Agreement, no additional Advance will be made to Borrower
pursuant to this Agreement which would increase the aggregate unpaid principal
and interest on the Loan above Thirty-Two Million and No/100 Dollars
($32,000,000) unless and until each Subscriber has contributed cash to Borrower
in an amount equal to such Subscriber's Sixth Equity Shortfall Share. Borrower
will, through its
<PAGE> 26
Board of Directors, make an Assessment Determination at that point in time when
the aggregate of the accrued but unpaid interest and the unpaid principal
balance of the Loan first equals Thirty-Six Million and No/100 Dollars
($36,000,000) or would exceed such amount if a requested Advance was made. In
such event, the Board of Directors of Borrower shall make written demand upon
each Subscriber to contribute to Borrower cash in an amount equal to the
product realized by multiplying (i) One Million and No/100 Dollars ($1,000,000)
by (ii) a fraction, the numerator of which is the number of shares of common
stock of Borrower owned by Subscriber as of the date of the Assessment
Determination and the denominator of which is the number of outstanding shares
of common stock of Borrower as of the date of the Assessment Determination
("Seventh Equity Shortfall Share"). Notwithstanding anything to the contrary
contained in this Agreement, no additional Advance will be made to Borrower
pursuant to this Agreement which would increase the aggregate unpaid principal
and interest on the Loan above Thirty-Six Million and No/100 Dollars
($36,000,000) unless and until each Subscriber has contributed cash to Borrower
in an amount equal to such Subscriber's Seventh Equity Shortfall Share."
3. Amendment of Article IV (Definitions). The definition of the
following term is amended and restated as follows:
"Additional Funding Instruments" means the Additional Funding
Instruments executed by John Goff, Gerald Haddock, Harry Frampton and Lender on
August 11, 1995, as of April 15, 1997, and as of May 8, 1998.
The following definitions are added to Article IV:
"East West Resorts" means East West Resorts, LLC, a Delaware limited
liability company, and its successor or successors by merger, consolidation or
any other business combination as a result of which, by operation of law or by
agreement, such successor or successors assume the obligations or liabilities
of East West Resorts, LLC under any or all East West Resorts Loans.
"East West Resorts Term Loan" means that term loan, and related
promissory note and Security Agreement made by Borrower, from Lender to
Borrower made February 29, 1996, and all extensions, modifications, amendments
and renewals thereof.
"East West Resorts Credit Loan" means that line of credit loan, and
related Credit Agreement, promissory note, and security agreement, from Lender
to Borrower made effective January 1, 1998, and all extensions, modifications,
amendments, and renewals thereof.
"East West Loans" means the East West Resorts Term Loan and East West
Resorts Credit Loan.
"East West Resorts Loan Documents" means all documents evidencing,
securing or governing either of the East West Loans, including but not limited
to that Promissory Note dated February 29, 1996 in the principal amount of
$3,100,000, that Security Agreement dated
<PAGE> 27
February 29, 1996, that Credit Agreement dated as of January 1, 1998,
and all "Loan Documents" as defined therein, and all extensions, modifications,
amendments, and renewals thereof.
4. Amendment of Article VIII (Events of Default). Section 7.1.7 of the
Credit Agreement is amended and restated in its entirety as follows:
"ARTICLE VIII
EVENTS OF DEFAULT
"SECTION 8.1 Listing of Events of Default. Each of the following
events or occurrences described in this Section 8.1 shall constitute an "Event
of Default." Upon the occurrence of an Event of Default (or any event or state
of facts which, with the giving of notice or the passage of time or both, would
constitute an Event of Default), the Borrower shall give notice thereof to the
Lender.
"SECTION 8.1.1 Non-Payment of Obligations. The Borrower shall
default in the payment when due of any principal of the Loan, the East West
Resorts Term Loan or the East West Resorts Credit Loan, or of any interest in
respect of the Loan, the East West Resorts Term Loan, or the East West Resorts
Credit Loan.
"SECTION 8.1.2 Breach of Warranty. Any representation or
warranty made or deemed to be made hereunder or in any other Loan Document, any
East West Resorts Loan Document, or any other writing or certificate furnished
by or on behalf of the Borrower to the Lender for the purposes of or in
connection with this Agreement or either of the East West Resorts Loans, or any
such other Loan Document or any other East West Resorts Loan Document, is or
shall be incorrect when made in any material respect.
"SECTION 8.1.3 Non-Performance of Other Covenants and
Obligations. There shall be a default in the due performance and observance of
any other agreement contained herein or in any other Loan Document or any East
West Resorts Loan Document executed by Borrower, and such default shall
continue unremedied for a period of 30 days after notice thereof shall have
been given to the Borrower by the Lender.
"SECTION 8.1.4 Bankruptcy, Insolvency, etc. The Borrower,
Partnership, any of its Subpartnerships, or East West Resorts shall
(a) become insolvent or generally fail to pay, or
admit in writing its inability or unwillingness to pay, debts
as they become due;
(b) apply for, consent to, or acquiesce in, the
appointment of a trustee, receiver, sequestrator or other
custodian for the Borrower, Partnership or any Subpartnership
or East West Resorts or any property of any thereof, or make
a general assignment for the benefit of creditors;
(c) absent such application, consent or acquiescence
permit or suffer to
<PAGE> 28
exist the appointment of a trustee, receiver, sequestrator or
other custodian for the Borrower, Partnership, any
Subpartnership or East West Resorts or for a substantial part
of the property of any thereof, and such trustee, receiver,
sequestrator or other custodian shall not be discharged
within 60 days, provided that the Borrower, Partnership and
each Subpartnership and East West Resorts hereby expressly
authorize the Lender to appear in any court conducting any
relevant proceeding during such 60-day period to preserve,
protect and defend their rights under the Loan Documents and
the East West Resort Loan Documents;
(d) permit or suffer to exist the commencement of any
(x) bankruptcy, reorganization, debt arrangement or other
case or proceeding under any bankruptcy or insolvency law, or
(y) any dissolution, winding up or liquidation proceeding, in
respect of the Borrower, Partnership, any Subpartnership or
East West Resorts, and, if any such case or proceeding is not
commenced by the Borrower, Partnership, any Subpartnership or
East West Resorts, such case or proceeding shall be consented
to or acquiesced in by the Borrower, Partnership, such
Subpartnership or East West Resorts or shall result in the
entry of an order for relief or, in the event of any case or
proceeding described in clause (x), shall remain for 120 days
undismissed, provided that the Borrower, Partnership, each
Subpartnership and East West Resorts hereby expressly
authorizes the Lender and each Lender to appear in any court
conducting any such case or proceeding during such 120-day
period to preserve, protect and defend their rights under the
Loan Documents or the East West Loan Documents; or
(e) take any partnership, limited liability company
or corporate action authorizing, or with intent to further
any of the foregoing.
"SECTION 8.2 Action if Bankruptcy. If any Event of Default described
in clauses (a) through (e) of Section 8.1.4 shall occur with respect to the
Borrower, Partnership, any of its Subpartnerships or East West Resorts, the
Commitment (if not theretofore terminated) to make Advances shall automatically
terminate and the outstanding principal amount of the Loan shall automatically
be and become immediately due and payable, without notice or demand.
"SECTION 8.3 Action if Payment Event of Default under East West Loan.
If any Event of Default described in Section 8.1.1 shall occur due to
Borrower's default in the payment when due of any principal or interest in
respect of the East West Resorts Term Loan or the East West Resorts Credit Loan
(but not for any other reason), and Borrower fails to pay such principal or
interest in full within 30 days after the due date thereof, then the Lender
shall by notice to the Borrower declare all or any portion of the outstanding
principal amount of the Loan and other obligations to be due and payable and
the Commitment (if not theretofore terminated) to be terminated, whereupon the
full unpaid amount of the Loan shall be and become immediately due and payable,
without further notice, demand or presentment and the Commitment shall
terminate.
"SECTION 8.4 Action if Other Event of Default under East West Loan. If
any Event of
<PAGE> 29
Default (other than any Event of Default described in Section 8.2 or Section
8.3) shall occur with respect to any East West Resorts Loan Document (but not
for any other reason) for any reason, whether voluntary or involuntary, and (a)
be continuing for a period of 90 days if an Event of Default under Section
8.1.2 or (b) ,be continuing for a period of 90 days after notice thereof shall
have been given to Borrower by Lender if an Event of Default under Section
8.1.3, then the Lender shall by notice to the Borrower declare all or any
portion of the outstanding principal amount of the Loan and other obligations
to be due and payable and the Commitment (if not theretofore terminated) to be
terminated, whereupon the full unpaid amount of the Loan shall be and become
immediately due and payable, without further notice, demand or presentment and
the Commitment shall terminate.
"SECTION 8.5 Action if Other Event of Default. If any Event of Default
(other than any Event of Default described in Section 8.2, Section 8.3, or
Section 8.4) shall occur for any reason, whether voluntary or involuntary, and
be continuing, the Lender shall by notice to the Borrower declare all or any
portion of the outstanding principal amount of the Loan and other obligations
to be due and payable and the Commitment (if not theretofore terminated) to be
terminated, whereupon the full unpaid amount of the Loan shall be and become
immediately due and payable, without further notice, demand or presentment and
the Commitment shall terminate.
"SECTION 8.6 Rescission of Event of Default. If an Event of Default
occurs hereunder and such Event of Default would not have occurred but for the
default by a Subpartnership (for purposes of this Section, the "Defaulting
Subpartnership") under Section 8.1.4 hereof, (such Events of Default being
described in this Section as "Specified Events of Default") then Lender shall
be required to rescind and annul the Event of Default if and only if, within
twenty (20) Business Days following such Specified Event of Default:
(a) all Defaults and Events of Default, other than the
Specified Events of Default, are remedied or waived to Lender's sole
satisfaction; and
(b) the partners of Partnership have approved of a revised
business plan with respect to the Project owned by the Defaulting
Subpartnership, the Borrower, on the basis of such revised business
plan, has submitted to Lender a revised Annual Business Plan and
Lender, in its reasonable discretion, has Approved such Annual
Business Plan.
No action taken by Lender pursuant to this provision shall affect any
subsequent Default or Event of Default with respect to the Borrower or impair
any right or remedy consequent thereon."
5. Payment of Costs and Expenses. The Borrower agrees to pay on demand
all reasonable expenses of the Lender (including the reasonable fees and
out-of-pocket expenses of counsel to the Lender and of local counsel, if any,
who may be retained by counsel to the Lender) in connection with this Amendment
and the transactions contemplated hereby.
6. Execution in Counterparts, Effectiveness, etc. This Amendment may
be executed by the parties hereto in several counterparts, each of which shall
be an original and all of which shall
<PAGE> 30
constitute together but one and the same agreement. This Amendment, together
with each other Loan Document executed in connection with this Amendment, shall
become effective when counterparts hereof executed on behalf of the Borrower
and Lender (or notice thereof satisfactory to the Lender) shall have been
received by the Lender and notice thereof shall have been given by the Lender
to the Borrower.
7. Governing Law: Entire Agreement. THIS AMENDMENT, THE NOTE GIVEN IN
CONNECTION HEREWITH, AND EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A
CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD FOR CONFLICT OF LAWS PRINCIPLES. Except as otherwise provided herein,
this Amendment, the Note given in replacement of that promissory note made as
of April 15, 1997, and the other Loan Documents constitute the entire
understanding among the parties hereto with respect to the subject matter
hereof and supersede any prior agreements, written or oral, with respect
thereto.
8. REIT Compliance. Borrower acknowledges that Lender's affiliate,
Crescent Real Estate Equities Company ("Crescent"), is a real estate investment
trust under the Internal Revenue Code of 1986, as amended (the "Code").
Borrower agrees that it will not knowingly or intentionally take or omit to
take any action which Borrower knows would or could result in Crescent being
disqualified from treatment as a real estate investment trust under the Code.
<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized as of the
day and year first above written.
BORROWER: CRESCENT DEVELOPMENT MANAGEMENT
CORP., a Delaware corporation
By:
----------------------------
Name:
---------------------------
Title:
--------------------------
LENDER: CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited
partnership
By: Crescent Real Estate Equities,
Ltd., Sole general partner
By:
----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 32
FIRST AMENDED AND RESTATED SECURITY AGREEMENT
("Restated Security Agreement")
THIS FIRST AMENDED AND RESTATED SECURITY AGREEMENT ("Restated Security
Agreement") dated September 27, 1996, between Crescent Real Estate Equities
Limited Partnership, as Secured Party, and Crescent Development Management
Corp., as Debtor.
RECITALS
Secured Party and Debtor entered into that $20,166,666 Credit
Agreement dated as of August 11, 1995 (the "Credit Agreement"), in connection
with which Debtor made and delivered to Secured Party that Line of Credit Note
in the principal sum of $20,166,666 payable to Secured Party (the "Note") and
Debtor and Secured Party entered into that Security Agreement dated August 11,
1995 (the"Original Security Agreement") pursuant to which Debtor granted
Secured Party security interests in, among other collateral, the rights and
interests of Debtor as the limited partner of East West Resort Development, L.
P. ("Subpartnership").
Debtor wishes to borrow monies under the Credit Agreement for the
purpose of funding its contribution as a limited partner of East West Resort
Development II, L. P., a Delaware limited partnership ("Subpartnership II");
however, under Section 4.3(b) of the Credit Agreement, advances under the
Credit Agreement may be used solely to make capital contributions to the
Subpartnership.
Debtor has requested from Secured Party a one-time waiver of that
provision limiting use of loan proceeds, to allow Debtor to apply loan proceeds
to make a single capital contribution at this time to Subpartnership II in
exchange for a limited partnership interest in Subpartnership II.
Secured Party is willing to grant Debtor's request and
contemporaneously herewith Debtor and Secured Party, in accordance with Section
9.1 of the Credit Agreement, have executed a separate written instrument
effecting such waiver subject to the condition that Debtor pledge to Secured
Party the limited partnership interest in Subpartnership II which Debtor will
acquire with such proceeds and, in connection therewith, amend and restate the
Security Agreement to include such additional assets of Debtor within the
Collateral securing payment of Debtor's Obligations (as defined in the Original
Security Agreement).
Therefore, Debtor and Secured Party mutually wish to amend and restate
the Original Security Agreement to reflect such matters, it being intended and
understood that the pledges and security interests created by the Original
Security Agreement are not and have not been extinguished, released, discharged
or terminated, but only modified, amended and restated as set forth in this
Restated Security Agreement.
NOW, THEREFORE, in consideration of the recitals, covenants and
agreements in this Restated Security Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged and
confessed, the Original Security Agreement is hereby amended and restated in
its entirety as follows:
<PAGE> 33
A. PARTIES
1. Secured Party: CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP
777 Main Street, Suite 2100
Fort Worth, TX 76102
2. Debtor: CRESCENT DEVELOPMENT MANAGEMENT CORP.
C/O Harry Frampton
100 East Thomas Place, Drawer 2770
Avon, Colorado 81620
Attention: Harry Frampton
B. AGREEMENT
1. Security Interest. Subject to the applicable terms of this Restated
Security Agreement, Debtor has granted, and hereby does grant, to Secured Party
a security interest in the Collateral (hereinafter defined) to secure the
payment of the Obligations (hereinafter defined).
C. OBLIGATIONS
1. Description of Obligations. The following obligations
("Obligations") are secured by this Security Agreement:
a. The debt, obligations, liabilities and agreements of
Debtor under (i) that Line of Credit Note in the principal sum of
$20,166,666.00 executed by Debtor as of August 11, 1995, bearing
interest and being payable to the order of Secured Party as therein
provided (the "Note"), (ii) that Credit Agreement executed by Debtor
and Secured Party as of August 11, 1995, as subsequently amended and
modified ("Credit Agreement"), (iii) all other documents evidencing,
governing, securing or otherwise pertaining to the indebtedness
evidenced by the Note (the Note, Credit Agreement and all other such
documents being called "Loan Documents"), and (iv) all renewals,
extensions, modifications or rearrangements of the foregoing.
b. All costs incurred by Secured Party to obtain, preserve,
perfect and enforce this Restated Security Agreement and collect the
Obligations, and maintain, preserve, collect and enforce the
Collateral (hereinafter defined), including but not limited to
reasonable attorneys' fees and legal expenses and expenses of sale.
c. Interest on the above amounts at the Default Rate as
defined in the Note.
d. All debt, obligations and liabilities of Debtor to Secured
Party of the kinds described in this Item C., now existing or
hereafter arising.
<PAGE> 34
D. COLLATERAL
1. Description of the Collateral. Debtor has assigned and granted to
Secured Party, and hereby does assign and grant to Secured Party, security
interests in the following, whether now existing or hereafter arising (the
"Collateral"):
a. All of the rights and interests of Debtor as the limited
partner of East West Resort Development, L.P., a Delaware limited
partnership ("Subpartnership"), including, without limitation,
Debtor's rights as a partner to receive distributions of any sale,
exchange, refinancing or other disposition of property owned by the
Subpartnership under the Limited Partnership Agreement entered into
effective as of August 11, 1995 (the "Partnership Agreement") and all
other profits, income, and distributions, whether in cash or in kind,
owing to Debtor under the Partnership Agreement.
b. All of the rights and interests of Debtor as the limited
partner of East West Resort Development II, L.P,. a Delaware limited
partnership ("Subpartnership II"), including, without limitation,
Debtor's rights as a partner to receive distributions of any sale,
exchange, refinancing or other disposition of property owned by the
Subpartnership under the Limited Partnership Agreement entered into
effective as of September 26, 1996 (the "Subpartnership II Agreement")
and all other profits, income, and distributions, whether in cash or
in kind, owing to Debtor under the Subpartnership II Agreement.
c. All Partner Loans and Default Loans (as those terms are
defined in the Subpartnership II Agreement and [if applicable] the
Subpartnership II Agreement) now or hereafter owing to Debtor and all
security therefor.
d. All present and future rights and interests Debtor may
have or be or become entitled to in the real and personal property
(the "Collateral Property") now or hereafter owned by Subpartnership
or Subpartnership II.
e. All present and future proceeds, profits, combinations,
reclassification, improvements, and products of, accessions,
attachments, and other additions to, and substitutes and replacements
for, all or any part of the Collateral described herein.
f. All present and future accounts, contract rights, general
intangibles, chattel paper, documents, instruments, cash and noncash
Proceeds, and other rights arising from or by virtue of, or from the
voluntary or involuntary sale, lease, or other disposition of, or
collections with respect to, or insurance or condemnation proceeds
payable with respect to, or proceeds payable by virtue of warranty,
indemnity, guaranty, or other claims, causes and rights of action,
settlements thereof, judicial and arbitration judgments and awards
against any person with respect to, all or any part of the Collateral
or the Collateral Property described herein. As used herein, the term
"Proceeds" shall have the meaning assigned to it under the UCC and, to
the extent not otherwise included, shall include, but not be limited
to, (i) all income, revenues, fees, distributions, reimbursements and
payments from whatever source received by, or on behalf of Debtor, in
respect of the Collateral, (ii) any and all payments (in any form
whatsoever) made or due and payable to Debtor from time to time in
connection with any casualty with respect to the Collateral
<PAGE> 35
Property or any of the Collateral (whether or not pursuant
to an insurance policy), or any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental authority, (iii) all claims of Debtor
for losses or damages arising out of or related to or for any breach
of any agreements, covenants, representations or warranties or any
default under any of the Collateral described herein, and (iv) any and
all other amounts from time, to time paid or payable to, or on behalf
of, Debtor under, or in connection with, any of the Collateral.
g. All present and future security for the payment to Debtor
of any of the Collateral described herein and goods which gave, or
will give, rise to any of such Collateral or are evidenced,
identified, or represented therein or thereby.
The description of Collateral contained in this paragraph shall not be
deemed to permit any action prohibited by this Restated Security Agreement or
by terms incorporated in this Restated Security Agreement. Portions of the
Collateral constitute accounts, contract rights, general intangibles, chattel
paper, documents or instruments, and all books and records of Debtor concerning
such Collateral are, and shall be, located at the offices of the Debtor
specified above.
E. DEBTOR'S WARRANTIES
Debtor represents, warrants, and covenants to Secured Party now and so
long as any Obligations secured hereby are outstanding as follows:
1. No financing statement covering any portion of the Collateral is on
file in any public office, except the financing statements relating to the
security interests created by the Original Security Agreement and this Restated
Security Agreement.
2. Debtor is the sole owner of the Collateral and each item
constituting the Collateral, free and clear of all liens except for the
security interests granted to Secured Party pursuant to the Original Security
Agreement and this Restated Security Agreement.
3. All actions necessary or desirable to perfect the Security Interest
in the Collateral in each state in which any portion of the Collateral is or
will be located have been, or will forthwith be, duly taken.
4. The Partnership Agreement and the Subpartnership II Agreement are
in full force and effect and, to the knowledge of Debtor, there exists no
material default thereunder, or event or condition which, with the passage of
time or the giving of notice, or both, would constitute a material default
thereunder.
5. The Partnership Agreements shall not be amended or modified in any
manner that would materially affect Debtor's interests thereunder, or in any
manner which would materially impair or adversely affect the Collateral, nor
shall Debtor consent to any such amendment without the prior written consent of
Secured Party.
<PAGE> 36
6. There is no condition, circumstance, event, agreement, document,
instrument, restriction, litigation or other proceeding and, to the best of
Debtor's knowledge, there is no threatened litigation or proceeding or basis
therefor, which could materially adversely affect the validity or priority of
the liens and security interests granted, or intended to be granted under the
Original Security Agreement or this Restated Security Agreement when executed,
delivered, recorded and filed as required thereunder or hereunder, or that
could materially adversely affect the ability of Debtor to perform its
obligations thereunder or hereunder, or which would constitute an Event of
Default.
7. Subpartnership, Subpartnership II and Debtor have fully complied
with all requirements imposed on them in connection with (a) the organization
and formation of Subpartnership and Subpartnership II, and (b) the sale,
distribution and offer of partnership interests in Subpartnership and
Subpartnership II.
F. DEBTOR'S COVENANTS
Debtor covenants to Secured Party and agrees with Secured Party as
follows:
1. Debtor shall promptly perform all of Debtor's agreements herein,
and any other agreements between Debtor and Secured Party.
2. Debtor shall defend the Collateral against all claims and demands
of all persons at any time claiming the same or any interest therein adverse to
Secured Party.
3. Debtor shall keep the Collateral free from liens and other security
interests (except liens for taxes not yet due), and shall not create or suffer
to exist any lien or security interest in the Collateral hereafter acquired
except for the security interests hereby granted. Debtor shall not file, or
permit to be filed, any financing statements or other security instruments,
covering the Collateral, unless by, or on behalf of, Secured Party in
connection with this Restated Security Agreement or to effectuate the
assignment to Debtor of the financing statements currently of record against
the Collateral.
4. Debtor shall pay all costs necessary to obtain, preserve, perfect,
defend and enforce the security interests hereby granted, collect the sums
owing under the Loan Documents, and preserve, defend, enforce, service and
collect the Collateral, including specifically, but without limitation, the
payment of taxes, assessments, reasonable attorneys' fees and legal expenses,
and expenses of sales. If Debtor shall have failed to pay such costs and
expenses within five (5) days after request by Secured Party, Secured Party
may, at its option, pay any such costs and expenses, and discharge encumbrances
on the Collateral. Debtor agrees to reimburse the Secured Party on demand for
any costs so incurred, and, until such reimbursement, the amount of any such
payment shall be a part of the Obligation.
5. Prior to or immediately following the occurrence thereof, Debtor
will notify the Secured Party of (i) any material adverse change occurring in
or to any of the Collateral, (ii) any change in Debtor's office address or
mailing address, (iii) any material change in any fact or circumstance
warranted or represented by Debtor in this Security Agreement or furnished to
the
<PAGE> 37
Secured Party by Debtor, (iv) any Event of Default or (v) any notices,
communications, or correspondence to be or which have been delivered to Debtor
under the Operating Agreement and deliver to Secured Party copies thereof.
6. Debtor shall execute and deliver to Secured Party a financing
statement for filing to perfect the security interests hereunder and any other
papers furnished by Secured Party which are necessary in the judgment of
Secured Party to obtain, maintain and perfect the security interest hereunder
and to enable Secured Party to comply with any applicable federal or state law
in order to obtain or perfect Secured Party's interest in the Collateral.
Debtor shall have Subpartnership and Subpartnership II make appropriate entries
in their respective partnership records to reflect the existence of the
security interest granted hereby in the Collateral.
7. Debtor shall cause Subpartnership and Subpartnership II to comply
with all of the representations, warranties, covenants, agreements, indemnities
and terms contained in their respective Organizational Documents and all other
material agreements to which either is bound and enforce their respective
rights under all material agreements by which either is bound, in a timely
manner, consistent with prudent practices and all applicable laws, and also as
required by Secured Party.
8. Debtor shall fully perform all of Debtor's duties under and in
connection with each transaction to which the Collateral, or any part thereof,
relates, so that the amounts thereof shall actually become payable in their
entirety to Secured Party.
9. Debtor shall promptly notify Secured Party of any claim, action, or
proceeding affecting title to all or any of the Collateral or the security
interest and, at the request of Secured Party, appear in and defend, at
Debtor's expense, any such claim, action, demand or proceeding.
10. At Debtor's expense and upon Secured Party's request, after an
Event of Default, Debtor shall file or cause to be filed such applications and
take such other actions as Secured Party may request to obtain the consent or
approval of any governmental authority to Secured Party's rights hereunder,
including, without limitation, the right to sell all of the Collateral upon an
Event of Default without additional consent or approval from such governmental
authority (and, because Debtor agrees that Secured Party's remedies at law for
failure of Debtor to comply with this provision would be inadequate and that
such failure would not be adequately compensable in damages, Debtor agrees that
its covenants in this provision may be specifically enforced).
11. Upon demand by Secured Party, Debtor will deposit upon receipt all
checks, drafts, cash or other remittances on account or accounts or contracts
or received as proceeds of any other Collateral in a special bank account in a
bank of Secured Party's choice over which Secured Party alone shall have power
of withdrawal. The funds in said account shall be held by Secured Party as
security for the Obligation. Said proceeds shall be deposited in the form
received, except for the endorsement of Debtor where necessary to permit
collection of items, which endorsements Debtor agrees to make, but which
Secured Party is authorized to make on Debtor's behalf. Secured Party may from
time to time apply the whole or any part of the funds in such special account
against the Obligations. Any portion of said funds on deposit which Secured
Party elects not to apply to the Obligations may be paid by Secured Party to
Debtor.
<PAGE> 38
12. Debtor shall give Secured Party written notice of each office of
Debtor in which records of Debtor pertaining to accounts in the Collateral are
kept, and of any change of any office or location. Except as such notice is
given, all records of Debtor pertaining to the Collateral and to accounts are
and shall be kept in the location shown at the beginning hereof.
G. RIGHTS AND POWERS OF SECURED PARTY
1. Secured Party may in its discretion after an Event of Default but
only after prior written notice to Debtor, without liability to Debtor, obtain
from any person information regarding Debtor or Debtor's business, which
information any such person also may furnish without liability to Debtor;
endorse as Debtor's agent any instruments, documents or chattel paper in the
Collateral or representing proceeds of the Collateral; contact any account
debtors directly to verify information furnished by Debtor; take control of
proceeds; release the Collateral in its possession to any Debtor, temporarily
or otherwise; after default, take control of funds generated by the Collateral,
such as cash dividends, interest and proceeds or refunds from insurance, and
use same to reduce any part of the Obligations and exercise all other rights
which an owner of such collateral may exercise; after default, at any time
transfer any of the Collateral or evidence thereof into its own name or that of
its nominee; demand, collect, convert, redeem, receipt for, settle, compromise,
adjust, sue for, foreclose or realize upon the Collateral, in its own name or
in the name of Debtor, as Secured Party may determine. The foregoing rights and
powers of Secured Party will be in addition to, and not a limitation upon, any
rights and powers of Secured Party given by law, elsewhere in this Restated
Security Agreement, or otherwise.
2. Secured Party may while any Event of Default continues hereunder
present for conversion any instrument (including any investment security) in
the Collateral which is convertible into any other instrument or investment
security or a combination thereof with cash. But Secured Party shall not have
any duty to present for conversion any instrument in the Collateral unless it
shall have received from Debtor written instructions to that effect at a time
reasonably far in advance of the final conversion date to make such conversion
possible.
H. DEFAULT
1. Events of Default. The occurrence of a default under the Note, the
Credit Agreement or any document evidencing, governing, securing, guaranteeing,
indemnifying or otherwise pertaining to the Loan shall constitute an event of
default ("Event of Default") hereunder.
2. Remedies of Secured Party Upon Default. Should an Event of Default
occur and be continuing, Secured Party may, at its election, exercise any and
all rights and remedies available to a secured party under the UCC, in addition
to any and all other rights and remedies afforded by the Loan Documents, at
law, in equity, or otherwise, including, without limitation, such rights and
remedies as (a) applying by appropriate judicial proceedings for appointment of
a receiver for all or part of the Collateral (and Debtor hereby consents to any
such appointment), and (b) applying to the Obligations any cash held by Secured
Party under this Restated Security Agreement. The exercise of one or more
rights or remedies by Secured Party hereunder shall not prejudice or impair the
concurrent or subsequent exercise of any other rights or remedies by
<PAGE> 39
Secured Party. If, in the opinion of Secured Party, there is any question that
a public or semipublic sale or distribution of any Collateral will violate any
state or federal securities law, Secured Party in its discretion (a) may offer
and sell securities privately to purchasers who will agree to take them for
investment purposes and not with a view to distribution and who will agree to
imposition of restrictive legends on the certificates representing the
security, or (b) may sell such securities in an intrastate offering under
Section 3(a)(11) of the Securities Act of 1933, and no sale so made in good
faith by Secured Party shall be deemed to be not "commercially reasonable"
because so made.
a. Notice. Reasonable notification of the time and place of
any public sale of the Collateral, or reasonable notification of the
time after which any private sale or other intended disposition of the
Collateral is to be made, shall be sent to Debtor and to any other
Person entitled to notice under the UCC. It is agreed that notice sent
or given not less than twenty (20) business days prior to the taking
of the action to which the notice relates is reasonable notification
and notice for the purposes of this subparagraph.
b. Application of Proceeds. Secured Party shall apply the
proceeds of any sale or other disposition of the Collateral under this
paragraph in the following order: first, to the payment of all its
expenses incurred in retaking, holding, and preparing any of the
Collateral for sale(s) or other disposition, in arranging for such
sale(s) or other disposition, and in actually selling or disposing of
the same (all of which are part of the Obligations); second, toward
repayment of amounts expended by Secured Party under Paragraph I.3;
and third, toward payment of the balance of the Obligations as
determined by Secured Party. If the proceeds are insufficient to pay
the Obligations in full, Debtor shall remain liable for any deficiency
to the extent provided in the Credit Agreement.
3. Other Rights of Secured Party.
a. Performance. In the event Debtor shall fail to pay when
due all taxes on any of the Collateral, or to preserve the priority of
the Security Interest in any of the Collateral, or otherwise fail to
perform any of its obligations hereunder or under the Loan Documents
with respect to the Collateral, then Secured Party may, at its option,
but without being required to do so, pay such taxes, prosecute or
defend any suits in relation to the Collateral, or insure and keep
insured the Collateral in any amount deemed appropriate by Secured
Party, or take all other action which Debtor is required, but has
failed or refused, to take hereunder or under the Note. Any sum which
may be expended or paid by Secured Party under this subparagraph
(including, without limitation, court costs and attorneys' fees) shall
bear interest from the dates of expenditure or payment at the Default
Rate (as defined in the Note) until paid and, together with such
interest, shall be payable by Debtor to Secured Party upon demand and
shall be part of the Obligations.
b. Collection. After the occurrence of an Event of Default
and during the continuation thereof, upon notice from Secured Party,
Maker and each other obligor with respect to any payments on any of
the Collateral (including without limitation condemnation proceeds,
dividends and other distributions with respect to securities, and
insurance proceeds payable by reason of loss or damage to any of the
Collateral Property)
<PAGE> 40
is hereby authorized and directed by Debtor to make payment directly
to Secured Party, regardless of whether Debtor was previously making
collections thereon. Subject to Subparagraph I.3(d) hereof, until such
notice is given, Debtor is authorized to retain and expend all
payments made on the Collateral. After the occurrence of an Event of
Default and during the continuation thereof, Secured Party shall have
the right in its own name or in the name of Debtor to compromise or
extend the time of payment with respect to all or any portion of the
Collateral for such amounts and upon such terms as Secured Party may
determine; to demand, collect, receive, receipt for, sue for,
compound, settle, compromise, adjust, realize upon and give
acquittances for any and all amounts due or to become due with respect
to Collateral; to file any claims or take any action or initiate any
proceedings which Secured Party may deem necessary or desirable for
the collection of any of the Collateral or to otherwise enforce the
rights or remedies of Debtor with respect to any Collateral; to take
control of cash and other Proceeds of any Collateral; to endorse the
name of Debtor on any notes, acceptances, checks, drafts, money
orders, or other evidences of payment on Collateral that may come into
the possession of Secured Party; to sign the name of Debtor on any
drafts against obligors or other Persons making payment with respect
to Collateral, on assignments and verifications of accounts or other
Collateral and on notices to obligors making payment with respect to
Collateral; to send requests for verification of obligations to any
such obligor; to take any action Debtor is required to take or any
other necessary action to obtain, preserve, and enforce this Restated
Security Agreement, and maintain, preserve and collect the Collateral,
without notice to Debtor, and add the costs of same to the Obligation;
to release Collateral in Secured Party's possession to any Person,
temporarily or otherwise; to set standards from time to time to govern
what may be deemed after-acquired Collateral; to transfer any of the
Collateral, or evidence thereof, into its own name or that of its
nominee and receive the Proceeds therefrom and hold the same as
security for the Obligation, or apply the same thereon; to exercise as
to the Collateral all the rights of the owner thereof; and to do all
other acts and things necessary to carry out the intent of this
Restated Security Agreement. If Maker or any other obligor fails or
refuses to make payment on any Collateral when due, Secured Party is
authorized, in its sole discretion, either in its own name or in the
name of Debtor, to take such action as Secured Party shall deem
appropriate for the collection of any amounts owed with respect to the
Collateral or upon which a delinquency exists. Regardless of any other
provision hereof, however, Secured Party shall never be liable for its
failure to collect, or for its failure to exercise diligence in the
collection of, any amounts owed with respect to Collateral, nor shall
it be under any duty whatever to anyone except Debtor to account for
funds that it shall actually receive hereunder. Without limiting the
generality of the foregoing, Secured Party shall have no
responsibility for ascertaining any maturities, calls, conversions,
exchanges, offers, tenders, or similar matters relating to any
Collateral, or for informing Debtor with respect to any of such
matters (irrespective of whether Secured Party actually has, or may be
deemed to have, knowledge thereof). The receipt of Secured Party to
Maker or any other obligor shall be a full and complete release,
discharge, and acquittance to such obligor, to the extent of any
amount so paid to Secured Party.
c. Certain Proceeds. After the occurrence and during the
continuance of an Event of Default, any cash Proceeds of Collateral
which come into the possession of
<PAGE> 41
Secured Party (including, without limitation, insurance and
condemnation proceeds) may, at Secured Party's option, be applied in
whole or in part to the Obligation, be released in whole or in part to
or on the written instructions of Debtor for any general or specific
purpose, or be retained in whole or in part by Secured Party as
additional Collateral. Any cash Collateral in the possession of
Secured Party may be invested by Secured Party but Secured Party shall
never be obligated to make any such investment and shall never have
any liability to Debtor for any loss which may result therefrom. All
interest and other amounts earned from any investment of Collateral
may be dealt with by Secured Party in the same manner as other cash
Collateral.
d. Use and Operation of Collateral. Should any Collateral
come into the possession of Secured Party, Secured Party may use or
operate such Collateral for the purpose of preserving it or its value
pursuant to the order of a court of appropriate jurisdiction or in
accordance with any other rights held by Secured Party with respect to
such Collateral. Debtor covenants promptly to reimburse and pay to
Secured Party, at Secured Party's request, the amount of all
reasonable expenses (including, without limitation, the cost of any
insurance and payment of taxes or other charges) incurred by Secured
Party in connection with its custody and preservation of Collateral,
and all such expenses, costs, taxes, and other charges shall bear
interest at the Maximum Rate (as defined in the Note) until repaid
and, together with such interest, shall be payable by Debtor to
Secured Party upon demand and shall become part of the Obligations.
However, the risk of accidental loss or damage to, or diminution in
value of, Collateral is on Debtor, and Secured Party shall have no
liability whatever for failure to obtain or maintain insurance, nor to
determine whether any insurance ever in force is adequate as to amount
or as to the risks insured. With respect to Collateral that is in the
possession of Secured Party, Secured Party shall have no duty to fix
or preserve rights against prior parties to such Collateral and shall
never be liable for any failure to use diligence to collect any amount
payable in respect of such Collateral, but shall be liable only to
account to Debtor for what it may actually collect or receive thereon.
The provisions of this subparagraph shall be applicable whether or not
an Event of Default has occurred and is continuing.
e. Diminution in Value of Collateral. Secured Party shall
have no liability or responsibility whatsoever for any diminution in
or loss of value of any Collateral.
I. MULTIPLE COUNTERPARTS
This Security Agreement may be executed in counterparts, each of which
shall be deemed an original, and all of which shall be deemed but one and the
same instrument.
J. GENERAL
1. Waiver. No delay on the part of Secured Party in exercising any
power or right shall operate as a waiver thereof; nor shall any single or
partial exercise of any power or right preclude other or further exercise
thereof or the exercise of any other power or right. No waiver by Secured Party
of any right hereunder or of any default by Debtor shall be binding upon
<PAGE> 42
Secured Party unless in writing, and no failure by Secured Party to exercise
any power or right hereunder or waiver of any default by Debtor shall operate
as a waiver of any other or further exercise of such right or power or of any
further default.
2. Parties Bound. The rights of Secured Party hereunder shall inure to
the benefit of its successors and assigns. The terms of this Security Agreement
shall be binding upon the successors and assigns of the parties. All
representations, warranties and agreements of Debtor are joint and several if
Debtor is more than one and shall bind Debtor's personal representatives,
heirs, successors and assigns.
3. Definitions. Unless the context indicates otherwise, definitions in
the UCC apply to words and phrases in this Security Agreement; if UCC
definitions conflict, Chapter 9 definitions apply.
4. Notice. Notice shall be deemed reasonable if mailed postage prepaid
at least ten (10) days before the related action (or if the UCC elsewhere
specifies a longer period, such longer period) to Debtor's address given above.
5. Expenses. Debtor agrees to reimburse Secured Party's out-of-pocket
expenses, including reasonable attorney's fees, incurred in negotiating,
administering or enforcing any part of the Obligations, and in preparation,
execution, delivery and recording of any documents in connection with any part
of the Obligations, when not contrary to law.
6. Limitation on Interest. All agreements between Debtor and Secured
Party, whether now existing or hereafter arising and whether written or oral,
are hereby expressly limited so that in no contingency, whether by reason of
demand or acceleration of the indebtedness secured hereby or otherwise, shall
the interest contracted for, charged, received, paid or agreed to be paid to
Secured Party exceed the maximum amount permissible under applicable law. If,
from any circumstance whatsoever interest would otherwise be payable to the
holder hereof in excess of the maximum lawful amount, the interest payable to
Secured Party shall be reduced to the maximum amount permitted under applicable
law; and if from any such circumstance Secured Party shall ever receive
anything of value deemed interest by applicable law in excess of the maximum
lawful amount, an amount equal to any excessive interest shall be applied to
the reduction of the principal amount owing on the indebtedness secured hereby
and not to the payment of interest, or if such excessive interest exceeds such
unpaid balance of the principal, such excess shall be refunded to the
undersigned. All interest paid or agreed to be paid to Secured Party on the
indebtedness secured hereby shall, to the extent permitted by applicable law,
be amortized, prorated, allocated and spread throughout the full term of such
indebtedness (including the period of any renewal or extension thereof) until
payment in full so that the interest on account of such indebtedness shall not
exceed the maximum amount permitted by applicable law. The terms and provisions
of this paragraph shall control all agreements between Debtor and Secured
Party.
<PAGE> 43
7. Modifications. No provision hereof shall be modified or limited
except by a written agreement expressly referring hereto and to the provision
so modified or limited and signed by the Debtor and Secured Party, nor by
course of conduct, usage of trade, or by the law merchant.
8. Severability. The unenforceability of any provision of this
Security Agreement shall not affect the enforceability or validity of any other
provision.
9. Gender and Number. Where appropriate, the use of one gender shall
be construed to include the others or any of them; and the singular number
shall be construed to include the plural, and vice versa.
10. Applicable Law and Venue. THIS SECURITY AGREEMENT SHALL BE
CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF TEXAS.
11. Financing Statement. A carbon, photographic or other reproduction
of this Security Agreement or any financing statement covering the Collateral
shall be sufficient as a financing statement.
[INTENTIONALLY BLANK]
<PAGE> 44
EXECUTED as of the date and year first above written.
DEBTOR: CRESCENT DEVELOPMENT MANAGEMENT
CORP., a Delaware corporation
By:
-----------------------------------
Name: Harry Frampton III
------------------------------
Title President
-----------------------------
SECURED PARTY: CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership
By: Crescent Real Estate Equities, Ltd.,
Sole general partner
By:
-----------------------------------
Name: David M. Dean
------------------------------
Title Senior Vice President, Law
------------------------------
<PAGE> 45
[CRESCENT DEVELOPMENT MANAGEMENT CORP. LETTERHEAD]
September 30, 1997
Crescent Real Estate Equities Limited Partnership
777 Main Street, Suite 2100
Fort Worth, Texas 76102
Re: Credit Agreement dated August 11, 1995 ("Credit
Agreement") between Crescent Development Management
Corp. ("Borrower") and Crescent Real Estate Equities
Limited Partnership ("Lender"); and Security Agreement
dated August 11, 1995 ("Security Agreement") between
Borrower and Lender
Gentlemen:
Effective April 15, 1997, Lender consented to increase the Commitment Amount
(as defined in the Credit Agreement) by $8 million to $28,166,666, and in that
connection that Borrower and Lender executed and delivered a First Amendment to
Credit Agreement, dated as of April 15, 1997, and Borrower made and delivered
to Lender, in place of the original Note in the principal amount of $20,166,666
dated August 11, 1995, made by the undersigned, a new Note in the principal sum
of $28,166,666 made by the undersigned as of April 15,1997. In a related letter
of the same date, Borrower agreed that the security interests granted pursuant
to the Security Agreement to secure payment of the old Note continue to secure
payment of the new Note.
The Credit Agreement restricts use of loan proceeds to investments in East West
Resort Development, L. P. Borrower hereby requests Lender's consent to use up
to $5.6 million in loan proceeds under the Credit Agreement to invest in EWRD
Summit Holding, L. P., a partnership newly formed to invest in new formed
entities engaged in the development of that real estate project known as
"Eagle's Nest."
To induce Lender to grant its consent, Borrower offers to assign to Lender and
grant security interests to Lender, as additional Collateral to secure the
Obligations secured by the Security Agreement (as such terms are used in the
Security Agreement), all of the additional collateral described in Schedule A
attached hereto and incorporated herein by reference (and Borrower hereby does
assign to Lender and grant to Lender security interests in, all of the
additional collateral described in Schedule A attached hereto and incorporated
herein by reference); and Borrower agrees to execute any financing statement
covering such additional Collateral as Lender may request, so that Lender may
perfect its security interest in such additional Collateral through filing in
the proper offices.
THIS LETTER SHALL CONSTITUTE AN AMENDMENT TO THE SECURITY AGREEMENT AND LENDER
SHALL BE ENTITLED TO ENJOY THE BENEFITS OF "SECURED PARTY" UNDER, AND BORROWER
SHALL BE BOUND BY ALL OF THE OBLIGATIONS OF "DEBTOR" UNDER, SUCH SECURITY
AGREEMENT AS IF THE SAME WERE RESTATED HEREIN. Borrower agrees upon request of
Lender to execute and deliver an Amended and Restated Security Agreement
incorporating this amendment as well as any prior amendments between the
parties.
<PAGE> 46
To signify your agreement with the preceding, please sign this letter in the
space provided below and return a copy to the undersigned.
Very truly yours,
Crescent Development Management Corp.
By:
----------------------------------
Name:
---------------------------------
Title:
-------------------------------
RECEIVED AND ACCEPTED:
Crescent Real Estate Equities Limited Partnership
By: Crescent Real Estate Equities, Ltd.
By:
----------------------------------
Its:
----------------------------------
<PAGE> 47
SCHEDULE A
Description of the Collateral. Borrower assigns to Lender and grants
to Lender security interests in the following, whether now existing or
hereafter arising (the "Collateral"):
All of the rights and interests of Borrower as the limited partner of EWRD
Summit Holding, L. P., a Delaware limited partnership ("Summit"), including,
without limitation, Borrower's rights as a partner to receive distributions of
any sale, exchange, refinancing or other disposition of property owned by
Summit under the Limited Partnership Agreement entered into effective as of
September 23, 1997 (the "Summit Partnership Agreement"), and all other profits,
income, and distributions, whether in cash or in kind, owing to Borrower under
the Summit Partnership Agreement.
All Partner Loans and Default Loans (as those terms are defined in the Summit
Partnership Agreement) now or hereafter owing to Borrower and all security
therefor.
All present and future rights and interests Borrower may have or be or become
entitled to in the real and personal property (the "Summit Collateral
Property") now or hereafter owned by Summit.
All present and future proceeds, profits, combinations, reclassification,
improvements, and products of, accessions, attachments, and other additions to,
and substitutes and replacements for, all or any part of the Collateral
described herein.
All present and future accounts, contract rights, general intangibles, chattel
paper, documents, instruments, cash and noncash Proceeds, and other rights
arising from or by virtue of, or from the voluntary or involuntary sale, lease,
or other disposition of, or collections with respect to, or insurance or
condemnation proceeds payable with respect to, or proceeds payable by virtue of
warranty, indemnity, guaranty, or other claims, causes and rights of action,
settlements thereof, judicial and arbitration judgments and awards against any
person with respect to, all or any part of the Collateral or the Summit
Collateral Property described herein. As used herein, the term "Proceeds" shall
have the meaning assigned to it under the UCC and, to the extent not otherwise
included, shall include, but not be limited to, (i) all income, revenues, fees,
distributions, reimbursements and payments from whatever source received by, or
on behalf of Borrower, in respect of the Collateral, (ii) any and all payments
(in any form whatsoever) made or due and payable to Borrower from time to time
in connection with any casualty with respect to the Summit Collateral Property
or any of the Collateral (whether or not pursuant to an insurance policy), or
any requisition, confiscation, condemnation, seizure or forfeiture of all or
any part of the Collateral by any governmental authority, (iii) all claims of
Borrower for losses or damages arising out of or related to or for any breach
of any agreements, covenants, representations or warranties or any default
under any of the Collateral described herein, and (iv) any and all other
amounts from time, to time paid or payable to, or on behalf of, Borrower under,
or in connection with, any of the Collateral.
All present and future security for the payment to Borrower of any of the
Collateral described herein and goods which gave, or will give, rise to any of
such Collateral or are evidenced, identified, or represented therein or
thereby.
<PAGE> 48
CRESCENT DEVELOPMENT MANAGEMENT CORP.
100 East Thomas Place, Drawer 2770
Avon, Colorado 81620
May 8, 1998
Crescent Real Estate Equities Limited Partnership
777 Main Street, Suite 2100
Fort Worth, Texas 76102
Re: Agreement to Cross-Default and Cross-Collateralize Loans;
Amendment of Security Agreement
Gentlemen:
1. References and Definitions. Reference is made to that Credit Agreement dated
August 11, 1995, as amended (the "Credit Agreement"), between Crescent
Development Management Corp. ("Borrower") and Crescent Real Estate Equities
Limited Partnership ("Lender"); to that Security Agreement dated August 11,
1995, as amended ("Security Agreement") between Borrower and Lender; to that
Promissory Note in the principal amount of $3.1 million dated February 29, 1996
(the "Term Note"), made by Borrower and payable to Lender; to that Credit
Agreement dated January 1, 1998 (the "East West Credit Agreement") between
Borrower and Lender; and to that Amended and Restated; and to that Amended and
Restated Security Agreement dated January 1, 1998 (the "East West Security
Agreement") between Borrower and Lender.
2. Background. Lender has consented to increase the Commitment Amount (as
defined in the Credit Agreement) by $12 million to $40,166,666, and in that
connection that Borrower and Lender executed and delivered a Second Amendment
to Credit Agreement, dated as of May 8, 1998, and Borrower made and delivered
to Lender, in place of the Line of Credit Note in the principal amount of
$28,166,666 dated April 15, 1997, made by the undersigned, a new Note in the
principal sum of $40,166,666 made by the undersigned as of May 8, 1998. In a
related letter of the same date, Borrower agreed that the security interests
granted pursuant to the Security Agreement to secure payment of the old Note
continue to secure payment of the new Note. The Credit Agreement restricts use
of loan proceeds to investments in East West Resort Development, L. P. and EWRD
Summit Holding, L. P. Borrower hereby requests Lender's consent to use loan
proceeds under the Credit Agreement to invest in East West Resort Development
II, L. P. and East West Resort Development III, L. P., partnerships formed to
engage in real estate development projects on substantially the same basis as
East West Resort Development, L. P., could do or could have done.
3. Agreement to Cross-Default and Cross-Collateralize. To induce Lender to
grant its consent, Borrower offers to cross-default the Credit Agreement, the
Term Note, the East West Credit Agreement, the Security Agreement and the East
West Security Agreement and all related loan documents and all indebtedness and
obligations of Borrower to Lender under any and all of such instruments, so
that the occurrence of an event of default, not cured within any applicable
grace or curative periods, under any such instrument, shall constitute an event
of default under every other such instrument (without notice or expiration of
any additional grace or cure period except as specified in such other
instrument). Likewise, to induce Lender to grant its consent, Borrower offers
to cross-collateralize the Credit Agreement, the Term Note, the East West
Credit Agreement, the Security Agreement and the East West Security Agreement
and all related loan documents and all indebtedness and obligations of Borrower
to Lender under any and all of such instruments, so that the collateral
described in the Security Agreement shall secure, on a pari passu basis, the
Term Note and the East West Credit Agreement and
<PAGE> 49
the indebtedness and obligations of Borrower thereunder and under any related
loan document and the collateral described in the East West Security Agreement
shall secure, on a pari passu basis, the Credit Agreement and the indebtedness
and obligations of Borrower thereunder and under any related loan document.
4. Grant of Additional Security Interests To Secure East West Loans and
Agreement to Further Amend Loan Documents. To better effect the intentions of
the foregoing paragraphs, Borrower offers to assign to Lender and grant
security interests to Lender, as additional Collateral to secure the
Obligations secured by the East West Security Agreement (as such terms are used
in the East West Security Agreement), all of the additional collateral
described in Schedule A attached hereto and incorporated herein by reference
and all of the collateral described in the Security Agreement (and Borrower
hereby does assign to Lender and grant to Lender security interests in, all of
the additional collateral described in Schedule A attached hereto and
incorporated herein by reference and all of the collateral described in the
Security Agreement, to secure payment of the indebtedness and other obligations
of Borrower under the East West Term Loan, the East West Credit Agreement, the
East West Security Agreement and all other Loan Documents referenced in the
East West Credit Agreement); Borrower agrees to execute any financing statement
covering such additional Collateral as Lender may request, so that Lender may
perfect its security interest in such additional Collateral through filing in
the proper offices; and Borrower further agrees to enter into amendments,
modifications or restatements of the East West Credit Agreement, the East West
Security Agreement, the East West Term Note and other related loan documents to
effect the purposes and intentions expressed hereinabove.
THIS LETTER SHALL CONSTITUTE AN AMENDMENT TO THE EAST WEST SECURITY AGREEMENT
AND LENDER SHALL BE ENTITLED TO ENJOY THE BENEFITS OF "SECURED PARTY" UNDER,
AND BORROWER SHALL BE BOUND BY ALL OF THE OBLIGATIONS OF "DEBTOR" UNDER, SUCH
SECURITY AGREEMENT AS IF THE SAME WERE RESTATED HEREIN. Borrower agrees upon
request of Lender to execute and deliver an Amended and Restated Security
Agreement incorporating this amendment as well as any prior amendments between
the parties.
5. Grant of Additional Security Interests to Secure Loan and Agreement to
Further Amend Loan Documents. To better effect the intentions of the foregoing
paragraphs, Borrower offers to assign to Lender and grant security interests to
Lender, as additional Collateral to secure the Obligations secured by the
Security Agreement (as such terms are used in the Security Agreement), all of
the additional collateral described in Schedule A attached hereto and
incorporated herein by reference and all of the collateral described in the
East West Security Agreement (and Borrower hereby does assign to Lender and
grant to Lender security interests in, all of the additional collateral
described in Schedule A attached hereto and incorporated herein by reference
and all of the collateral described in the East West Security Agreement, to
secure payment of the indebtedness and other obligations of Borrower under the
Credit Agreement, the Security Agreement and all other Loan Documents
referenced in the Credit Agreement); and Borrower agrees to execute any
financing statement covering such additional Collateral as Lender may request,
so that Lender may perfect its security interest in such additional Collateral
through filing in the proper offices.
THIS LETTER SHALL CONSTITUTE AN AMENDMENT TO THE SECURITY AGREEMENT AND LENDER
SHALL BE ENTITLED TO ENJOY THE BENEFITS OF "SECURED PARTY" UNDER, AND BORROWER
SHALL BE BOUND BY ALL OF THE OBLIGATIONS OF "DEBTOR" UNDER, SUCH SECURITY
AGREEMENT AS IF THE SAME WERE RESTATED HEREIN. Borrower agrees upon request of
Lender to execute and deliver an Amended and Restated Security Agreement
incorporating this amendment as well as any prior amendments between the
parties.
<PAGE> 50
To signify your agreement with the preceding, please sign this letter in the
space provided below and return a copy to the undersigned.
Very truly yours,
Crescent Development Management Corp.
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
RECEIVED AND ACCEPTED:
Crescent Real Estate Equities Limited Partnership
By: Crescent Real Estate Equities, Ltd.
By:
--------------------------------------
Its:
-------------------------------------
<PAGE> 51
SCHEDULE A
Description of the Collateral. Borrower assigns to Lender and grants
to Lender security interests in the following, whether now existing or
hereafter arising (the "Collateral"):
a. All of the rights and interests of Debtor as a member of
East West Resorts, LLC, a Delaware limited liability company (the
"Company"), including, without limitation, Debtor's rights as a member
to receive distributions of any sale, exchange, refinancing or other
disposition of property owned by the Company under the Second Amended
and Restated Operating Agreement entered into effective as of January
1, 1998, as amended from time to time hereafter (the "Operating
Agreement"), and all other profits, income, and distributions, whether
in cash or in kind, owing to Debtor under the Operating Agreement.
b. All of the rights and interests of Debtor as a limited
partner of East West Resort Development II, L. P., a Delaware limited
partnership ("EWRD2"), including, without limitation, Debtor's rights
as a member to receive distributions of any sale, exchange,
refinancing or other disposition of property owned by EWRD2 under the
Limited Partnership Agreement dated as of September 26, 1996, as
subsequently amended (as amended from time to time hereafter, the
"EWRD2 Partnership Agreement"), and all other profits, income, and
distributions, whether in cash or in kind, owing to Debtor under the
EWRD2 Partnership Agreement.
c. All of the rights and interests of Debtor as a limited
partner of East West Resort Development III, L. P., a Delaware limited
partnership ("EWRD"), including, without limitation, Debtor's rights
as a member to receive distributions of any sale, exchange,
refinancing or other disposition of property owned by EWRD under the
Limited Partnership Agreement dated as of _______________, as
subsequently amended (as amended from time to time hereafter, the
"EWRD3 Partnership Agreement"), and all other profits, income, and
distributions, whether in cash or in kind, owing to Debtor under the
EWRD3 Partnership Agreement.
d. All Partner Loans and Default Loans (as defined in the
EWRD Partnership Agreement) now or hereafter owing to Debtor and all
security therefor.
e. All present and future rights and interests Debtor may
have or be or become entitled to in the real and personal property
(the "Collateral Property") now or hereafter owned by the Company or
Partnerships.
f. All present and future proceeds, profits, combinations,
reclassification, improvements, and products of, accessions,
attachments, and other additions to, and substitutes and replacements
for, all or any part of the Collateral described herein.
g. All present and future accounts, contract rights, general
intangibles, chattel paper, documents, instruments, cash and noncash
Proceeds, and other rights arising from or by virtue of, or from the
voluntary or involuntary sale, lease, or other disposition of, or
collections with respect to, or insurance or condemnation proceeds
payable with respect to, or proceeds payable by virtue of warranty,
indemnity, guaranty, or other claims, causes and rights of action,
settlements thereof, judicial and arbitration judgments and awards
against any person with respect to, all or any part of the Collateral
or the Collateral Property described herein. As used herein, the term
"Proceeds" shall have the meaning assigned to it under the UCC and, to
the extent not otherwise included, shall include, but not be limited
to, (i) all income, revenues, fees, distributions, reimbursements and
payments from whatever source received by, or on behalf of Debtor, in
respect of the Collateral, (ii) any and all payments (in any form
whatsoever) made or due and payable to Debtor from time to time in
connection with any casualty with
<PAGE> 52
respect to the Collateral Property or any of the Collateral (whether
or not pursuant to an insurance policy), or any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part
of the Collateral by any governmental authority, (iii) all claims of
Debtor for losses or damages arising out of or related to or for any
breach of any agreements, covenants, representations or warranties or
any default under any of the Collateral described herein, and (iv) any
and all other amounts from time, to time paid or payable to, or on
behalf of, Debtor under, or in connection with, any of the Collateral.
h. All present and future security for the payment to Debtor
of any of the Collateral described herein and goods which gave, or
will give, rise to any of such Collateral or are evidenced,
identified, or represented therein or thereby.
<PAGE> 53
[CRSCENT DEVELOPMENT MANAGEMENT CORP. LETTERHEAD]
November 1, 1998
Crescent Real Estate Equities Limited Partnership
777 Main Street, Suite 2100
Fort Worth, Texas 76102
Re: Credit Agreement dated August 11, 1995, as amended
by First and Second Amendments ("Credit Agreement")
between Crescent Development Management Corp.
("Borrower") and Crescent Real Estate Equities Limited
Partnership ("Lender"); and Security Agreement dated
August 11, 1995, as amended by First Amended and
Restated Security Agreement and by subsequent letter
amendments dated September 30, 1997 and May 8, 1998
("Security Agreement") between Borrower and Lender
Gentlemen:
1. References and Definitions. Reference is made to the Credit Agreement; to
the Security Agreement; to that Credit Agreement dated January 1, 1998 (the
"East West Credit Agreement") between Borrower and Lender; to that Promissory
Note in the principal amount of $3.1 million dated February 29, 1996 (the "Term
Note"), made by Borrower and payable to Lender; to that Credit Agreement dated
January 1, 1998 between Borrower and Lender, as amended by the May 8, 1998,
letter referenced above (the "East West Credit Agreement"); and to that Amended
and Restated Security Agreement dated January 1, 1998, as amended by the May 8,
1998, letter referenced above (the "East West Security Agreement"). The Credit
Agreement, the Term Note, the East West Credit Agreement, the Security
Agreement, and the East West Security Agreement are cross-defaulted and
cross-collateralized, so that the occurrence of an event of default, not cured
within any applicable grace or curative periods, under any such instrument,
shall constitute an event of default under every other such instrument (without
notice or expiration of any additional grace or cure period except as specified
in such other instrument) and the collateral described in the Security
Agreement secures, on a pari passu basis, the Term Note and the East West
Credit Agreement and the indebtedness and obligations of Borrower thereunder
and under any related loan document and the collateral described in the East
West Security Agreement secures, on a pari passu basis, the Credit Agreement
and the indebtedness and obligations of Borrower thereunder and under any
related loan document.
2. Background. The Credit Agreement restricts use of loan proceeds to
investments in East West Resort Development, L. P. and (pursuant to waivers and
consents from Lender) EWRD Summit Holding, L. P.; East West Resort Development
II, L. P.; and East West Resort Development III, L. P. By separate document,
Borrower contemporaneously has requested Lender's consent to use up to $2
million in loan proceeds under the Credit Agreement to invest in EWRD Perry
Holding, L.P., a partnership newly formed to invest in EWRD Perry Riverbend,
LLC, a newly formed entity to engage in the development of a certain real
estate project in North Carolina known as "Riverbend."
3. Grant of Additional Security Interests to Secure All Loans from Lender. To
induce Lender to grant its consent, Borrower offers to assign to Lender and
grant security interests to Lender, as additional Collateral to secure the
Obligations secured by the Security Agreement and by the East West Security
Agreement (as such
<PAGE> 54
terms are used in the Security Agreement and the East West Security Agreement,
as applicable), all of the additional collateral described in Schedule A
attached hereto and incorporated herein by reference (and Borrower hereby does
assign to Lender and grant to Lender security interests in, all of the
additional collateral described in Schedule A attached hereto and incorporated
herein by reference); and Borrower agrees to execute any financing statement
covering such additional Collateral as Lender may request, so that Lender may
perfect its security interest in such additional Collateral through filing in
the proper offices.
THIS LETTER SHALL CONSTITUTE AN AMENDMENT TO THE SECURITY AGREEMENT AND LENDER
SHALL BE ENTITLED TO ENJOY THE BENEFITS OF "SECURED PARTY" UNDER, AND BORROWER
SHALL BE BOUND BY ALL OF THE OBLIGATIONS OF "DEBTOR" UNDER, EACH SUCH SECURITY
AGREEMENT AS IF THE SAME WERE RESTATED HEREIN. Borrower agrees upon request of
Lender to execute and deliver one or more Amended and Restated Security
Agreements incorporating this amendment as well as any prior amendments between
the parties.
To signify your agreement with the preceding, please sign this letter in the
space provided below and return a copy to the undersigned.
Very truly yours,
Crescent Development Management Corp.
By:
------------------------------
Name:
----------------------------
Title:
----------------------------
RECEIVED AND ACCEPTED:
Crescent Real Estate Equities Limited Partnership
By: Crescent Real Estate Equities, Ltd.
By:
----------------------------
Its:
---------------------------
<PAGE> 55
SCHEDULE A
Description of the Collateral. Borrower assigns to Lender and grants
to Lender security interests in the following, whether now existing or
hereafter arising (the "Collateral"):
All of the rights and interests of Borrower as the limited partner of EWRD
Perry Holding, L. P., a Delaware limited partnership ("Perry"), including,
without limitation, Borrower's rights as a partner to receive distributions of
any sale, exchange, refinancing or other disposition of property owned by Perry
under the Limited Partnership Agreement entered into effective as of November
1, 1998 (the "Perry Partnership Agreement"), and all other profits, income, and
distributions, whether in cash or in kind, owing to Borrower under the Perry
Partnership Agreement.
All Partner Loans (as that term is defined in the Perry Partnership Agreement)
now or hereafter owing to Borrower and all security therefor.
All present and future rights and interests Borrower may have or be or become
entitled to in the real and personal property (the "Perry Collateral Property")
now or hereafter owned by Perry.
All present and future proceeds, profits, combinations, reclassification,
improvements, and products of, accessions, attachments, and other additions to,
and substitutes and replacements for, all or any part of the Collateral
described herein.
All present and future accounts, contract rights, general intangibles, chattel
paper, documents, instruments, cash and noncash Proceeds, and other rights
arising from or by virtue of, or from the voluntary or involuntary sale, lease,
or other disposition of, or collections with respect to, or insurance or
condemnation proceeds payable with respect to, or proceeds payable by virtue of
warranty, indemnity, guaranty, or other claims, causes and rights of action,
settlements thereof, judicial and arbitration judgments and awards against any
person with respect to, all or any part of the Collateral or the Perry
Collateral Property described herein. As used herein, the term "Proceeds" shall
have the meaning assigned to it under the UCC and, to the extent not otherwise
included, shall include, but not be limited to, (i) all income, revenues, fees,
distributions, reimbursements and payments from whatever source received by, or
on behalf of Borrower, in respect of the Collateral, (ii) any and all payments
(in any form whatsoever) made or due and payable to Borrower from time to time
in connection with any casualty with respect to the Perry Collateral Property
or any of the Collateral (whether or not pursuant to an insurance policy), or
any requisition, confiscation, condemnation, seizure or forfeiture of all or
any part of the Collateral by any governmental authority, (iii) all claims of
Borrower for losses or damages arising out of or related to or for any breach
of any agreements, covenants, representations or warranties or any default
under any of the Collateral described herein, and (iv) any and all other
amounts from time, to time paid or payable to, or on behalf of, Borrower under,
or in connection with, any of the Collateral.
All present and future security for the payment to Borrower of any of the
Collateral described herein and goods which gave, or will give, rise to any of
such Collateral or are evidenced, identified, or represented therein or
thereby.
<PAGE> 56
LINE OF CREDIT NOTE
$40,166,666.00 May 8, 1998
FOR VALUE RECEIVED, CRESCENT DEVELOPMENT MANAGEMENT CORP., a Delaware
corporation ("Borrower") promises to pay to CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP, a Delaware limited partnership ("Lender"), at 777 Main
Street, Suite 2700, Fort Worth, Texas 76102, the principal sum of FORTY MILLION
ONE HUNDRED SIXTY-SIX THOUSAND SIX HUNDRED SIXTY-SIX AND NO/100 DOLLARS
($40,166,666.00), or so much thereof as may be advanced, with interest on the
principal balance from time to time remaining unpaid at the rates hereinafter
provided.
Interest on the principal balance hereof from time to time remaining
unpaid prior to an Event of Default shall be payable at the Interest Rate,
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 renews, modifies, replaces and is given in substitution for
that certain Note dated April 15, 1997, in the principal amount of
$28,166,666.00 made by Borrower and payable to Lender and is the "Note"
referred to in the Credit Agreement dated August 11, 1995 executed by Lender
and Borrower as amended by that First Amendment to Credit Agreement dated April
15, 1997 , and further amended by that Second Amendment to Credit Agreement of
even date herewith (the "Credit Agreement"). Borrower may borrow, repay and
reborrow amounts under this Note as permitted by the Credit Agreement. Terms
defined in the Credit Agreement and not otherwise defined herein are used
herein with the meanings given those terms in the Credit Agreement.
Borrower may request and receive Advances hereunder only in accordance
with the terms and provisions of the Credit Agreement. This Note shall be
payable as provided in Article 3 of 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 or may be declared to be 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 of the holder of this Note to exercise the same or any other option
at that time or at any subsequent time with respect to such uncured 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 this 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 hereof. 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 payment 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.
<PAGE> 57
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, probate 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 excessive
interest shall be applied to the reduction of the principal hereof and not to
the payment of interest, or if such excessive 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.
This Note may be prepaid only in accordance with the terms of the
Credit Agreement.
The loan transaction evidenced hereby shall not be governed by, or be
subject to, Chapter 15 or Chapter 346 of the Texas Credit Code or Chapter 303
of the Texas Finance Code.
EXCEPT WHERE FEDERAL LAW IS APPLICABLE (INCLUDING, WITHOUT LIMITATION,
ANY FEDERAL USURY CEILING OR OTHER FEDERAL LAW WHICH, FROM TIME TO TIME, IS
APPLICABLE TO THE INDEBTEDNESS EVIDENCED HEREIN AND WHICH PREEMPTS STATE USURY
LAWS), THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS AND THE LAWS OF THE UNITED STATES APPLICABLE TO TRANSACTIONS IN SUCH
STATE.
THIS NOTE, TOGETHER WITH THE CREDIT AGREEMENT AND EACH OTHER LOAN
DOCUMENT REFERENCED HEREIN OR THEREIN, REPRESENT THE FINAL AGREEMENTS BETWEEN
THE PARTIES WITH RESPECT TO THE LOAN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
CRESCENT DEVELOPMENT MANAGEMENT CORP.,
a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 1
EXHIBIT 10.68
$22,920,000
CREDIT AGREEMENT,
dated as of January 1, 1998
between
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
A Delaware limited partnership
as the Lender,
and
CRESCENT DEVELOPMENT MANAGEMENT CORP.,
a Delaware corporation
as the Borrower
<PAGE> 2
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (the "Agreement"), dated as of January 1, 1998,
between CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited
partnership (the "Lender") and CRESCENT DEVELOPMENT MANAGEMENT CORP., a
Delaware corporation (the "Borrower").
ARTICLE I
WHEREAS, Lender previously has extended Borrower a loan in the amount
of $3,100,000 for the purpose of enabling Borrower to acquire a 50% member's
interest in East West Resorts, LLC, a Delaware limited liability company (the
"Company") operating under that First Amended and Restated Operating Agreement
dated as of February 15, 1996, and payment of such loan is secured by all of
Borrower's interest in the Company; and
WHEREAS, the Members (so called) of the Company, including Borrower,
desire to enter into a Second Amended and Restated Operating Agreement (as
amended or restated from time to time, the "Second Restated Operating
Agreement") pursuant to which Borrower would commit itself to make an
additional contribution of $4.96 million cash within the near term and to
commit to make up to $25.6 million in additional contributions to the Company
in the future; and
WHEREAS, the Borrower has applied for and Lender is willing, on the
terms and subject to the conditions hereinafter set forth, to extend to the
Borrower a line of credit loan (the "Loan"), in a maximum aggregate principal
amount at any one time outstanding not to exceed $22,920,000 from time to time
prior to the Commitment Termination Date, the proceeds of which will be used
from time to time exclusively for working capital purposes of the Borrower in
order to provide funds for making capital contributions to Company, as provided
for in this Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE II
COMMITMENTS, ADVANCE PROCEDURES AND NOTES
SECTION 2.1 Commitment. On the terms and subject to the conditions of
this Agreement (including Article V), Lender agrees to make advances under the
Loan to the Borrower up to an aggregate amount of Twenty -Two Million Nine
Hundred Twenty Thousand and No/100 Dollars ($22,920,000) (the "Commitment
Amount") pursuant to Section 2.2. Lender shall not be required to make any
advance under this Loan if, after giving effect thereto, the aggregate
principal amount of all Advances would exceed the Commitment Amount. Borrower
acknowledges that this Agreement does not create a revolving credit facility
but rather a term loan facility which Borrower may draw against from time to
time, but each Advance made to Borrower reduces, dollar for dollar, the unused
Commitment Amount; principal payments made by Borrower against the Loan may not
be reborrowed.
<PAGE> 3
SECTION 2.2 Advance Procedure. Borrower may from time to time request
that an Advance be made. Each Advance following the Initial Advance shall be in
an amount which is equal to the lesser of (a) the unused amount of the
Commitment Amount, or (b) [One Million Dollars or a multiple thereof]. The
request shall be made by delivering a Application for Advance to the Lender not
less than three (3) Business Days prior to the date upon which such Advance is
to be made and, if all such conditions precedent to such Advance have been
satisfied, Lender shall make such Advance directly to the Borrower by wire
transfer to the accounts the Borrower shall have specified in its Application
for Advance.
SECTION 2.3 Note. The Loan shall be evidenced by a single promissory
note (the "Note") payable to the order of Lender in the maximum principal
amount of Twenty-Two Million Nine Hundred Twenty Thousand and No/100 Dollars
($22,920,000).
SECTION 2.4 Existing Term Note and Credit Note. Lender is the holder
of that $3.1 million principal amount Promissory Note dated February 29, 1996,
made by Borrower payable to Lender (the "Term Note"), payment of which is
secured by Borrower's interest in the Company under that Security Agreement
dated February 29, 1996 (the "1996 Security Agreement"); and also the holder of
that $28,166,666 principal amount Line of Credit Note dated April 15, 1997,
made by Borrower payable to Lender (the "Credit Note"), payment of which is
secured by Borrower's interest in East West Resort Development, L. P. and EWRD
Summit Holdings, L. P. (East West Partnerships"). To induce Lender to enter
into this Agreement and advance the Commitment Amount to Borrower, Borrower
agrees to grant Lender a security interest in Borrower's East West Partnerships
to secure payment of the Note and to amend and restate the 1996 Security
Agreement to provide that the Borrower's interest in the Company shall secure
payment of the Note as well as the Term Note.
ARTICLE III
PAYMENTS AND INTEREST
SECTION 3.1 Payments. Payments of the Loan shall be made as set forth
in this Section 3.1 and shall be without premium or penalty.
SECTION 3.1.1 Final Maturity. On the Stated Maturity Date,
the Borrower shall repay in full all accrued but unpaid interest and the entire
unpaid principal amount of the Loan.
SECTION 3.1.2 Mandatory Payments. The Borrower shall, within
one (1) Business Day following (a) receipt by Borrower of any Distribution
other than a Tax Distribution, make a mandatory payment of the Loan in an
amount equal to such Distribution less an amount approved by Lender in its
reasonable discretion for unpaid expenses and payables incurred by Borrower in
the ordinary course of business and a reasonable reserve for future expenses
and (b) receipt by Borrower of any payments on an Emergency Loan, make a
mandatory payment of the Loan in an amount equal to the payments received (less
amounts retained for expenses and payables). All mandatory payments made under
this Section shall be applied first to
<PAGE> 4
accrued but unpaid interest and thereafter to the outstanding principal balance
of the Loan. Each mandatory payment made hereunder which is attributable to a
Distribution shall be accompanied by a certificate from the Borrower to the
Lender which designates whether the mandatory payment is a Special Mandatory
Payment. If Borrower fails to provide such a certificate, Lender shall
designate whether the mandatory payment is a Special Mandatory Payment and such
determination shall be conclusive. Borrower acknowledges to Lender that the
Company is generally obligated to distribute all net cash flow (other than tax
distributions ) and amounts established as reserves) to its members (including
the Borrower). Notwithstanding anything in this Agreement to the contrary,
Lender shall not be obligated to make any additional Advance to Borrower
pursuant to this Agreement if, based on a determination by Lender in its
reasonable discretion, the Company has failed to satisfy its obligation to make
the distributions described in the preceding sentence and such failure is
continuing.
SECTION 3.1.3 Acceleration of Stated Maturity Date.
Immediately upon any acceleration of the Stated Maturity Date of the Loan
pursuant to Section 8.2 or Section 8.3, the Borrower shall repay the Loan to
the full extent of such acceleration.
SECTION 3.2 Interest Provisions. Interest on the outstanding principal
amount of the Loan shall accrue and be payable in accordance with this Section
3.2.
SECTION 3.2.1 Rate. Prior to an Event of Default, the
outstanding principal balance of the Loan shall accrue interest at the rate
(the "Interest Rate") of 12%, compounded annually; provided, however, that in
no event will the Interest Rate exceed a rate that would cause the yield to
maturity on the Loan to equal or exceed that rate described in Section
163(i)(1)(B) of the Code.
SECTION 3.2.2 Post-Maturity Rates. 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 in no event shall the Default
Rate exceed the maximum rate of interest permitted by applicable law.
SECTION 3.2.3 Accrual. At the end of each calendar year
during the term hereof, all interest which has accrued but has not been paid
during such calendar year shall be added to the outstanding principal balance
of the Loan and shall, thereafter, bear interest, prior to an Event of Default,
at the Interest Rate.
SECTION 3.2.4 Minimum Annual Interest Payment.
Notwithstanding anything else contained in this Article III, Borrower on each
anniversary date of this Note shall pay Lender an amount equal to the excess,
if any, of (a) one-half of the interest accrued on the outstanding principal
balance of the Loan since the last anniversary date, over (b) the amount of
Special Mandatory Payments made to Lender since the last anniversary date that
were applied to pay interest on the Loan.
<PAGE> 5
ARTICLE IV
CERTAIN OTHER PROVISIONS
SECTION 4.1 Payments, Computations, etc. Unless otherwise expressly
provided, all payments by the Borrower pursuant to this Agreement, the Note or
any other Loan Document shall be made, without setoff, deduction or
counterclaim, not later than 12:00 noon, Fort Worth, Texas time, on the date
due, in same day or immediately available funds, to such account as the Lender
shall specify from time to time by written notice delivered to the Borrower.
Whenever any payment to be made shall otherwise be due on a day which is not a
Business Day, such payment shall be made on the next succeeding Business Day
and such extension of time shall be included in computing interest and fees, if
any, in connection with such payment.
SECTION 4.2 Setoff. Lender shall, upon the occurrence of any Default
have the right to appropriate and apply to the payment of the Note (whether or
not then due) all amounts then held by such Lender of the Borrower. The rights
of Lender under this Section are in addition to other rights and remedies
(including other rights of setoff under applicable law or otherwise) which
Lender may have. The Borrower hereby waives all rights of setoff, appropriation
and application it may have pursuant to applicable law or otherwise.
SECTION 4.3 Use of Proceeds. The proceeds of the Loan shall be used by
Borrower solely to make capital contributions to the Company in accordance with
the Second Restated Operating Agreement.
ARTICLE V
CONDITIONS TO BORROWING
SECTION 5.1 Initial Advance. The obligations of the Lender to fund the
Initial Advance shall be subject to the prior or concurrent satisfaction of
each of the conditions precedent set forth in this Section 5.1.
SECTION 5.1.1 Application for Advance. The Lender shall have
received an Application for Advance.
SECTION 5.1.2 Resolutions, etc. The Lender shall have
received from Borrower a certificate of resolutions and incumbency as to
resolutions of its Board of Directors then in full force and effect authorizing
the execution, delivery and performance of this Agreement, the Note and each
other Loan Document to be executed by it.
SECTION 5.1.3 Delivery of Note. The Lender shall have
received the Note duly executed and delivered by the Borrower.
SECTION 5.1.4 Borrower Security Agreement. The Lender shall
have received executed counterparts of the Borrower's Amended and Restated
Security Agreement together with such UCC-1 financing statements and UCC search
reports as Lender may require.
<PAGE> 6
SECTION 5.1.5 Financial Information, etc. The Lender shall
have received, in form and scope reasonably satisfactory to Lender, the
financial statements referred to in Section 6.5.
SECTION 5.1.6 Closing Fees, Expenses, etc. The Lender shall
have received all fees, costs and expenses due and payable pursuant to this
Agreement.
SECTION 5.1.7 Organic Documents. The Lender shall have
received a copy of the Second Restated Operating Agreement.
SECTION 5.1.8 Equity Contribution. The stockholders of
Borrower shall have made additional equity contributions to Borrower in an
aggregate amount of at least $2,606,000 and Borrower in turn shall have
contributed those funds to the Company.
SECTION 5.1.9 Contribution Requirements. The Lender shall
have received from Borrower and the Company written certification that the
Contribution Requirements (set forth in Exhibit F to the Second Restated
Operating Agreement) are satisfied.
SECTION 5.2 All Advances. The obligation of Lender to fund future
Advances shall be subject to the satisfaction of each of the conditions
precedent set forth in this Section 5.2.
SECTION 5.2.1 Application for Advance. The delivery of an
Application for Advance.
SECTION 5.2.2 Compliance with Warranties, No Default, etc.
Both before and after giving effect to any Advances the following statements
shall be true and correct to the satisfaction of the Lender:
(a) the representations and warranties set forth in
this Agreement shall be true and correct with the same effect
as if then made;
(b) no Default shall have then occurred and be
continuing.
SECTION 5.2.3 Organic Documents. The Lender shall have
received a copy of the Organic Documents for the Company, to the extent they
have been amended or modified.
SECTION 5.2.4 Fees and Expenses. The Lender shall have received all
fees, costs and expenses due and payable pursuant to this Agreement.
SECTION 5.2.5 Compliance with Section 7.1.7. The Company
shall have received the full amount of stockholder contributions required to be
made under Section 7.1.7 in connection with such Advance or other Assessment
Determination under the Commitment Funding Instruments.
<PAGE> 7
SECTION 5.2.6 Request from Company. Lender shall have
received a copy of the Request and Certification from Manager to Borrower
relating to requests for New Capital as described in the Contribution
Requirements set forth in Exhibit F to the Second Restated Operating Agreement.
Lender shall have received from Borrower its written certificate executed by a
duly authorized executive officer that all Contribution Requirements have, to
Borrower's best knowledge and belief after inquiry, been satisfied and not
waived.
SECTION 5.2.7 Satisfactory Legal Form. All documents executed
or submitted pursuant hereto shall be reasonably satisfactory in form and
substance to the Lender and its counsel; the Lender shall have received all
other information, approvals, opinions, documents or instruments as the Lender
or its counsel may reasonably request.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to make the Loan
hereunder and to make each Advance pursuant to the Loan, the Borrower
represents and warrants unto the Lender as of the day and year first written
above and on the date of each Advance as set forth in this Article VI.
SECTION 6.1 Organization, etc. The Borrower is a duly formed
corporation under the laws of Delaware, is duly qualified to do business and
has full power and authority and holds all requisite governmental licenses,
permits and other approvals to enter into and perform its obligations under
this Agreement, the Note and each other Loan Document to which it is a party,
and to own and hold its property and to conduct its business substantially as
currently conducted by it.
SECTION 6.2 Due Authorization, Non-Contravention, etc. The execution,
delivery and performance by the Borrower of this Agreement, the Note and each
other Loan Document executed or to be executed by it, are within the Borrower's
corporate powers, have been duly authorized by all necessary action (including
but not limited to any consent of stockholders required by law or its Organic
Documents) and do not (a) contravene the Borrower's Organic Documents; or (b)
contravene any contractual restriction, law or governmental regulation or court
decree or order binding on or affecting the Borrower except for such
contraventions which 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 or any Loan Document.
SECTION 6.3 Government Approval, Regulation, etc. No authorization,
consent or approval or other action by, and no notice to, filing with or
license from, any governmental authority or regulatory body or other Person is
required for the due execution or delivery by the Borrower of this Agreement,
the Note or any other Loan Document to which it is a party, or for the
consummation and performance of the transactions contemplated hereby or
thereby.
SECTION 6.4 Validity, etc. Each of this Agreement and, upon the due
execution and
<PAGE> 8
delivery thereof, the Note and each other Loan Document executed by the
Borrower or the Company, constitutes the legal, valid and binding obligation of
such parties enforceable in accordance with its respective terms, except as
such enforceability may be limited by applicable bankruptcy, reorganization,
insolvency and other similar laws affecting creditors rights generally.
SECTION 6.5 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 6.6 No Material Adverse Change. There has been no material
adverse change in the business, financial condition, operations, assets,
revenues, or properties, of the Borrower taken as a whole from the financial
information previously provided to Lender.
SECTION 6.7 No Default Under Indebtedness. No event of default has
occurred and is continuing, and no event has occurred which with the giving of
notice, passage of time or both would become a material event of default under
any of the Indebtedness permitted to be incurred pursuant to Section 7.2.2
hereof.
SECTION 6.8 Litigation, Labor Controversies, etc. There is no pending
or, to the knowledge of the Borrower, threatened litigation, action, proceeding
or labor controversy affecting the Borrower or the Company which, if adversely
determined could reasonably be expected to have a material adverse effect on
Borrower, the Company, or Lender.
SECTION 6.9 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 6.10 Additional Stockholder Equity. The Stockholders have
contributed (or have delivered to Borrower their enforceable commitments to
contribute), in the aggregate, $2,606,000 cash to the capital of Borrower to be
used to fund (in conjunction with the Initial Advance) Borrower's initial
capital contributions under the Second Restated Operating Agreement. Borrower
has received from each of the Stockholders his or its Funding Commitment
Instrument, pursuant to which each the Stockholders have severally obligated
themselves to make additional capital contributions to Borrower of up to an
aggregate amount of $5,034,00 to satisfy the requirements of Section ___ and
for other purposes set forth in the Funding Commitment Instruments.
SECTION 6.11 ERISA. Neither Borrower, nor, to the best knowledge of
Borrower, any other person has taken any action or failed to take any action
which would subject Borrower, or the Company to any potential liability under
ERISA.
SECTION 6.12 Accuracy of Information. All factual information, as
amended,
<PAGE> 9
supplemented or modified, furnished by or on behalf of the Borrower in writing
to (or as directed by) the Lender for purposes of or in connection with this
Agreement, any other Loan Document or any transaction contemplated hereby is
true and accurate in all material respects as of the date of execution and
delivery of this Agreement and all other such factual information thereafter
furnished by or on behalf of the Borrower to (or as directed by) the Lender
pursuant to the terms of this Agreement or any other Loan Document is true and
accurate in every material respect on the date as of which such information as
dated or certified, and does not omit any material fact necessary to make such
Information not misleading.
ARTICLE VII
COVENANTS
SECTION 7.1 Affirmative Covenants. Borrower will perform the
obligations set forth in this Section 7.1.
SECTION 7.1.1 Financial Information, Reports, Notices, etc.
Borrower will furnish, or will cause to be furnished, to Lender copies of the
following financial statements, reports, notices and information:
(a) As soon as available and in any event within 45
days after the end of each Fiscal Quarter of each Fiscal Year
of Borrower (including the final Fiscal Quarter of each
Fiscal Year), Borrower will deliver, or cause to be
delivered, balance sheets of Borrower as of the end of such
Fiscal Quarter and statements of income, cash flow and
Borrower's equity for such Fiscal Quarter and for the period
commencing at the end of the previous Fiscal Year and ending
with the end of such Fiscal Quarter, setting forth in each
case in comparative form the figures for the corresponding
Fiscal Quarter of the previous Fiscal Year, certified by the
chief financial Officer of Borrower in a manner acceptable to
the Lender.
(b) if requested by Lender for any Fiscal Year,
Borrower will have prepared at Borrower's expense and
Borrower will deliver, or cause to be delivered, to Lender a
copy of an annual audit report for Borrower including therein
balance sheets of Borrower as of the end of such Fiscal Year
and statements of cash flow, income and Borrower's equity for
such Fiscal Year, in each case certified (without
qualification) by independent public accountants reasonably
acceptable to the Lender.
(c) a copy of all financial accounting and reports
which are to be provided to the members of the Company
pursuant to Article 10 of the Operating Agreement.
(d) As soon as possible and in any event within three
Business Days after becoming aware of
<PAGE> 10
(i) the occurrence of any material adverse
development with respect to the Company or any
Subsidiary, or
(ii) copies of any material notices or
communications from a lender or with respect to
Borrower or the Company; or
(iii) copies of any material notices or
communications from the Company to another lender or
Governmental Authority with respect to a Project or
the Project Loan Documents.
Borrower will deliver, or will cause to be delivered,
notice thereof and copies of all documentation relating
thereto.
(e) Borrower will deliver, or will cause to be
delivered, such other information respecting the condition or
operations, financial or otherwise, of the Borrower or the
Company as the Lender may from time to time reasonably
request.
SECTION 7.1.2 Compliance with Laws, etc. Borrower will, and,
consistent with Borrower's rights and obligations under the Operating
Agreement, will cause the Company to, comply in all material respects with all
applicable Governmental Requirements, such compliance to include, but not be
limited to:
(a) the maintenance and preservation of its existence
and qualification in all foreign jurisdictions where it is
required to do so except where the failure to do so would not
be material; and
(b) the payment, before the same become delinquent,
of all taxes, assessments and governmental charges imposed
upon it or upon its property except to the extent they are
being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance
with GAAP shall have been set aside on its books.
SECTION 7.1.3 Maintenance of Properties. Borrower will, and,
consistent with Borrower's rights and obligations under the Operating
Agreement, will cause the Company to, maintain, preserve, protect and keep its
properties (specifically including but not limited to, the Projects) in good
repair, working order and condition, normal wear and tear excepted, and make
necessary and proper repairs, renewals and replacements so that its business
carried on in connection therewith may be properly conducted at all times.
SECTION 7.1.4 Books and Records. Borrower will, and,
consistent with Borrower's rights and obligations under the Operating
Agreement, will cause the Company to, keep books and records which accurately
reflect all of its business affairs and transactions in all material respects.
Borrower will, and will cause the Company to, permit the Lender at reasonable
times and intervals during normal business hours to examine and photocopy
extracts from any of
<PAGE> 11
its books or other corporate records. The Borrower shall pay any fees of its
independent public accountant incurred in connection with the Lender's exercise
of its rights pursuant to this Section.
SECTION 7.1.5 Environmental Covenant. Borrower will, and,
consistent with Borrower's rights and obligations under the Operating
Agreement, will cause the Company to,
(a) use and operate all of its assets in compliance
in all material respects with all Environmental Laws, keep
all necessary and material permits, approvals, certificates,
licenses and other authorizations required under
Environmental Laws in effect and remain in compliance
therewith, and handle all Hazardous Materials in compliance
in all material respects with all Environmental Laws; and
(b) immediately notify the Lender and provide copies
upon receipt of all potentially material written claims,
complaints or notices (excluding routine fee or schedule
notices) relating to non-compliance with, or liabilities or
obligations arising under or relating in any way to,
Environmental Laws with respect to its assets.
SECTION 7.1.6 ERISA Compliance. Borrower will, and will cause
each of its ERISA affiliates to, maintain all employee benefit plans in
compliance in all material respects with all applicable law, including any
reporting requirements, and make all contributions due under the terms of each
employee benefit plan or as required by law.
SECTION 7.1.7 Additional Equity Funding . Prior to making a
request for any Advance (other than the Initial Advance), Borrower will,
through its Board of Directors, make written demand upon each Stockholder to
contribute to Borrower cash in an amount (such amount is termed such
Stockholder's "Additional Equity Contribution") equal to the product realized
by multiplying (i) a sum equal to at least one-third the amount of such
Advance, by (ii) a fraction, the numerator of which is the number of shares of
common stock of Borrower owned by such Stockholder and the denominator of which
is the number of outstanding shares of common stock of Borrower.
Notwithstanding anything to the contrary contained in this Agreement, no
additional Advance will be made to Borrower pursuant to this Agreement unless
and until each Stockholder has contributed cash to Borrower in an amount equal
to such Stockholder's Additional Equity Contribution with respect to such
Advance.
SECTION 7.2 Negative Covenants. Borrower will comply with the
obligations set forth in this Section 7.2.
SECTION 7.2.1 Business Activities. Borrower will not engage
in any activity except for investment in accordance its Organic Documents in
entities identified in Exhibit A and activities incidental thereto (including
but not limited to providing guarantees and other credit enhancements).
Consistent with Borrower's rights and obligations under the Operating
Agreement, Borrower will not permit the Company to engage in any business
activity other than
<PAGE> 12
those activities set forth in the Organic Documents for the Company.
SECTION 7.2.2 Indebtedness. The Borrower will not, and,
consistent with Borrower's rights and obligations under the Operating
Agreement, will not permit the Company to, create, incur, assume or suffer to
exist or otherwise become or be liable in respect of any indebtedness, other
than, without duplication, the following:
(a) indebtedness in respect of the Loan, the Term
Note, the Credit Note and other obligations to Lender;
(b) unsecured Indebtedness incurred in the ordinary
course of its business in the nature of open accounts
extended by suppliers and other vendors on normal trade terms
in connection with purchases of goods and services, accrued
liabilities, deferred income and deferred taxes;
(c) Emergency Loans, as described in the Operating
Agreement;
(d) Third Party Loans in compliance with the
Borrowing Limits set forth in the Operating Agreement; and
(e) other unsecured Indebtedness of the Borrower in
an aggregate amount not to exceed $100,000.
SECTION 7.2.3 Asset Dispositions, etc. The Borrower will not,
and, consistent with Borrower's rights and obligations under the Operating
Agreement, will not permit the Company to, sell, transfer, lease, contribute,
convey or otherwise dispose of all or any part of its assets to any Person,
unless
(a) no Default has occurred and is continuing or
would occur after giving effect thereto; or
(b) such sale, transfer, lease or other disposition
is approved by Lender.
SECTION 7.2.4 Restriction on Distributions. Borrower will not
make dividend distributions to its shareholders at any time when there exists
an outstanding balance on the Loan.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1 Listing of Events of Default. Each of the following events
or occurrences described in this Section 8.1 shall constitute an "Event of
Default." Upon the occurrence of an Event of Default (or any event or state of
facts which, with the giving of notice or the passage of time or both, would
constitute an Event of Default), the Borrower shall give notice thereof to the
Lender.
SECTION 8.1.1 Non-Payment of Obligations. The Borrower shall
default in the
<PAGE> 13
payment when due of any principal of the Loan or of any interest in respect of
the Loan.
SECTION 8.1.2 Breach of Warranty. Any representation or
warranty made or deemed to be made hereunder or in any other Loan Document or
any other writing or certificate furnished by or on behalf of the Borrower to
the Lender for the purposes of or in connection with this Agreement or any such
other Loan Document is or shall be incorrect when made in any material respect.
SECTION 8.1.3 Non-Performance of Other Covenants and
Obligations. There shall be a default in the due performance and observance of
any other agreement contained herein or in any other Loan Document executed by
Borrower, and such default shall continue unremedied for a period of 30 days
after notice thereof shall have been given to the Borrower by the Lender.
SECTION 8.1.4 Bankruptcy, Insolvency, etc. The Borrower
or the Company shall
(a) become insolvent or generally fail to pay, or
admit in writing its inability or unwillingness to pay, debts
as they become due;
(b) apply for, consent to, or acquiesce in, the
appointment of a trustee, receiver, sequestrator or other
custodian for the Borrower or the Company or any property of
any thereof, or make a general assignment for the benefit of
creditors;
(c) absent such application, consent or acquiescence
permit or suffer to exist the appointment of a trustee,
receiver, sequestrator or other custodian for the Borrower or
the Company or for a substantial part of the property of any
thereof, and such trustee, receiver, sequestrator or other
custodian shall not be discharged within 60 days, provided
that the Borrower and the Company hereby expressly authorize
the Lender to appear in any court conducting any relevant
proceeding during such 60-day period to preserve, protect and
defend their rights under the Loan Documents;
(d) permit or suffer to exist the commencement of any
(x) bankruptcy, reorganization, debt arrangement or other
case or proceeding under any bankruptcy or insolvency law, or
(y) any dissolution, winding up or liquidation proceeding, in
respect of the Borrower or the Company, and, if any such case
or proceeding is not commenced by the Borrower or the
Company, such case or proceeding shall be consented to or
acquiesced in by the Borrower or the Company or shall result
in the entry of an order for relief or, in the event of any
case or proceeding described in clause (x), shall remain for
120 days undismissed, provided that the Borrower, and the
Company hereby expressly authorizes the Lender and each
Lender to appear in any court conducting any such case or
proceeding during such 120-day period to preserve, protect
and defend their rights
<PAGE> 14
under the Loan Documents; or
(e) take any limited liability company or corporate
action authorizing, or with intent to further any of the
foregoing.
SECTION 8.2 Action if Bankruptcy. If any Event of Default described in
clauses (a) through (d) of Section 8.1.4 shall occur with respect to the
Borrower or the Company, the Commitment (if not theretofore terminated) to make
Advances shall automatically terminate and the outstanding principal amount of
the Loan shall automatically be and become immediately due and payable, without
notice or demand.
SECTION 8.3 Action if Other Event of Default. If any Event of Default
(other than any Event of Default described in Section 8.2) shall occur for any
reason, whether voluntary or involuntary, and be continuing, the Lender, shall
by notice to the Borrower declare all or any portion of the outstanding
principal amount of the Loan and other obligations to be due and payable and
the Commitment (if not theretofore terminated) to be terminated, whereupon the
full unpaid amount of the Loan shall be and become immediately due and payable,
without further notice, demand or presentment and the Commitment shall
terminate.
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.1 Waivers, Amendments, etc. The provisions of this Agreement
and of each other Loan Document may from time to time be amended, modified or
waived, if such amendment, modification or waiver is in writing and consented
to by the Borrower and the Lender. No failure or delay on the part of the
Lender, or the holder of any Note in exercising any power or right under this
Agreement or any other Loan Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power or right preclude any
other or further exercise thereof or the exercise of any other power or right.
No notice to or demand on the Borrower in any case shall entitle it to any
notice or demand in similar or other circumstances. No waiver or approval by
the Lender or the holder of any Note under this Agreement or any other Loan
Document shall, except as may be otherwise stated in such waiver or approval,
be applicable to subsequent transactions. No waiver or approval hereunder shall
require any similar or dissimilar waiver or approval thereafter to be granted
hereunder.
SECTION 9.2 Notices. All notices and other communications provided to
any party hereto under this Agreement or any other Loan Document shall be in
writing and addressed, delivered or transmitted to such party at its address or
facsimile number set forth below its signature hereto, or at such other address
or facsimile number as may be designated by such party in a notice to the other
parties. Any notice, if sent via United States Postal Service Express Mail or
certified mail, properly addressed with postage prepaid or if sent via
nationally recognized overnight courier service, properly addressed with
delivery fees prepaid, shall be deemed given when received; any notice, if
transmitted by facsimile, shall be deemed given one business day after receipt
of electronic confirmation of transmission.
<PAGE> 15
SECTION 9.3 Payment of Costs and Expenses. The Borrower agrees to pay
on demand all reasonable expenses of the Lender (including the reasonable fees
and out-of-pocket expenses of counsel to the Lender and of local counsel, if
any, who may be retained by counsel to the Lender) in connection with this
transaction
SECTION 9.4 Indemnification.
(a) In consideration of the execution and delivery of
this Agreement by Lender and the extension of the
Commitments, the Borrower hereby indemnities, exonerates and
holds the Lender and each of its respective trustees,
partners, stockholders, officers, directors, employees,
agents, attorneys, consultants and experts (collectively, the
"Indemnified Parties") free and harmless from and against any
and all actions, causes of action, suits, judgments, claims,
demands, losses, costs, liabilities (including, without
limitation, strict liability), penalties, fines and damages,
(including, without limitation, punitive damages), and
expenses incurred in connection therewith (irrespective of
whether any such Indemnified Party is a party to the action
for which indemnification hereunder is sought), including
reasonable attorneys, consultants and experts fees and
disbursements (collectively, the "Indemnified Liabilities"),
imposed upon or incurred by the Indemnified Parties or any of
them as a result of, or arising out of, or relating to
(i) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the
proceeds of the Loan;
(ii) the entering into and performance of this
Agreement and any other Loan Document by any of the
Indemnified Parties;
(iii) the actual or alleged release or presence
of any Hazardous Substance at, to or from any asset
or former asset of Borrower or the Company;
(iv) the actual or alleged violation of any
Environmental Law by any person at or in connection
with any current asset or former asset of Borrower
the Company;
except for any such Indemnified Liabilities arising
for the account of a particular Indemnified Party by
reason of the relevant Indemnified Party's gross
negligence or wilful misconduct, and if and to the
extent that the foregoing undertaking may be
unenforceable for any reason, the Borrower hereby
agrees to make the maximum contribution to the
payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable
law, except as aforesaid to the extent not payable by
reason of the Indemnified Party's gross negligence or
wilful misconduct or breach of such obligations.
<PAGE> 16
(b) LENDER SHALL NOT BE RESPONSIBLE OR LIABLE TO ANY
OTHER PARTY HEREUNDER OR ANY OTHER PERSON FOR CONSEQUENTIAL
DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF THE AGREEMENT OR
ANY OTHER LOAN DOCUMENT.
SECTION 9.5 Severability. Any provision of this Agreement or any other
Loan Document which is prohibited or unenforceable in any jurisdiction shall,
as to such provision and such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such Loan Document or affecting the validity or
enforceability of such provision in any other jurisdiction.
SECTION 9.6 Headings. The various headings of this Agreement and of
each other Loan Document are inserted for convenience only and shall not affect
the meaning or interpretation of this Agreement or such other Loan Document or
any provisions hereof or thereof.
SECTION 9.7 Execution in Counterparts, Effectiveness, etc. This
Agreement may be executed by the parties hereto in several counterparts, each
of which shall be an original and all of which shall constitute together but
one and the same agreement. This Agreement, together with each other Loan
Document, shall become effective when counterparts hereof executed on behalf of
the Borrower and Lender (or notice thereof satisfactory to the Lender) shall
have been received by the Lender and notice thereof shall have been given by
the Lender to the Borrower.
SECTION 9.8 Governing Law: Entire Agreement. THIS AGREEMENT, THE NOTES
NOTE AND EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE
UNDER AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD FOR
CONFLICT OF LAWS PRINCIPLES.
THIS AGREEMENT, THE NOTE, THE AMENDED AND RESTATED SECURITY AGREEMENT
AND EACH OTHER LOAN DOCUMENT REFERENCED HEREIN REPRESENT THE FINAL AGREEMENTS
BETWEEN THE PARTIES WITH RESPECT TO THE LOAN AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
SECTION 9.9 Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that the Borrower may not assign or
transfer its rights or obligations hereunder without the prior written consent
of the Lender.
<PAGE> 17
ARTICLE X
DEFINITIONS
SECTION 10.1 Defined Terms. In addition to the terms defined in
previous portions of this Agreement, the following terms when used in this
Agreement shall, except where the context otherwise requires, have the
following meanings (such meanings to be equally applicable to the singular and
plural forms thereof):
"Advance" means all money advances under the Loan made by Lender
pursuant to an Application for Advance in accordance with Article II.
"Agreement" means, on any date, this Credit Agreement.
"Application for Advance" means a loan request and certificate duly
executed by the Borrower, in the form which is attached hereto as Exhibit A or
such other form which is approved by Lender from time to time.
"Borrower" means Crescent Development Management Corp., a Delaware
corporation, and its successors and assigns permitted hereunder.
"Borrower Security Agreement" means the Amended and Restated Security
Agreement executed and delivered by Borrower granting Lender a security
interest in Borrower's membership interest in the Company and Borrower's
interest in the East West Partnerships.
"Business Day" means any day which is neither a Saturday or Sunday nor
a legal holiday which banks are authorized or required to be closed in New
York, New York.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
"Code" means the Internal Revenue Code of 1986, as amended, reformed
or otherwise modified from time to time.
"Commitment Termination Date" means the earliest of (i) the occurrence
of an Event of Default, (ii) the Stated Maturity Date, or (iii) the date on
which Lender has made Advances equal to the Commitment Amount.
"Default" means any Event of Default or any condition, occurrence or
event which, after notice or lapse of time or both, would constitute an Event
of Default.
"Distribution" means each Distribution (other than deemed
distributions) made to Borrower pursuant to Article V of the Operating
Agreement.
"Emergency Loan" means each Emergency Loan made by Borrower pursuant
to Section 3.11 of the Operating Agreement.
"Environmental Laws" means all applicable foreign, federal, state or
local statutes, laws,
<PAGE> 18
ordinances, codes, rules, regulations (including, without limitation, consent
decrees and orders and administrative orders) judgments and permits or other
authorizations relating to health, safety or the environment, including,
without limitation, CERCLA and RCRA.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time.
"Event of Default" is defined in Section 8.1.
" Funding Commitment Instruments" means the Funding Commitment
Instruments executed by John Goff, Gerald Haddock, Harry Frampton and Crescent
Real Estate Equities Limited Partnership effective as of January 1, 1998.
"Governmental Authority" means the United States, the state, county
and city or other political subdivision in which a Project is located and any
other political subdivision, agency or instrumentality exercising jurisdiction
over the Borrower or the Company.
"Governmental Requirement" means all laws, ordinances, rules and
regulations of any Governmental Authority applicable to Borrower or the
Company.
"Hazardous Material" means any pollutant, hazardous substance,
radioactive substance, toxic substance, hazardous waste, medical waste,
radioactive waste, special waste, petroleum or petroleum-derived substance or
waste, asbestos, polychlorinated biphenyls, or any hazardous or toxic
constituent thereof and includes, but is not limited to, any substance defined
in or regulated under Environmental Laws.
"Initial Advance" means the first Advance made hereunder, in an amount
not to exceed $7,818,000.
"Loan" is defined in the preamble.
"Loan Document" means this Agreement, the Note and all other documents
evidencing, securing or governing the Loan.
"Note" means the Line of Credit Note of the Borrower delivered to a
Lender pursuant to this Agreement.
"Organic Document" means, relative to Borrower and any of its
Subsidiaries, its articles or certificate of incorporation, as the case may be,
its articles of organization, its by-laws and all partnership agreements,
operating agreements, shareholder agreements, voting trusts and similar
arrangements applicable to any partnership or limited liability company
interests issued by such person or authorized shares of capital stock issued by
such person.
<PAGE> 19
"Company" means East West Resorts, LLC, a Delaware limited liability
company.
"Operating Agreement" means that certain Second Amended and Restated
Operating Agreement of East West Resorts, LLC dated January 1, 1998.
"Person" means any natural person, corporation, partnership, firm,
association, trust, government, governmental agency or any other entity,
whether acting in an individual, fiduciary or other capacity.
"RCRA" means the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901, et seq., as in effect from time to time.
"Special Mandatory Payments" means those mandatory payments which are
attributable to the Borrower's receipt of a Distribution from the Company.
"Stated Maturity Date" means January 1, 2003.
"Stockholder" is defined in the Additional Funding Instruments to
include John Goff, Gerald Haddock, Harry Frampton and Lender.
"Tax Distribution" means each Distribution made to Borrower pursuant
to Section 5.2 of the Operating Agreement.
"UCC" means the Uniform Commercial Code as in effect, from time to
time, in the State of Texas.
"United States" or "U.S." means the United States of America, its
fifty States and the District of Columbia.
[INTENTIONALLY LEFT BLANK]
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
day and year first above written.
BORROWER: CRESCENT DEVELOPMENT MANAGEMENT
CORP., a Delaware corporation
By:
----------------------------
Name:
---------------------------
Title:
--------------------------
LENDER: CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited
partnership
By: Crescent Real Estate Equities,
Ltd., Sole general partner
By:
----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 21
EXHIBIT A
APPLICATION FOR ADVANCE
This Application for Advance is submitted by the undersigned to
Crescent Real Estate Equities Limited Partnership ("Lender") pursuant to that
Credit Agreement dated as of January 1, 1998 between Lender and the undersigned
(the "Credit Agreement"). Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in the Credit Agreement.
1. The undersigned hereby requests an
Advance under the Credit Agreement in
the amount of: $____________
2. The undersigned hereby warrants and represents to Lender that both
before and after giving effect to the Advance which is requested
hereby, the warranties and representations set forth in Article VI of
the Credit Agreement are true and correct with the same effect as if
made on the date hereof.
3. The undersigned hereby warrants and represents to Lender that both
before and after giving effect to the Advance which is requested
hereby, the conditions set forth in Article V of the Credit Agreement
are satisfied.
CRESCENT DEVELOPMENT MANAGEMENT
CORP., a Delaware corporation
By:
----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 22
CREDIT NOTE
$22,920,000.00 January 1, 1998
FOR VALUE RECEIVED, CRESCENT DEVELOPMENT MANAGEMENT CORP., 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-TWO
MILLION NINE HUNDRED TWENTY-FOUR THOUSAND FIVE HUNDRED AND NO/100 DOLLARS
($22,924,500.00)], or so much thereof as may be advanced, with interest on the
principal balance from time to time remaining unpaid at the rates hereinafter
provided.
Interest on the principal balance hereof from time to time remaining
unpaid prior to an Event of Default shall be payable at the Interest Rate,
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 dated of
even date herewith executed by Lender and Borrower (the "Credit Agreement").
Terms defined in the Credit Agreement and not otherwise defined herein are used
herein with the meanings given those terms in the Credit Agreement. To secure
payment of this Note, Borrower has granted Lender security interests in certain
assets of Borrower identified in that Amended and Restated Security Agreement
of even date herewith (the "Amended and Restated Security Agreement").
Borrower may request and receive Advances hereunder only in accordance
with the terms and provisions of the Credit Agreement. Interest and principal
on this Note shall be payable as provided in Article 3 of 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 or may be declared to be immediately due and
payable and the holder hereof shall have all rights and remedies of Lender
under the Credit Agreement and other Loan Documents (including but not limited
to the Amended and Restated Security Agreement). 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 of the holder of this Note to exercise the same or any other option at
that time or at any subsequent time with respect to such uncured default or any
other event of uncured default hereunder or under any other of the Loan
Documents (including but not limited to the Amended and Restated Security
Agreement). The remedies of the holder hereof, as provided in this Note and in
any other of the Loan Documents (including but not limited to the Amended and
Restated Security Agreement), 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 hereof. 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 payment 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
(including but not limited to the Amended and Restated Security Agreement), at
that time or at any subsequent time, or nullify any prior exercise of any such
option.
<PAGE> 23
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, probate 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 excessive
interest shall be applied to the reduction of the principal hereof and not to
the payment of interest, or if such excessive 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.
This Note may be prepaid only in accordance with the terms of the
Credit Agreement.
The loan transaction evidenced hereby shall not be governed by, or be
subject to, Chapter 15 or Chapter 346 of the Texas Credit Code or Chapter 303
of the Texas Finance Code.
EXCEPT WHERE FEDERAL LAW IS APPLICABLE (INCLUDING, WITHOUT LIMITATION,
ANY FEDERAL USURY CEILING OR OTHER FEDERAL LAW WHICH, FROM TIME TO TIME, IS
APPLICABLE TO THE INDEBTEDNESS EVIDENCED HEREIN AND WHICH PREEMPTS STATE USURY
LAWS), THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS AND THE LAWS OF THE UNITED STATES APPLICABLE TO TRANSACTIONS IN SUCH
STATE.
THIS NOTE, TOGETHER WITH THE CREDIT AGREEMENT, THE AMENDED AND
RESTATED SECURITY AGREEMENT AND EACH OTHER LOAN DOCUMENT REFERENCED HEREIN OR
THEREIN, REPRESENT THE FINAL AGREEMENTS BETWEEN THE PARTIES WITH RESPECT TO THE
LOAN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
CRESCENT DEVELOPMENT MANAGEMENT CORP.,
a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 24
AMENDED AND RESTATED SECURITY AGREEMENT
(Membership and Partnership Interests)
Date: January 1, 1998
This Amended and Restated Security Agreement (this "Security
Agreement") amends and restates in its entirety that Security Agreement dated
February 29, 1996 (the"Original Security Agreement") between Secured Party and
Debtor.
RECITALS
1. Contemporaneously with the Original Security Agreement, Secured
Party advanced to Debtor the sum of $3.1 million, evidenced by that Promissory
Note dated February 29, 1996; that note remains outstanding and held by Secured
Party. Payment of that note is secured by all of Debtor's rights and interests
as a member of the Company plus other collateral incidental thereto.
2. Debtor has requested Secured Party to agree to advance up to an
additional $22,920,000 which Debtor may from time to time use to make
additional capital contributions to the Company.
3. Secured Party has agreed to advance such additional funds on the
terms of that Credit Agreement of even date herewith between Secured Party and
Debtor.
A. PARTIES
1. Secured Party: CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
777 Main Street, Suite 2700
Fort Worth, TX 76102
2. Debtor (whether
one or more): CRESCENT DEVELOPMENT MANAGEMENT CORP.
C/O Harry Frampton
100 East Thomas Place, Drawer 2770
Avon, Colorado 81620
Attention: Harry Frampton
B. AGREEMENT
1. Security Interest. Subject to the applicable terms of this Security
Agreement, Debtor continues, reconfirms and grants to Secured Party a security
interest in the Collateral (hereinafter defined) to secure the payment of the
Obligations (hereinafter defined).
C. OBLIGATIONS
1. Description of Obligations. The following obligations
("Obligations") are secured by this Security Agreement:
a. The debt, obligations, liabilities and agreements of Debtor under
(i) that Promissory Note in the original principal amount of $3.1 million dated
February 29, 1996 (the "Term Note"), (ii) that Credit Note in the principal sum
of $22,920,000 executed by Debtor of even date herewith, bearing interest and
being payable to Secured Party as therein provided (the "Credit Note"; the Term
Note and the Credit Note together are the "Notes"), (iii) that Credit Agreement
("Credit Agreement") executed by Debtor and Secured Party of even date
herewith, (iv) all other documents evidencing,
<PAGE> 25
governing, securing or otherwise pertaining to the indebtedness evidenced by
the Notes (the Notes, Credit Agreement and all other such documents being
called "Loan Documents"), and (v) all renewals, extensions, modifications or
rearrangements of the foregoing.
b. All costs incurred by Secured Party to obtain, preserve,
perfect and enforce this Security Agreement and collect the
Obligations, and maintain, preserve, collect and enforce the
Collateral (hereinafter defined), including but not limited to
reasonable attorneys' fees and legal expenses and expenses of sale.
c. Interest on the above amounts at the Default Rate as defined
in the Notes.
d. All debt, obligations and liabilities of Debtor to Secured
Party of the kinds described in this Item C., now existing or
hereafter arising.
D. COLLATERAL
1. Description of the Collateral. Debtor has assigned and granted to
Secured Party, and hereby continues, reconfirms and grants to Secured Party,
security interests in the following, whether now existing or hereafter arising
(the "Collateral"):
a. All of the rights and interests of Debtor as a member of East
West Resorts, LLC, a Delaware limited liability company (the
"Company"), including, without limitation, Debtor's rights as a member
to receive distributions of any sale, exchange, refinancing or other
disposition of property owned by the Company under the Second Amended
and Restated Operating Agreement entered into effective as of January
1, 1998, as amended from time to time hereafter (the "Operating
Agreement"), and all other profits, income, and distributions, whether
in cash or in kind, owing to Debtor under the Operating Agreement.
b. All of the rights and interests of Debtor as a limited partner
of East West Resort Development, L. P., a Delaware limited partnership
("EWRD"), including, without limitation, Debtor's rights as a member
to receive distributions of any sale, exchange, refinancing or other
disposition of property owned by EWRD under the Limited Partnership
Agreement dated as of August 11, 1995, as subsequently amended (as
amended from time to time hereafter, the "EWRD Partnership
Agreement"), and all other profits, income, and distributions, whether
in cash or in kind, owing to Debtor under the EWRD Partnership
Agreement.
c. All of the rights and interests of Debtor as a limited partner
of East West Resort Development II, L. P., a Delaware limited
partnership ("EWRD2"), including, without limitation, Debtor's rights
as a member to receive distributions of any sale, exchange,
refinancing or other disposition of property owned by EWRD2 under the
Limited Partnership Agreement dated as of September 26, 1996, as
subsequently amended (as amended from time to time hereafter, the
"EWRD2 Partnership Agreement"), and all other profits, income, and
distributions, whether in cash or in kind, owing to Debtor under the
EWRD2 Partnership Agreement.
d. All of the rights and interests of Debtor as a limited partner
of EWRD Summit Holding, L. P., a Delaware limited partnership
("Summit"), including, without limitation, Debtor's rights as a member
to receive distributions of any sale, exchange, refinancing or other
disposition of property owned by Summit under the Limited Partnership
Agreement dated as of September 23, 1997, as subsequently amended (as
amended from time to time hereafter, the "Summit Partnership
Agreement"), and all other profits, income, and distributions, whether
in cash or in kind, owing to Debtor under the EWRD Partnership
Agreement.
e. All Partner Loans and Default Loans (as defined in the EWRD
Partnership Agreement) now or hereafter owing to Debtor and all
security therefor.
f. All present and future rights and interests Debtor may have or
be or become entitled to in the real and personal property (the
"Collateral Property") now or hereafter owned by the Company or
Partnerships.
g. All present and future proceeds, profits, combinations,
reclassification, improvements, and
<PAGE> 26
products of, accessions, attachments, and other additions to, and
substitutes and replacements for, all or any part of the Collateral
described herein.
h All present and future accounts, contract rights, general
intangibles, chattel paper, documents, instruments, cash and noncash
Proceeds, and other rights arising from or by virtue of, or from the
voluntary or involuntary sale, lease, or other disposition of, or
collections with respect to, or insurance or condemnation proceeds
payable with respect to, or proceeds payable by virtue of warranty,
indemnity, guaranty, or other claims, causes and rights of action,
settlements thereof, judicial and arbitration judgments and awards
against any person with respect to, all or any part of the Collateral
or the Collateral Property described herein. As used herein, the term
"Proceeds" shall have the meaning assigned to it under the UCC and, to
the extent not otherwise included, shall include, but not be limited
to, (i) all income, revenues, fees, distributions, reimbursements and
payments from whatever source received by, or on behalf of Debtor, in
respect of the Collateral, (ii) any and all payments (in any form
whatsoever) made or due and payable to Debtor from time to time in
connection with any casualty with respect to the Collateral Property
or any of the Collateral (whether or not pursuant to an insurance
policy), or any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any governmental
authority, (iii) all claims of Debtor for losses or damages arising
out of or related to or for any breach of any agreements, covenants,
representations or warranties or any default under any of the
Collateral described herein, and (iv) any and all other amounts from
time, to time paid or payable to, or on behalf of, Debtor under, or in
connection with, any of the Collateral.
i All present and future security for the payment to Debtor of
any of the Collateral described herein and goods which gave, or will
give, rise to any of such Collateral or are evidenced, identified, or
represented therein or thereby.
EWRD, Summit and EWRD2 are collectively the "Partnerships." The EWRD
Partnership Agreement, the Summit Partnership Agreement and the EWRD2
Partnership Agreement are collectively the "Partnership Agreements."
The description of Collateral contained in this paragraph shall not be
deemed to permit any action prohibited by this Security Agreement or by terms
incorporated in this Security Agreement. Portions of the Collateral constitute
accounts, contract rights, general intangibles, chattel paper, documents or
instruments, and all books and records of Debtor concerning such Collateral
are, and shall be, located at the offices of the Debtor specified above.
E. DEBTOR'S WARRANTIES
Debtor represents, warrants, and covenants to Secured Party now and so
long as any Obligations secured hereby are outstanding as follows:
1. No financing statement covering any portion of the Collateral is on
file in any public office, except the financing statements relating to this
security interest created hereunder or under the Original Security Agreement or
except for statements in favor of Lender as a secured party.
2. Debtor is the sole owner of the Collateral and each item
constituting the Collateral, free and clear of all liens except for the
security interest granted to Secured Party pursuant to this Security Agreement
or other security interests in favor of Lender.
3. All actions necessary or desirable to perfect the Security Interest
in the Collateral in each state in which any portion of the Collateral is or
will be located have been, or will forthwith be, duly taken.
4. The Operating Agreement and the Partnership Agreements each is in
full force and effect and, to the knowledge of Debtor, there exists no material
default thereunder, or event or condition which, with the passage of time or
the giving of notice, or both, would constitute a material default thereunder.
5. The Operating Agreement and the Partnership Agreements each shall
not be amended or modified in
<PAGE> 27
any manner that would materially affect Debtor's interest thereunder, or in any
manner which would materially impair or adversely affect the Collateral, nor
shall Debtor consent to any such amendment without the prior written consent of
Secured Party.
6. There is no condition, circumstance, event, agreement, document,
instrument, restriction, litigation or other proceeding and, to the best of
Debtor's knowledge, there is no threatened litigation or proceeding or basis
therefor, which could materially adversely affect the validity or priority of
the liens and security interests granted, or intended to be granted, hereunder
when executed, delivered, recorded and filed as required hereunder, or that
could materially adversely affect the ability of Debtor to perform its
obligations hereunder and under the other Loan Documents to which Debtor is a
party, or which would constitute an Event of Default.
7. The Company and Debtor have fully complied with all requirements
imposed on them in connection with (a) the organization and formation of the
Company and the Partnerships, and (b) the sale, distribution and offer of
membership interests in the Company and the Partnerships.
F. DEBTOR'S COVENANTS
Debtor covenants to Secured Party and agrees with Secured Party as
follows:
1. Debtor shall promptly perform all of Debtor's agreements herein,
and any other agreements between Debtor and Secured Party.
2. Debtor shall defend the Collateral against all claims and demands
of all persons at any time claiming the same or any interest therein adverse to
Secured Party.
3. Debtor shall keep the Collateral free from liens and other security
interests (except liens for taxes not yet due), and shall not create or suffer
to exist any lien or security interest in the Collateral hereafter acquired
except for the security interests hereby granted. Debtor shall not file, or
permit to be filed, any financing statements or other security instruments
covering the Collateral, unless by, or on behalf of, Secured Party in
connection with this Security Agreement or other security agreements between
Debtor and Secured Party or to effectuate the assignment to Debtor of the
financing statements currently of record against the Collateral.
4. Debtor shall pay all costs necessary to obtain, preserve, perfect,
defend and enforce the security interests hereby granted, collect the sums
owing under the Collateral Loan Documents, and preserve, defend, enforce,
service and collect the Collateral, including specifically, but without
limitation, the payment of taxes, assessments, reasonable attorneys' fees and
legal expenses, and expenses of sales. If Debtor shall have failed to pay such
costs and expenses within five (5) days after request by Secured Party, Secured
Party may, at its option, pay any such costs and expenses, and discharge
encumbrances on the Collateral. Debtor agrees to reimburse the Secured Party on
demand for any costs so incurred, and, until such reimbursement, the amount of
any such payment shall be a part of the Obligation.
5. Prior to or immediately following the occurrence thereof, Debtor
will notify the Secured Party of (i) any material adverse change occurring in
or to any of the Collateral, (ii) any change in Debtor's office address or
mailing address, (iii) any material change in any fact or circumstance
warranted or represented by Debtor in this Security Agreement or furnished to
the Secured Party by Debtor, (iv) any Event of Default or (v) any notices,
communications, or correspondence to be or which have been delivered to Debtor
under the Operating Agreement or the Partnership Agreements and deliver to
Secured Party copies thereof.
6. Debtor shall execute and deliver to Secured Party a financing
statement for filing to perfect the security interests hereunder and any other
papers furnished by Secured Party which are necessary in the judgment of
Secured Party to obtain, maintain and perfect the security interest hereunder
and to enable Secured Party to comply with any applicable federal or state law
in order to obtain or perfect Secured Party's interest in the Collateral.
Debtor shall have the Company and the Partnerships make appropriate entries in
their records to reflect the existence of the security interest granted hereby
in the Collateral.
<PAGE> 28
7. Debtor shall cause the Company to comply with all of the
representations, warranties, covenants, agreements, indemnities and terms
contained in the Company's and the Partnerships' Organizational Documents and
all other material agreements to which it is bound and enforce the Company's
rights under all material agreements by which it is bound, in a timely manner,
consistent with prudent practices and all applicable laws, and also as required
by Secured Party.
8. Debtor shall fully perform all of Debtor's duties under and in
connection with each transaction to which the Collateral, or any part thereof,
relates, so that the amounts thereof shall actually become payable in their
entirety to Secured Party.
9. Debtor shall promptly notify Secured Party of any claim, action, or
proceeding affecting title to all or any of the Collateral or the security
interest and, at the request of Secured Party, appear in and defend, at
Debtor's expense, any such claim, action, demand or proceeding.
10. At Debtor's expense and upon Secured Party's request, after an
Event of Default, Debtor shall file or cause to be filed such applications and
take such other actions as Secured Party may request to obtain the consent or
approval of any governmental authority to Secured Party's rights hereunder,
including, without limitation, the right to sell all of the Collateral upon an
Event of Default without additional consent or approval from such governmental
authority (and, because Debtor agrees that Secured Party's remedies at law for
failure of Debtor to comply with this provision would be inadequate and that
such failure would not be adequately compensable in damages, Debtor agrees that
its covenants in this provision may be specifically enforced).
11. Upon demand by Secured Party, Debtor will deposit upon receipt all
checks, drafts, cash or other remittances on account or accounts or contracts
or received as proceeds of any other Collateral in a special bank account in a
bank of Secured Party's choice over which Secured Party alone shall have power
of withdrawal. The funds in said account shall be held by Secured Party as
security for the Obligation. Said proceeds shall be deposited in the form
received, except for the endorsement of Debtor where necessary to permit
collection of items, which endorsements Debtor agrees to make, but which
Secured Party is authorized to make on Debtor's behalf. Secured Party may from
time to time apply the whole or any part of the funds in such special account
against the Obligations. Any portion of said funds on deposit which Secured
Party elects not to apply to the Obligations may be paid by Secured Party to
Debtor.
12. Debtor shall give Secured Party written notice of each office of
Debtor in which records of Debtor pertaining to accounts in the Collateral are
kept, and of any change of any office or location. Except as such notice is
given, all records of Debtor pertaining to the Collateral and to accounts are
and shall be kept in the location shown at the beginning hereof.
G. RIGHTS AND POWERS OF SECURED PARTY
1. Secured Party may in its discretion after an Event of Default but
only after prior written notice to Debtor, without liability to Debtor, obtain
from any person information regarding Debtor or Debtor's business, which
information any such person also may furnish without liability to Debtor;
endorse as Debtor's agent any instruments, documents or chattel paper in the
Collateral or representing proceeds of the Collateral; contact any account
debtors directly to verify information furnished by Debtor; take control of
proceeds; release the Collateral in its possession to any Debtor, temporarily
or otherwise; after default, take control of funds generated by the Collateral,
such as cash dividends, interest and proceeds or refunds from insurance, and
use same to reduce any part of the Obligations and exercise all other rights
which an owner of such collateral may exercise; after default, at any time
transfer any of the Collateral or evidence thereof into its own name or that of
its nominee; demand, collect, convert, redeem, receipt for, settle, compromise,
adjust, sue for, foreclose or realize upon the Collateral, in its own name or
in the name of Debtor, as Secured Party may determine. The foregoing rights and
powers of Secured Party will be in addition to, and not a limitation upon, any
rights and powers of Secured Party given by law, elsewhere in this agreement,
or otherwise.
2. Secured Party may while any Event of Default continues hereunder
present for conversion any
<PAGE> 29
instrument (including any investment security) in the Collateral which is
convertible into any other instrument or investment security or a combination
thereof with cash. But Secured Party shall not have any duty to present for
conversion any instrument in the Collateral unless it shall have received from
Debtor written instructions to that effect at a time reasonably far in advance
of the final conversion date to make such conversion possible.
H. DEFAULT
1. Events of Default. The occurrence of a default under either Note,
the Credit Agreement or any document evidencing, governing, securing,
guaranteeing, indemnifying or otherwise pertaining to the Loan shall constitute
an event of default ("Event of Default") hereunder.
2. Remedies of Secured Party Upon Default. Should an Event of Default
occur and be continuing, Secured Party may, at its election, exercise any and
all rights and remedies available to a secured party under the UCC, in addition
to any and all other rights and remedies afforded by the Loan Documents, at
law, in equity, or otherwise, including, without limitation, such rights and
remedies as (a) Secured Party, (b) applying by appropriate judicial proceedings
for appointment of a receiver for all or part of the Collateral (and Debtor
hereby consents to any such appointment), and (c) applying to the Obligation
any cash held by Secured Party under this Security Agreement. The exercise of
one or more rights or remedies by Secured Party hereunder shall not prejudice
or impair the concurrent or subsequent exercise of any other rights or remedies
by Secured Party. If, in the opinion of Secured Party, there is any question
that a public or semipublic sale or distribution of any Collateral will violate
any state or federal securities law, Secured Party in its discretion (a) may
offer and sell securities privately to purchasers who will agree to take them
for investment purposes and not with a view to distribution and who will agree
to imposition of restrictive legends on the certificates representing the
security, or (b) may sell such securities in an intrastate offering under
Section 3(a)(11) of the Securities Act of 1933, and no sale so made in good
faith by Secured Party shall be deemed to be not "commercially reasonable"
because so made.
a. Notice. Reasonable notification of the time and place of any
public sale of the Collateral, or reasonable notification of the time
after which any private sale or other intended disposition of the
Collateral is to be made, shall be sent to Debtor and to any other
Person entitled to notice under the UCC. It is agreed that notice sent
or given not less than twenty (20) business days prior to the taking
of the action to which the notice relates is reasonable notification
and notice for the purposes of this subparagraph.
b. Application of Proceeds. Secured Party shall apply the
proceeds of any sale or other disposition of the Collateral under this
paragraph in the following order: first, to the payment of all its
expenses incurred in retaking, holding, and preparing any of the
Collateral for sale(s) or other disposition, in arranging for such
sale(s) or other disposition, and in actually selling or disposing of
the same (all of which are part of the Obligation); second, toward
repayment of amounts expended by Secured Party under Paragraph I.3;
and third, toward payment of the balance of the Obligation in
accordance with the Credit Agreement. If the proceeds are insufficient
to pay the Obligation in full, Debtor shall remain liable for any
deficiency.
3. Other Rights of Secured Party.
a. Performance. In the event Debtor shall fail to pay when due
all taxes on any of the Collateral, or to preserve the priority of the
Security Interest in any of the Collateral, or otherwise fail to
perform any of its obligations under the Loan Documents with respect
to the Collateral, then Secured Party may, at its option, but without
being required to do so, pay such taxes, prosecute or defend any suits
in relation to the Collateral, or insure and keep insured the
Collateral in any amount deemed appropriate by Secured Party, or take
all other action which Debtor is required, but has failed or refused,
to take under the Loan Documents. Any sum which may be expended or
paid by Secured Party under this subparagraph (including, without
limitation, court costs and attorneys' fees) shall bear interest from
the dates of expenditure or payment at the Default Rate (as defined in
the Note) until paid and, together with such interest, shall be
payable by Debtor to Secured Party upon demand and shall be part of
the Obligation.
b. Collection. After the occurrence of an Event of Default and
during the continuation thereof,
<PAGE> 30
upon notice from Secured Party, Maker and each other obligor with
respect to any payments on any of the Collateral (including without
limitation condemnation proceeds, dividends and other distributions
with respect to securities, and insurance proceeds payable by reason
of loss or damage to any of the Collateral Property) is hereby
authorized and directed by Debtor to make payment directly to Secured
Party, regardless of whether Debtor was previously making collections
thereon. Subject to Subparagraph I.3(d) hereof, until such notice is
given, Debtor is authorized to retain and expend all payments made on
the Collateral. After the occurrence of an Event of Default and during
the continuation thereof, Secured Party shall have the right in its
own name or in the name of Debtor to compromise or extend the time of
payment with respect to all or any portion of the Collateral for such
amounts and upon such terms as Secured Party may determine; to demand,
collect, receive, receipt for, sue for, compound, settle, compromise,
adjust, realize upon and give acquittances for any and all amounts due
or to become due with respect to Collateral; to file any claims or
take any action or initiate any proceedings which Secured Party may
deem necessary or desirable for the collection of any of the
Collateral or to otherwise enforce the rights or remedies of Debtor
with respect to any Collateral; to take control of cash and other
Proceeds of any Collateral; to endorse the name of Debtor on any
notes, acceptances, checks, drafts, money orders, or other evidences
of payment on Collateral that may come into the possession of Secured
Party; to sign the name of Debtor on any drafts against obligors or
other Persons making payment with respect to Collateral, on
assignments and verifications of accounts or other Collateral and on
notices to obligors making payment with respect to Collateral; to send
requests for verification of obligations to any such obligor; to take
any action Debtor is required to take or any other necessary action to
obtain, preserve, and enforce this Security Agreement, and maintain,
preserve and collect the Collateral, without notice to Debtor, and add
the costs of same to the Obligation; to release Collateral in Secured
Party's possession to any Person, temporarily or otherwise; to set
standards from time to time to govern what may be deemed
after-acquired Collateral; to transfer any of the Collateral, or
evidence thereof, into its own name or that of its nominee and receive
the Proceeds therefrom and hold the same as security for the
Obligation, or apply the same thereon; to exercise as to the
Collateral all the rights of the owner thereof; and to do all other
acts and things necessary to carry out the intent of this Security
Agreement. If Maker or any other obligor fails or refuses to make
payment on any Collateral when due, Secured Party is authorized, in
its sole discretion, either in its own name or in the name of Debtor,
to take such action as Secured Party shall deem appropriate for the
collection of any amounts owed with respect to the Collateral or upon
which a delinquency exists. Regardless of any other provision hereof,
however, Secured Party shall never be liable for its failure to
collect, or for its failure to exercise diligence in the collection
of, any amounts owed with respect to Collateral, nor shall it be under
any duty whatever to anyone except Debtor to account for funds that it
shall actually receive hereunder. Without limiting the generality of
the foregoing, Secured Party shall have no responsibility for
ascertaining any maturities, calls, conversions, exchanges, offers,
tenders, or similar matters relating to any Collateral, or for
informing Debtor with respect to any of such matters (irrespective of
whether Secured Party actually has, or may be deemed to have,
knowledge thereof). The receipt of Secured Party to Maker or any other
obligor shall be a full and complete release, discharge, and
acquittance to such obligor, to the extent of any amount so paid to
Secured Party.
c. Certain Proceeds. After the occurrence and during the
continuance of an Event of Default, any cash Proceeds of Collateral
which come into the possession of Secured Party (including, without
limitation, insurance and condemnation proceeds) may, at Secured
Party's option, be applied in whole or in part to the Obligation, be
released in whole or in part to or on the written instructions of
Debtor for any general or specific purpose, or be retained in whole or
in part by Secured Party as additional Collateral. Any cash Collateral
in the possession of Secured Party may be invested by Secured Party
but Secured Party shall never be obligated to make any such investment
and shall never have any liability to Debtor for any loss which may
result therefrom. All interest and other amounts earned from any
investment of Collateral may be dealt with by Secured Party in the
same manner as other cash Collateral.
d. Use and Operation of Collateral. Should any Collateral come
into the possession of Secured Party, Secured Party may use or operate
such Collateral for the purpose of preserving it or its value pursuant
to the order of a court of appropriate jurisdiction or in accordance
with any other rights held by Secured Party with respect to such
Collateral. Debtor covenants promptly to reimburse and pay to Secured
Party, at Secured Party's request, the amount of all reasonable
expenses (including, without limitation, the cost of any insurance and
<PAGE> 31
payment of taxes or other charges) incurred by Secured Party in
connection with its custody and preservation of Collateral, and all
such expenses, costs, taxes, and other charges shall bear interest at
the Maximum Rate (as defined in the Note) until repaid and, together
with such interest, shall be payable by Debtor to Secured Party upon
demand and shall become part of the Obligation. However, the risk of
accidental loss or damage to, or diminution in value of, Collateral is
on Debtor, and Secured Party shall have no liability whatever for
failure to obtain or maintain insurance, nor to determine whether any
insurance ever in force is adequate as to amount or as to the risks
insured. With respect to Collateral that is in the possession of
Secured Party, Secured Party shall have no duty to fix or preserve
rights against prior parties to such Collateral and shall never be
liable for any failure to use diligence to collect any amount payable
in respect of such Collateral, but shall be liable only to account to
Debtor for what it may actually collect or receive thereon. The
provisions of this subparagraph shall be applicable whether or not an
Event of Default has occurred and is continuing.
e. Diminution in Value of Collateral. Secured Party shall have no
liability or responsibility whatsoever for any diminution in or loss
of value of any Collateral.
I. MULTIPLE COUNTERPARTS
This Security Agreement may be executed in counterparts, each of which
shall be deemed an original, and all of which shall be deemed but one and the
same instrument.
J. GENERAL
1. Waiver. No delay on the part of Secured Party in exercising any
power or right shall operate as a waiver thereof; nor shall any single or
partial exercise of any power or right preclude other or further exercise
thereof or the exercise of any other power or right. No waiver by Secured Party
of any right hereunder or of any default by Debtor shall be binding upon
Secured Party unless in writing, and no failure by Secured Party to exercise
any power or right hereunder or waiver of any default by Debtor shall operate
as a waiver of any other or further exercise of such right or power or of any
further default.
2. Parties Bound. The rights of Secured Party hereunder shall inure to
the benefit of its successors and assigns. The terms of this Security Agreement
shall be binding upon the successors and assigns of the parties. All
representations, warranties and agreements of Debtor are joint and several if
Debtor is more than one and shall bind Debtor's personal representatives,
heirs, successors and assigns.
3. Definitions. Unless the context indicates otherwise, definitions in
the UCC apply to words and phrases in this Security Agreement; if UCC
definitions conflict, Chapter 9 definitions apply.
4. Notice. Notice shall be deemed reasonable if mailed postage prepaid
at least ten (10) days before the related action (or if the UCC elsewhere
specifies a longer period, such longer period) to Debtor's address given above.
5. Expenses. Debtor agrees to reimburse Secured Party's out-of-pocket
expenses, including reasonable attorney's fees, incurred in negotiating,
administering or enforcing any part of the Obligations, and in preparation,
execution, delivery and recording of any documents in connection with any part
of the Obligations, when not contrary to law.
6. Limitation on Interest. All agreements between Debtor and Secured
Party, whether now existing or hereafter arising and whether written or oral,
are hereby expressly limited so that in no contingency, whether by reason of
demand or acceleration of the indebtedness secured hereby or otherwise, shall
the interest contracted for, charged, received, paid or agreed to be paid to
Secured Party exceed the maximum amount permissible under applicable law. If,
from any circumstance whatsoever interest would otherwise be payable to the
holder hereof in excess of the maximum lawful amount, the interest payable to
Secured Party shall be reduced to the maximum amount permitted under applicable
law; and if from any such circumstance Secured Party shall ever receive
anything of value deemed interest by applicable law in excess of the maximum
lawful amount, an amount equal to any excessive interest shall be applied to
the reduction
<PAGE> 32
of the principal amount owing on the indebtedness secured hereby and not to the
payment of interest, or if such excessive interest exceeds such unpaid balance
of the principal, such excess shall be refunded to the undersigned. All
interest paid or agreed to be paid to Secured Party on the indebtedness secured
hereby shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of such indebtedness
(including the period of any renewal or extension thereof) until payment in
full so that the interest on account of such indebtedness shall not exceed the
maximum amount permitted by applicable law. The terms and provisions of this
paragraph shall control all agreements between Debtor and Secured Party.
7. Modifications. No provision hereof shall be modified or limited
except by a written agreement expressly referring hereto and to the provision
so modified or limited and signed by the Debtor and Secured Party, nor by
course of conduct, usage of trade, or by the law merchant.
8. Severability. The unenforceability of any provision of this
Security Agreement shall not affect the enforceability or validity of any other
provision.
9. Gender and Number. Where appropriate, the use of one gender shall
be construed to include the others or any of them; and the singular number
shall be construed to include the plural, and vice versa.
10. Applicable Law and Venue. THIS SECURITY AGREEMENT SHALL BE
CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF TEXAS.
11. Financing Statement. A carbon, photographic or other reproduction
of this Security Agreement or any financing statement covering the Collateral
shall be sufficient as a financing statement.
<PAGE> 33
EXECUTED as of the date and year first above written.
DEBTOR: CRESCENT DEVELOPMENT MANAGEMENT CORP.,
a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title
-----------------------------------
SECURED PARTY: CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited
partnership
By: Crescent Real Estate Equities, Ltd.,
Sole general partner
By:
-------------------------------------
Name:
-----------------------------------
Title
-----------------------------------
<PAGE> 1
EXHIBIT 10.69
PROMISSORY NOTE
$3,100,000.00 February 29, 1996
FOR VALUE RECEIVED, CRESCENT DEVELOPMENT MANAGEMENT CORP., a Delaware
corporation ("Borrower"), promises to pay to the order of CRESCENT REAL ESTATE
EQUITIES LIMITED PARTNERSHIP, a Delaware limited partnership ("Lender"), the sum
of THREE MILLION ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($3,100,000.00), with
interest, prior to default or maturity on the unpaid balance of such amount from
the date hereof at the rate of twelve percent (12%) per annum. This Note is
secured by a security agreement of even date herewith from Borrower, as debtor,
to Lender, as secured party.
Interest only on the outstanding balance of principal on this Note shall
be payable quarterly on the last day of each March, June, September and
December (each such date being called a "Payment Date") beginning March 31,
1996, to and including March 31, 2005. Interest shall be computed on the basis
of a fraction, the denominator of which is three hundred sixty (360) and the
numerator of which is the actual number of days elapsed from the date hereof or
the date of the preceding Payment Date, as the case may be, to the date of the
next Payment Date.
On addition to installment payments of interest Borrower shall pay to
Lender installment payments of principal on June 30 of each year commencing
June 30, 1997 in the amount set forth on the Schedule of Principal Payments
attached hereto.
On June 30, 2005 (the "Maturity Date") a final payment of the Maturity
Obligations (as hereinafter defined) shall be due and payable.
As used herein, "Maturity Obligations" shall mean the entire outstanding
principal amount of this Note, together with all accrued but unpaid interest
thereon, and all other sums due and unpaid hereunder and under the security
agreement.
After default or maturity, the entire unpaid principal balance and all
accrued and unpaid interest shall bear interest at the rate of eighteen percent
(18%) per annum based on a 365/366 day year, but in no event in excess of the
maximum amount allowed by law (the "Default Rate").
All payments due under this Note are payable at Lender's office at 777
Main Street, Suite 2100, Fort Worth, Texas 76102 or at such other place as
Lender or other holder hereof shall notify Borrower in writing.
<PAGE> 2
This Note may not be prepaid in whole or in part at any time without
premium or penalty.
In the event Borrower fails to pay any installment of interest or any
principal on this Note for ten (10) days after the same shall become due or upon
the happening of any "Event of Default" as defined in the security agreement,
then and in any such event Lender may at its option declare the entire unpaid
balance of this Note, together with interest accrued hereon, to be immediately
due and payable and Lender may proceed to exercise any rights or remedies that
it may have under the security agreement, under this Note or under any other
agreement relating to the Note or such other rights and remedies which Lender
may have at law, equity or otherwise. In the event of such acceleration,
Borrower may discharge its obligations to Lender by paying the Maturity
Obligations, with interest at the Default Rate accruing from the date such
acceleration is declared.
In the event this Note is turned over to an attorney at law for collection
after default, in addition to the Maturity Obligations, Lender shall be entitled
to collect all costs of collection, including but not limited to reasonable
attorneys' fees, incurred in connection with protection of or realization of
collateral or in connection with any of Lender's collection efforts, whether or
not suit on this Note or any foreclosure proceeding is filed, and all such costs
and expenses shall be payable on demand and shall also be secured by the
security agreement.
No failure on the part of Lender or other holder hereof to exercise any
right or remedy hereunder, whether before or after the happening of a default
shall constitute a waiver thereof, and no waiver of any past default shall
constitute waiver of any failure default or of any other default. No failure to
accelerate the debt evidenced hereby by reason of default hereunder, or
acceptance of a past due installment, or indulgence granted from time to time
shall be construed to be a waiver of the right to insist upon prompt payment
thereafter or to impose late charges retroactively or prospectively, or shall be
deemed to be a novation of this Note or as a reinstatement of the debt evidenced
hereby or as a waiver of such right or acceleration or any other right, or be
construed so as to preclude the exercise of any right which Lender may have,
whether by the laws of the State of Texas by agreement or otherwise; and
Borrower and each endorser or guarantor hereby expressly waives the benefit of
any statute or rule of law or equity which would produce a result contrary to or
in conflict with the foregoing. This Note may not be changed orally, but only by
an agreement in writing signed by the party against whom such agreement is
sought to be enforced.
[Illegible]
Initials
-2-
<PAGE> 3
Borrower, for itself and its heirs, successors and assigns, and each
endorser or guarantor of this Note, for its heirs, successors and assigns,
hereby waives presentment, protest, demand, diligence, notice of dishonor and of
nonpayment, notice of intention to accelerate, and notice of acceleration and
waives and renounces all rights to the benefits of any statute of limitations
and any moratorium, appraisement, exemption and homestead now provided or which
may hereafter be provided by any federal or state statute, including but not
limited to exemptions provided by or allowed under the Bankruptcy Reform Act of
1978, both as to itself personally and as to all of its or their property,
whether real or personal, against the enforcement and collection of the
obligations evidenced by this Note and any and all extensions, renewals and
modifications hereof.
It is the intention of the parties to conform strictly to applicable usury
laws from time to time in force, and all agreements between Borrower and Lender,
whether now existing or hereafter arising and whether oral or written, are
hereby expressly limited so that in no contingency or event whatsoever, whether
by acceleration of maturity hereof or otherwise, shall the amount paid or agreed
to be paid to Lender or the holder hereof, or collected by Lender or such
holder, for the use, forbearance or detention of the money to be loaned
hereunder or otherwise, or for the payment or performance of any covenant or
obligation contained herein or in the security agreement, or in any other
document evidencing, securing or pertaining to the indebtedness evidenced
hereby, exceed the maximum amount permissible under applicable usury laws. If
under any circumstances whatsoever fulfillment of any provisions hereof or of
the security agreement, at the time performance of such provision shall be due,
shall involve transcending the limit of validity prescribed or permitted by law,
including judicial determination, then ipso facto, the obligation to be
fulfilled shall be reduced to the limit of such validity; and if under any
circumstances Lender or other holder hereof shall ever receive an amount deemed
interest, by applicable law, which would exceed the highest lawful rate, such
amount that would be excessive interest under applicable usury laws shall be
applied to the reduction of the principal amount owing hereunder or to other
indebtedness secured by the secured agreement and not to the payment of
interest, or if such excessive interest exceeds the unpaid balance of principal
and other indebtedness, the excess shall be deemed to have been a payment made
by mistake and shall be refunded to Borrower or to any other person making such
payment on Borrower's behalf. All sums paid or agreed to be paid to the holder
hereof for the use, forbearance of detention of the indebtedness of Borrower
evidenced hereby, outstanding from time to time shall, to the extent permitted
by applicable law, be amortized, pro-rated, allocated and spread from the date
of disbursement of the proceeds of this Note until payment in full of such
indebtedness so that the
-3-
<PAGE> 4
actual rate of interest on account of such indebtedness is uniform through the
term hereof. The terms and provisions of this paragraph shall control and
supersede every other provision of all agreements between Lender and Borrower
and any endorser or guarantor of this Note.
This Note shall be governed by and construed under the laws of the State of
Texas and the laws of the United States applicable to transactions in Texas.
IN WITNESS WHEREOF, Borrower, intending to be legally bound hereby, has
caused this Note to be duly executed under seal the day and year first above
written.
CRESCENT DEVELOPMENT MANAGEMENT
CORP., a Delaware corporation
By: /s/ HARRY FRAMPTON
-------------------------------------
Name: Harry Frampton
--------------------------------
Title: President
-------------------------------
-4-
<PAGE> 5
SCHEDULE OF PRINCIPAL PAYMENTS
June 30, 1997 $100,000
June 30, 1998 $150,000
June 30, 1999 $200,000
June 30, 2000 $300,000
June 30, 2001 $350,000
June 30, 2002 $400,000
June 30, 2003 $450,000
June 30, 2004 $550,000
June 30, 2005 $600,000
-5-
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF CRESCENT OPERATING, INC.
State of Incorporation or
Name of Subsidiary Organization
COI Hotel Group, Inc. Texas
WOCOI Investment Company Texas
RoseStar Management LLC Texas
Desert Mountain Development Corporation Delaware
Woodlands Land Company, Inc. Texas
Crescent CS Holdings Corporation Delaware
Crescent CS Holdings II Corporation Delaware
RSCR Arizona Corp. Delaware
RSSW Corp. Delaware
Moody-Day, Inc. Texas
COPI Colorado, LP Delaware
CRL Investments, Inc. Texas
COI Arena Company Texas
Crescent Development Management Corp. Delaware
Desert Mountain Properties, LP Delaware
Machinery, Inc. Oklahoma
Harvey Equipment Center, Inc. Ohio
Western Traction Company California
L & H Leasing Company Ohio
Crescent Machinery Company Texas
Oklahoma Machinery, Inc. Texas
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-4 No. 333-57891) of Crescent Operating, Inc. and in the related
Prospectus of our reports (a) dated March 29, 1999, with respect to the
consolidated financial statements of Crescent Operating, Inc. and (b) dated
March 2, 1998, with respect to the combined financial statements of
Carter-Crowley Asset Group, both of which are included in this Annual Report
(Form 10-K) for the year ended December 31, 1998.
Ernst & Young LLP
Dallas, Texas
March 29, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated May 14, 1997 on the combined statements of operations,
shareholder's equity and cash flows of Carter-Crowley Asset Group for the year
ended December 31, 1996, included in this Form 10-K, into the Company's
previously filed Registration Statement File No. 333-57891. It should be noted
that we have not audited any financial statements of Carter-Crowley Asset Group
subsequent to December 31, 1996 or performed any audit procedures subsequent to
the date of our report.
/s/ ARTHUR ANDERSEN LLP
Dallas, Texas
March 29, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports on The Woodlands Operating Company, L.P. and The
Woodlands Land Development Company, L.P. dated January 15, 1999 included in this
Form 10-K, into Crescent Operating, Inc.'s Form S-4 Registration Statement filed
on June 26, 1998 (Reg. No. 333-57891).
ARTHUR ANDERSEN LLP
Houston, Texas
March 30, 1999
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated December 3, 1998 for Charter Behavioral Health Systems, LLC
for the year ended September 30, 1998 included in this Form 10-K for Crescent
Operating, Inc. for the year ended December 31, 1998, into the previously
filed registration statement of Crescent Operating, Inc. on Form S-4 (File No.
333-57891).
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 29, 1999
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