<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY Report Pursuant To Section 13 Or 15(d) Of The Securities
Exchange Act Of 1934
For the quarterly period ended June 30, 1999
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.
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2701931
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
306 West 7th Street, Suite 1000
Fort Worth, Texas 76102
------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 339-2200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed 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 [ ]
Number of shares of Common Stock, $.01 par value, outstanding as of August 16,
1999: 10,312,733
<PAGE> 2
CRESCENT OPERATING, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
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<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets..........................................................................3
Consolidated Statements of Income....................................................................4
Consolidated Statement of Changes in Shareholders' Equity (Deficit)..................................6
Consolidated Statements of Cash Flows................................................................7
Notes To Consolidated Financial Statements (Unaudited)...............................................8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...............16
Item 3. Quantitative and Qualitative Disclosures About Market Risk..........................................29
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................................................................29
Item 2. Change in Securities and Use of Proceeds............................................................29
Item 3. Defaults Upon Senior Securities.....................................................................29
Item 4. Submission of Matters to a Vote of Security Holders.................................................29
Item 5. Other Information...................................................................................30
Item 6. Exhibits and Reports on Form 8-K....................................................................30
</TABLE>
2
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CRESCENT OPERATING, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
(unaudited) (audited)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 41,795 $ 42,810
Accounts receivable, net 44,695 35,544
Inventories 38,666 34,203
Real estate 118,411 109,301
Prepaid expenses and other current assets 8,688 7,508
--------- ---------
Total current assets 252,255 229,366
--------- ---------
PROPERTY AND EQUIPMENT, NET 171,767 162,181
--------- ---------
INVESTMENTS 98,340 367,105
--------- ---------
OTHER ASSETS
Real estate 98,933 68,809
Intangible assets, net 76,997 82,513
Other assets 39,865 27,359
--------- ---------
Total other assets 215,795 178,681
--------- ---------
TOTAL ASSETS $ 738,157 $ 937,333
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 60,646 $ 64,749
Accounts payable - CEI 8,326 7,731
Current portion of long-term debt - CEI 5,765 7,668
Current portion of long-term debt 91,103 84,539
Deferred revenue 52,466 46,998
--------- ---------
Total current liabilities 218,306 211,685
LONG-TERM DEBT - CEI, NET OF CURRENT PORTION 238,205 220,944
LONG-TERM DEBT, NET OF CURRENT PORTION 73,248 57,988
OTHER LIABILITIES 46,713 34,578
--------- ---------
Total liabilities 576,472 525,195
--------- ---------
MINORITY INTERESTS 173,454 428,206
--------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.01 par value, 10,000 shares authorized,
no shares issued or outstanding -- --
Common stock, $0.01 par value, 22,500 shares authorized,
11,407 and 11,402 shares issued, respectively 114 114
Additional paid-in capital 17,672 17,667
Deferred compensation on restricted shares (210) (210)
Accumulated comprehensive income (loss) (7,592) (9,763)
Retained deficit (17,456) (21,024)
Treasury stock at cost, 1,101 and 700 shares, respectively (4,297) (2,852)
--------- ---------
Total shareholders' equity (deficit) (11,769) (16,068)
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 738,157 $ 937,333
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
3
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CRESCENT OPERATING, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data, unaudited)
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
June 30, 1999 June 30, 1998
------------- --------------
<S> <C> <C>
REVENUES
Equipment sales & leasing $ 39,536 $ 11,558
Hospitality 55,478 53,103
Land development 78,379 42,148
--------- ---------
Total revenues 173,393 106,809
--------- ---------
OPERATING EXPENSES
Equipment sales & leasing expenses 36,948 10,840
Hospitality expenses 42,726 39,063
Hospitality properties rent - CEI 13,267 12,191
Land development expenses 71,131 40,494
Corporate general and administrative expenses 570 816
--------- ---------
Total operating expenses 164,642 103,404
--------- ---------
INCOME FROM OPERATIONS 8,751 3,405
--------- ---------
INVESTMENT INCOME 3,834 8,606
--------- ---------
OTHER (INCOME) EXPENSE
Interest expense 7,029 3,426
Interest income (956) (983)
Other 219 24
--------- ---------
Total other (income) expense 6,292 2,467
--------- ---------
INCOME BEFORE MINORITY
INTERESTS AND INCOME TAXES 6,293 9,544
INCOME TAX PROVISION 972 4,198
--------- ---------
INCOME BEFORE MINORITY INTERESTS 5,321 5,346
MINORITY INTERESTS (5,167) (3,404)
--------- ---------
NET INCOME $ 154 $ 1,942
========= =========
EARNINGS PER SHARE
Basic $ 0.01 $ 0.17
========= =========
Diluted $ 0.01 $ 0.16
========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 10,309 11,328
========= =========
Diluted 10,926 12,133
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
4
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CRESCENT OPERATING, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data, unaudited)
<TABLE>
<CAPTION>
For the six For the six
months ended months ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
REVENUES
Equipment sales & leasing $ 66,695 $ 19,539
Hospitality 118,510 111,368
Land development 124,936 73,280
--------- ---------
Total revenues 310,141 204,187
--------- ---------
OPERATING EXPENSES
Equipment sales & leasing expenses 63,598 18,451
Hospitality expenses 89,722 80,412
Hospitality properties rent - CEI 26,793 24,516
Land development expenses 115,992 72,322
Corporate general and administrative expenses 990 1,139
--------- ---------
Total operating expenses 297,095 196,840
--------- ---------
INCOME FROM OPERATIONS 13,046 7,347
--------- ---------
INVESTMENT INCOME 13,841 6,650
--------- ---------
OTHER (INCOME) EXPENSE
Interest expense 13,214 7,251
Interest income (1,764) (2,216)
Other 143 38
--------- ---------
Total other (income) expense 11,593 5,073
--------- ---------
INCOME BEFORE MINORITY
INTERESTS AND INCOME TAXES 15,294 8,924
INCOME TAX PROVISION 1,344 4,269
--------- ---------
INCOME BEFORE MINORITY INTERESTS 13,950 4,655
MINORITY INTERESTS (10,382) (3,891)
--------- ---------
NET INCOME $ 3,568 $ 764
========= =========
EARNINGS PER SHARE
Basic $ 0.34 $ 0.07
========= =========
Diluted $ 0.32 $ 0.06
========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 10,415 11,271
========= =========
Diluted 11,015 12,081
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
5
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CRESCENT OPERATING, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(AMOUNTS IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
Deferred
Common stock Treasury stock compensation Accumulated
-------------- ----------------- Additional on restricted comprehensive Retained
Shares Amount Shares Amount paid-in capital shares income (loss) deficit Total
------ ------ ------ ------- --------------- ------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE at December 31, 1998 11,402 $ 114 (700) $(2,852) $ 17,667 $ (210) $ (9,763) $(21,024) $(16,068)
--------
Comprehensive income:
Net income -- -- -- -- -- -- -- 3,568 3,568
Unrealized gain on
Magellan warrants -- -- -- -- -- -- 2,171 -- 2,171
--------
Comprehensive income 5,739
Stock options exercised 5 -- -- -- 5 -- -- -- 5
Purchase of treasury stock -- -- (401) (1,445) -- -- -- -- (1,445)
------ ------ ------ ------- --------------- ------------- ------------- -------- --------
BALANCE at June 30, 1999 11,407 $ 114 (1,101) $(4,297) $ 17,672 $ (210) $ (7,592) $(17,456) $(11,769)
====== ====== ====== ======= =============== ============= ============= ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
6
<PAGE> 7
CRESCENT OPERATING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands, unaudited)
<TABLE>
<CAPTION>
For the six For the six
months ended months ended
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,568 $ 764
Adjustments to reconcile net income
to net cash (used in) provided by operating activities:
Depreciation 9,605 6,288
Amortization 7,043 2,878
Provision for deferred income taxes (8,017) 1,051
Gain on sale of investments (1,809) --
Equity in income of unconsolidated subsidiaries (12,032) (6,650)
Minority interests in net losses 10,382 3,890
Deferred compensation -- 37
Gain on sale of property and equipment (2,857) (199)
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable (11,181) (6,125)
Inventories (3,398) (1,879)
Prepaid expenses and current assets (2,240) (670)
Real estate (39,856) 5,483
Other assets 1,074 (162)
Accounts payable and accrued expenses (5,544) (6,681)
Accounts payable - CEI 4,558 280
Deferred revenue, current and noncurrent 16,874 13,951
Other liabilities 881 --
--------- ---------
Net cash (used in) provided by operating activities (32,949) 12,256
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business interests, net of cash acquired (15,534) (6,842)
Acquisition of business interests by minority interests (9,237) (66,615)
Purchases of property and equipment (32,949) (14,177)
Purchase of treasury stock (1,445) --
Proceeds from sale of investments 21,273 4,510
Proceeds from sale of property and equipment 17,016 1,391
Net (issuance of) proceeds from sale and collection of notes receivable (3,197) 21,155
Net distributions from investments 8,666 4,250
Other (120) --
--------- ---------
Net cash used in investing activities (15,527) (56,328)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of long-term debt 148,434 12,464
Payments on long-term debt (49,730) (3,448)
Proceeds of long-term debt - CEI 35,342 1,992
Payments on long-term debt - CEI (97,196) (42,315)
Capital contributions by minority interests 18,585 66,425
Distributions to minority interests (6,754) (7,632)
Other (1,220) 20
--------- ---------
Net cash provided by financing activities 47,461 27,506
--------- ---------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (1,015) (16,566)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 42,810 43,401
--------- ---------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 41,795 $ 26,835
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
7
<PAGE> 8
CRESCENT OPERATING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION:
Crescent Operating, Inc. ("Crescent Operating" or "COPI") is a diversified
management company that, through various subsidiaries and affiliates
(collectively with Crescent Operating, the "Company"), currently operates in
primarily four business segments: Equipment Sales and Leasing, Hospitality,
Refrigerated Warehousing and Land Development. Through these segments, Crescent
Operating does business throughout the United States.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. These financial statements should be read in conjunction
with the audited financial statements and related footnotes of the Company for
the fiscal year ended December 31, 1998 included in the Company's Form 10-K. In
management's opinion, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of the consolidated
unaudited interim financial statements have been included and all significant
intercompany balances and transactions have been eliminated. Certain prior
period information has been reclassified to conform to current period
presentation. Due to acquisitions and seasonal fluctuations, operating results
for interim periods reflected are not necessarily indicative of the results that
may be expected for a full fiscal year.
The financial results for Crescent Machinery Company ("Crescent Machinery"),
Rosestar Management LLC ("Rosestar"), COI Hotel Group, Inc. ("COI Hotel"), WOCOI
Investment Company ("WOCOI") and COPI Cold Storage, LLC ("COPI Cold Storage"),
which are wholly-owned subsidiaries of Crescent Operating, are consolidated in
the financial statements. The Company owns 5% of each of The Woodlands Land
Company, Inc. ("LandCo"), Desert Mountain Development Corporation ("Desert
Mountain Development") and CRL Investments, Inc. ("CRL"). The Company's 5%
interests represent 100% of the voting stock of these entities, and therefore,
these entities are also consolidated into Crescent Operating with 95% reported
as "Minority Interests" in the financial statements. 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 and COPI
Colorado is consolidated into Crescent Operating, resulting in 95% of CDMC also
being reported as Minority Interests. The Company's investments in Corporate
Arena Associates, Inc. ("Corporate Arena") and Hillwood/1642, Ltd. ("Hillwood")
are shown at cost. The 50% interest in CBHS and the 1% interest in each of
Crescent CS Holdings Corporation ("CS I") and Crescent CS Holdings II
Corporation ("CS II") are reported on the equity method of accounting.
2. RECENT DEVELOPMENTS:
EQUIPMENT SALES AND LEASING
Effective July 1, 1999, Crescent Machinery acquired all of the stock of E. L.
Lester and Company ("Lester"), a company engaged in equipment sales, leasing and
servicing, located in Houston, Texas. The purchase price of approximately $18.2
million was comprised of $8.5 million cash, the issuance of notes payable by
Crescent Operating in the amount of $6.0 million and the assumption of
liabilities of $3.7 million. The transaction was treated as a purchase for
accounting purposes, and accordingly, the results of operations will be included
in the Company's consolidated financial statements from the date of acquisition.
Effective July 1, 1999, Crescent Machinery acquired all of the stock of Solveson
Crane Rental, Inc. ("Solveson"), a company engaged in equipment sales, leasing
and servicing, located in Tracy, California. The purchase price of approximately
$6.4 million was comprised of $3.2 million cash and the assumption of
liabilities of $3.2 million.
8
<PAGE> 9
The transaction was treated as a purchase for accounting purposes, and
accordingly, the results of operations will be included in the Company's
consolidated financial statements from the date of acquisition.
HOSPITALITY
On July 23, 1999, CRL exercised its option to purchase an additional 10%
economic interest in CR License LLC ("CR License") by paying $2.0 million,
bringing CRL's total economic interest in CR License to 20%. CR License is the
entity which owns the rights to the future use of the "Canyon Ranch" name. CRL
has the opportunity over the next year to pay an additional $3.0 million to
obtain an additional 10% interest in CR License.
On June 20, 1999, CR Las Vegas LLC opened the Canyon Ranch Spa Club located in
the Venetian Hotel in Las Vegas, Nevada. Canyon Ranch Spa Club is the first
project to expand the franchise value of the "Canyon Ranch" name. Through CRL
and CR License, the Company has an effective 3% economic interest in the Canyon
Ranch Spa Club.
Effective June 19, 1999, the Company entered into a lease with Crescent Real
Estate Funding III, L.P. ("Funding III") for the 389-room Renaissance Hotel
located in Houston, Texas. The lease is for a term of 10 years and provides for
base rent and percentage rent. Under the lease, Funding III may terminate the
lease, at its option, for a period of one year under certain conditions. The
other terms of the lease are generally consistent with those in hospitality
leases with Crescent Real Estate Equities Limited Partnership ("Crescent
Partnership").
LAND DEVELOPMENT
On July 26, 1999, the Company entered into an agreement to sell its investments
in Corporate Arena and Hillwood for approximately $1.4 million. The sale will
result in an approximate $0.1 million gain which is expected to be recognized by
the end of 1999. The sale is subject to satisfaction of customary conditions and
consent of the National Basketball Association.
On April 29, 1999, a partnership in which CDMC has a 64% economic interest
finalized the purchase of "The Commons", a master planned residential
development on 23 acres in the Central Platte Valley near downtown Denver,
Colorado. Currently, it is contemplated that the project will include both sale
and rental units at multiple price points. An adjacent 28 acres is expected to
be commercially developed by another firm, thus providing a major mixed-use
community adjacent to the lower downtown area of Denver. The acreage connects
with several major entertainment and recreational facilities including Coors
Field (home to Major League Baseball's Colorado Rockies), Elitch Gardens (an
amusement park) and the new Pepsi Center (home to the National Hockey League's
Colorado Avalanche and the National Basketball Association's Denver Nuggets).
OTHER
Crescent Operating, Magellan Health Services, Inc. ("Magellan"), Crescent
Partnership and Charter Behavioral Health Systems, LLC ("CBHS") entered into a
binding Letter Agreement dated August 10, 1999, relating to a proposed
recapitalization of CBHS and restructuring of relationships among the parties.
Under the Letter
9
<PAGE> 10
Agreement, Magellan has agreed that it will, at the closing of the transactions,
transfer its remaining hospital-based assets (including Charter Advantage,
Charter Franchise Services, LLC, the call center assets, the Charter name and
related intellectual property and certain other assets) to CBHS, and cancel its
accrued and future franchise fees. Thereafter, Magellan will no longer be
obligated to provide franchise services to CBHS. Magellan will also effectively
transfer 80% of its CBHS common interest and all of its CBHS preferred interest
to CBHS, leaving Magellan with a 10% common membership interest, and Crescent
Operating with a 90% common membership interest and 100% of the preferred
membership interest in CBHS. Crescent Operating plans to restructure its
investment in CBHS so that the closing of the transactions will not result in
Crescent Operating's control of CBHS.
In connection with the execution of the Letter Agreement, Magellan, CBHS,
Crescent Partnership and Crescent Operating have agreed to provide each other
with mutual releases of all claims and disputes against each other, with certain
specified exceptions, and Crescent Partnership has deferred the August 1999 rent
due from CBHS to the last four months of 1999. Additionally, with the execution
of the Letter Agreement, the $2.5 million held in escrow was released to
Crescent Operating in connection with the settlement of the arbitration between
Magellan and Crescent Operating.
Magellan and CBHS also have modified and extended their existing arrangement
which designates CBHS a preferred provider of inpatient acute behavioral health
services.
The closing of the transactions contemplated by the Letter Agreement is
anticipated to take place within 30 days, subject to the satisfaction of
certain customary closing conditions and consents, and other contingencies. If
the closing does not occur within 30 days, the Letter Agreement terminates.
Crescent Operating will not record gains or losses with respect to the above
transactions with CBHS. Crescent Operating has previously written off its
investment in CBHS.
As of August 11, 1999, COPI Colorado had purchased approximately 1.1 million
shares of Crescent Operating common stock at a total purchase price of $4.3
million. The average price paid for such shares, excluding brokers' commissions,
was $3.91 per share.
3. INVESTMENTS:
Investments consisted of the following (amounts in thousands):
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Investment in Landevco ................................... $ 44,214 $ 37,880
Investment in CDMC projects .............................. 20,064 22,737
Investment in AmeriCold Operations ....................... 14,443 --
Investment in CR Las Vegas, LLC .......................... 9,300 --
Investment in Magellan warrants .......................... 4,908 2,737
Investment in AmeriCold Logistics ........................ 3,007 293,868
Investment in Hillwood ................................... 1,039 774
Investment in CR License ................................. 1,000 1,000
Investment in Houston Center Athletic Club Venture ....... 1,000 1,011
Investment in Corporate Arena ............................ 221 127
Investment in Hicks-Muse ................................. -- 7,802
Investment in TWOC ....................................... (856) (831)
--------- ---------
$ 98,340 $ 367,105
========= =========
</TABLE>
10
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Investment income consisted of the following (amounts in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, 1999 June 30, 1999
------------------ ----------------
<S> <C> <C>
Equity in income of Landevco ............................... $ 4,050 $ 8,631
Equity in income (loss) of CDMC Projects ................... (76) 3,279
Gain on sale of CS I and CS II ............................. -- 1,493
Equity in income of TWOC ................................... 550 825
Equity in income of AmeriCold Logistics .................... 224 285
Hicks-Muse income .......................................... -- 239
Equity in income of Houston Center Athletic Club Venture ... 68 135
Equity in loss of AmeriCold Operations ..................... (982) (1,046)
-------- --------
$ 3,834 $ 13,841
======== ========
</TABLE>
Effective March 12, 1999, the Company sold 80% of its 5% interest in CS I and CS
II to Crescent Partnership for $13.2 million and received the right to require
Crescent Partnership to purchase the remaining 20% for approximately $3.4
million at any time during the next two years, subject to compliance with
certain regulatory matters. This 5% interest represented a 2% interest in
various corporations and limited liability companies (collectively, "AmeriCold
Logistics") that owned and operated 102 refrigerated warehouse properties
("Refrigerated Warehouses"). Crescent Operating, through a wholly-owned limited
liability company, then became a 40% partner of AmeriCold Operations, a newly
formed partnership, the remaining 60% of which is owned by Vornado Operating,
Inc. AmeriCold Operations has leased certain of the Refrigerated Warehouses from
certain of the entities comprising AmeriCold Logistics under 15-year leases
which call for base and percentage rent. As a result, the operations formerly
associated with AmeriCold Logistics are now conducted by AmeriCold Operations.
As a result of the transaction, Crescent Operating no longer consolidates CS I
and CS II for accounting purposes which has resulted in a decrease in
the Investment in AmeriCold Logistics of approximately $290 million.
A summary of financial information for the Company's investments in The
Woodlands Operating Company, L.P. ("TWOC") and The Woodlands Land Development
Company, L.P. ("Landevco") has been provided as they represent significant
unconsolidated investments (amounts in thousands). A summary of financial
information for the Company's investment in CBHS has not been provided because
the Company's investment balance is zero and no income or loss has been
recognized since February 1998.
<TABLE>
<CAPTION>
TWOC Landevco
---------------------------------- ---------------------------------
Three months Six months Three months Six months
ended ended ended ended
June 30, 1999 June 30, 1999 June 30, 1999 June 30, 1999
--------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Revenues .......................... $19,780 $37,714 $27,356 $57,075
Gross profit ...................... $ 1,294 $ 1,930 $ 9,798 $20,659
Net income ........................ $ 1,296 $ 1,942 $ 9,529 $20,307
Crescent Operating's equity
in income of subsidiary ....... $ 550 $ 825 $ 203 $ 432
</TABLE>
4. INTANGIBLE ASSETS:
Intangible assets consisted of the following (amounts in thousands):
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Goodwill, net - Crescent Machinery ............... $ 8,173 $ 7,757
Goodwill, net - RoseStar ......................... 1,524 1,632
Goodwill, net - CDMC ............................. 30,306 31,016
Membership intangible, net - Desert Mountain
Properties, LP ("DMPLP") .................... 36,994 42,108
------- -------
$76,997 $82,513
======= =======
</TABLE>
11
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5. LONG-TERM DEBT:
The Company's long-term debt facilities are composed of (i) corporate and
wholly-owned debt, and (ii) non wholly-owned debt. Corporate and wholly-owned
debt relates to debt facilities at the Crescent Operating level or owed by
entities which are owned 100% by Crescent Operating. Non wholly-owned debt
represents non-recourse debt of the Company owed by entities which are
consolidated in the Company's financial statements but are not 100% owned by the
Company; the Company's economic investment in these entities is 5% or less.
Following is a summary of the Company's debt financing (amounts in thousands):
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
LONG-TERM DEBT - CORPORATE AND WHOLLY-OWNED SUBSIDIARIES
<S> <C> <C>
Equipment notes payable to various finance companies, interest
at 6.9% to 10.9%, due 1999 through 2003 (Crescent Machinery) ................ $ 70,483 $ 70,074
Floor plan debt payable, six months term at 0% interest
(Crescent Machinery) ........................................................ 19,504 7,958
Note payable to Crescent Partnership, interest at 9%, due May
2002 (COPI) ................................................................. 19,500 --
Line of credit in the amount of $17.2 million payable to
Crescent Partnership, interest at 12%, due May 2002 or five
years after the last draw (COPI) ............................................ 17,200 27,733
Note payable to Crescent Partnership, interest at 12%, due May
2002 (COPI) .................................................................. 16,270 24,223
Line of credit in the amount of $15.0 million payable to Bank of America,
interest at LIBOR plus 1%, due August 27, 1999
(COPI) ....................................................................... 15,000 15,000
Note payable to Crescent Partnership, interest at 12%, due May
2002 (COPI) ................................................................. 9,000 9,000
Notes payable to the sellers of Western Traction and Harvey
Equipment, interest 8.0% to 8.5%, due 2000 to 2002 (COPI) .......... 4,602 6,670
Notes payable to Crescent Partnership, interest at 7.5% to
10.75%, due 2002 to 2006 (RoseStar / COI Hotel) ..................... 2,850 3,078
-------- --------
Total debt - corporate and wholly-owned subsidiaries ..... 174,409 163,736
-------- --------
LONG-TERM DEBT - NON WHOLLY-OWNED SUBSIDIARIES
Junior note payable to Crescent Partnership, interest at 14%,
due December 2010 (DMPLP) ............................................ 60,000 60,000
Senior note payable to Crescent Partnership, interest at 10%,
due December 2005 (DMPLP) ............................................ 31,297 50,717
Line of credit in the amount of $45 million payable to National
Bank of Arizona, interest at prime to prime plus 1%, due June
2000 (DMPLP) ......................................................... 19,064 10,000
</TABLE>
12
<PAGE> 13
<TABLE>
<S> <C> <C>
Line of credit in the amount of $48.2 million payable to
Crescent Partnership, interest at 11.5%, due August 2004 (CDMC) ......... 45,621 35,976
Construction loans for various East West Resort Development
projects, interest at 6% to 9%, due 1999 to 2003 (CDMC) ................. 35,698 32,825
Line of credit in the amount of $40.0 million payable to
Crescent Partnership, interest at 11.5%, due December 2006 (CDMC)... 19,547 --
Line of credit in the amount of $22.9 million payable to
Crescent Partnership, interest at 12%, due January 2003 (CDMC) .......... 15,370 15,035
Note payable to Crescent Partnership, interest at 12%, due June
2005 (CDMC) ............................................................. 2,649 2,850
Line of credit in the amount of $7.0 million payable to
Crescent Partnership, interest at 12%, due August 2003 (CRL) ............ 4,666 --
-------- --------
Total debt - non wholly-owned subsidiaries .................... 233,912 207,403
-------- --------
Total long-term debt .......................................... $408,321 $371,139
======== ========
Current portion of long-term debt - CEI ................................. $ 5,765 $ 7,668
Current portion of long-term debt ....................................... 91,103 84,539
Long-term debt - CEI, net of current portion ............................ 238,205 220,944
Long-term debt, net of current portion .................................. 73,248 57,988
-------- --------
Total long-term debt .......................................... $408,321 $371,139
======== ========
</TABLE>
On July 1, 1999, in connection with the Company's purchase of Lester, the
Company issued notes payable to the sellers of Lester in the aggregate amount of
$6.0 million. The $6.0 million of notes bear interest at 7.5% and are payable in
semi-annual payments of principal and interest of $0.9 million.
The $15 million line of credit from Bank of America, which bears interest at the
LIBOR rate plus 1%, is due on August 27, 1999. The Company is negotiating the
renewal of its line of credit and although the Company does not have a written
agreement to extend the line of credit, it is anticipated that the line of
credit will be renewed with terms similar to the existing facility.
6. OTHER LIABILITIES:
Other liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Deferred revenue ............. $41,876 $29,477
Deferred hospitality rent .... 4,688 3,808
Other ........................ 149 1,293
------- -------
$46,713 $34,578
======= =======
</TABLE>
13
<PAGE> 14
7. EARNINGS PER SHARE:
Earnings per share ("EPS") is calculated as follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, 1999 June 30, 1999
-------------------------------------- -------------------------------------
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 ........................ $ 154 10,309 $ 0.01 $3,568 10,415 $ 0.34
EFFECT OF DILUTIVE SECURITIES:
Stock Options .................... -- 617 -- 600
------ ------ ------ ------
DILUTED EPS ...................... $ 154 10,926 $ 0.01 $3,568 11,015 $ 0.32
====== ====== ======== ====== ====== ========
</TABLE>
The Company had 90,600 options for its common stock outstanding for each of the
three and six months ended June 30, 1999, which were not included in the
calculation of diluted EPS as they were anti-dilutive.
8. INCOME TAXES:
The table below shows the reconciliation of the federal statutory income tax
rate to the effective tax rate.
<TABLE>
<CAPTION>
Three months ended June Six months ended June
30, 1999 30, 1999
----------------------- ---------------------
<S> <C> <C>
Federal statutory income tax rate...................... 35.0% 35.0%
State income taxes, net of federal tax benefit......... 5.0 5.0
Desert Mountain minority interest...................... (6.7) (3.9)
Change in valuation allowance.......................... (22.8) (27.2)
Other, net............................................. 4.9 (0.1)
------- --------
Effective tax rate.............................. 15.4% 8.8%
======= ========
</TABLE>
For the six months ended June 30, 1999, the Company released its $4.2 million
valuation allowance based on 1999 transactions, events incurred prior to June
30, 1999 and expected future taxable income.
9. BUSINESS SEGMENT INFORMATION:
Crescent Operating's assets and operations are located entirely within the
United States and are currently comprised primarily of four business segments:
(i) Equipment Sales and Leasing, (ii) Hospitality, (iii) Refrigerated
Warehousing and (iv) Land Development. In addition to these four business
segments, the Company has grouped its investment in Magellan warrants,
investment in Hicks-Muse (sold in 1999), interest expense on corporate debt and
general corporate overhead costs such as legal and accounting costs, insurance
costs and corporate salaries as "Other" for segment reporting purposes. The
Company uses net income as the measure of segment profit or loss.
While the Company currently owns a 50% interest in CBHS, the Company has
written-off its entire investment and has no obligation or commitment to fund
CBHS' ongoing operations. As a result of the write-off, and irrespective of the
restructuring transactions described in Note 2 above, the Company does not
anticipate that it will recognize any additional losses from its investment in
CBHS. Because the Company has written-off its CBHS investment and it is unlikely
that the Company will recognize any material income from CBHS in the near future
due to the operating losses currently being incurred by CBHS, the Company no
longer reports its operations related to CBHS as a separate segment.
14
<PAGE> 15
Business segment information is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
--------------------------------------- --------------------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Equipment Sales and Leasing ... $ 39,536 $ 11,558 $ 66,695 $ 19,539
Hospitality ................... 55,478 53,103 118,510 111,368
Refrigerated Warehousing ...... -- -- -- --
Land Development .............. 78,379 42,148 124,936 73,280
Other ......................... -- -- -- --
--------------- --------------- --------------- ---------------
Total revenues ................ $ 173,393 $ 106,809 $ 310,141 $ 204,187
=============== =============== =============== ===============
Net income (loss):
Equipment Sales and Leasing ... $ 694 $ 173 $ 247 $ 229
Hospitality ................... (296) 1,125 1,240 3,843
Refrigerated Warehousing ...... (456) (58) 438 (91)
Land Development .............. 228 595 361 685
Other ......................... (16) 107 1,282 (3,902)
--------------- --------------- --------------- ---------------
Total net income (loss) ....... $ 154 $ 1,942 $ 3,568 $ 764
=============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
--------------- -----------------
<S> <C> <C>
Identifiable assets:
Equipment Sales and Leasing ... $ 141,942 $ 127,215
Hospitality ................... 51,678 38,536
Refrigerated Warehousing ...... 14,861 293,780
Land Development .............. 522,504 464,634
Other ......................... 7,172 13,168
--------------- ---------------
Total identifiable assets ..... $ 738,157 $ 937,333
=============== ===============
</TABLE>
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This information should be read in conjunction with the accompanying
consolidated financial statements and notes thereto. The financial statements
include all adjustments which are, in the opinion of management, necessary to
reflect a fair statement of the results for the interim periods presented, and
all such adjustments are of a normal and recurring nature. The information
herein should be read in conjunction with the more detailed information
contained in the Company's Form 10-K for the year ended December 31, 1998.
Capitalized terms used but not otherwise defined herein have the meanings
ascribed to those terms in the Notes to the Financial Statements included in
Part l of this report.
This Form 10-Q 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: investment considerations,
such as the effect of economic, demographic, competitive and other conditions in
the market area on cash flows and values, and the relatively high levels of debt
maintained by the Company and its ability to generate revenues sufficient to
meet debt service payments and other operating expenses; financing risks, such
as the continued availability of equity and debt financing that may be necessary
or desirable for expansion or continued operations of the Company and its
investments, the Company's ability to service existing debt, the possibility
that the Company's outstanding debt (some of which requires so-called "balloon"
payments of principal) may be refinanced at higher interest rates or otherwise
on terms less favorable to the Company; and business and investment risks,
including the underperformance or non-performance of its existing business
investments, the inability of the Company to identify or pursue suitable
business or investment opportunities, the impact of changes in the industries in
which the Company's businesses and investments operate and economic, demographic
and other competitive conditions affecting such industries, including equipment
sales and leasing, hospitality, refrigerated warehousing and land development.
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.
OVERVIEW
Crescent Operating is a diversified management company that through various
subsidiaries and affiliates currently operates in four business segments: (i)
Equipment Sales and Leasing, (ii) Hospitality, (iii) Refrigerated Warehousing
and (iv) Land Development. Within these segments, the Company, through various
entities, owned the following as of June 30, 1999 (collectively referred to as
the "Assets"):
o THE EQUIPMENT SALES AND LEASING SEGMENT consisted of a wholly-owned
interest in Crescent Machinery, 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 Renaissance Hotel in Houston,
Texas (the "Hospitality Properties"), (ii) a two-thirds interest in the
Houston Center Athletic Club Venture, and (iii) a 5% economic interest in
CRL Investments, Inc. ("CRL") that participates in the future use of the
"Canyon Ranch" name.
o THE REFRIGERATED WAREHOUSING SEGMENT consisted primarily of a 40% interest
in the operations of AmeriCold Operations, which currently operates 102
refrigerated storage properties with an aggregate storage capacity of
approximately 537.1 million cubic feet, and a 0.4% interest in AmeriCold
Logistics. This structure reflects the effects of a significant
reorganization which occurred during the first quarter of 1999.
16
<PAGE> 17
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 TWOC, 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 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 50%
economic interest in COPI Colorado, a company that has a 10% economic
interest in CDMC, 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. See Land Development Segment - Recent Developments.
While the Company currently owns a 50% interest in CBHS, the Company has
written-off its entire investment and has no obligation or commitment to fund
CBHS' ongoing operations. As a result of the write-off, and irrespective of the
transactions described in Note 2 to the Company's financial statements, the
Company does not anticipate that it will recognize any additional losses from
its investment in CBHS. Because the Company has written-off its CBHS investment
and it is unlikely that the Company will recognize any material income from CBHS
in the near future due to the operating losses currently being incurred by CBHS,
the Company no longer reports its operations related to CBHS as a separate
segment. See Other - Recent Developments for a description of a proposed change
in the Company's investment in CBHS.
EQUIPMENT SALES AND LEASING SEGMENT
RECENT DEVELOPMENTS
On August 1, 1999, Crescent Machinery opened a new location located in Fort
Worth, Texas. This location will offer new equipment sales, equipment rental,
parts and services. A full assortment of rental equipment is available and
products from JCB, Ingersoll Rand, Terex Cranes, Target and Pioneer are
available for new equipment sales. The Fort Worth location is part of Crescent
Machinery's overall strategy to capitalize on existing markets with potential
growth such as the Dallas-Fort Worth metroplex area.
Effective July 1, 1999, Crescent Machinery acquired all of the stock of E. L.
Lester and Company ("Lester"), a company engaged in equipment sales, leasing and
servicing, located in Houston, Texas. Lester specializes in the sales and rental
of 8 to 300 ton conventional and hydraulic cranes to highway, building and
industrial contractors. The purchase price of approximately $18.2 million was
comprised of $8.5 million cash, the issuance of notes payable by Crescent
Operating in the amount of $6.0 million and the assumption of liabilities of
$3.7 million.
Effective July 1, 1999, Crescent Machinery acquired all of the stock of Solveson
Crane Rental, Inc. ("Solveson"), a company engaged in equipment sales, leasing
and servicing, located in Tracy, California. Solveson specializes in the rental
of 40 to 90 ton rough terrain cranes to highway, building and industrial
contractors. The purchase price of approximately $6.4 million was comprised of
$3.2 million cash and the assumption of liabilities of $3.2 million.
17
<PAGE> 18
FINANCIAL ACTIVITY
<TABLE>
<CAPTION>
(in thousands) Three months ended June 30, Six months ended June 30,
-------------------------------------- --------------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenue:
New and used equipment ............ $ 27,423 $ 6,876 $ 43,600 $ 10,664
Rental equipment .................. 6,254 2,864 11,423 5,069
Parts, service and supplies ....... 5,859 1,818 11,672 3,806
--------------- --------------- --------------- ---------------
Total revenue ........................ 39,536 11,558 66,695 19,539
Expenses:
Cost of sales:
New and used equipment ....... 22,985 6,041 36,779 9,367
Rental equipment ............. 3,950 1,679 7,348 3,019
Parts, service and supplies .. 3,867 1,247 7,180 2,667
Operating expenses ................ 6,146 1,873 12,291 3,398
--------------- --------------- --------------- ---------------
Total expenses ....................... 36,948 10,840 63,598 18,451
--------------- --------------- --------------- ---------------
Income from operations ............... $ 2,588 $ 718 $ 3,097 $ 1,088
=============== =============== =============== ===============
</TABLE>
Crescent Machinery has grown substantially through acquisitions and same-store
growth with total revenues increasing approximately 241.3% as of June 30, 1999
over the six month period in the prior year. Same store revenues increased by
$7.8 million or 67.2% and $10.1 million or 51.8% for the three and six months
ended June 30, 1999, respectively. Earnings before interest expense, income
taxes, depreciation and amortization ("EBITDA") for the Equipment Sales and
Leasing segment for the three months ended June 30, 1999 was $6.2 million as
compared to $2.1 million for the three months ended June 30, 1998. EBITDA for
the Equipment Sales and Leasing segment for the six months ended June 30, 1999
was $10.0 million as compared to $3.5 million for the six months ended June 30,
1998. Management believes that EBITDA can be a meaningful measure of operating
performance, cash generation and the ability to service debt. However, EBITDA
should not be considered as an alternative to either: (i) net income (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
EBITDA is comparable to similarly titled items reported by other companies.
HOSPITALITY SEGMENT
RECENT DEVELOPMENTS
Crescent Partnership has committed over $40 million towards capital projects at
certain of the Hospitality Properties to further enhance the guests'
experience. The projects are expected to be materially completed during the
upcoming year and include: (i) 30 new suites and the spa expansion at The
Sonoma Mission Inn and Spa, (ii) renovation of the guestrooms at the Four
Seasons Hotel in Houston, (iii) renovation of the newly leased Renaissance
Hotel in Houston and (iv) four new suites and a new spa at the Ventana Country
Inn.
On July 23, 1999, CRL exercised its option to purchase an additional 10%
economic interest in CR License LLC ("CR License") by paying $2.0 million,
bringing CRL's total economic interest in CR License to 20%. CR License is the
entity which owns the rights to the future use of the "Canyon Ranch" name. CRL
has the opportunity over the next year to pay an additional $3.0 million to
obtain an additional 10% interest in CR License.
On June 20, 1999, CR Las Vegas LLC opened the Canyon Ranch Spa Club located in
the Venetian Hotel in Las Vegas, Nevada. Canyon Ranch Spa Club is the first
project to expand the franchise value of the "Canyon Ranch" name. Through CRL
and CR License, the Company has an effective 3% economic interest in the Canyon
Ranch Spa Club.
Effective June 19, 1999, the Company entered into a lease with Funding III,
("Funding III") for the 389-room Renaissance Hotel located in Houston, Texas.
The lease is for a term of 10 years and provides for base rent and percentage
rent. Under the lease, Funding III may terminate the lease, at its option, for a
period of one year under certain conditions. The other terms of the lease are
generally consistent with those in hospitality leases with Crescent Real Estate
Equities Limited Partnership ("Crescent Partnership").
18
<PAGE> 19
FINANCIAL ACTIVITY
The following table sets forth certain information about the Hospitality
Properties for the six months ended June 30, 1999 and 1998. Information related
to the Renaissance Hotel is not included as the Company did not begin leasing
the hotel until June 19, 1999. 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 Six Months Ended June 30,
---------------------------------------------------------
Revenue Per
Average Average Daily Available Room
Year Occupancy Rate Rate ("ADR") ("REVPAR")
Completed/ -------------- ----------------- ----------------
Renovated Rooms 1999 1998 1999 1998 1999 1998
---------- ------ ----- ---- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Full-Service/Luxury Hotels
Hyatt Regency Beaver Creek.... 1989 276(1) 70% 68% $ 296 $ 279 $ 207 $ 190
Denver Marriott City Center... 1982/1994 613 77 79 123 123 95 97
Hyatt Regency Albuquerque..... 1990 395 71 68 106 103 75 70
Sonoma Mission Inn & Spa...... 1927/1987/1997 178(3) 79 79 196 214 155 170
Four Seasons Hotel Houston.... 1982 399 66 66 196 179 128 119
Ventana Country Inn........... 1975/1982/1988 62 77 41(2) 329 319 254 130(2)
------ ---- ---- ------ ------ ------ ------
Total/Weighted Average 1,923 73% 71% $ 173 $ 166 $ 126 $ 119
====== ==== ==== ====== ====== ====== ======
Destination Health & Fitness Resorts
Canyon Ranch-Tucson........... 1980 250(4)
Canyon Ranch-Lenox............ 1989 212(4)
------ ---- ---- ------ ------ ------ ------
Total/Weighted Average 462 90%(5) 89%(5) $ 536(6) $ 504(6) $ 464(7) $ 436(7)
====== ==== ==== ====== ====== ====== ======
</TABLE>
(1) In 1998, the number of rooms at Hyatt Regency Beaver Creek was reduced to
276 due to 19 rooms being converted into a 20,000 square foot spa.
(2) Average occupancy and REVPAR decreased in 1998 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.
(3) In February 1999, 20 rooms were taken out of commission during the
construction of the spa.
(4) Represents available guest nights, which is the maximum number of guests
that the resort can accommodate per night.
(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.
REFRIGERATED WAREHOUSING SEGMENT
RECENT DEVELOPMENTS
Effective March 12, 1999, the Company sold 80% of its 5% interest in CS I and CS
II to Crescent Partnership for $13.2 million and received the right to require
Crescent Partnership to purchase the remaining 20% for approximately $3.4
million at any time during the next two years, subject to compliance with
certain regulatory matters. This 5% interest represented a 2% interest in
various corporations and limited liability companies (collectively, "AmeriCold
Logistics") that owned and operated 102 refrigerated warehouse properties
("Refrigerated Warehouses"). Crescent Operating, through a wholly-owned limited
liability company, then became a 40% partner of AmeriCold Operations, a newly
formed partnership, the remaining 60% of which is owned by Vornado Operating,
Inc. AmeriCold Operations has leased certain of the Refrigerated Warehouses from
certain of the entities comprising AmeriCold Logistics under 15-year leases
which call for base and percentage rent. As a result, the operations formerly
associated with AmeriCold Logistics are now conducted by AmeriCold Operations.
As a result of the transaction, Crescent Operating no longer consolidates CS I
and CS II for accounting purposes which has resulted in a decrease in
the Investment in AmeriCold Logistics of approximately $290 million.
19
<PAGE> 20
FINANCIAL ACTIVITY
As a result of the transactions discussed above, as of June 30, 1999, the
Company had a 40% economic interest in AmeriCold Operations and a 0.4% interest
in AmeriCold Logistics. Because the restructuring did not become effective until
March 12, 1999, the Company's economic share of the operations of AmeriCold
Logistics for the six months ended June 30, 1999 included a 2% economic interest
for the period from January 1, 1999 through March 11, 1999 and a 0.4% economic
interest for the period from March 12, 1999 through June 30, 1999. The Company's
economic share of the operations of AmeriCold Operations for the six months
ended June 30, 1999 include a 40% economic interest for the period from March
12, 1999 through June 30, 1999.
The Company's share of the net loss from AmeriCold Operations for the three and
six months ended June 30, 1999 was $0.9 million and $1.0 million, respectively.
The Company's share of net income (loss) from AmeriCold Logistics for the three
months ended June 30, 1999 and 1998 was $0.2 million and $(0.1) million,
respectively. The Company's share of net income (loss) from AmeriCold Logistics
for the six months ended June 30, 1999 and 1998 was $0.3 million and $(0.1)
million, respectively. Also included in net income (loss) for the Refrigerated
Warehousing segment for the three and six months ended June 30, 1999 was the
$1.5 million gain on sale of 80% of the Company's interest in AmeriCold
Logistics.
LAND DEVELOPMENT SEGMENT
RECENT DEVELOPMENTS
On July 26, 1999, the Company entered into an agreement to sell its investments
in Corporate Arena and Hillwood for approximately $1.4 million. The sale will
result in an approximate $0.1 million gain which is expected to be recognized by
the end of 1999. The sale is subject to satisfaction of customary conditions and
consent of the National Basketball Association.
On April 29, 1999, a partnership in which CDMC has a 64% economic interest
finalized the purchase of "The Commons", a master planned residential
development on 23 acres in the Central Platte Valley near downtown Denver,
Colorado. Currently, it is contemplated that the project will include both sale
and rental units at multiple price points. An adjacent 28 acres is expected to
be commercially developed by another firm, thus providing a major mixed-use
community adjacent to the lower downtown area of Denver. The acreage connects
with several major entertainment and recreational facilities including Coors
Field (home to Major League Baseball's Colorado Rockies), Elitch Gardens (an
amusement park) and the new Pepsi Center (home to the National Hockey League's
Colorado Avalanche and the National Basketball Association's Denver Nuggets).
FINANCIAL ACTIVITY
Investment income of the Land Development segment consists of equity investments
in TWOC and Landevco. For the three months ended June 30, 1999 and 1998,
investment income related to these investments was $4.6 million and $7.1
million, respectively. Crescent Operating's economic share of the investment
income from TWOC and Landevco was $0.8 million and $1.0 million for the three
months ended June 30, 1999 and 1998, respectively. For the six months ended June
30, 1999 and 1998, investment income related to these investments was $9.5
million and $10.7 million, respectively. Crescent Operating's economic share of
the investment income from TWOC and Landevco was $1.3 million and $1.2 million
for the six months ended June 30, 1999 and 1998, respectively.
The remaining operations of the Land Development segment are attributable to the
results of Desert Mountain Development and COPI Colorado. For the three months
ended June 30, 1999 and 1998, Desert Mountain Development had net income of $3.3
million and $0.4 million, respectively. Crescent Operating's economic share of
the net income from Desert Mountain Development for the three months ended June
30, 1999 and 1998 was $0.2 million and $0.1 million, respectively. For the six
months ended June 30, 1999 and 1998, Desert Mountain Development had net income
(loss) of $1.7 million and $(0.6) million, respectively. Crescent Operating's
economic share of the net income (loss) from Desert Mountain Development for the
six months ended June 30, 1999 and 1998 was $0.1 million and $(0.1) million,
respectively.
20
<PAGE> 21
For the three and six months ended June 30, 1999, COPI Colorado had a net loss
of $0.8 million and $1.0 million, respectively. Crescent Operating's economic
share of the net loss from COPI Colorado for the three and six months ended
June 30, 1999 was $0.4 million and $0.5 million, respectively. Crescent
Operating did not have an economic interest in COPI Colorado during the first
six months of 1998.
OTHER
RECENT DEVELOPMENTS
Crescent Operating, Magellan Health Services, Inc. ("Magellan"), Crescent
Partnership and CBHS entered into a binding Letter Agreement dated August 10,
1999, relating to a proposed recapitalization of CBHS and restructuring of
relationships among the parties. Under the Letter Agreement, Magellan has agreed
that it will, at the closing of the transactions, transfer its remaining
hospital-based assets (including Charter Advantage, Charter Franchise Services,
LLC, the call center assets, the Charter name and related intellectual property
and certain other assets) to CBHS, and cancel its accrued and future franchise
fees. Thereafter, Magellan will no longer be obligated to provide franchise
services to CBHS. Magellan will also effectively transfer 80% of its CBHS common
interest and all of its CBHS preferred interest to CBHS, leaving Magellan with a
10% common membership interest, and Crescent Operating with a 90% common
membership interest and 100% of the preferred membership interest in CBHS.
Crescent Operating plans to restructure its investment in CBHS so that the
closing of the transactions will not result in Crescent Operating's control of
CBHS.
In connection with the execution of the Letter Agreement, Magellan, CBHS,
Crescent Partnership and Crescent Operating have agreed to provide each other
with mutual releases of all claims and disputes against each other, with certain
specified exceptions, and Crescent Partnership has deferred the August 1999 rent
due from CBHS to the last four months of 1999. Additionally, with the execution
of the Letter Agreement, the $2.5 million held in escrow was released to
Crescent Operating in connection with the settlement of the arbitration between
Magellan and Crescent Operating.
Magellan and CBHS also have modified and extended their existing arrangement
which designates CBHS a preferred provider of inpatient acute behavioral health
services.
The closing of the transactions contemplated by the Letter Agreement is
anticipated to take place within 30 days, subject to the satisfaction of certain
customary closing conditions and consents, and other contingencies. If the
closing does not occur within 30 days, the Letter Agreement terminates.
Crescent Operating will not record gains or losses with respect to the above
transactions with CBHS. Crescent Operating has previously written-off its
investment in CBHS.
As of August 11, 1999, COPI Colorado had purchased approximately 1.1 million
shares of Crescent Operating common stock at a total purchase price of $4.3
million. The average price paid for such shares, excluding brokers'
commissions, was $3.91 per share.
On June 11, 1999, John C. Goff, Vice Chairman of the Company's Board of
Directors, assumed the additional duties of the President and Chief Executive
Officer of the Company, and on June 17, 1999, was formally appointed to such
offices by the Board of Directors.
21
<PAGE> 22
SEGMENT FINANCIAL INFORMATION
(Amounts in thousands, except share data)
The following is a summary of Crescent Operating's financial information
reported by segment for the three months ended June 30, 1999:
<TABLE>
<CAPTION>
Equipment
Sales Refrigerated Land
and Leasing Hospitality Warehousing Development Other Total
----------- ----------- ------------ ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues ................................... $ 39,536 $ 55,478 $ -- $ 78,379 $ -- $ 173,393
Operating expenses ......................... 36,948 55,994 1 71,155 544 164,642
--------- --------- --------- --------- --------- ---------
Income (loss) from operations .............. 2,588 (516) (1) 7,224 (544) 8,751
--------- --------- --------- --------- --------- ---------
Investment income (loss) ................... -- 68 (758) 4,523 1 3,834
--------- --------- --------- --------- --------- ---------
Other (income) expense
Interest expense ...................... 1,405 180 -- 3,539 1,905 7,029
Interest income ....................... (17) (28) -- (887) (24) (956)
Other ................................. (1) -- -- 221 (1) 219
--------- --------- --------- --------- --------- ---------
Total other (income) expense ............... 1,387 152 -- 2,873 1,880 6,292
--------- --------- --------- --------- --------- ---------
Income (loss) before income
taxes and minority interest ........... 1,201 (600) (759) 8,874 (2,423) 6,293
Income tax provision (benefit) ............. 507 (240) (303) 3,415 (2,407) 972
--------- --------- --------- --------- --------- ---------
Income (loss) before minority interests .... 694 (360) (456) 5,459 (16) 5,321
Minority interests ......................... -- 64 -- (5,231) -- (5,167)
--------- --------- --------- --------- --------- ---------
Net income (loss) .......................... $ 694 $ (296) $ (456) $ 228 $ (16) $ 154
========= ========= ========= ========= ========= =========
Net income (loss) per share, basic ......... $ 0.06 $ (0.03) $ (0.04) $ 0.02 $ (0.00) $ 0.01
========= ========= ========= ========= ========= =========
Net income (loss) per share, diluted ....... $ 0.06 $ (0.03) $ (0.04) $ 0.02 $ (0.00) $ 0.01
========= ========= ========= ========= ========= =========
EBITDA Calculation: (1)
Net income (loss) ..................... $ 694 $ (296) $ (456) $ 228 $ (16) $ 154
Interest expense, net ................. 1,388 46 47 119 1,881 3,481
Income tax provision (benefit) ........ 507 (198) 102 366 (2,407) (1,630)
Depreciation and amortization ......... 3,611 239 563 400 (41) 4,772
--------- --------- --------- --------- --------- ---------
EBITDA ..................................... $ 6,200 $ (209) $ 256 $ 1,113 $ (583) $ 6,777
========= ========= ========= ========= ========= =========
</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.
22
<PAGE> 23
SEGMENT FINANCIAL INFORMATION
(Amounts in thousands, except share data)
The following is a summary of Crescent Operating's financial information
reported by segment for the six months ended June 30, 1999:
<TABLE>
<CAPTION>
Equipment
Sales Refrigerated Land
and Leasing Hospitality Warehousing Development Other Total
----------- ----------- ------------ ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues ................................... $ 66,695 $ 118,510 $ -- $ 124,936 $ -- $ 310,141
Operating expenses ......................... 63,598 116,516 1 116,016 964 297,095
--------- --------- --------- --------- --------- ---------
Income (loss) from operations .............. 3,097 1,994 (1) 8,920 (964) 13,046
--------- --------- --------- --------- --------- ---------
Investment income (loss) ................... -- 135 732 12,734 240 13,841
--------- --------- --------- --------- --------- ---------
Other (income) expense
Interest expense ...................... 2,707 257 -- 6,123 4,127 13,214
Interest income ....................... (27) (58) -- (1,621) (58) (1,764)
Other ................................. (13) -- -- 158 (2) 143
--------- --------- --------- --------- --------- ---------
Total other (income) expense ............... 2,667 199 -- 4,660 4,067 11,593
--------- --------- --------- --------- --------- ---------
Income (loss) before income
taxes and minority interest ........... 430 1,930 731 16,994 (4,791) 15,294
Income tax provision (benefit) ............. 183 772 293 6,169 (6,073) 1,344
--------- --------- --------- --------- --------- ---------
Income (loss) before minority interests .... 247 1,158 438 10,825 1,282 13,950
Minority interests ......................... -- 82 -- (10,464) -- (10,382)
--------- --------- --------- --------- --------- ---------
Net income (loss) .......................... $ 247 $ 1,240 $ 438 $ 361 $ 1,282 $ 3,568
========= ========= ========= ========= ========= =========
Net income (loss) per share, basic ......... $ 0.02 $ 0.12 $ 0.04 $ 0.04 $ 0.12 $ 0.34
========= ========= ========= ========= ========= =========
Net income (loss) per share, diluted ....... $ 0.02 $ 0.11 $ 0.04 $ 0.03 $ 0.12 $ 0.32
========= ========= ========= ========= ========= =========
EBITDA Calculation: (1)
Net income (loss) ..................... $ 247 $ 1,240 $ 438 $ 361 $ 1,282 $ 3,568
Interest expense, net ................. 2,680 65 233 189 4,069 7,236
Income tax provision (benefit) ........ 183 826 162 619 (6,073) (4,283)
Depreciation and amortization ......... 6,857 523 999 747 (96) 9,030
--------- --------- --------- --------- --------- ---------
EBITDA ..................................... $ 9,967 $ 2,654 $ 1,832 $ 1,916 $ (818) $ 15,551
========= ========= ========= ========= ========= =========
</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.
23
<PAGE> 24
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999, COMPARED
TO THE THREE AND SIX MONTHS ENDED JUNE 30, 1998
Revenues
Equipment sales and leasing revenues increased approximately $27.9 million to
$39.5 million for the three months ended June 30, 1999, compared to $11.6
million for the three months ended June 30, 1998. Revenues increased
approximately $47.2 million to $66.7 million for the six months ended June 30,
1999, compared to $19.5 million for the six months ended June 30, 1998.
Approximately $20.1 million and $37.1 million of this increase, for the three
and six months, respectively, relates to the Company's acquisitions since June
30, 1998. The remaining increase in revenues relates to same store growth at
locations owned by the Company at June 30, 1998. Same store revenues increased
by $7.8 million or 67.2% from $11.6 million to $19.4 million for the three
months ended June 30, 1999 and by $10.1 million or 51.8% from $19.5 million to
$29.6 million for the six months ended June 30, 1999, compared to the three and
six months ended June 30, 1998, respectively.
Hospitality revenues increased approximately $2.4 million to $55.5 million for
the three months ended June 30, 1999, compared to $53.1 million for the three
months ended June 30, 1998. Revenues increased approximately $7.1 million to
$118.5 million for the six months ended June 30, 1999, compared to $111.4
million for the six months ended June 30, 1998. The increase in hospitality
revenues is due to the following: (i) the operations of the Allegria Spa at the
Hyatt Regency Beaver Creek and the Sonoma Golf Club, which were not leased by
the Company during the first six months of 1998, and (ii) the Ventana Country
Inn ("Ventana") conducted operations during all six months of the six months of
1999 as compared to only four months during the first six months of 1998 when
Ventana was closed for two months due to a land slide which washed out a
portion of Highway 1, the major access road to the property. The increase in
hospitality revenues is partially offset by the elimination of the Austin Omni
Hotel rental income as the Company no longer leases that hotel.
Land development revenues represent revenues from Desert Mountain Development
and COPI Colorado prior to the elimination of the Minority Interests. Land
development revenues increased approximately $36.3 million to $78.4 million for
the three months ended June 30, 1999 compared to $42.1 million for the three
months ended June 30, 1998. Revenues increased approximately $51.6 million to
$124.9 million for the six months ended June 30, 1999 compared to $73.3 million
for the six months ended June 30, 1998. The increase over the prior three and
six month periods in 1998 is composed of $21.3 million and $43.8 million of
revenues, respectively, from COPI Colorado, in addition to an increase in Desert
Mountain Development revenues of $15.0 million and $7.8 million, respectively.
The increase in revenues from COPI Colorado is due to the fact that the Company
did not have an interest in COPI Colorado prior to September 30, 1998. The
increase in Desert Mountain revenues is primarily due to higher lot sales prices
as the total number of lots sold is generally consistent with prior year.
Operating Expenses
Equipment sales and leasing expenses increased $26.1 million to $36.9 million
for the three months ended June 30, 1999, compared to $10.8 million for the
three months ended June 30, 1998. Expenses increased $45.1 million to $63.6
million for the six months ended June 30, 1999, compared to $18.5 million for
the six months ended June 30, 1998. Approximately $19.9 million and $37.3
million of this increase over the three and six months ended June 30, 1998,
respectively, relates to the Company's acquisitions as noted above. The
remaining increase in operating expenses relates to the additional costs
associated with the increase in equipment sales, rental and repair revenues.
Hospitality expenses increased $4.7 million to $56.0 million for the three
months ended June 30, 1999, compared to $51.3 million for the three months
ended June 30, 1998. Expenses increased $11.6 million to $116.5 million for the
six months ended June 30, 1999, compared to $104.9 million for the six months
ended June 30, 1998. The increase is partially a result of additional rent due
to increased revenues and costs of capital projects at the Hospitality
Properties, partially offset by a decrease in rent due to the termination of
the lease of the Austin Omni Hotel. Additionally, the increase is due to higher
incentive management fees recorded in the first six months of 1999 due to a
change in the calculation, although no significant year to year increase is
anticipated. The remaining increase is attributable to the operations of the
Allegria Spa at the Hyatt Regency Beaver Creek and the Sonoma Golf Club, which
were not
24
<PAGE> 25
included in the operations for the three and six months ended June 30, 1998, as
well as the operation of the Ventana Country Inn ("Ventana") for all six months
during the first half of 1999 as compared to the first half of 1998 where
Ventana was closed for two months due to a land slide which washed out a
portion of Highway 1, the major access road to the property.
Land development direct expenses primarily represent operating costs incurred by
Desert Mountain Development and COPI Colorado prior to the elimination of the
Minority Interests. Land development expenses increased $30.6 million to $71.1
million for the three months ended June 30, 1999, compared to $40.5 million for
the three months ended June 30, 1998. Expenses increased $43.7 million to $116.0
million for the six months ended June 30, 1999, compared to $72.3 million for
the six months ended June 30, 1998. The increase over the prior three and six
months ended June 30, 1998 is primarily attributable to $21.2 million and $40.4
million of expenses, respectively, incurred by COPI Colorado in addition to an
increase in Desert Mountain Development expenses of $9.3 million and $3.1
million, respectively. The increase related to COPI Colorado is due to the fact
that the Company did not have an interest in COPI Colorado prior to September
30, 1998. The increase in Desert Mountain Development expenses is primarily due
to higher costs associated with the sales of higher valued lots as compared to
prior periods.
Corporate general and administrative expenses of $0.6 million and $1.0 million
for the three and six months ended June 30, 1999, respectively, were comparable
with such costs for the three and six months ended June 30, 1998 and consisted
of general corporate overhead costs such as legal and accounting costs,
insurance costs and corporate salaries.
Investment Income
Investment income of $3.8 million for the three months ended June 30, 1999
consisted primarily of equity in income of Landevco of $4.0 million and equity
in income of TWOC of $0.6 million, partially offset by the equity in loss of
AmeriCold Operations of $1.0 million. The investment income for the three
months ended June 30, 1998 of $8.6 million consisted of investment income from
Hicks-Muse of $2.4 million and equity in income of Landevco of $6.5 million.
Investment income of $13.8 million for the six months ended June 30, 1999
consisted primarily of equity in income of Landevco of $8.6 million, equity in
income of TWOC of $0.8 million, equity in income of CDMC projects of $3.3
million and the gain of $1.5 million on the sale of 80% of the Company's
interest in CS I and CS II, partially offset by the equity in loss of AmeriCold
Operations of $1.0 million. Investment income for the six months ended June 30,
1998 of $6.7 million consisted of investment income from Hicks-Muse of $2.9
million and equity in income of Landevco of $10.0 million, offset by equity in
loss of CBHS of $5.4 million.
The overall increase in investment income over the prior year is due to the
investment in CDMC projects acquired in September 1998, the gain on the sale of
80% of the Company's interest in CS I and CS II in March of 1999, as well as
the $5.4 million loss from CBHS during the first half of 1998 which did not
recur in 1999. As the Company's investment in CBHS has been completely
written-off, the Company does not anticipate that it will recognize any
additional losses from investments in CBHS
Other (Income) Expense
Interest expense increased $3.6 million to $7.0 million, for the three months
ended June 30, 1999, compared to $3.4 million for the three months ended June
30, 1998. Interest expense increased $5.9 million to $13.2 million, for the six
months ended June 30, 1999, compared to $7.3 million for the six months ended
June 30, 1998. The increases compared to the prior periods are due to an
increase in debt incurred in connection with various acquisitions in the last
half of 1998 and the inclusion of COPI Colorado interest expense which the
Company did not own during the first six months of 1998, offset by a decrease
in overall debt at Desert Mountain Development.
Interest income of $1.0 million for the three months ended June 30, 1999, were
comparable with the income for the three months ended June 30, 1998. Interest
income decreased $0.4 million to $1.8 million for the six months ended
25
<PAGE> 26
June 30, 1999, compared to $2.2 million for the six months ended June 30, 1998.
The decreases compared to the prior periods are due primarily to decreased
interest income from notes receivable from lot sales at Desert Mountain
Development.
Minority Interests
Minority Interests increased $1.8 million to $5.2 million for the three months
ended June 30, 1999 compared to $3.4 million for the three months ended June
30, 1998. Minority interests increased $6.5 million to $10.4 million for the
six months ended June 30, 1999 compared to $3.9 million for the six months
ended June 30, 1998. Minority interests consist of the non-voting interests in
the Land Development segment. The increase in Minority Interests is primarily
attributable to the Company's investment in COPI Colorado which was not
acquired until September 1998.
Income Tax Provision
Income tax provision of approximately $1.0 million for the three months ended
June 30, 1999, consisted of a $2.4 million benefit at the corporate level, a
$0.3 million benefit for the Refrigerated Warehousing segment and a $0.2
million benefit for the Hospitality segment offset by a $0.5 million provision
for the Equipment Sales and Leasing segment and a $3.4 million provision for
the Land Development segment. These amounts represent a $3.2 million decrease
in tax provision from the tax provision of $4.2 million for the three months
ended June 30, 1998.
Income tax provision of approximately $1.3 million for the six months ended
June 30, 1999, consisted of a $6.1 million benefit at the corporate level,
offset by a $0.2 million provision for the Equipment Sales and Leasing segment,
a $0.8 million provision for the Hospitality segment, a $6.2 million provision
for the Land Development segment and a $0.3 million provision for the
Refrigerated Warehousing segment. These amounts represent a $3.0 million
decrease in tax provision from the tax provision of $4.3 million for the six
months ended June 30, 1998.
The Company generally provides for taxes using a 40% effective rate on the
Company's share of income or loss. Additionally, for the three and six months
ended June 30, 1999, the Company released $1.4 million and $4.2 million of its
net deferred tax asset valuation allowance, respectively, based on 1999
transactions, events incurred prior to June 30, 1999 and expected future taxable
income.
LIQUIDITY AND CAPITAL RESOURCES
Approximately $96.9 million (including regularly scheduled payments of
principal) is payable pursuant to existing financing arrangements of the Company
during the twelve months ending June 30, 2000. Of this $96.9 million, the
Company anticipates that approximately $81.9 million (representing all of these
borrowings other than the $15 million line of credit from Bank of America) will
be paid from the Company's cash flow from operating activities. The $15 million
line of credit from Bank of America, which bears interest at the LIBOR rate plus
1%, is due on August 27, 1999. The Company is negotiating the renewal of its
line of credit and although the Company does not have a written agreement to
extend the line of credit, it is anticipated that the line of credit will be
renewed with terms similar to the existing facility.
The Company expects to meet its short-term liquidity requirements primarily
through cash flow provided by operating activities. The Company believes that
cash flow provided by operating activities will be adequate to fund normal
recurring operating expenses and, as discussed above, regular debt service
requirements (including debt service relating to any additional or replacement
debt). The Company anticipates that it will fund any acquisitions or other
investments during the next 12 months with cash flow provided by operating
activities, by additional debt financing secured by the assets acquired in the
transaction, issuance of common stock of the Company or by proceeds of equity
offerings.
The Company expects to meet its long-term liquidity requirements (which consist
primarily of amounts due at maturity of its debt) through operating cash flows
of the Company, refinancing of existing debt or obtaining additional debt with
long-term maturities.
26
<PAGE> 27
For a listing of the Company's primary debt financing arrangements, see Note 5
to the Financial Statements included in Part I.
The Company believes that debt and equity 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, obtaining additional debt secured in connection with acquisitions of
assets, additional secured borrowings from Crescent Partnership, and additional
proceeds from the refinancing of existing secured debt. 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.
Cash Flows
Cash and cash equivalents were $41.8 million and $42.8 million at June 30, 1999
and December 31, 1998, respectively. The 2% decrease is attributable to $32.9
million and $15.5 million of cash used in operating and investing activities,
respectively, offset by $47.4 million of cash provided by financing activities.
OPERATING ACTIVITIES
The Company's outflow of cash used in operating activities of $32.9 million is
primarily attributable to outflows from:
o a decrease in deferred income taxes of $8.0 million;
o equity in income from unconsolidated subsidiaries of $12.0 million;
o purchases of real estate of $39.9 million; and
o increases in accounts receivable and inventory of $14.6 million.
The outflow of cash used by operating activities is partially offset by inflows
from:
o net income of $3.6 million;
o non-cash depreciation and amortization of $16.6 million;
o Minority Interests of $10.4 million; and
o increase in deferred revenues of $16.9 million.
INVESTING ACTIVITIES
The Company's outflow of cash used in investing activities of $15.5 million is
primarily attributable to outflows from:
o acquisitions of business interests of $15.5 million;
o acquisitions of business interests by Minority Interests of $9.2 million;
o purchases of property and equipment of $32.9 million; and
o the sale of notes receivable of $3.2 million.
The outflow of cash used in investing activities is partially offset by inflows
from:
o proceeds from the sale of investments of $21.3 million;
o proceeds from the sale of property and equipment of $17.0 million; and
o net distributions from investments of $8.7 million.
27
<PAGE> 28
FINANCING ACTIVITIES
The Company's inflow of cash provided by financing activities of $47.4 million
is primarily attributable to inflows from:
o proceeds of all long-term debt of $183.8 million; and
o capital contributions by Minority Interests of $18.6 million.
The inflow of cash provided by financing activities is partially offset by
outflows from:
o payments of all long-term debt of $146.9 million; and
o the distributions to Minority Interests of $6.8 million.
YEAR 2000 READINESS
The Company, along with an independent firm, continues to review 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 95% complete and
anticipates that the assessment phase will be completed during August 1999. The
timing for completion of the assessment phase has been extended due to
acquisitions that the Company has made during 1999.
As the assessment phase is completed at each of the locations, the Company is
implementing a modification phase to address any issues discovered in the
assessment phase. The modification phase is being followed by a testing phase
to determine that the appropriate corrective action has been taken. Although
the initial assessment and testing is not yet complete for all locations, the
Company has not yet identified any significant concerns and believes that the
mission-critical systems are or can be made compliant with minor upgrades.
Based on the assessment and modifications 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. To date,
the Company's share of costs related to Year 2000 compliance have been less
than $1.0 million with the majority of the costs being related to the
Refrigerated Warehousing segment. All Year 2000 compliance costs are being
expensed as incurred.
The Company believes that its greatest economic exposure lies with its
Refrigerated Warehousing, Hospitality and Equipment Sales and Leasing segments.
Specifically, within the Hospitality and Equipment Sales and Leasing segments,
management believes that the most significant risk associated with 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
letters from JCB, Ingersoll Rand, Terex and Link-Belt, its major suppliers,
that the respective suppliers are Year 2000 compliant. The Hospitality and
Refrigerated Warehousing segments have received responses from several key
vendors that they are 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. Within the Refrigerated Warehousing
segment, management believes that the most significant risk associated with
Year 2000 compliance issues relates to any inability of the refrigerated
storage locations to control the climate of the individual facilities. For
example, if a refrigerated warehouse compressor which is used to control the
climate of the facility could not function or could not be controlled as a
result of Year
28
<PAGE> 29
2000 issues, the Company could experience loss in revenues related to that
location. Based on the assessment of the Refrigerated Warehouse facilities thus
far, the Company has noted only minor problems with the facility systems and
such problems have been or will be corrected with minimal cost.
Where risks have been identified, the Company is in the process of developing
contingency plans to ensure critical operations continue uninterrupted in the
event either the Company, key suppliers or customers fail to resolve their
respective Year 2000 issues in a timely manner. Such plans will be in place by
December 31, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since December 31, 1998, there have been no material changes to the information
regarding market risk that was provided in the Company's Form 10-K for the year
ended December 31, 1998.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of shareholders has held on June 7, 1999.
(b) Proxies for the meeting were solicited pursuant to Section 14(a) of
the Securities and Exchange Act of 1934, as amended, and the
regulations promulgated thereunder. There was no solicitation in
opposition to management's solicitation. All of management's nominees
for director were elected.
(c) Two proposals were submitted to a vote of shareholders as follows:
(1) The shareholders approved the election of the following
persons as directors of the Company:
<TABLE>
<CAPTION>
Name For Withheld Authority
--------------------------- ------------------------- --------------------------
<S> <C> <C>
John C. Goff 10,234,462 46,552
Paul E. Rowsey, III 10,211,779 69,235
William A. Abney 10,211,443 69,571
</TABLE>
(2) The shareholders approved, with 10,221,942 affirmative votes,
4,037 negative votes and 55,035 abstentions, the proposal to
approve the appointment of Ernst & Young LLP as the
independent auditors for the Company for the year ending
December 31, 1999.
29
<PAGE> 30
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
------------ ---------------------------------------------------------
<S> <C>
3.1 First Amended and Restated Certificate of Incorporation (filed as Exhibit 3.3
to the Company's registration statement on Form S-1 dated July 12, 1997 ("Form
S-1") and incorporated by reference herein)
3.2 First Amended and Restated Bylaws (filed as Exhibit 3.4 to Form S-1 and
incorporated by reference herein)
3.3 Amendment of Article V of First Amended and Restated Bylaws (filed as Exhibit
3.3 to the Company's June 30, 1998 Form 10-Q ("June 30, 1998 Form 10-Q") and
incorporated by reference herein)
3.4 Repeal of Amendment of Article V of First Amended and Restated Bylaws (filed as
Exhibit 3.4 to the Company's September 30, 1998 Form 10-Q ("September 30, 1998
Form 10-Q") and incorporated by reference herein)
4.1 Specimen stock certificate (filed as Exhibit 4.1 to Form S-1 and incorporated
by reference herein)
4.2 Preferred Share Purchase Rights Plan (filed as Exhibit 4.2 to Form S-1 and
incorporated by reference herein)
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 (filed as Exhibit 4.3 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
4.4 Second Amendment to Preferred Share Purchase Rights Agreement dated as of March
4, 1999, between Crescent Operating, Inc. and Bank Boston, N.A., as Rights Agent
(filed as Exhibit 4.4 to March 31, 1999 Form 10-Q ("March 31, 1999 Form 10-Q")
and incorporated by reference herein)
10.1 Amended Stock Incentive Plan (filed as Exhibit 10.1 to Form S-1 and incorporated
by reference herein)
10.2 Intercompany Agreement between Crescent Operating, Inc. and Crescent Real Estate
Equities Limited Partnership (filed as Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the Quarter Ended June 30, 1997 ("June 30, 1997 Form
10-Q") and incorporated by reference herein)
10.3 Amended and Restated Operating Agreement of Charter Behavioral Health Systems,
LLC (filed as Exhibit 10.3 to June 30, 1997 Form 10-Q and incorporated by
reference herein)
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 (filed as Exhibit 10.5 to the Company's September
30, 1997 Form 10-Q ("September 30, 1997 Form 10-Q") and incorporated by reference
herein)
</TABLE>
30
<PAGE> 31
<TABLE>
<S> <C>
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 (filed as Exhibit 10.6 to September
30, 1997 Form 10-Q and incorporated by reference herein)
10.7 Acquisition Agreement, dated as of February 10, 1997, between Crescent Real
Estate Equities Limited Partnership and Carter-Crowley Properties, Inc. (filed
as Exhibit 10.7 to Form S-1 and incorporated by reference herein)
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 (filed as Exhibit 10.10 to
September 30, 1997 Form 10-Q and incorporated by reference herein)
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 (filed as Exhibit 10.11 to
September 30, 1997 Form 10-Q and incorporated by reference herein)
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. (filed
as Exhibit 10.12 to September 30, 1997 Form 10-Q and incorporated by reference
herein)
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. (filed as Exhibit 10.13 to September 30, 1997 Form 10-Q and incorporated by
reference herein)
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. (filed as Exhibit 10.14 to September 30, 1997 Form 10-Q and incorporated by
reference herein)
10.15 Agreement for Financial Services dated July 1, 1997, between Crescent Real
Estate Equities Company and Petroleum Financial, Inc. (filed as Exhibit 10.15 to
September 30, 1997 Form 10-Q and incorporated by reference herein)
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
(filed as Exhibit 10.16 to September 30, 1997 Form 10-Q and incorporated by
reference herein)
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. (filed as Exhibit 10.17 to September 30, 1997 Form
10-Q and incorporated by reference herein)
10.18 1997 Crescent Operating, Inc. Management Stock Incentive Plan (filed as Exhibit
10.18 to the Company's Annual Report on Form 10-K for the year ended December
31, 1997 ("December 31, 1997 Form 10-K") and incorporated by reference herein)
10.19 Memorandum of Agreement executed November 16, 1997, among Charter Behavioral
Health Systems, LLC, Charter Behavioral Health Systems, Inc. and Crescent
Operating, Inc. (filed as Exhibit 10.19 to December 31, 1997 Form 10-K and
incorporated by reference herein)
</TABLE>
31
<PAGE> 32
<TABLE>
<S> <C>
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 (filed
as Exhibit 10.20 to December 31, 1997 Form 10-K and incorporated by reference
herein)
10.21 Stock Purchase Agreement dated August 31, 1997, by and among Crescent Operating,
Inc., Gerald W. Haddock, John C. Goff and Sanjay Varma (filed as Exhibit 10.21
to December 31, 1997 Form 10-K and incorporated by reference herein)
10.22 Amended and Restated Lease Agreement, dated June 30, 1995 between Crescent 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 CEI 10-K") and incorporated by reference herein)
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 CEI 10-K and incorporated by
reference herein)
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 CEI 10-K and incorporated by reference herein)
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 CEI 10-Q") and incorporated by reference herein)
10.26 Lease Agreement, dated November 18, 1996 between Crescent Real Estate Equities
Limited Partnership and Wine Country Hotel, LLC (filed as 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 by reference herein)
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 CEI 10-Q and incorporated
by reference herein)
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 CEI
10-Q and incorporated by reference herein)
10.29 Form of Indemnification Agreement (filed as Exhibit 10.29 to December 31, 1997
Form 10-K and incorporated by reference herein)
</TABLE>
32
<PAGE> 33
<TABLE>
<S> <C>
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 as Exhibit 10.30 to
December 31, 1997 Form 10-K and incorporated by reference herein)
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 (filed as Exhibit 10.31 to the Company's March 31, 1998 Form 10-Q
("March 31, 1998 Form 10-Q") and incorporated by reference herein)
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 (filed as Exhibit 10.32 to March 31, 1998 Form
10-Q and incorporated by reference herein)
10.33 Asset Purchase Agreement dated December 19, 1997, among Crescent Operating, Inc.
Preco Machinery Sales, Inc., and certain individual Preco shareholders (filed as
Exhibit 10.33 to March 31, 1998 Form 10-Q and incorporated by reference herein)
10.34 Asset Purchase Agreement dated April 30, 1998, among Crescent Operating, Inc.,
Central Texas Equipment Company, and certain individual Central Texas
shareholders (filed as Exhibit 10.34 to March 31, 1998 Form 10-Q and
incorporated by reference herein)
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 (filed as Exhibit 10.35 to March 31, 1998 Form 10-Q and
incorporated by reference herein)
10.36 Buy-Out Agreement dated April 24, 1998, between Crescent Operating, Inc. and
Crescent Real Estate Equities Limited Partnership (filed as Exhibit 10.36 to
March 31, 1998 Form 10-Q and incorporated by reference herein)
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 (filed as Exhibit
10.37 to June 30, 1998 Form 10-Q and incorporated by reference herein)
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 (filed as Exhibit 10.38 to June 30, 1998 Form 10-Q and
incorporated by reference herein)
10.39 1997 Management Stock Incentive Plan (filed as Exhibit 10.39 to June 30, 1998
Form 10-Q and incorporated by reference herein)
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 (filed as Exhibit 10.40 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
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. (filed as Exhibit 10.41 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
</TABLE>
33
<PAGE> 34
<TABLE>
<S> <C>
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 (filed as Exhibit 10.42 to September
30, 1998 Form 10-Q and incorporated by reference herein)
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. (filed as Exhibit 10.43 to September 30, 1998 Form
10-Q and incorporated by reference herein)
10.44 Second Amendment to Amended and Restated Credit and Security Agreement, dated as
of September 21, 1998, between Crescent Real Estate Equities Limited Partnership
and Crescent Operating, Inc. (filed as Exhibit 10.44 to September 30, 1998 Form
10-Q and incorporated by reference herein)
10.45 Second Amendment to Line of Credit and Security Agreement, dated as of September
21, 1998, between Crescent Real Estate Equities Limited Partnership and Crescent
Operating, Inc. (filed as Exhibit 10.45 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
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 by reference herein)
10.47 Contribution Agreement effective 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 10.2 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 by reference herein)
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 by
reference herein)
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. (filed as Exhibit 10.49 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
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. (filed as Exhibit 10.50 to
September 30, 1998 Form 10-Q and incorporated by reference herein)
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 (filed as Exhibit 10.51 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
10.52 Security Agreement dated as of July 28, 1998, between Crescent Real Estate
Equities Limited Partnership and CRL Investments, Inc. (filed as Exhibit 10.52
to September 30, 1998 Form 10-Q and incorporated by reference herein)
</TABLE>
34
<PAGE> 35
<TABLE>
<S> <C>
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 (filed as Exhibit 10.53 to September 30, 1998 Form 10-Q and incorporated
by reference herein)
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 (filed as Exhibit 10.54 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
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 (filed as Exhibit 10.55 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998 ("December 31,
1998 Form 10-K") and incorporated by reference herein)
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 (filed as Exhibit 10.56
to December 31, 1998 Form 10-K and incorporated by reference herein)
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 (filed as Exhibit 10.57 to December 31,
1998 Form 10-K and incorporated by reference herein)
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 (filed as Exhibit
10.58 to December 31, 1998 Form 10-K and incorporated by reference herein)
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 (filed as Exhibit 10.59 to December 31, 1998 Form 10-K
and incorporated by reference herein)
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 (filed as Exhibit 10.60 to December
31, 1998 Form 10-K and incorporated by reference herein)
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 (filed as Exhibit 10.61 to December 31, 1998
Form 10-K and incorporated by reference herein)
10.62 First Amendment to Lease Agreement effective December 31, 1998, between Wine
Country Hotel, LLC and Crescent Real Estate Funding VI, L.P., relating to Canyon
Ranch - Lenox (filed as Exhibit 10.62 to March 31, 1999 Form 10-Q and
incorporated by reference herein)
</TABLE>
35
<PAGE> 36
<TABLE>
<S> <C>
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 Marriott City
Center Denver (filed as Exhibit 10.63 to December 31, 1998 Form 10-K and
incorporated by reference herein)
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 (filed as Exhibit 10.64 to December 31, 1998 Form 10-K and
incorporated by reference herein)
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 (filed as Exhibit 10.65 to
December 31, 1998 Form 10-K and incorporated by reference herein)
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 (filed as Exhibit 10.66 to December
31, 1998 Form 10-K and incorporated by reference herein)
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 (filed as Exhibit 10.67 to December 31, 1998 Form 10-K and
incorporated by reference herein)
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 (filed as Exhibit 10.68 to
December 31, 1998 Form 10-K and incorporated by reference herein)
10.69 $3,100,000 Note dated February 29, 1996, made by Crescent Development Management
Corp. payable to Crescent Real Estate Equities Limited Partnership (filed as
Exhibit 10.69 to December 31, 1998 Form 10-K and incorporated by reference
herein)
10.70 Credit Agreement dated January 1, 1999, between Crescent Development Management
Corp., as borrower, and Crescent Real Estate Equities Limited Partnership, as
lender, and related Line of Credit Note and Security Agreement (filed as Exhibit
10.70 to March 31, 1999 Form 10-Q and incorporated by reference herein)
10.71 Amended and Restated Credit Agreement dated January 1, 1999, between Crescent
Development Management Corp., as borrower, and Crescent Real Estate Equities
Limited Partnership, as lender, and related Line of Credit Note and Amended and
Restated Security Agreement (filed as Exhibit 10.71 to March 31, 1999 Form 10-Q
and incorporated by reference herein)
10.72 Purchase Agreement dated March 12, 1999, between Crescent Operating, Inc. and
Crescent Real Estate Equities Limited Partnership, relating to sale of interests
in Crescent CS Holdings Corp., and Crescent CS Holdings II Corp., and related
Put Agreement of same date (filed as Exhibit 10.72 to March 31, 1999 Form 10-Q
and incorporated by reference herein)
</TABLE>
36
<PAGE> 37
<TABLE>
<S> <C>
10.73 Second Amendment to Lease Agreement effective April 1, 1999, between Wine
Country Hotel, LLC, and Crescent Real Estate Funding VI, L.P., relating to
Canyon Ranch-Lenox (filed as Exhibit 10.73 to March 31, 1999 Form 10-Q and
incorporated by reference herein)
10.74 Master Revolving Line of Credit Loan Agreement (Borrowing Base and Warehouse)
dated May 14, 1998, between Desert Mountain Properties Limited Partnership, as
borrower, and National Bank of Arizona, as lender; Modification Agreement dated
December 30, 1998; second Modification Agreement dated March 31, 1999; and
related Promissory Note (Borrowing Base), Promissory Note (Warehouse), Pledge
Agreement, Deed of Trust, and Amendment to Deed of Trust (filed as Exhibit 10.74
to March 31, 1999 Form 10-Q and incorporated by reference herein)
10.75 Lease Agreement dated as of June 15, 1999, between Crescent Real Estate Funding
III, L.P. and COI Hotel Group, Inc., relating to the Renaissance Houston Hotel
(filed herewith)
10.76 Guaranty of Lease dated June 15, 1999, by Crescent Operating, Inc. for the
benefit of Crescent Real Estate Funding III, L.P., relating to Renaissance
Houston Hotel (filed herewith)
10.77 Asset Management Agreement dated as of January 1, 1999, between Crescent Real Estate
Equities Limited Partnership and COI Hotel Group, Inc., relating to the Omni Austin
Hotel (filed herewith).
10.78 Agreement, dated June 11, 1999, by and between Gerald W. Haddock and Crescent Operating,
Inc. and its subsidiaries and affiliates (filed herewith)
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
Not Applicable
37
<PAGE> 38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on the 16th day of August, 1999.
CRESCENT OPERATING, INC.
(Registrant)
By /s/ JOHN C. GOFF
--------------------------------------------
John C. Goff, President and Chief
Executive Officer and Vice-Chairman
(Principal Executive Officer)
By /s/ RICHARD P. KNIGHT
--------------------------------------------
Richard P. Knight, Chief Financial Officer
(Principal Financial and Accounting Officer)
38
<PAGE> 39
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
------------ ---------------------------------------------------------
<S> <C>
3.1 First Amended and Restated Certificate of Incorporation (filed as Exhibit 3.3
to the Company's registration statement on Form S-1 dated July 12, 1997 ("Form
S-1") and incorporated by reference herein)
3.2 First Amended and Restated Bylaws (filed as Exhibit 3.4 to Form S-1 and
incorporated by reference herein)
3.3 Amendment of Article V of First Amended and Restated Bylaws (filed as Exhibit
3.3 to the Company's June 30, 1998 Form 10-Q ("June 30, 1998 Form 10-Q") and
incorporated by reference herein)
3.4 Repeal of Amendment of Article V of First Amended and Restated Bylaws (filed as
Exhibit 3.4 to the Company's September 30, 1998 Form 10-Q ("September 30, 1998
Form 10-Q") and incorporated by reference herein)
4.1 Specimen stock certificate (filed as Exhibit 4.1 to Form S-1 and incorporated
by reference herein)
4.2 Preferred Share Purchase Rights Plan (filed as Exhibit 4.2 to Form S-1 and
incorporated by reference herein)
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 (filed as Exhibit 4.3 to September 30, 1998
Form 10-Q and incorporated by reference herein)
4.4 Second Amendment to Preferred Share Purchase Rights
Agreement dated as of March 4, 1999, between Crescent
Operating, Inc. and Bank Boston, N.A., as Rights Agent
(filed as Exhibit 4.4 to March 31, 1999 Form 10-Q
("March 31, 1999 Form 10-Q") and incorporated by
reference herein)
10.1 Amended Stock Incentive Plan (filed as Exhibit 10.1 to Form S-1 and
incorporated by reference herein)
10.2 Intercompany Agreement between Crescent Operating, Inc.
and Crescent Real Estate Equities Limited Partnership
(filed as Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the Quarter Ended June 30, 1997 ("June
30, 1997 Form 10-Q") and incorporated by reference
herein)
10.3 Amended and Restated Operating Agreement of Charter Behavioral Health Systems,
LLC (filed as Exhibit 10.3 to June 30, 1997 Form 10-Q and incorporated by
reference herein)
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 (filed as Exhibit 10.5 to the
Company's September 30, 1997 Form 10-Q ("September 30, 1997 Form 10-Q") and
incorporated by reference herein)
</TABLE>
<PAGE> 40
<TABLE>
<S> <C>
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 (filed as Exhibit 10.6 to September
30, 1997 Form 10-Q and incorporated by reference herein)
10.7 Acquisition Agreement, dated as of February 10, 1997, between Crescent Real
Estate Equities Limited Partnership and Carter-Crowley Properties, Inc. (filed
as Exhibit 10.7 to Form S-1 and incorporated by reference herein)
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 (filed as Exhibit 10.10 to
September 30, 1997 Form 10-Q and incorporated by reference herein)
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 (filed as Exhibit 10.11 to
September 30, 1997 Form 10-Q and incorporated by reference herein)
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. (filed
as Exhibit 10.12 to September 30, 1997 Form 10-Q and incorporated by reference
herein)
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. (filed as Exhibit 10.13 to September 30, 1997 Form 10-Q and incorporated by
reference herein)
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. (filed as Exhibit 10.14 to September 30, 1997 Form 10-Q and incorporated by
reference herein)
10.15 Agreement for Financial Services dated July 1, 1997, between Crescent Real
Estate Equities Company and Petroleum Financial, Inc. (filed as Exhibit 10.15 to
September 30, 1997 Form 10-Q and incorporated by reference herein)
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
(filed as Exhibit 10.16 to September 30, 1997 Form 10-Q and incorporated by
reference herein)
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. (filed as Exhibit 10.17 to September 30, 1997 Form
10-Q and incorporated by reference herein)
10.18 1997 Crescent Operating, Inc. Management Stock Incentive Plan (filed as Exhibit
10.18 to the Company's Annual Report on Form 10-K for the year ended December
31, 1997 ("December 31, 1997 Form 10-K") and incorporated by reference herein)
10.19 Memorandum of Agreement executed November 16, 1997, among Charter Behavioral
Health Systems, LLC, Charter Behavioral Health Systems, Inc. and Crescent
Operating, Inc. (filed as Exhibit 10.19 to December 31, 1997 Form 10-K and
incorporated by reference herein)
</TABLE>
<PAGE> 41
<TABLE>
<S> <C>
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 (filed
as Exhibit 10.20 to December 31, 1997 Form 10-K and incorporated by reference
herein)
10.21 Stock Purchase Agreement dated August 31, 1997, by and among Crescent Operating,
Inc., Gerald W. Haddock, John C. Goff and Sanjay Varma (filed as Exhibit 10.21
to December 31, 1997 Form 10-K and incorporated by reference herein)
10.22 Amended and Restated Lease Agreement, dated June 30, 1995 between Crescent 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 CEI 10-K") and incorporated by reference herein)
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 CEI 10-K and incorporated by
reference herein)
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 CEI 10-K and incorporated by reference herein)
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 CEI 10-Q") and incorporated by reference herein)
10.26 Lease Agreement, dated November 18, 1996 between Crescent Real Estate Equities
Limited Partnership and Wine Country Hotel, LLC (filed as 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 by reference herein)
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 CEI 10-Q and incorporated
by reference herein)
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 CEI
10-Q and incorporated by reference herein)
10.29 Form of Indemnification Agreement (filed as Exhibit 10.29 to December 31, 1997
Form 10-K and incorporated by reference herein)
</TABLE>
<PAGE> 42
<TABLE>
<S> <C>
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 as Exhibit 10.30 to
December 31, 1997 Form 10-K and incorporated by reference herein)
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 (filed as Exhibit 10.31 to the Company's March 31, 1998 Form 10-Q
("March 31, 1998 Form 10-Q") and incorporated by reference herein)
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 (filed as Exhibit 10.32 to March 31, 1998 Form
10-Q and incorporated by reference herein)
10.33 Asset Purchase Agreement dated December 19, 1997, among Crescent Operating, Inc.
Preco Machinery Sales, Inc., and certain individual Preco shareholders (filed as
Exhibit 10.33 to March 31, 1998 Form 10-Q and incorporated by reference herein)
10.34 Asset Purchase Agreement dated April 30, 1998, among Crescent Operating, Inc.,
Central Texas Equipment Company, and certain individual Central Texas
shareholders (filed as Exhibit 10.34 to March 31, 1998 Form 10-Q and
incorporated by reference herein)
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 (filed as Exhibit 10.35 to March 31, 1998 Form 10-Q and
incorporated by reference herein)
10.36 Buy-Out Agreement dated April 24, 1998, between Crescent Operating, Inc. and
Crescent Real Estate Equities Limited Partnership (filed as Exhibit 10.36 to
March 31, 1998 Form 10-Q and incorporated by reference herein)
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 (filed as Exhibit
10.37 to June 30, 1998 Form 10-Q and incorporated by reference herein)
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 (filed as Exhibit 10.38 to June 30, 1998 Form 10-Q and
incorporated by reference herein)
10.39 1997 Management Stock Incentive Plan (filed as Exhibit 10.39 to June 30, 1998
Form 10-Q and incorporated by reference herein)
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 (filed as Exhibit 10.40 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
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. (filed as Exhibit 10.41 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
</TABLE>
<PAGE> 43
<TABLE>
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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 (filed as Exhibit 10.42 to September
30, 1998 Form 10-Q and incorporated by reference herein)
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. (filed as Exhibit 10.43 to September 30, 1998 Form
10-Q and incorporated by reference herein)
10.44 Second Amendment to Amended and Restated Credit and Security Agreement, dated as
of September 21, 1998, between Crescent Real Estate Equities Limited Partnership
and Crescent Operating, Inc. (filed as Exhibit 10.44 to September 30, 1998 Form
10-Q and incorporated by reference herein)
10.45 Second Amendment to Line of Credit and Security Agreement, dated as of September
21, 1998, between Crescent Real Estate Equities Limited Partnership and Crescent
Operating, Inc. (filed as Exhibit 10.45 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
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 by reference herein)
10.47 Contribution Agreement effective 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 10.2 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 by reference herein)
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 by
reference herein)
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. (filed as Exhibit 10.49 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
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. (filed as Exhibit 10.50 to
September 30, 1998 Form 10-Q and incorporated by reference herein)
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 (filed as Exhibit 10.51 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
10.52 Security Agreement dated as of July 28, 1998, between Crescent Real Estate
Equities Limited Partnership and CRL Investments, Inc. (filed as Exhibit 10.52
to September 30, 1998 Form 10-Q and incorporated by reference herein)
</TABLE>
<PAGE> 44
<TABLE>
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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 (filed as Exhibit 10.53 to September 30, 1998 Form 10-Q and incorporated
by reference herein)
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 (filed as Exhibit 10.54 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
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 (filed as Exhibit 10.55 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998 ("December 31,
1998 Form 10-K") and incorporated by reference herein)
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 (filed as Exhibit 10.56
to December 31, 1998 Form 10-K and incorporated by reference herein)
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 (filed as Exhibit 10.57 to December 31,
1998 Form 10-K and incorporated by reference herein)
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 (filed as Exhibit
10.58 to December 31, 1998 Form 10-K and incorporated by reference herein)
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 (filed as Exhibit 10.59 to December 31, 1998 Form 10-K
and incorporated by reference herein)
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 (filed as Exhibit 10.60 to December
31, 1998 Form 10-K and incorporated by reference herein)
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 (filed as Exhibit 10.61 to December 31, 1998
Form 10-K and incorporated by reference herein)
10.62 First Amendment to Lease Agreement effective December 31, 1998, between Wine
Country Hotel, LLC and Crescent Real Estate Funding VI, L.P., relating to Canyon
Ranch - Lenox (filed as Exhibit 10.62 to March 31, 1999 Form 10-Q and
incorporated by reference herein)
</TABLE>
<PAGE> 45
<TABLE>
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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 Marriott City
Center Denver (filed as Exhibit 10.63 to December 31, 1998 Form 10-K and
incorporated by reference herein)
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 (filed as Exhibit 10.64 to December 31, 1998 Form 10-K and
incorporated by reference herein)
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 (filed as Exhibit 10.65 to
December 31, 1998 Form 10-K and incorporated by reference herein)
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 (filed as Exhibit 10.66 to December
31, 1998 Form 10-K and incorporated by reference herein)
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 (filed as Exhibit 10.67 to December 31, 1998 Form 10-K and
incorporated by reference herein)
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 (filed as Exhibit 10.68 to
December 31, 1998 Form 10-K and incorporated by reference herein)
10.69 $3,100,000 Note dated February 29, 1996, made by Crescent Development Management
Corp. payable to Crescent Real Estate Equities Limited Partnership (filed as
Exhibit 10.69 to December 31, 1998 Form 10-K and incorporated by reference
herein)
10.70 Credit Agreement dated January 1, 1999, between Crescent Development Management
Corp., as borrower, and Crescent Real Estate Equities Limited Partnership, as
lender, and related Line of Credit Note and Security Agreement (filed as Exhibit
10.70 to March 31, 1999 Form 10-Q and incorporated by reference herein)
10.71 Amended and Restated Credit Agreement dated January 1, 1999, between Crescent
Development Management Corp., as borrower, and Crescent Real Estate Equities
Limited Partnership, as lender, and related Line of Credit Note and Amended and
Restated Security Agreement (filed as Exhibit 10.71 to March 31, 1999 Form 10-Q
and incorporated by reference herein)
10.72 Purchase Agreement dated March 12, 1999, between Crescent Operating, Inc. and
Crescent Real Estate Equities Limited Partnership, relating to sale of interests
in Crescent CS Holdings Corp., and Crescent CS Holdings II Corp., and related
Put Agreement of same date (filed as Exhibit 10.72 to March 31, 1999 Form 10-Q
and incorporated by reference herein)
</TABLE>
<PAGE> 46
<TABLE>
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10.73 Second Amendment to Lease Agreement effective April 1, 1999, between Wine
Country Hotel, LLC, and Crescent Real Estate Funding VI, L.P., relating to
Canyon Ranch-Lenox (filed as Exhibit 10.73 to March 31, 1999 Form 10-Q and
incorporated by reference herein)
10.74 Master Revolving Line of Credit Loan Agreement (Borrowing Base and Warehouse)
dated May 14, 1998, between Desert Mountain Properties Limited Partnership, as
borrower, and National Bank of Arizona, as lender; Modification Agreement dated
December 30, 1998; second Modification Agreement dated March 31, 1999; and
related Promissory Note (Borrowing Base), Promissory Note (Warehouse), Pledge
Agreement, Deed of Trust, and Amendment to Deed of Trust (filed as Exhibit 10.74
to March 31, 1999 Form 10-Q and incorporated by reference herein)
10.75 Lease Agreement dated as of June 15, 1999, between Crescent Real Estate Funding
III, L.P. and COI Hotel Group, Inc., relating to the Renaissance Houston Hotel
(filed herewith)
10.76 Guaranty of Lease dated June 15, 1999, by Crescent Operating, Inc. for the
benefit of Crescent Real Estate Funding III, L.P., relating to Renaissance
Houston Hotel (filed herewith)
10.77 Asset Management Agreement dated as of January 1, 1999, between Crescent Real Estate
Equities Limited Partnership and COI Hotel Group, Inc., relating to the Omni Austin
Hotel (filed herewith).
10.78 Agreement, dated June 11, 1999, by and between Gerald W. Haddock and Crescent Operating,
Inc. and its subsidiaries and affiliates (filed herewith)
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.75
LEASE AGREEMENT
BETWEEN
CRESCENT REAL ESTATE FUNDING III, L.P.,
a Delaware limited partnership
AND
COI HOTEL GROUP, INC.,
a Texas corporation
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
ARTICLE I.............................................................1
1.1 Demise..............................................1
1.2 Definitions.........................................1
(a) Affiliate...........................................1
(b) Base Rate...........................................2
(c) Beverage Sales......................................2
(d) Consolidated Financials.............................2
(e) Consumable Supplies.................................3
(f) Emergency Situations................................3
(g) Food Sales..........................................3
(h) Gross Receipts......................................3
(i) Guarantor...........................................3
(j) Guaranty............................................4
(k) Holder..............................................4
(l) Indemnified Party...................................4
(m) Indemnifying Party..................................4
(n) Inventory...........................................4
(o) Lease Year..........................................4
(p) Legal Requirements..................................4
(q) Lessee Indemnified Party............................4
(r) Lessor Indemnified Party............................5
(s) Nonconsumable Inventory.............................5
(t) Overdue Rate........................................5
(u) Proceeding..........................................5
(v) Subsidiaries........................................5
(w) Unavoidable Delay...................................5
(x) Uneconomic for its Primary Intended Use.............5
(y) Unsuitable for its Primary Intended Use.............5
ARTICLE II............................................................6
2.1 Leased Property.....................................6
2.2 Assignment and Assumption of
Contracts; Initial Transaction......................6
ARTICLE III...........................................................8
3.1 Term................................................8
</TABLE>
i
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<TABLE>
<S> <C> <C> <C>
ARTICLE IV....................................................................9
4.1 Base Rent...................................................9
4.2 Percentage Rent.............................................9
4.3 Additional Charges.........................................12
4.4 Net Lease Provisions.......................................12
4.5 Place and Manner of Payment................................12
4.6 Late Charge................................................12
ARTICLE V....................................................................13
5.1 Quiet Enjoyment............................................13
ARTICLE VI...................................................................13
6.1 Payment of Impositions.....................................13
6.2 Notice of Impositions......................................14
6.3 Adjustment of Imposition...................................14
6.4 Utility Charges............................................14
6.5 Insurance Premiums.........................................14
6.6 Definition of Impositions..................................14
ARTICLE VII..................................................................15
7.1 Condition of the Leased Property...........................15
7.2 Use of the Leased Property.................................16
7.3 Lessor to Grant Easements, Etc.............................16
7.4 Inventory; Supplies; Lessee's Personal Property............17
7.5 Reserves; Capital Expenditures.............................18
7.6 Lessee's Obligation to Manage..............................18
7.7 Working Capital............................................18
7.8 Use of Facilities by Lessor................................18
7.9 Guaranty...................................................19
7.10 Initial Renovation Program.................................19
ARTICLE VIII.................................................................21
8.1 Compliance with Legal and Insurance Requirements. Etc......21
8.2 Legal Requirement Covenants................................21
8.3 Environmental Matters and Indemnities......................21
ARTICLE IX...................................................................23
9.1 Maintenance and Repair.....................................23
9.2 Encroachments, Restrictions, Etc...........................24
</TABLE>
ii
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<TABLE>
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ARTICLE X..................................................................25
10.1 Alterations..............................................25
10.2 Lessor Alterations.......................................25
ARTICLE XI.................................................................26
11.1 Liens....................................................26
ARTICLE XII................................................................26
12.1 Permitted Contests.......................................26
ARTICLE XIII...............................................................27
13.1 General Insurance Requirements...........................27
13.2 Waiver of Subrogation....................................29
13.3 Form of Satisfactory.....................................29
13.4 Increase in Limits ......................................29
13.5 Reports on Insurance Claims..............................30
ARTICLE XIV................................................................30
14.1 Insurance Proceeds.......................................30
14.2 No Abatement of Rent.....................................30
14.3 Damage During Term.......................................30
ARTICLE XV.................................................................31
15.1 Definitions..............................................31
15.2 Parties' Rights and Obligations..........................31
15.3 Total Taking.............................................31
15.4 Allocation of Award......................................32
15.5 Partial Taking...........................................32
15.6 Temporary Taking.........................................32
ARTICLE XVI................................................................33
16.1 Events of Default........................................33
16.2 Surrender................................................34
16.3 Damages..................................................34
16.4 Application of Funds.....................................35
</TABLE>
iii
<PAGE> 5
<TABLE>
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ARTICLE XVII................................................................35
17.1 Lessor's Right to Cure Lessee's Default...................35
ARTICLE XVIII...............................................................36
18.1 Holding Over..............................................36
ARTICLE XIX.................................................................36
19.1 Risk of Loss..............................................36
ARTICLE XX..................................................................36
20.1 Indemnification...........................................36
ARTICLE XXI.................................................................38
21.1 Subletting and Assignment.................................38
ARTICLE XXII................................................................39
22.1 Officer's Certificates; Financial Statements; Lessor's
Estoppel Certificates and Covenants.......................39
ARTICLE XXIII...............................................................40
23.1 Lessor's Right to Inspect.................................40
ARTICLE XXIV................................................................40
24.1 No Waiver.................................................40
ARTICLE XXV.................................................................41
25.1 Remedies Cumulative.......................................41
ARTICLE XXVI................................................................41
26.1 Acceptance of Surrender...................................41
ARTICLE XXVII...............................................................41
27.1 No Merger of Title........................................41
</TABLE>
iv
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<TABLE>
<S> <C> <C> <C>
ARTICLE XXVIII............................................................41
28.1 Conveyance by Lessor....................................41
ARTICLE XXIX..............................................................42
29.1 Notices.................................................42
ARTICLE XXX...............................................................43
30.1 Appraisers..............................................43
ARTICLE XXXI..............................................................44
31.1 Lessor May Grant Liens..................................44
31.2 Breach by Lessor........................................44
ARTICLE XXXII.............................................................44
32.1 Miscellaneous...........................................44
32.2 Transfer of Licenses....................................44
32.3 Waiver of Presentment, Etc..............................45
ARTICLE XXXIII............................................................45
33.1 Memorandum of Lease.....................................45
ARTICLE XXXIV.............................................................45
34.1 Management Agreement....................................45
ARTICLE XXXV..............................................................46
35.1 Consolidated Financials.................................46
ARTICLE XXXVI.............................................................46
36.1 REIT Compliance.........................................46
36.2 Personal Property Limitation............................46
36.3 Sublease Rent Limitation................................46
36.4 Sublease Tenant Limitation..............................47
36.5 Lessee Ownership Limitation.............................47
</TABLE>
v
<PAGE> 7
<TABLE>
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ARTICLE XXXVII...........................................................47
37.1 Lessor's Option to Terminate Lease.....................47
37.2 Lessor's Additional Option to Terminate Lease..........47
ARTICLE XXXVIII..........................................................48
38.1 Transition Procedures..................................48
</TABLE>
vi
<PAGE> 8
LEASE AGREEMENT
This LEASE AGREEMENT (this "Lease") is made and entered into to be
effective as of the 15th day of June, 1999, by and between CRESCENT REAL ESTATE
FUNDING III, L.P., a Delaware limited partnership ("Lessor"), and COI HOTEL
GROUP, INC., a Texas corporation ("Lessee").
W I T N E S E T H:
WHEREAS, Lessor is the owner of certain Leased Property (as
hereinafter defined); and
WHEREAS, Lessee desires to lease the Leased Property for a term of
approximately one hundred twenty (120) months; and
WHEREAS, Lessee has committed its capital and credit to the extent
described herein to allow Lessee to operate the Leased Property pursuant to the
terms of this Lease and to comply with all the provisions of the Management
Agreement (as defined herein).
ARTICLE I
1.1 Demise. In consideration of the obligation of Lessee to pay rent
as herein provided and in consideration of the other terms, covenants, and
conditions of this Lease, Lessor does hereby LEASE, DEMISE, and LET unto
Lessee, and Lessee does hereby take and lease from Lessor, the Leased Property,
TO HAVE AND TO HOLD the Leased Property, together with all rights, privileges,
easements and appurtenances belonging to or in any way appertaining to the
Leased Property, for the Term hereinafter provided, upon and subject to the
terms, conditions and agreements hereinafter contained.
1.2 Definitions. For all purposes of this Lease, except as otherwise
expressly provided or unless the context otherwise requires, (a) the terms
defined in this Article have the meanings assigned to them in this Article and
include the plural as well as the singular, (b) all accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
generally accepted accounting principles, (c) all references in this Lease to
designated "Articles", "Sections" and other subdivisions are to the designated
Articles, Sections and other subdivisions of this Lease and (d) the words
"herein," "hereof" and "hereunder" and other words of similar import refer to
this Lease as a whole and not to any particular Article, Section or other
subdivision:
(a) Affiliate. As used in this Lease the term "Affiliate" of a
person shall mean (i) any person that, directly or indirectly, controls or is
controlled by or is under common control with such person, (ii) any other
person that owns, beneficially, directly or indirectly, ten percent
1
<PAGE> 9
(10%) or more of the outstanding capital stock, shares or equity interests of
such person, (iii) any officer, director, employee, partner or trustee of such
person, or (iv) any person controlling, controlled by or under common control
with such person (excluding trustees and persons serving in similar capacities
who are not otherwise an Affiliate of such person). The term "person" means and
includes individuals, corporations, general and limited partnerships, limited
liability companies, stock companies or associations, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts, or other entities and governments and agencies and political
subdivisions thereof. For the purposes of this definition, "control" (including
the correlative meanings of the terms "controlled by" and "under common control
with"), as used with respect to any person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such person, through the ownership of voting securities,
partnership interests or other equity interests, by contract or otherwise.
(b) Base Rate. The prime rate (or base rate) reported in the Money
Rates column or comparable section of The Wall Street Journal as the rate then
in effect for corporate loans at large U.S. money center commercial banks,
whether or not such rate has actually been charged by any such bank. If no such
rate is reported in The Wall Street Journal or if such rate is discontinued,
then Base Rate shall mean such other successor or comparable rate as Lessor may
reasonably designate.
(c) Beverage Sales. Shall mean gross revenue from the sale of (i)
wine, beer, liquor or other alcoholic beverages, whether sold in a bar or
lounge, delivered to or available in a guest room, sold at meetings or banquets
or at any other location at the Leased Property and (ii) nonalcoholic beverages
sold in a bar or lounge. Such gross revenue constituting Beverage Sales shall
include sales by Lessee and its permitted subtenants, licensees and
concessionaires. Such revenue shall be determined in a manner consistent with
the Uniform System and shall not include the following:
(i) Any gratuity or service charge added to a customer's bill
or statement in lieu of a gratuity which is paid directly to an employee;
(ii) Credits, rebates or refunds; and
(iii) Sales taxes or taxes of any other kind imposed on the
sale of alcoholic or other beverages.
(d) Consolidated Financials. For any fiscal year or quarterly
accounting period for Lessee and its consolidated Subsidiaries, statements of
operations, partners' capital and cash flow (or, in the case of a corporation,
statements of operations, retained earnings and cash flow) for such period and
for the period from the beginning of the respective fiscal year to the end of
such period and the related balance sheet as at the end of such period,
together with the notes to any such yearly statement, all in such detail as may
be required by the SEC with respect to filings
2
<PAGE> 10
made by Lessor and its Affiliates, and setting forth in comparative form the
corresponding figures for the corresponding period in the preceding fiscal
year, and prepared in accordance with generally accepted accounting principles
and audited annually (and quarterly if required by the SEC) by a "Big Five"
firm of independent certified public accountants approved by Lessor.
Consolidated Financials shall be prepared on the basis of a December 31 fiscal
year of Lessee, or on such other basis as Lessor shall designate. Any cost for
such audit shall be borne by Lessee.
(e) Consumable Supplies. Office supplies, cleaning supplies,
uniforms, laundry and valet supplies, engineering supplies, fuel, stationery,
soap, matches, toilet and facial tissues, and such other supplies as are
consumed customarily on a recurring basis in the operation of the Project
(hereinafter defined), together with food and beverages that are to be offered
for sale to guests and to the public.
(f) Emergency Situations. Fire, any other casualty, or any other
events, circumstances or conditions which threaten the safety or physical
well-being of the Project's guests or employees or which involve the risk of
material property damage or material loss to the Project.
(g) Food Sales. Shall mean (i) gross revenue from the sale of food
and nonalcoholic beverages that are prepared at the Project and sold or
delivered on or off the Project by Lessee, its permitted subtenants, licensees,
or concessionaires whether for cash or for credit, including in respect of
guest rooms, banquet rooms, meeting rooms and other similar rooms, and (ii)
gross revenue from the rental of banquet, meeting and other similar rooms. Such
gross revenue constituting Food Sales shall include sales by Lessee and its
permitted subtenants, licensees and concessionaires. Such revenue shall be
determined in a manner consistent with the Uniform System and shall not include
the following:
(i) Vending machine sales;
(ii) Any gratuities or service charges added to a customer's
bill or statement in lieu of a gratuity which is paid directly to an employee;
(iii) Non-alcoholic beverages sold from a bar or lounge;
(iv) Credits, rebates or refunds; and
(v) Sales taxes or taxes of any other kind imposed on the sale
of food or nonalcoholic beverages.
(h) Gross Receipts. All items defined as "Gross Revenues" in the
Management Agreement.
(i) Guarantor. Crescent Operating, Inc., a Delaware corporation.
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(j) Guaranty. That certain Guaranty of Lease executed by Guarantor
and guaranteeing the performance of Lessee's obligations under this Lease.
(k) Holder. Any holder of any indebtedness of the Lessor or any of
its Affiliates, any holder of a mortgage, any purchaser of the Leased Property
or any portion thereof at a foreclosure sale or any sale in lieu thereof, or
any designee of any of the foregoing.
(l) Indemnified Party. Either of a Lessee Indemnified Party or a
Lessor Indemnified Party.
(m) Indemnifying Party. Any party obligated to indemnify an
Indemnified Party pursuant to any provision of this Lease.
(n) Inventory. All "Inventory" as defined in the Uniform System,
including, but not limited to, linens, china, silver, glassware and other
non-depreciable personal property, and any property of the type described in
Section 1221(l) of the Tax Code.
(o) Lease Year. Any twelve-month period from January 1 to December
31 during the Term; provided that the initial Lease Year shall be the period
beginning on the Commencement Date and ending on December 31, 1999, and the
last Lease Year shall be the period beginning on January 1 of the calendar year
in which the Term expires (to the extent any computation or other provision
hereof provides for an action to be taken on a Lease Year basis, an appropriate
proration or other adjustment shall be made in respect of the initial and final
Lease Years to reflect that such periods are less than full calendar year
periods).
(p) Legal Requirements. All federal, state, county, municipal and
other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees and injunctions affecting either the Leased Property or the
maintenance, construction, use, operation or alteration thereof (whether by
Lessee or otherwise), now existing or hereafter enacted and in force, including
all laws, rules or regulations pertaining to the environment, occupational
health and safety and public health, safety or welfare at the Leased Property;
and all permits, licenses and authorizations necessary or appropriate to
operate the Leased Property for its Primary Intended Use; and all covenants,
agreements, restrictions and encumbrances contained in any instruments, either
of record or known to Lessee (other than encumbrances hereafter created by
Lessor without the consent of Lessee), at any time in force affecting the
Leased Property.
(q) Lessee Indemnified Party. Lessee, any Affiliate of Lessee,
Manager, any other Person against whom any claim for indemnification may be
asserted hereunder as a result of a direct or indirect ownership interest in
Lessee, the officers, directors, stockholders, partners, members, employees,
agents and representatives of any of the foregoing Persons and any corporate
stockholder, agent, or representative of any of the foregoing Persons, and the
respective
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heirs, personal representatives, successors and assigns of any such officer,
director, stockholder, employee, agent or representative.
(r) Lessor Indemnified Party. Lessor, any Affiliate of Lessor, any
other Person against whom any claim for indemnification may be asserted
hereunder as a result of a direct or indirect ownership interest in Lessor, the
officers, directors, stockholders, partners, members, employees, agents and
representatives of any of the foregoing Persons and of any stockholder,
partner, member, agent, or representative of any of the foregoing Persons, and
the respective heirs, personal representatives, successors and assigns of any
such officer, director, partner, stockholder, employee, agent or
representative.
(s) Nonconsumable Inventory. Inventory exclusive of Consumable
Supplies.
(t) Overdue Rate. On any date, a rate equal to the Base Rate plus
five percent (5%) per annum, but in no event greater than the maximum rate then
permitted under applicable law.
(u) Proceeding. Any judicial action, suit or proceeding (whether
civil or criminal), any administrative proceeding (whether formal or informal),
any investigation by a governmental authority or entity (including a grand
jury), and any arbitration, mediation or other non-judicial process for dispute
resolution.
(v) Subsidiaries. Corporations or other entities in which Lessee
owns, directly or indirectly, fifty percent (50%) or more of the voting rights
or control, as applicable (individually, a "Subsidiary").
(w) Unavoidable Delay. Delay due to strikes, lock-outs, labor
unrest, inability to procure materials, power failure, acts of God,
governmental restrictions, enemy action, civil commotion, fire, unavoidable
casualty, condemnation or other similar causes beyond the reasonable control of
the party responsible for performing an obligation hereunder, provided that
lack of funds shall not be deemed a cause beyond the reasonable control of
either party hereto unless such lack of funds is caused by the breach of the
other party's obligation to perform any obligations of such other party under
this Lease.
(x) Uneconomic for its Primary Intended Use. A state or condition
of the Project such that, in the judgment of Lessor, the Project cannot be
operated on a commercially practicable basis for its Primary Intended Use, such
that Lessor intends to, and shall, cease operations from the Project.
(y) Unsuitable for its Primary Intended Use. A state or condition
of the Project such that, in the judgment of Lessor, the Project cannot
function as an integrated hotel facility
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consistent with standards applicable to a well maintained and operated hotel
comparable in quality and function to that of the Project prior to the damage
or loss.
ARTICLE II
2.1 Leased Property. The "Leased Property" is comprised of those
certain tracts or parcels of land situated in Harris County, Texas, which are
more particularly described in Exhibit "A" attached hereto and made a part
hereof for all purposes, together with all and singular the rights and
appurtenances pertaining to such tracts and parcels, including any right, title
and interest of Lessor in and to adjacent strips or gores, streets, alleys or
rights-of-way and all rights of ingress and egress thereto (the foregoing
properties are hereinafter referred to collectively as the "Land"). The Leased
Property shall also include all buildings, fixtures and other improvements on
the Land, including specifically, without limitation, the automobile parking
garage, all swimming pools, restaurants, hotel rooms, lounges, and various
other guest and spa facilities, and all other buildings and improvements as are
located thereon, all being commonly known as The Renaissance Houston Hotel. The
Land, together with the foregoing improvements, is hereinafter referred to as
the "Project". The Leased Property shall also include all personal property,
tangible or intangible, of any kind whatsoever owned by Lessor and used in
connection with the operation of the Project, including, but not limited to the
following items:
(a) All names, logos and designs used in the ownership or
operation of the Project, including, without limitation, the names, logos and
designs now used in connection with the restaurants, cocktail lounges, night
clubs, banquet rooms and meeting rooms in and/or about the Project, together
with the goodwill appurtenant to each of such names, logos and designs; and
(b) All machinery, apparatus, vehicles, equipment, artwork,
furniture, fittings, fixtures and articles of personal property of every kind
and nature whatsoever, including reserve stock and spare parts therefor, owned
by Lessor which are located in the Project or stored offsite and are used or
usable in connection with any present or future occupation or operation of the
Project, including, by way of illustration and not limitation, all furnishings,
pictures, chinaware, glassware, silverware, ornaments, uniforms, kitchen
appliances and utensils, radios, television sets, mirrors, linens, towels,
sheets, blankets, telephones, and all similar and related articles owned by
Lessor and located in or upon or used in connection with the operation or
maintenance of the Project.
2.2 Assignment and Assumption of Contracts; Initial Transaction.
(a) Effective upon the Commencement Date, Lessor hereby transfers
and assigns to Lessee, and Lessee assumes and covenants to perform all of
Lessor's obligations under, the following agreements and contracts to which the
Leased Property remains subject on the Commencement Date (the "Assigned
Agreements"):
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(i) All contracts for the use or occupancy of guest rooms
and/or the meeting, dining, banquet, spa and health facilities of the Project;
(ii) All service, maintenance, purchase orders and other
contracts pertaining to the ownership, maintenance, operation, provisioning or
equipping of the Project, including warranties and guaranties relating thereto;
(iii) All licenses, franchises and permits used in or relating
to the ownership, occupancy or operation of any part of the Project;
(iv) All software programs (to the extent assignable) for
accounting functions for the general ledger, accounts payable, accounts
receivable, and payroll for the Project;
(v) Lessor's interest as "owner" under that certain Management
Agreement executed as of June 3, 1999, executed by and between Lessor, as
owner, and Renaissance Hotel Operating Company, a Delaware corporation, as
operator (the "Manager") (the "Management Agreement");
(vi) All oral or written agreements or leases pursuant to
which any portion of the Land or Project is used or occupied by anyone other
than Lessor;
(vii) Any developer's, declarant's, or owner's interests under
any operating agreements or reciprocal easement agreements or other similar
agreements affecting and/or benefiting the Project; and
(viii) All customer lists.
(b) This Lease is executed by Lessor and accepted by Lessee on the
understanding that Lessee will and does hereby assume and agree to perform all
of Lessor's obligations under all the Assigned Agreements. Notwithstanding the
assignment of the Management Agreement by Lessor to Lessee pursuant to Section
2.2(a)(v) above and Lessee's assumption of obligations thereunder in the
preceding sentence, as between Lessor and Lessee, Lessor shall remain
responsible for the payment of funds necessary to perform the following
obligations of "Owner" under the Management Agreement; provided however,
Lessor's funding obligations are subject to indicated qualifications:
(i) completion of the Initial Renovation Program (as defined
in Section 1.01 of the Management Agreement), subject to the provisions of
Section 7.10 of this Lease, and further provided that neither the Technical
Services Agreement between Marriott International Design & Construction
Services, Inc. and Lessor regarding the renovation of the Leased Property (the
"Technical Services Agreement") nor the Master Renovation Budget (as defined in
Section 1.01
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<PAGE> 15
of the Management Agreement) shall be amended by Lessor or Lessee without the
prior written approval of the other party;
(ii) cost of replacements, renewals and additions to the Hotel
FF&E and Special Capital Expenditures in accordance with the FF&E Budget, as
specified in Section 5.02(B) of the Management Agreement;
(iii) additional funding to the FF&E Reserve pursuant to
either of the alternatives set forth in Sections 5.02(F)(1) or 5.02(F)(2) of
the Management Agreement; provided however, Lessee shall not make a funding
election thereunder without the prior written approval of Lessor;
(iv) cost of Capital Expenditures under Section 5.03(C) of the
Management Agreement, subject to Lessor's prior written approval;
(v) costs and expenses for the repair and/or replacement of
damaged portions of the Hotel to pre-casualty conditions as set forth in
Section 6.02(C) of the Management Agreement;
(vi) payments due under any Mortgage that Owner has entered
into with respect to the Hotel as provided for under Section 8.01(B) of the
Management Agreement;
(vii) financial obligations imposed on Owner or on the Hotel
pursuant to any CC&Rs as provided for under Section 8.04(B) of the Management
Agreement; and
(viii) the Termination Fee provided for in Section 11.11(I) of
the Management Agreement, subject to Lessor's prior written consent to the
termination of the Management Agreement.
(c) As between Lessor and Lessee, Lessor shall be entitled to all
income and shall be responsible for the payment or settlement of all expenses
of the Leased Property accruing prior to the Commencement Date. Lessee shall
act as Lessor's agent for the collection of all such income and shall remit the
same to Lessor promptly upon Lessee's receipt thereof. Lessee shall notify
Lessor of all such expenses and shall act as Lessor's payment agent for such
expenses using funds provided by Lessor from time to time.
ARTICLE III
3.1 Term. The term (hereinafter called the "Term") of this Lease shall
commence on June 19, 1999 (the "Commencement Date") and shall end on June 30,
2009 unless sooner terminated in accordance with the provisions hereof.
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ARTICLE IV
So long as this Lease remains in force and effect, Lessee promises to
pay rents to Lessor, in lawful money of the United States of America which
shall be legal tender for the payment of public and private debts, in
immediately available funds, in the manner, at the time, and in the amounts
specified below:
4.1 Base Rent. The annual base rent (the "Base Rent") payable during
the Term of this Lease shall be as follows:
<TABLE>
<CAPTION>
Annual Base Rent
Lease Base Rent Calculated
Year Amount Monthly
----- ---------- -----------
<S> <C> <C>
1 $700,000 $109,375
2 $3,275,000 $272,917
3 $4,900,000 $408,333
4 $5,400,000 $450,000
5-6 $5,500,000 $458,333
7 $5,800,000 $483,333
8-10 $6,000,000 $500,000
11 $3,000,000 $500,000
</TABLE>
Base Rent shall be payable in equal monthly installments with the first monthly
installment due and payable on or before August 31, 1999 (which first monthly
installment shall include prorated Base Rent for June, 1999 in the amount of
$43,750, plus Base Rent for July, 1999), and a monthly installment to be due
and payable on the last day of each and every month thereafter through and
including July 31, 2009. Base Rent for any period during the Term of this Lease
which is less than one (1) month shall be a pro-rata portion of the applicable
monthly installment.
4.2 Percentage Rent.
(a) Pursuant to the terms and conditions of this Section 4.2,
Lessee shall also pay Lessor Percentage Rent for each Lease Year. The term
"Percentage Rent," as used herein, shall mean and be determined by multiplying
(i) the amount, if any, by which the aggregate amount of Hotel Receipts for the
calendar month to which such Percentage Rent is attributable exceeds the Hotel
Floor for the applicable month by (ii) the Hotel Receipts Percent, and adding
thereto the product of (iii) the amount, if any, by which the aggregate amount
of Food & Beverage Receipts for the calendar month to which such Percentage
Rent is attributable exceeds the Food & Beverage Floor for the applicable
month, times (iv) ten percent (10%).
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<PAGE> 17
(b) Percentage Rent shall be paid by Lessee on a quarterly basis
on the last day of the month immediately following the end of any quarter with
the first such quarterly installment being due and payable on or before the
last day of October, 1999. The final payment of Percentage Rent for June, 2009
shall be due and payable on July 31, 2009.
(c) (i) The term "Food & Beverage Floor" shall mean: (i) Four
Million Six Hundred Fifty Thousand and No/100 Dollars ($4,650,000) for each of
Lease Years 1 and 2; (ii) Four Million and No/100 Dollars ($4,000,000) for
Lease Year 3; and (iii) Four Million Four Hundred Thousand and No/100 Dollars
($4,400,000) for each of Lease Years 4 through 11.
(ii) The term "Food & Beverage Receipts" shall mean the sum of
Beverage Sales and Food Sales.
(iii) The term "Hotel Floor" shall be as follows for each of
the indicated Lease Years:
<TABLE>
<CAPTION>
Lease Hotel
Year Floor
----- -----
<S> <C>
1-2 $11,000,000
3 $13,500,000
4 $13,750,000
5 $14,250,000
6 $14,750,000
7 $15,250,000
8-11 $16,000,000
</TABLE>
(iv) The term "Hotel Receipts" shall mean Gross Receipts less
Food & Beverage Receipts.
(v) Hotel Receipts Percent shall mean (i) fifty percent (50%)
for each of Lease Years 1 through 4, and (ii) fifty-five percent (55%) for each
of Lease Years 5 through 11.
(d) Lessee shall submit to Lessor by the last day of each month a
written statement signed and certified by Lessee to be correct, showing Gross
Receipts during the preceding month and specifically allocating the amounts
attributable to Hotel Receipts and Food & Beverage Receipts. Lessee shall
submit to Lessor by the sixtieth (60th) day after the end of each Lease Year a
written statement signed and certified by Lessee to be correct, showing Gross
Receipts during the preceding Lease Year (the "Annual Gross Receipts Report").
In addition, within ninety (90) days after the end of each Lease Year, Lessee
shall provide to Lessor, at Lessee's expense, a Statement of Gross Receipts for
the preceding Lease Year (the "Annual
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<PAGE> 18
Audited Gross Receipts Statement") prepared in accordance with generally
accepted accounting principles and audited by a nationally recognized public
accounting firm of independent certified public accountants approved by Lessor.
Lessee's monthly and annual written statement of Gross Receipts shall contain
such detail and breakdown as Lessor may reasonably require. If, after notice
from Lessor and the expiration of the cure period provided for herein, Lessee
fails to submit the aforesaid report and statement to Lessor when due, Lessor,
in addition to any other remedies Lessor has, shall have the right to retain a
certified public accountant, at Lessee's sole expense, to prepare such
statements and to perform all inspections and audits related thereto. In the
event the Annual Audited Gross Receipts Statement discloses that the actual
Percentage Rent exceeds the payments of Percentage Rent to Lessor with respect
to such Lease Year, Lessee shall within fifteen (15) days of notice from Lessor
remit the difference to Lessor. In the event the payments of Percentage Rent
paid to Lessor with respect to a Lease Year exceed the actual Percentage Rent
based upon the Annual Audited Gross Receipts Statement, Lessor shall within
fifteen (15) days of notice from Lessee remit the difference to Lessee. The
adjustments set forth in the preceding two grammatical sentences shall be
subject to any further adjustments that may be made pursuant to the provisions
of Section 4.2(f) below. Notwithstanding anything in this Lease to the
contrary, the following amount, for any particular quarter, shall be called
"Guaranteed Percentage Rent" and shall not be subject to adjustment under this
Section 4.2(d): eighty-five percent (85%) of the Percentage Rent payable with
respect to any calendar quarter of any Lease Year.
(e) Lessee shall maintain in a manner and form satisfactory to
Lessor, during the Term of this Lease, and for a period of three (3)
consecutive years thereafter, complete and accurate general books of account,
which shall reflect Gross Receipts, and which shall include, if used by Lessee,
without limitation, original invoices, sales records, sales slips, sales
checks, sales reports, cash register tapes, records of bank deposits, inventory
records prepared as of the close of the Lessee's accounting period, sales and
occupation tax returns and all other original records and other pertinent
papers which will enable Lessor to determine the Gross Receipts derived by
Lessee during the Term of this Lease. Such records for the three (3) most
recent years shall be maintained at the Leased Property or Lessee's corporate
headquarters. The provisions hereof shall survive the termination of this
Lease.
(f) The acceptance by Lessor of the payments of Percentage Rent
(pursuant to paragraph (b) above) or any additional payment of Percentage Rent
(pursuant to paragraph (d) above) shall not prejudice Lessor's right to an
examination of Lessee's records of Gross Receipts for any period for which
Lessee is required to maintain records to verify Gross Receipts. Lessor shall
have the right to examine Lessee's records during all regular business hours
upon reasonable prior notice. Lessee, upon reasonable prior notice, shall make
available to Lessor for examination any other records required to be maintained
hereunder. If the audit of the books and records by Lessor (the "Lessor's Gross
Receipts Audit") discloses that Gross Receipts were underreported by Lessee for
any period covered by such Audit, Lessee shall promptly pay to Lessor the cost
of the Lessor's Gross Receipts Audit, as Additional Charges, in addition to any
deficiency in Percentage Rent that may be due. If the audit discloses that
Gross Receipts were underreported by
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<PAGE> 19
Lessee by less than two and one-half percent (2.5%) for such period, Lessee
shall promptly pay to Lessor the deficiency, and Lessor shall pay the cost of
the audit. If Lessor's Gross Receipts Audit discloses that Gross Receipts were
underreported by Lessee by five percent (5%) or more for such period, Lessor
shall have the option, exercisable within sixty (60) days of its discovery of
the discrepancy, to consider such event as an Event of Default. The provisions
of this Section shall survive the expiration of the Term of this Lease or the
earlier termination of this Lease for a period of one (1) year thereafter.
4.3 Additional Charges. In addition to the Base Rent and the
Percentage Rent, (a) Lessee also will pay and discharge as and when due and
payable all other amounts, liabilities, obligations and Impositions
(hereinafter defined) that Lessee assumes or agrees to pay under this Lease,
and (b) in the event of any failure on the part of Lessee to pay any of those
items referred to in clause (a) of this Section 4.3, Lessee also will promptly
pay and discharge every fine, penalty, interest and cost that may be added for
non-payment or late payment of such items (the items referred to in clauses (a)
and (b) of this Section 4.3 being additional rent hereunder and being referred
to herein collectively as the "Additional Charges" and Lessor shall have all
legal, equitable and contractual rights, powers and remedies provided either in
this Lease or by statute or otherwise in the case of non-payment of the
Additional Charges as are available in the case of non-payment of the Base Rent
or the Percentage Rent. To the extent that Lessee pays any Additional Charges
to Lessor pursuant to any requirement of this Lease, Lessee shall be relieved
of its obligation to pay such Additional Charges to the entity to which they
would otherwise be due and Lessor shall pay same from monies received from
Lessee.
4.4 Net Lease Provisions. The rent shall be paid absolutely net to
Lessor so that this Lease shall yield to Lessor the full amount of the
installments of Base Rent, Percentage Rent, and all Additional Charges
throughout the Term of this Lease, all as more fully set forth herein, but
subject to any other provisions of this Lease that expressly provide for
adjustment or abatement of rent or other charges or expressly provide that
certain expenses or maintenance shall be paid or performed by Lessor.
4.5 Place and Manner of Payment. Subject to the further provisions
hereof, the rent hereunder shall be payable to Lessor at the original or
changed address of Lessor set forth in Article XXIX hereof or to such other
address or to such other person at such address as Lessor may designate from
time to time in writing.
4.6 Late Charge. If Lessee fails to pay any regular monthly
installment of Base Rent, Percentage Rent or any Additional Charges within
fifteen (15) days after Lessor has notified Lessee in writing that such
installment or charge is overdue, then in addition to the past due amount
Lessee shall pay to Lessor a late charge of five percent (5%) of the
installment or amount due in order to compensate Lessor for the extra
administrative expenses incurred.
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<PAGE> 20
ARTICLE V
5.1 Quiet Enjoyment. Lessor has full right to make this Lease and,
subject to the terms and provisions of this Lease, Lessee shall have quiet and
peaceable enjoyment of the Leased Property during the Term hereof. Except as
otherwise specifically provided in this Lease, Lessee, to the maximum extent
permitted by law, shall remain bound by this Lease in accordance with its terms
and shall neither take any action without the written consent of Lessor to
modify, surrender or terminate the same, nor seek nor be entitled to any
abatement, deduction, deferment or reduction of the rent, or setoff against the
rent, nor shall the obligations of Lessee be otherwise affected by reason of
(a) any damage to or destruction of the Leased Property or any portion thereof
from whatever cause, (b) the lawful or unlawful prohibition of, or restriction
upon Lessee's use of the Leased Property, or any portion thereof, or the
interference with such use by any person, corporation, partnership or other
entity or by reason of eviction by paramount title, (c) any claim which Lessee
has or might have against Lessor by reason of any default or breach of any
warranty by Lessor under this Lease or any other agreement between Lessor and
Lessee, or to which Lessor and Lessee are parties, (d) any bankruptcy,
insolvency, reorganization, composition, readjustment, liquidation,
dissolution, winding up or other proceedings affecting Lessor or any assignee
of or transferee of Lessor, or (e) for any other cause whether similar or
dissimilar to any of the foregoing other than a discharge of Lessee from any
such obligations as a matter of law. Lessee hereby specifically waives all
rights, arising from any occurrence whatsoever, which may now or hereafter be
conferred upon it by law to (i) modify, surrender or terminate this Lease or
quit or surrender the Leased Property or any portion thereof, or (ii) entitle
Lessee to any abatement, reduction, suspension or deferment of the rent or
other sums payable by Lessee hereunder, except as otherwise specifically
provided in this Lease. The obligations of Lessee hereunder shall be separate
and independent covenants and agreements and the rent and all other sums
payable by Lessee hereunder shall continue to be payable in all events unless
all the obligations to pay the same shall be terminated pursuant to the express
provisions of this Lease or by termination of this Lease other than by reason
of an Event of Default.
ARTICLE VI
6.1 Payment of Impositions. Subject to Article XII relating to
permitted contests, Lessee will pay, or cause to be paid, all Impositions (as
defined hereinbelow) before any fine, penalty, interest or cost may be added
for non-payment, such payments to be made directly to the taxing or other
authorities where feasible, and will promptly furnish to Lessor copies of
official receipts or other satisfactory proof evidencing such payments. If any
such Imposition may, at the option of the obligor, lawfully be paid in
installments (whether or not interest shall accrue on the unpaid balance of
such Imposition), Lessee may exercise the option to pay the same (and any
accrued interest on the unpaid balance of such Imposition) in installments and
in such event, shall pay such installments during the Term hereof (subject to
Lessee's right of contest pursuant to the provisions of Article XII) as the
same respectively become due and before any fine, penalty, premium,
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<PAGE> 21
further interest or cost may be added thereto. If any refund shall be due in
respect of any Imposition paid by Lessee, the same shall be paid over to or
retained by Lessee if no Event of Default shall have occurred hereunder and be
continuing. If an Event of Default shall have occurred and be continuing, any
such refund shall be paid over to or retained by Lessor. Any such funds
retained by Lessor due to an Event of Default shall be applied as provided in
Article XVI. Lessor and Lessee shall, upon request of the other, provide such
data as is maintained by the party to whom the request is made with respect to
the Leased Property as may be necessary to prepare any required returns and
reports.
6.2 Notice of Impositions. Lessor shall give prompt notice to Lessee
of all Impositions payable by Lessee hereunder of which Lessor at any time has
knowledge, provided that Lessor's failure to give any such notice shall in no
way diminish Lessee's obligations hereunder to pay such Impositions, but such
failure shall obviate any default hereunder for a reasonable time after Lessee
receives notice of any Imposition which it is obligated to pay.
6.3 Adjustment of Imposition. Impositions imposed in respect of the
tax-fiscal period during which the Term of this Lease terminates shall be
adjusted and prorated between Lessor and Lessee, whether or not such Imposition
is imposed before or after such termination, and Lessee's obligation to pay its
prorated share thereof after termination shall survive such termination.
6.4 Utility Charges. Lessee will be solely responsible for obtaining
and maintaining utility services to the Leased Property and will pay or cause
to be paid all charges for electricity, gas, oil, water, sewer and other
utilities used in the Leased Property during the Term of this Lease.
6.5 Insurance Premiums. Lessee will pay or cause to be paid all
premiums for the insurance coverages required to be maintained by it under
Article XIII.
6.6 Definition of Impositions. The term "Impositions," as used herein,
means, collectively, all taxes (including, without limitation, all ad valorem,
personal property, sales and use, single business, gross receipts, transaction
privilege, rent or similar taxes as the same relate to or are imposed upon
Lessee or its business conducted upon the Leased Property), assessments
(including, without limitation, all assessments for public improvements or
benefit, whether or not commenced or completed prior to the Commencement Date
and whether or not to be completed within the Term and also any assessments
imposed on the Leased Property by any property owners' association, condominium
association or other such private association, or otherwise as a result of
private deed restrictions affecting the Leased Property), ground rents, water,
sewer or other rents and charges, excises, tax inspection, authorization and
similar fees and all other such charges, in each case whether general or
special, ordinary or extraordinary, or foreseen or unforeseen, of every
character in respect of the Leased Property or the business conducted thereon
by Lessee (including all interest and penalties thereon caused by any failure
in payment by Lessee), which at any time prior to, during or with respect to
the Term hereof may be assessed
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or imposed on the Leased Property, or any part thereof or any rent therefrom or
any estate, right, title or interests therein, or any occupancy, operation, use
or possession of, or sales from, or activity conducted on or in connection with
the Leased Property, or the leasing or use of the Leased Property or any part
thereof by Lessee. Nothing contained in this definition of Impositions shall be
construed to require Lessee to pay (1) any tax based on net income (whether
denominated as a franchise or capital stock or other tax) imposed on Lessor or
any other person, or (2) any net revenue tax of Lessor or any other person, or
(3) any tax imposed with respect to the sale, exchange or other disposition by
Lessor of any Leased Property or the proceeds thereof, or (4) any single
business, gross receipts (other than tax on any rent received by Lessor from
Lessee), transaction, privilege or similar taxes as the same relate to or are
imposed upon Lessor, except to the extent that any tax, assessment, tax levy or
charge that Lessee is obligated to pay pursuant to the first sentence of the
definition and that is in effect at any time during the Term hereof is totally
or partially repealed, and a tax, assessment, tax levy or charge set forth in
clause (1) or (2) is levied, assessed or imposed expressly in lieu thereof.
ARTICLE VII
7.1 Condition of the Leased Property. Lessee acknowledges receipt and
delivery of possession of the Leased Property. Lessee has examined and
otherwise has knowledge of the condition of the Leased Property and has found
the same to be satisfactory for its purposes hereunder. Lessee is leasing the
Leased Property "as is" in its present condition. Lessee waives any claim or
action against Lessor in respect of the condition of or claims against the
Leased Property. LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED, IN RESPECT OF THE LEASED PROPERTY, OR ANY PART THEREOF, EITHER AS TO
ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR
OTHERWISE, AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR
PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY LESSEE. LESSEE
ACKNOWLEDGES THAT THE LEASED PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS
SATISFACTORY TO IT. Provided, however, to the extent permitted by law, Lessor
hereby assigns to Lessee all of Lessor's rights to proceed against any
predecessor-in-title, contractor, subcontractor or supplier for breaches of
warranties or representations or for latent defects in the Leased Property.
Lessor shall fully cooperate with Lessee in the prosecution of any such claim,
in Lessor's or Lessee's name, all at Lessee's sole cost and expense. Lessee
hereby agrees to indemnify, defend and hold harmless Lessor from and against
any claims, obligation and liabilities against or incurred by Lessor in
connection with such cooperation.
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7.2 Use of the Leased Property.
(a) Lessee covenants that it will proceed with all due diligence
and will exercise its best efforts to obtain and to maintain all approvals
needed to use and operate the Leased Property in the manner required under this
Lease and under applicable local, state and federal law.
(b) Lessee shall use or cause to be used the Leased Property only
for its current uses as a hotel complex, and for such other uses as may be
necessary or incidental to such use or such other use as otherwise approved by
Lessor (the "Primary Intended Use"). Lessee shall not use the Leased Property
or any portion thereof for any other use, nor change any names under which the
Leased Property is operated, without the prior written consent of Lessor, which
consent may be granted, denied or conditioned in Lessor's sole discretion. No
use shall be made or permitted to be made of the Leased Property, and no acts
shall be done, which will cause the cancellation or increase the premium of any
insurance policy covering the Leased Property or any part thereof (unless
another adequate policy satisfactory to Lessor is available and Lessee pays any
premium increase), nor shall Lessee sell or permit to be kept, used or sold in
or about the Leased Property any article which may be prohibited by law or fire
underwriter's regulations. Lessee shall, at its sole cost, comply with all of
the requirements pertaining to the Leased Property of any insurance board,
association, organization or company necessary for the maintenance of
insurance, as herein provided, covering the Leased Property.
(c) Subject to the provisions of Articles XIV, XV, and XXI, Lessee
covenants and agrees that during the Term of this Lease it will (1) operate
continuously the Leased Property in accordance with the Primary Intended Use,
(2) keep in full force and effect and comply with all the provisions of all
agreements assigned to Lessee as part of the Leased Property, (3) not terminate
or amend any agreements constituting part of the Leased Property without the
consent of Lessor, and (4) maintain appropriate certifications and licenses for
such use.
(d) Lessee shall not commit or suffer to be committed any waste on
the Leased Property (normal wear and tear excepted), nor shall Lessee cause or
permit any nuisance thereon.
(e) Lessee shall neither suffer nor permit the Leased Property or
any portion thereof to be used in such a manner as (1) might reasonably tend to
impair Lessor's (or Lessee's, as the case may be) title thereto or to any
portion thereof, or (2) may reasonably make possible a claim or claims of
adverse usage or adverse possession by the public, as such, or of implied
dedication of the Leased Property or any portion thereof, except as necessary
in the ordinary and prudent operation of the Project on the Leased Property.
7.3 Lessor to Grant Easements, Etc. Lessor will, from time to time, so
long as no Event of Default has occurred and is continuing, at the request of
Lessee and at Lessee's cost and expense (but subject to the approval of Lessor,
which approval shall not be unreasonably withheld or delayed), (a) grant
easements and other rights in the nature of easements with respect to the
Leased Property to third parties, (b) release existing easements or other
rights in the nature of easements which are for the benefit of the Leased
Property, (c) dedicate or transfer unimproved
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portions of the Leased Property for road, highway or other public purposes, (d)
execute petitions to have the Leased Property annexed to any municipal
corporation or utility district, (e) execute amendments to any covenants and
restrictions affecting the Leased Property and (f) execute and deliver to any
person any instrument appropriate to confirm or effect such grants, releases,
dedications, transfers, petitions and amendments (to the extent of its
interests in the Leased Property), but only upon delivery to Lessor of a
certificate from Lessee stating that such grant, release, dedication, transfer,
petition or amendment is not detrimental to the proper conduct of the business
of Lessee on the Leased Property and does not materially reduce the value of
the Leased Property.
7.4 Inventory; Supplies; Lessee's Personal Property.
(a) Upon commencement of the Term, Lessor shall transfer to Lessee
all Nonconsumable Inventory and Consumable Supplies located at the Project on
the Commencement Date and transferred to Lessor by Seller (the "Initial
Inventory"). On the Commencement Date, Lessee shall be required to ensure that
the Leased Property contains (i) a sufficient amount of Consumable Supplies and
Non-Consumable Inventory and (ii) a reasonably adequate amount of kitchen
equipment, bar equipment, refrigeration equipment, furniture, furnishings,
color television sets, carpets, drapes, rugs, floor coverings, mattresses,
pillows, bedspreads and the like, in each case, to furnish each guest room
substantially consistent with first-class standards and is otherwise reasonably
required to operate the Leased Property in the manner contemplated by this
Lease and in compliance with the Management Agreement and all Legal
Requirements. Throughout the Term, Lessee shall be required, or shall cause
Manager, to maintain Inventory consistent with first-class standards and is
otherwise required to operate the Leased Property in the manner contemplated by
this Lease and in compliance with the Management Agreement and all Legal
Requirements. All Inventory shall be the property of Lessee, subject to
Lessee's obligations under Section 7.4(b). Lessee may (and shall as provided
hereinbelow), at its expense, install, affix or assemble or place on any
portion of the Land or in any of the Leased Property, any items of personal
property (including Inventory) owned by Lessee (collectively, the "Lessee's
Personal Property"). Lessee may, subject to the second sentence of this Section
7.4(a) and the conditions set forth in Section 7.4(b) below, remove any of
Lessee's Personal Property at any time during the Term or upon the expiration
or any prior termination of the Term. All of Lessee's Personal Property, other
than Inventory, not removed by Lessee within thirty (30) days following the
expiration or earlier termination of the Term shall be considered abandoned by
Lessee and may be appropriated, sold, destroyed or otherwise disposed of by
Lessor without first giving notice thereof to Lessee, without any payment to
Lessee and without any obligation to account therefor. Lessee will, at its
expense, restore the Leased Property to the condition required by Section
9.1(d), including repair of all damage to the Leased Property caused by the
removal of Lessee's Personal Property.
(b) Upon the expiration or earlier termination of the Term for any
reason, Lessee shall surrender the Leased Property to Lessor with Nonconsumable
Inventory and
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Consumable Supplies in an aggregate amount and of substantially similar quality
equal to the Initial Inventory.
7.5 Reserves; Capital Expenditures. Lessee shall make no expenditure
for replacement of FFE in excess of the amounts in the FFE Reserve (as defined
in the Management Agreement) maintained pursuant to the Management Agreement.
Any additions to or replacements of furniture, fixtures, and equipment located
at the Leased Property shall become part of the FFE, which is owned by Lessor.
Throughout the Term of this Lease, Lessee shall, at its sole cost and expense
and in accordance with the terms of the Management Agreement, cause all of the
items of FFE to be in proper working order and in good condition (ordinary wear
and tear excepted). The term "FFE" shall mean all vehicles, furniture and
furnishings and hotel equipment (including office equipment, exercise
equipment, medical and/or health equipment, and property management equipment
as necessary).
7.6 Lessee's Obligation to Manage. At all times during the Term hereof,
Lessee shall be responsible for the management and operation of the Leased
Property through its agent, Manager, and in no event shall Lessor have any
obligation with respect to the management or operation of the Leased Property.
7.7 Working Capital. On the Commencement Date, there existed working
capital pertaining to the Leased Property ("Working Capital") in the initial
aggregate positive amount ("Initial Working Capital Balance") set forth in the
Preliminary Statement of Working Capital (the "Preliminary Statement") to be
initialed by Lessor and Lessee and attached to this Lease as Exhibit "B".
Within thirty (30) days following the date of expiration or early termination
of this Lease, Lessor and Lessee will work together in good faith to determine
the balance of Working Capital as of such date ("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.
7.8 Use of Facilities by Lessor. Subject to any restrictions in the
Management Agreement, Lessee covenants and agrees that Lessor shall have the
right to use guest rooms, facilities, and services at the Leased Property on a
space available basis, provided, however, Lessor shall be obligated to pay
Lessee for Lessee's direct operating cost for such rooms and services.
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7.9 Guaranty. Crescent Operating, Inc. shall execute a guarantee in
favor of Lessor of all obligations of Lessee hereunder.
7.10 Initial Renovation Program.
(a) Lessor intends to complete the Initial Renovation Program (as
defined in the Management Agreement) in accordance with the schedules provided
in the Management Agreement, as such schedules may be amended or supplemented
from time to time or as such may be amended or supplemented by the Technical
Services Agreement (as so amended and supplemented, the "Schedules"), and
Lessee agrees to cooperate with Lessor with regard to Lessor's efforts to
timely complete the Initial Renovation Program. In the event Lessor fails,
through no fault of Lessee, to complete any phase of the Initial Renovation
Program in accordance with the Schedules, Lessee shall provide written notice
to Lessor that such schedule has not been timely adhered to with respect to a
specified phase (the "Failure to Complete Notice") and the provisions of
Section 7.10(c) shall apply.
(b) In the event (i) Lessor fails, through no fault of Lessee, to
complete any phase of the Initial Renovation Program in accordance with the
Schedules and the trade area restrictions of Section 11.13 of the Management
Agreement are thereby released, and (ii) Manager thereafter engages in any
action or activity that would have been prohibited by Section 11.13(A) of the
Management Agreement but for Lessor's failure to complete the Initial
Renovation Program in accordance with the Schedules, Lessee shall provide
written notice to Lessor of the Manager's action or activity (a "Notice of
Competition") and the provisions of Section 7.10(c) shall apply.
(c) During the sixty (60) day period (the "Negotiation Period")
following Lessor's receipt of the Failure to Complete Notice or a Notice of
Competition, Lessor and Lessee will attempt to negotiate a reduction in the
Base Rent mutually acceptable to both parties to reflect the economic
consequences directly related to Lessor's failure to timely complete the
subject phase of the Initial Renovation Program. Any such agreed upon reduction
in Base Rent shall be effective as of (i) in the case of a Failure to Complete
Notice, the scheduled completion date, as set forth in the Schedules, of the
subject phase of the Initial Renovation Program, and (ii) in the case of a
Notice of Competition, the date of commencement of operations of any
Renaissance Hotel, the management and operation of which would have otherwise
been prohibited by Section 11.13 of the Management Agreement. If, during the
Negotiation Period, Lessor and Lessee are unable reach an agreement regarding
an acceptable reduction in Base Rent, then Lessee shall have thirty (30) days
following expiration of the Negotiation Period to deliver to Lessor written
notice ("Termination Notice") that Lessee elects to terminate this Lease (which
termination shall be effective ninety (90) days after Lessor's receipt of the
Termination Notice). In the event Lessee does not timely deliver a Termination
Notice, this Lease shall continue in effect without modification to the Base
Rent. Notwithstanding the continuation of this Lease in accordance with the
preceding sentence, Lessee shall be entitled to reimbursement and contribution
from Lessor of the amount of profit that Lessee can substantiate as having been
lost as a consequence of
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Lessor's failure to timely complete the phase of the Initial Renovation Program
that was the subject of the Failure to Complete Notice or the Notice of
Competition, as the case may be; provided, however, such reimbursement and
contribution shall be Lessee's sole and exclusive remedy for Lessor's failure
to complete the Initial Renovation Program. Except as set forth in this Section
7.10, Lessee shall have no right, claim or other cause of action against Lessor
for rent abatement, lost profit or other damages related to or arising from
Lessor's performance of or failure to perform its obligations related to the
Initial Renovation Program.
(d) Notwithstanding the assignment of the Management Agreement to
Lessee pursuant to Section 2.2(a)(v) of this Lease, Lessor shall remain
responsible for the payment of funds necessary to complete the Initial
Renovation Program. Lessor shall indemnify and hold harmless Lessee from and
against all liabilities, claims, damages, causes of action, costs and expenses
(including reasonable attorneys' fees and expenses) incurred by or asserted
against Lessee and arising out of claims asserted by the Manager by reason of
Lessor's failure to satisfy its obligations to fund the Initial Renovation
Program.
(e) Notwithstanding anything herein to the contrary, the
provisions of this Section 7.10 shall survive the termination of this Lease.
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ARTICLE VIII
8.1 Compliance with Legal and Insurance Requirements. Etc. Subject to
Article XII relating to permitted contests, Lessee, at its expense, will
promptly (a) comply with all applicable Legal Requirements and insurance
requirements in respect to the use, operation, maintenance, repair and
restoration of the Leased Property, and (b) procure, maintain and comply with
all appropriate licenses and other authorizations required for any use of the
Leased Property then being made, and for the proper erection, installation,
operation and maintenance of the Leased Property or any part thereof.
8.2 Legal Requirement Covenants. Lessee covenants and agrees that the
Leased Property shall not be used for any unlawful purpose, and that Lessee
shall not permit or suffer to exist any unlawful use of the Leased Property by
others. Lessee shall acquire and maintain all appropriate licenses,
certifications, permits and other authorizations and approvals needed to
operate the Leased Property in its customary manner for the Primary Intended
Use, and any other lawful use conducted on the Leased Property as may be
permitted from time to time hereunder. Lessee further covenants and agrees that
Lessee's use of the Leased Property and maintenance, alteration, and operation
of the same, and all parts thereof, shall at all times conform to all Legal
Requirements, unless the same are finally determined by a court of competent
jurisdiction to be unlawful (and Lessee shall cause all sub-tenants, invitees
or others to so comply with all Legal Requirements). Lessee may, however, upon
prior notice to Lessor, contest the legality or applicability of any such Legal
Requirement or any licensure or certification decision if Lessee maintains such
action in good faith, with due diligence, without prejudice to Lessor's rights
hereunder, and at Lessee's sole expense. If by the terms of any such Legal
Requirement compliance therewith pending the prosecution of any such proceeding
may legally be delayed without the incurrence of any lien, charge or liability
of any kind against the Leased Property or Lessee's leasehold interest therein
and without subjecting Lessee or Lessor to any liability, civil or criminal,
for failure so to comply therewith, Lessee may delay compliance therewith until
the final determination of such proceeding. If any lien, charge or civil or
criminal liability would be incurred by reason of any such delay, Lessee, on
the prior written consent of Lessor, which consent shall not be unreasonably
withheld, may nonetheless contest as aforesaid and delay as aforesaid provided
that such delay would not subject Lessor to criminal liability and Lessee both
(a) furnishes to Lessor security reasonably satisfactory to Lessor against any
loss or injury by reason of such contest or delay and (b) prosecutes the
contest with due diligence and in good faith.
8.3 Environmental Matters and Indemnities.
(a) Lessee must, at its sole cost and expense, keep and maintain
the Leased Property in compliance with, and must not cause the Leased Property
to be in violation of, any federal, state, and local laws, regulations, rules,
and orders including without limitation those relating to zoning, health,
safety, noise, environmental protection, water quality, air quality, or
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the generation, processing, storage, or disposal of any Hazardous Materials (as
hereinafter defined) excluding any conditions existing on or prior to the
Commencement Date of this Lease or violations caused by Lessor. Moreover,
Lessee will not intentionally cause or permit the storage, use, disposal,
manufacture, discharge, leakage, spillage or emission of any Hazardous
Materials on, in, or about the Leased Property. Lessee must immediately notify
Lessor in writing of its actual knowledge of (a) any enforcement, cleanup,
removal or other governmental or regulatory actions instituted, completed or
threatened in connection with the Leased Property and any Hazardous Materials;
or (b) any claim made or threatened by any third party against Lessee or the
Leased Property relating to damage, contribution, cost recovery, compensation,
loss or injury resulting from any Hazardous Materials that could cause all or
any portion of the Leased Property to be subject to any restrictions on the
ownership, occupancy, transferability or use of the Leased Property under
Hazardous Materials Law (as hereinafter defined). Notwithstanding the
foregoing, Lessee is not required by Lessor to remove any Hazardous Materials
located on, in, under or about the Leased Premises on or prior to the
Commencement Date of this Lease. Without Lessor's prior written consent, which
consent must not be unreasonably withheld or delayed, Lessee will not take any
remedial action in response to the presence of any Hazardous Materials on, in,
or under or about the Leased Property, nor enter into any settlement agreement,
consent decree or other compromise in respect to any Hazardous Materials except
as may be necessary to comply with all laws, rules, regulations or orders of
any applicable governmental authorities.
(b) Lessee indemnifies and holds Lessor, its employees, agents,
officers and directors, harmless from and against any claim, action, suit,
proceeding, loss, cost, damage, liability, deficiency, fine, penalty, punitive
damage or expense (including, without limitation, attorneys' and consultant
fees) (collectively, the "Environmental Claims"), directly or indirectly
resulting from, arising out of, or based upon (a) the presence, release, use,
manufacture, generation, discharge, storage or disposal by Lessee (or its
sublessee, contractors, licensees, concessionaires, guests, invitees,
employees, agents or representatives) of any Hazardous Material on, under, in
or about, or the transportation of any such materials to or from the Leased
Property occurring after the Commencement Date, or (b) the violation, or
alleged violation by Lessee (or its sublessee, contractors, licensees,
concessionaires, guests, invitees, employees, agents or representatives) of any
Hazardous Materials Law affecting the Leased Property, or the transportation by
Lessee (or its sublessees, contractors, licensees, concessionaires, guests,
invitees, employees, agents or representatives) of Hazardous Materials to or
from the Leased Property, save and except to the extent such Environmental
Claims result directly or indirectly from, arise out of, or are based upon
violations, alleged violations or transportation of Hazardous Materials that
occurred on or prior to the Commencement Date of this Lease, or were not caused
by Lessee (or its sublessees, contractors, licensees, concessionaires, guests,
invitees, employees, agents or representatives).
(c) "Hazardous Materials Law", for purposes of this Lease, means
any federal, state, or local law, ordinance or regulation or any court judgment
applicable to Lessee or to the
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Leased Property relating to industrial hygiene or to environmental conditions
including, but not limited to, those relating to the release, emission or
discharge of Hazardous Materials, those in connection with the construction,
fuel supply, power generation and transmission, waste disposal or any other
operations or processes relating to the Leased Property. "Hazardous Materials
Law" includes, but is not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Hazardous Materials Transportation
Act, the Resources Conservation and Recovery Act, the Solid Waste Disposal Act,
the Clean Water Act, the Clean Air Act, and any amendments to these laws or
enactments of other laws occurring after the Commencement Date.
(d) "Hazardous Materials," for purposes of this Lease Agreement,
includes flammable explosives, radioactive materials, polychlorinated
biphenyls, asbestos in any form which is or could become friable, hazardous
wastes, toxic substances or other related material whether in the form of a
chemical, element, compound, solution, mixture or otherwise including, but not
limited to, those materials defined as "hazardous substances," "hazardous
materials," "toxic substances," "air pollutants," "toxic pollutants,"
"hazardous wastes," "extremely hazardous wastes" or "restricted hazardous
wastes" by Hazardous Materials Law, other than common cleaning compounds,
solvents and other materials incidental to the use and operation of the Leased
Property and in compliance with Hazardous Materials Law.
ARTICLE IX
9.1 Maintenance and Repair.
(a) Lessee, at its sole expense, will keep the Leased Property in
good order and repair, except for ordinary wear and tear (whether or not the
need for such repairs occurred as a result of Lessee's use, any prior use, the
elements or the age of the Leased Property, or any portion thereof), and,
except as otherwise provided in Article XIV or Article XV, with reasonable
promptness, make all necessary and appropriate repairs and replacements of
every kind and nature, whether interior or exterior, ordinary or extraordinary,
foreseen or unforeseen or arising by reason of a condition existing on or prior
to the commencement of the Term of this Lease (concealed or otherwise), or
required by any governmental agency having jurisdiction over the Leased
Property. Lessee, however, shall be permitted to prosecute claims against
Lessor's predecessors-in-title, contractors, subcontractors and suppliers for
breach of any representation or warranty or for any latent defects in the
Leased Property to be maintained by Lessee unless Lessor is already diligently
pursuing such a claim. All repairs shall, to the extent reasonably achievable,
be at least equivalent in quality to the original work. Lessee will not take or
omit to take any action, the taking or omission of which might materially
impair the value or the usefulness of the Leased Property or any part thereof
for its Primary Intended Use.
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(b) Notwithstanding Lessee's obligations under Section 9.1(a)
hereinabove, in the event that (i) repairs and/or replacements of the Leased
Property become necessary in order to maintain the Project in the same quality
and condition as it currently exists, (ii) such repairs and/or replacements are
under generally accepted accounting principles considered to be capital in
nature, (iii) the funds then available to Lessee in the FFE Reserve (as defined
in the Management Agreement) or at the Leased Property, either in the form of
reserves, insurance proceeds or other income generated by the Leased Property
and available to Lessee are insufficient to enable Lessee to pay the costs of
making any such repairs and/or replacements and (iv) Lessor consents to the
repairs and/or replacements, then Lessor shall be required to bear the cost of
making such repairs and/or replacements. Except as set forth in the foregoing
sentence, Lessor shall not under any circumstances be required to build or
rebuild any improvements on the Leased Property, to make any repairs,
replacements, alterations, restorations or renewals of any nature or
description to the Leased Property, whether ordinary or extraordinary, foreseen
or unforeseen, or to make any expenditure whatsoever with respect thereto, in
connection with this Lease, or to maintain the Leased Property in any way.
Lessee hereby waives, to the extent permitted by law, the right to make repairs
at the expense of Lessor pursuant to any law in effect at the time of the
execution of this Lease or hereafter enacted. Lessor shall have the right to
give, record and post, as appropriate, notices of nonresponsibility under any
mechanic's lien laws now or hereafter existing.
(c) Nothing contained in this Lease and no action or inaction by
Lessor shall be construed as (1) constituting the request of Lessor, expressed
or implied, to any contractor, subcontractor, laborer, materialman or vendor to
or for the performance of any labor or services or the furnishing of any
materials or other property for the construction, alteration, addition, repair
or demolition of or to the Leased Property or any part thereof, or (2) giving
Lessee any right, power or permission to contract for or permit the performance
of any labor or services or the furnishing of any materials or other property
in such fashion as would permit the making of any claim against Lessor in
respect thereof or to make any agreement that may create, or in any way be the
basis of any right, title, interest, lien, claim or other encumbrance upon the
estate of Lessor in the Leased Property, or any portion thereof.
(d) Lessee will, upon the expiration or prior termination of the
Term of this Lease, vacate and surrender the Leased Property to Lessor in the
condition in which the Leased Property was originally received from Lessor,
except as repaired, rebuilt, restored, altered or added to as permitted or
required by the provisions of this Lease and except for ordinary wear and tear
(subject to the obligation of Lessee to maintain the Leased Property in good
order and repair, as would a prudent owner, during the entire Term of the
Lease), or damage by casualty or condemnation (subject to the obligations of
Lessee to restore or repair as set forth in the Lease).
9.2 Encroachments, Restrictions, Etc. If any of the improvements on
the Leased Property, at any time, materially encroach upon any property, street
or right-of-way adjacent to the Leased Property, or violate the agreements or
conditions contained in any restrictive covenant
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or other agreement affecting the Leased Property, or any part thereof, or
impair the rights of others under any easement or right-of-way to which the
Leased Property is subject, then promptly upon the request of Lessor or at the
behest of any person affected by any such encroachment, violation or
impairment, Lessee shall, at its expense, subject to its right to contest the
existence of any encroachment, violation or impairment and in such case, in the
event of an adverse final determination, either (a) obtain valid and effective
waivers or settlements of all claims, liabilities and damages resulting from
each such encroachment, violation or impairment, whether the same shall affect
Lessor or Lessee or (b) make such changes in the improvements on the Leased
Property and take such other actions, as Lessee in the good faith exercise of
its judgment deems reasonably practicable to remove such encroachment, and to
end such violation or impairment, including, if necessary, the alteration of
any such improvements, and in any event take all such actions as may be
necessary in order to be able to continue the operation of the Leased Property
for the Primary Intended Use substantially in the manner and to the extent the
Leased Property was operated prior to the assertion of such violation,
impairment and encroachment. Any such alteration shall be made in conformity
with the applicable requirements of Article X. Lessee's obligations under this
Section 9.2 shall be in addition to and shall in no way discharge or diminish
any obligation of any insurer under any policy of title or other insurance held
by Lessor. Notwithstanding anything to the contrary contained in this Section
9.2, so long as any encroachment, violation or impairment described above does
not materially interfere with the operation of the Project, Lessor shall not
require Lessee to remedy or otherwise address the same.
ARTICLE X
10.1 Alterations. Subject to obtaining Lessor's prior written
approval, Lessee shall have the right to make additions, modifications or
improvements to the Leased Property from time to time as Lessee, in its
discretion, may deem to be desirable for its permitted uses and purposes,
provided that such action will not significantly alter the character or
purposes or significantly detract from the value or operating efficiency
thereof and will not significantly impair the revenue-producing capability of
the Leased Property or adversely affect the ability of the Lessee to comply
with the provisions of this Lease. The cost of such additions, modifications or
improvements to the Leased Property shall be paid by Lessee, and all such
additions, modifications or improvements shall, without payment by Lessor at
any time, be included under the terms of this Lease and upon expiration or
earlier termination of this Lease shall pass to and become the property of
Lessor. In no event shall any alterations, additions or other improvements made
by Lessee be removed from the Leased Property unless request is made by Lessor
to Lessee to remove such alterations, additions and other improvements which
were made without Lessor's approval where such approval was required under this
Lease.
10.2 Lessor Alterations. Lessor shall have the right, without Lessee's
consent, to make or cause to be made alterations to the Leased Property
required in connection with (i) Emergency Situations, (ii) Legal Requirements,
(iii) maintenance of any Management Agreement, and (iv) the
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performance by Lessor of its obligations under this Lease so long as such
alterations do not materially and adversely impair the operating efficiency or
revenue producing capability of the Leased Property or the ability of Lessee to
comply with the provisions of this Lease during the remainder of the Term.
Without Lessee's consent, Lessor shall further have the right, but not the
obligation, to make such other additions to the Leased Property as it may
reasonably deem appropriate during the Term of this Lease. All such work unless
necessitated by Lessee's negligent acts or omissions or unless otherwise
required to be performed by Lessee under this Lease (subject to the notice and
cure provisions herein) (in which event work shall be paid for by Lessee) shall
be performed at Lessor's expense and shall be done after reasonable notice to
and coordination with Lessee, so as to minimize any disruptions or interference
with the operation of the Project.
ARTICLE XI
11.1 Liens. Subject to the provision of Article XII relating to
permitted contests, Lessee will not directly or indirectly create or allow to
remain and will promptly discharge at its expense any lien, encumbrance,
attachment, title retention agreement or claim upon the Leased Property or any
attachment, levy, claim or encumbrance in respect of the rent payable
hereunder, not including, however, (a) this Lease, (b) the matters, if any,
included as exceptions in the title policy insuring Lessor's interest in the
Leased Property, (c) restrictions, liens and other encumbrances which are
consented to in writing by Lessor or any easements granted pursuant to the
provisions of Section 7.3 of this Lease, (d) liens for those taxes upon Lessor
which Lessee is not required to pay hereunder, (e) subleases permitted by
Article XXI hereof, (f) liens for Impositions or for sums resulting from
noncompliance with Legal Requirements so long as (1) the same are not yet
payable or are payable without the addition of any fine or penalty or (2) such
liens are in the process of being contested as permitted by Article XII, (g)
liens of mechanics, laborers, materialmen, suppliers or vendors for sums either
disputed or not yet due provided that (1) the payment of such sums shall not be
postponed under any related contract for more than sixty (60) days after the
completion of the action giving rise to such lien and such reserve or other
appropriate provisions as shall be required by law or generally accepted
accounting principles shall have been made therefor or (2) any such liens are
in the process of being contested as permitted by Article XII hereof, and (h)
any liens which are the responsibility of Lessor pursuant to the provisions of
Article XXXI of this Lease.
ARTICLE XII
12.1 Permitted Contests. Lessee shall have the right to contest the
amount or validity of any Imposition to be paid by Lessee or any Legal
Requirement or insurance requirement or any lien, attachment, levy,
encumbrance, charge or claim ("Claims") not otherwise permitted by Article XI,
by appropriate legal proceedings in good faith and with due diligence (but this
shall
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not be deemed or construed in any way to relieve, modify or extend Lessee's
covenants to pay or its covenants to cause to be paid any such charges at the
time and in the manner as in this Article provided), on condition, however,
that such legal proceedings shall not operate to relieve Lessee from its
obligations hereunder and shall not cause the sale or risk the loss of the
Leased Property, or any part thereof, or cause Lessor or Lessee to be in
default under any mortgage, deed of trust or security deed encumbering the
Leased Property or any interest therein. Upon the request of Lessor, Lessee
shall either (a) provide a bond or other assurance reasonably satisfactory to
Lessor that all Claims which may be assessed against the Leased Property
together with interest and penalties, if any, thereon will be paid, or (b)
deposit within the time otherwise required for payment with a bank or trust
company as trustee upon terms reasonably satisfactory to Lessor, as security
for the payment of such Claims, money in an amount sufficient to pay the same,
together with interest and penalties in connection therewith, as to all Claims
which may be assessed against or become a Claim on the Leased Property, or any
part thereof, in said legal proceedings. Lessee shall furnish Lessor and any
lender of Lessor with reasonable evidence of such deposit within five (5) days
of the same. Lessor agrees to join in any such proceedings if the same be
required to legally prosecute such contest of the validity of such Claims;
provided, however, that Lessor shall not thereby be subjected to any liability
for the payment of any costs or expenses in connection with any proceedings
brought by Lessee; and Lessee covenants to indemnify and save harmless Lessor
from any such costs or expenses. Lessee shall be entitled to any refund of any
Claims and such charges and penalties or interest thereon which have been paid
by Lessee or paid by Lessor and for which Lessor has been fully reimbursed. In
the event that Lessee fails to pay any Claims when due or to provide the
security therefor as provided in this paragraph and to diligently prosecute any
contest of the same, Lessor may, upon ten (10) days advance written notice to
Lessee, pay such charges together with any interest and penalties and the same
shall be repayable by Lessee to Lessor at the next rent payment date provided
for in this Lease. Provided, however, that should Lessor reasonably determine
that the giving of such notice would risk loss to the Leased Property or cause
damage to Lessor, then Lessor shall give such notice as is practical under the
circumstances. Lessor reserves the right to contest at its expense any of the
Claims not pursued by Lessee. Lessor and Lessee agree to cooperate in
coordinating the contest of any Claims.
ARTICLE XIII
13.1 General Insurance Requirements. During the Term of this Lease,
Lessee shall at all times keep the Leased Property insured with the kinds and
amounts of insurance described below. This insurance shall be written by
companies authorized to issue insurance in the State of Texas. The policies
must name Lessor as an additional named insured or an additional insured, as
the case may be. Losses shall be payable to Lessor or Lessee as provided in
this Lease. Any loss adjustment shall require the written consent of Lessor and
Lessee, each acting reasonably, promptly and in good faith. Evidence of
insurance shall be deposited with Lessor. The policies
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on the Leased Property shall at all times satisfy the terms of any ground
lease, mortgage and/or franchise agreement and include the following:
(a) Personal property insurance on the "Special Form" (formerly
"All Risk" form) in the full replacement cost of the Project;
(b) Loss of income insurance on an "All Risk" form, in the amount
of one year of (i) Base Rent, plus (ii) Percentage Rent (based on the last
Lease Year of operation or, to the extent the Leased Property has not been
operated for an entire 12-month Lease Year, based on prorated Percentage Rent)
for the benefit of Lessor, and business interruption insurance on an "All Risk"
form in the amount of one year of Base Rent plus Percentage Rent, for the
benefit of Lessee;
(c) Commercial general liability insurance, with contractual
indemnity endorsement, with amounts not less than $1,000,000 combined single
limit for each occurrence and $2,000,000 for the aggregate of all occurrences
within each policy year, as well as excess liability (umbrella) insurance with
limits of at least $50,000,000 per occurrence, covering each of the following:
bodily injury, death, or property damage liability per occurrence, personal and
advertising injury, products and completed operations, with respect to Lessee,
and "all risk legal liability" (including liquor law or "dram shop" liability,
if liquor or alcoholic beverages are served on the Leased Property) with
respect to Lessor and Lessee;
(d) Fidelity bonds or blanket crime policies with limits and
deductibles as may be reasonably determined by Lessee and approved by Lessor
(such approval not to be unreasonably withheld), covering Lessee's employees in
job classifications normally bonded under prudent hotel management practices in
the United States or otherwise required by law;
(e) Comprehensive form automobile liability insurance for owned,
non-owned and hired vehicles, in the amount of $1,000,000;
(f) Garagekeeper's legal liability insurance covering both
comprehensive and collision-type losses with a limit of liability of $2,000,000
for any one occurrence, of which coverage in excess of $2,000,000 may be
provided by way of an excess liability policy;
(g) Innkeeper's legal liability insurance covering property of
guests while on the Leased Property for which Lessor is legally responsible
with a limit of not less than $5,000 in any one occurrence or $25,000 annual
aggregate;
(h) Safe deposit box legal liability insurance covering property
of guests while in a safe deposit box on the Leased Property for which Lessor
is legally responsible with a limit of not less than $100,000 in any one
occurrence;
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(i) Employers liability insurance with limits of not less than
$500,000 per occurrence;
(j) Worker's compensation insurance to the extent necessary to
protect Lessor, Lessee and the Leased Property against Lessee's worker's
compensation claims to the extent required by applicable state laws; and
(k) Insurance covering such other hazards (such as plate glass or
other common risks) and in such amounts as may be (i) required by a holder of a
lien on the Leased Property, or (ii) customary for comparable properties in the
area of the Leased Property and is available from insurance companies,
insurance pools or other appropriate companies authorized to do business in the
State of Texas at rates which are economically practicable in relation to the
risks covered as may be reasonably determined by Lessor or Lessee.
Lessee shall keep in force the foregoing insurance coverages at
its expense.
13.2 Waiver of Subrogation. All insurance policies carried by Lessor
or Lessee covering the Leased Property including, without limitation, contents,
fire and casualty insurance, shall expressly waive any right of subrogation on
the part of the insurer against the other party. The parties hereto agree that
their policies will include such waiver clause or endorsement so long as the
same are obtainable without extra cost, and in the event of such an extra
charge the other party, at its election, may pay the same, but shall not be
obligated to do so.
13.3 Form Satisfactory, Etc. All of the policies of insurance referred
to in this Article XIII shall be written in a form, with deductibles and by
insurance companies reasonably satisfactory to Lessor. Lessee shall pay all of
the premiums therefor, and deliver such policies or certificates thereof to
Lessor prior to their effective date (and, with respect to any renewal policy,
thirty (30) days prior to the expiration of the existing policy), and in the
event of the failure of Lessee either to effect such insurance as herein called
for or to pay the premiums therefor, or to deliver such policies or
certificates thereof to Lessor at the times required, Lessor shall be entitled,
but shall have no obligation, to effect such insurance and pay the premiums
therefor, and Lessee shall reimburse Lessor for any premium or premiums paid by
Lessor for the coverages required under Section 13.1 upon written demand
therefor, and Lessee's failure to repay the same within thirty (30) days after
notice of such failure from Lessor shall constitute an Event of Default within
the meaning of Section 16.1(b). Each insurer mentioned in this Article XIII
shall agree, by endorsement to the policy or policies issued by it, or by
independent instrument furnished to Lessor, that it will give to Lessor thirty
(30) days written notice before the policy or policies in question shall be
materially altered, allowed to expire or canceled.
13.4 Increase in Limits. If either Lessor or Lessee at any time deems
the limits of the personal injury or property damage under the comprehensive
public liability insurance then carried to be either excessive or insufficient,
Lessor or Lessee shall endeavor in good faith to agree on
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the proper and reasonable limits for such insurance to be carried and such
insurance shall thereafter be carried with the limits thus agreed on until
further change pursuant to the provisions of this Article.
13.5 Reports On Insurance Claims. Lessee shall promptly investigate
and make a complete and timely written report to the appropriate insurance
company as to all accidents, all claims for damage relating to the ownership,
operation, and maintenance of the Project, and any damage or destruction to the
Project and the estimated cost of repair thereof and shall prepare any and all
reports required by any insurance company in connection therewith. All such
reports shall be timely filed with the insurance company as required under the
terms of the insurance policy involved, and a copy of all such reports shall be
furnished to Lessor. Lessee shall cause its insurance company or insurance
broker to provide to Lessor, on or before the first day of each calendar
quarter, a claims summary reflecting all claims filed or otherwise made against
any and all insurance coverage that Lessee is required to maintain under this
Lease ("Claims Summary"); provided, however, a Claims Summary shall be provided
more frequently at Lessor's request, but not more frequently than once per
month.
ARTICLE XIV
14.1 Insurance Proceeds. If during the Term the Leased Property is
partially destroyed by a risk covered by the insurance described in Article
XIII, but the Leased Property is not thereby rendered Unsuitable for its
Primary Intended Use or Uneconomic for its Primary Intended Use, Lessor or, at
the election of Lessor, Lessee shall, if insurance proceeds are made available
by the first lienholder, if any, of the Leased Property, restore the Leased
Property at Lessor's cost to substantially the same condition as existed
immediately before the damage or destruction and otherwise in accordance with
the terms of the Lease, and this Lease shall not terminate as a result of such
damage or destruction. If Lessee restores the Leased Property, the insurance
proceeds shall be paid out by Lessor from time to time for the reasonable costs
of such restoration upon satisfaction of terms and conditions specified by
Lessor, and any excess proceeds remaining after such restoration shall be paid
to Lessor except for any amount thereof paid with respect to Lessee's Personal
Property. If the insurance proceeds are not adequate to complete such
restoration, Lessor shall fund all such excess costs.
14.2 No Abatement of Rent. Any damage or destruction due to casualty
notwithstanding, this Lease shall remain in full force and effect, and Lessee's
obligation to make rental payments and to pay all other charges required by
this Lease shall remain unabated.
14.3 Damage During Term. Notwithstanding any provisions of Section
14.1 appearing to the contrary, if damage to or destruction of the Leased
Property occurring during the Term of this Lease renders the Leased Property
Unsuitable for its Primary Intended Use, then either Lessor or Lessee (but in
Lessee's case only if the Leased Property is rendered Unsuitable for its
Primary
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Intended Use for a period in excess of twelve (12) months), shall have the
right to terminate this Lease by giving written notice to the other party, in
Lessor's case at any time after the occurrence of such damage or destruction,
or in Lessee's case within thirty (30) days after the expiration of such
period, whereupon all accrued Base Rent, Percentage Rent and Additional Charges
shall be paid immediately, and this Lease shall automatically terminate.
ARTICLE XV
15.1 Definitions.
(a) "Condemnation" means a transfer of and/or compensation for
the diminished value of all or portion of the Leased Property resulting from
(1) the exercise of any governmental power, whether by legal proceedings or
otherwise, by a Condemnor, and (2) a voluntary sale or transfer by Lessor to
any Condemnor, either under threat of condemnation or while legal proceedings
for condemnation are pending.
(b) "Date of Taking" means the date the Condemnor has the right
to possession of the property being condemned.
(c) "Award" means all compensation, sums or anything of value
awarded, paid or received on a total or partial Condemnation.
(d) "Condemnor" means any public or quasi-public authority, or
private corporation or individual, having the power of Condemnation.
15.2 Parties' Rights and Obligations. If during the Term there is any
Condemnation of all or any part of the Leased Property or any interest in this
Lease, the rights and obligations of Lessor and Lessee shall be determined by
this Article XV.
15.3 Total Taking. If title to the fee of the whole of the Leased
Property is condemned by any Condemnor, this Lease shall cease and terminate as
of the Date of Taking by the Condemnor. If title to the fee of less than the
whole of or substantially all of the Leased Property is so taken or condemned,
which nevertheless renders the Leased Property Unsuitable for its Primary
Intended Use or Uneconomic for its Primary Intended Use, Lessee and Lessor
shall each have the option, by notice to the other, at any time prior to the
Date of Taking, to terminate this Lease as of the Date of Taking. Upon such
date, if such notice has been given, this Lease shall thereupon cease and
terminate. All Base Rent, Percentage Rent and Additional Charges paid or
payable by Lessee hereunder shall be apportioned as of the Date of Taking, and
Lessee shall promptly pay Lessor such amounts.
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15.4 Allocation of Award. The total Award made with respect to the
Leased Property or for loss of rent, or for Lessor's loss of business beyond
the Term, shall be solely the property of and payable to Lessor. Any Award made
for loss of business during the remaining Term, if any, or for removal and
relocation expenses of Lessee in any such proceedings shall be the sole
property of and payable to Lessee. In any Condemnation proceedings Lessor and
Lessee shall each seek its Award in conformity herewith, at its respective
expense; provided, however, Lessee shall not initiate, prosecute or acquiesce
in any proceedings that may result in a diminution of any Award payable to
Lessor.
15.5 Partial Taking. If title to less than the whole of or
substantially all of the Leased Property is condemned, and the Leased Property
is still suitable for its Primary Intended Use, and not Uneconomic for its
Primary Intended Use, or if Lessee or Lessor is entitled but neither elects to
terminate this Lease as provided in Section 15.3, Lessee at its cost shall with
all reasonable dispatch restore the untaken portion of the Leased Property so
that such Leased Property contains the same architectural units of the same
general character and condition (as nearly as may be possible under the
circumstances) as the Leased Property existing immediately prior to the
Condemnation. Lessor, if permitted by any Holder, shall contribute to the cost
of restoration that part of its Award specifically allocated to such
restoration, if any, together with severance and other damages awarded for the
taken Leased Property; provided, however, that the amount of such contributions
shall not exceed such cost.
15.6 Temporary Taking. If the whole or any part of the Leased Property
or of Lessee's interest under this Lease is condemned by any Condemnor for its
temporary use or occupancy, this Lease shall not terminate by reason thereof,
and Lessee shall continue to pay, in the manner and at the terms herein
specified, the full amount of all Base Rent, Percentage Rent, and Additional
Charges. Except only to the extent that Lessee may be prevented from so doing
pursuant to the terms of the order of the Condemnor, Lessee shall continue to
perform and observe all of the other terms, covenants, conditions and
obligations hereof on the part of the Lessee to be performed and observed, as
though such Condemnation had not occurred. In the event of any Condemnation as
is in this Section 15.6 described, the entire amount of any Award made for such
Condemnation allocable to the Term of this Lease, whether paid by way of
damages, rent or otherwise, shall be paid to Lessee if permitted by any Holder.
Lessee covenants that upon the termination of any such period of temporary use
or occupancy it will, at its sole cost and expense (subject to Lessor's
contribution as set forth below), restore the Leased Property as nearly as may
be reasonably possible to the condition in which the same was immediately prior
to such Condemnation, unless such period of temporary use or occupancy extends
beyond the expiration of the Term, in which case Lessee shall not be required
to make such restoration. If restoration is required hereunder, Lessor shall
contribute to the cost of such restoration that portion of its entire Award
that is specifically allocated to such restoration in the judgment or order of
the court, if any, and Lessee shall fund the balance of such costs in advance
of restoration in a manner reasonably satisfactory to Lessor.
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ARTICLE XVI
16.1 Events of Default. If any one or more of the following events
(individually, an "Event of Default") occurs:
(a) if Lessee fails to pay any Base Rent, Percentage Rent,
Additional Charges or any other monies required to be paid by Lessee under this
Lease, and such failure continues for a period of fifteen (15) days after
written notice specifying such failure has been provided Lessee by Lessor; or
(b) if Lessee fails to observe or perform any other term,
covenant or condition of this Lease and such failure is not cured by Lessee
within a period of thirty (30) days after receipt by the Lessee of notice
thereof from Lessor, unless such failure cannot with due diligence be cured
within a period of thirty (30) days, in which case it shall not be deemed an
Event of Default if Lessee proceeds promptly and with due diligence to cure the
failure and diligently completes the curing thereof; provided, however, in no
event shall such cure period extend beyond ninety (90) days after notice of
such failure has been provided to Lessee by Lessor; or
(c) if an event of default has occurred under the Management
Agreement with respect to the Project or the Leased Property and such default
has not been cured by Lessee within a period of fifteen (15) days after receipt
by Lessee of notice of such default from either Manager or Lessor; or
(d) if Lessee or the Guarantor shall (i) be generally not paying
its debts as they become due, (ii) file, or consent by answer or otherwise to
the filing against it of, a petition for relief or reorganization or
arrangement or any other petition in bankruptcy, for liquidation or to take
advantage of any bankruptcy or insolvency law of any jurisdiction, (iii) make
an assignment for the benefit of its creditors, (iv) consent to the appointment
of a custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its assets, (v) be
adjudicated insolvent, or (vi) take corporate action for the purpose of any of
the foregoing; or if a court or governmental authority of competent
jurisdiction shall enter an order appointing, without consent by Lessee, a
custodian, receiver, trustee or other officer with similar powers with respect
to it or with respect to any substantial part of its assets (the events
described in (i) through (vi) and the immediately preceding clause herein
called a "Bankruptcy Event"), or if an order for relief shall be entered in any
case or proceeding for liquidation or reorganization or otherwise to take
advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering
the dissolution, winding-up or liquidation of Lessee, or if any petition for
any such relief shall be filed against Lessee and such petition shall not be
dismissed within ninety (90) days; or
(e) if Lessee or the Guarantor is liquidated or dissolved, or
begins proceedings toward such liquidation or dissolution, or, in any manner,
ceases to do business or permits the sale or divestiture of substantially all
of its assets (a "Dissolution Event"); or
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(f) if Guarantor fails to perform any of its obligations or
breaches any of its covenants under the Guaranty, and such failure is not cured
within thirty (30) days after notice to Guarantor, unless such failure cannot
with due diligence be cured within a period of thirty (30) days, in which case
it shall not be deemed an Event of Default if Guarantor proceeds promptly and
with due diligence to cure the failure and diligently completes the curing
thereof; provided, however, in no event shall such cure period extend beyond
ninety (90) days after notice of such failure has been provided to Guarantor,
then, and in any such event, Lessor may exercise one or more remedies available
to it herein or at law or in equity, including but not limited to its right to
terminate this Lease by giving Lessee not less than ten (10) days notice of
such termination.
If litigation is commenced with respect to any alleged default under
this Lease, the prevailing party in such litigation shall receive, in addition
to its damages incurred, such sum as the court shall determine as its
reasonable attorneys' fees, and all costs and expenses incurred in connection
therewith.
16.2 Surrender. If an Event of Default occurs (and the event giving
rise to such Event of Default has not been cured within the curative period
relating thereto as set forth in Section 16.1) and is continuing, whether or
not this Lease has been terminated pursuant to Section 16.1, Lessee shall, if
requested by Lessor so to do, immediately surrender to Lessor the Leased
Property including, without limitation, any and all books, records, files,
licenses, permits and keys relating thereto, and quit the same and Lessor may
enter upon and repossess the Leased Property by reasonable force, summary
proceedings, ejectment or otherwise, and may remove Lessee and all other
persons and any and all personal property from the Leased Property, subject to
the rights of any Project guests and tenants or subtenants and to any
requirement of law. Lessee hereby waives any and all requirements of applicable
laws for service of notice to re-enter the Leased Property. Lessor shall be
under no obligation to, but may if it so chooses, relet the Leased Property or
otherwise mitigate Lessor's damages.
16.3 Damages. Neither (a) the termination of this Lease, (b) the
repossession of the Leased Property, (c) the failure of Lessor to relet the
Leased Property, nor (d) the reletting of all or any portion thereof, shall
relieve Lessee of its liability and obligations hereunder, all of which shall
survive any such termination, repossession or reletting. In the event of any
such termination, Lessee shall forthwith pay to Lessor all rent due and payable
with respect to the Leased Property to and including the date of such
termination.
Lessee shall forthwith pay to Lessor, at Lessor's option, as and for
liquidated and agreed current damages for Lessee's default, either:
(1) Without termination of Lessee's right to possession of the
Leased Property, each installment of rent and other sums payable by Lessee to
Lessor under the Lease as the same
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becomes due and payable, which rent and other sums shall bear interest at the
rate of twelve percent (12%) per annum until paid, and Lessor may enforce, by
action or otherwise, any other term or covenant of this Lease; or
(2) the sum of:
(A) the unpaid rent which had been earned at the time of
termination, repossession or reletting, and
(B) the worth at the time of termination, repossession or
reletting of the amount by which the unpaid rent for the balance of the term of
this Lease after the time of termination, repossession or reletting, exceeds
the amount of such rental loss that Lessee proves could be reasonably avoided,
and
(C) any other amount necessary to compensate Lessor for all
the detriment proximately caused by Lessee's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom. The worth at the time of termination, repossession or
reletting of the amount referred to in subparagraph (B) is computed by
discounting such amount at the discount rate of the Federal Reserve Bank of New
York at the time of award plus one percent (1%).
Percentage Rent for the purposes of this Section 16.3 shall be a sum equal to
(i) the average of the annual amounts of Percentage Rent for the three calendar
years immediately preceding the calendar year in which the termination,
re-entry or repossession takes place, or (ii) if three calendar years shall not
have elapsed, the Percentage Rent during the preceding calendar year during
which this Lease was in effect, or (iii) if one calendar year has not elapsed,
the amount derived by annualizing the Percentage Rent from the Commencement
Date of this Lease.
16.4 Application of Funds. Any payments received by Lessor under any
of the provisions of this Lease during the existence or continuance of any
Event of Default shall be applied to Lessee's obligations in the order that
Lessor may determine or as may be prescribed by the laws of the State of Texas.
ARTICLE XVII
17.1 Lessor's Right to Cure Lessee's Default. If Lessee fails to make
any payment or to perform any act required to be made or performed under this
Lease including, without limitation, Lessee's failure to comply with the terms
of the Management Agreement or any Assigned Agreement, and fails to cure the
same within the relevant time periods provided in Section 16.1, Lessor, without
waiving or releasing any obligation of Lessee, and without waiving or releasing
any obligation or default, may (but shall be under no obligation to) at any
time
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thereafter make such payment or perform such act for the account and at the
expense of Lessee, and may, to the extent permitted by law, enter upon the
Leased Property for such purpose and take all such action thereon as, in
Lessor's opinion, may be necessary or appropriate therefor. No such entry shall
be deemed an eviction of Lessee. All sums so paid by Lessor and all costs and
expenses (including, without limitation, reasonable attorneys' fees and
expenses, in each case to the extent permitted by law) so incurred, together
with a late charge thereon (to the extent permitted by law) at the Overdue Rate
from the date on which such sums or expenses are paid or incurred by Lessor,
shall be paid by Lessee to Lessor on demand. The obligations of Lessee and
rights of Lessor contained in this Article shall survive the expiration or
earlier termination of this Lease.
ARTICLE XVIII
18.1 Holding Over. If Lessee for any reason remains in possession of
the Leased Property after the expiration or earlier termination of the Term of
this Lease, such possession shall be as a tenant at sufferance during which
time Lessee shall pay as rental each month two (2) times the aggregate of (a)
one-twelfth of the aggregate Base Rent and Percentage Rent payable with respect
to the last year of the Term of this Lease, (b) all additional charges accruing
during the applicable month and (c) all other sums, if any, payable by Lessee
under this Lease with respect to the Leased Property. During such period,
Lessee shall be obligated to perform and observe all of the terms, covenants
and conditions of this Lease, but shall have no rights hereunder other than the
right, to the extent given by law to tenancies at sufferance, to continue its
occupancy and use of the Leased Property. Nothing contained herein shall
constitute the consent, express or implied, of Lessor to the holding over of
Lessee after the expiration or earlier termination of this Lease.
ARTICLE XIX
19.1 Risk of Loss. During the Term of this Lease, the risk of loss or
of decrease in the enjoyment and beneficial use of the Leased Property in
consequence of the damage or destruction thereof by fire, the elements,
casualties, thefts, riots, wars or otherwise, or in consequence of
foreclosures, attachments, levies or executions (other than those caused by
Lessor and those claiming from, through or under Lessor) is assumed by Lessee,
and, in the absence of gross negligence, willful misconduct or breach of this
Lease by Lessor pursuant to Section 31.2, Lessor shall in no event be
answerable or accountable therefor, nor shall any of the events mentioned in
this Section entitle Lessee to any abatement of rent except as specifically
provided in this Lease.
ARTICLE XX
20.1 Indemnification.
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(a) Notwithstanding the existence of any insurance, and without
regard to the policy limits of any such insurance or self-insurance, Lessee
will protect, indemnify, hold harmless, and defend Lessor from and against all
liabilities, obligations, claims, damages, penalties, causes of action, costs
and expenses (including, without limitation, reasonable attorneys' fees and
expenses), to the extent permitted by law, imposed upon or incurred by or
asserted against Lessor by reason of (a) any accident, injury to or death of
persons or loss of or damage to property occurring on or about the Leased
Property or adjoining sidewalks during the Term of this Lease, including
without limitation any claims under liquor liability, "dram shop" or similar
laws, (b) any past, present or future use, misuse, non-use, condition,
management, maintenance or repair by Lessee or any of its agents, employees or
invitees of the Leased Property or any litigation, proceeding or claim by
governmental entities or other third parties to which Lessor is made a party or
participant related to such use, misuse, non-use, condition, management,
maintenance, or repair thereof by Lessee or any of its agents, employees or
invitees, including any failure of Lessee or any of its agents, employees or
invitees to perform any obligations under this Lease or imposed by applicable
law (other than arising out of condemnation proceedings), (c) any Impositions
that are the obligations of Lessee pursuant to the applicable provisions of
this Lease, (d) any failure on the part of Lessee to perform or comply with any
of the terms of this Lease, and (e) the non-performance of any of the terms and
provisions of any and all existing and future subleases of the Leased Property
to be performed by the landlord thereunder.
(b) Lessor shall indemnify, save harmless and defend Lessee from
and against all liabilities, obligations, claims, damages, penalties, causes of
action, costs and expenses imposed upon or incurred by or asserted against
Lessee as a result of (a) the gross negligence or willful misconduct of Lessor
arising in connection with this Lease or (b) any failure on the part of Lessor
to perform or comply with any of the terms of this Lease.
(c) Any amounts that become payable by an Indemnifying Party
under this Article XX shall be paid within ten (10) days after liability
therefor on the part of the Indemnifying Party is determined by litigation or
otherwise, and if not timely paid, shall bear a late charge (to the extent
permitted by law) at the Overdue Rate from the date of such determination to
the date of payment. Any such amounts shall be reduced by insurance proceeds
received and any other recovery (net of costs) obtained by the Indemnified
Party. An Indemnifying Party, upon request, shall at its sole expense resist
and defend any Proceeding, claim or action, or cause the same to be resisted
and defended by counsel designated by the Indemnified Party and approved by the
Indemnifying Party, which approval shall not be unreasonably withheld;
provided, however, that such approval shall not be required in the case of
defense by counsel designated by any insurance company undertaking such defense
pursuant to any applicable policy of insurance. Each Indemnified Party shall
have the right to employ separate counsel in any such Proceeding, claim or
action and to participate in the defense thereof, but the fees and expenses of
such counsel will be at the sole expense of such Indemnified Party unless a
conflict of interest prevents representation of such Indemnified Party by the
counsel selected by the Indemnified Party and such separate counsel has been
approved by the Indemnifying Party, which approval shall not be
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unreasonably withheld. The Indemnifying Party may not compromise or otherwise
dispose of any such Proceeding, claim or action without the consent of the
Indemnified Party, which consent may not be unreasonably withheld. The
Indemnifying Party shall not be liable for any settlement of any such
Proceeding, claim or action made without its consent, but if settled with the
consent of the Indemnifying Party, or if settled without its consent (if its
consent shall be unreasonably withheld), or if there be a final, non-appealable
judgment for an adversary party in any such Proceeding, claim or action, the
Indemnifying Party shall indemnify and hold harmless the Indemnified Party from
and against any liabilities incurred by such Indemnified Party by reason of
such settlement or judgment. Nothing herein shall be construed as indemnifying
Lessor against its own grossly negligent acts or omissions or willful
misconduct.
(d) Lessee's or Lessor's liability for a breach of the provisions
of this Article shall survive any termination of this Lease.
ARTICLE XXI
21.1 Subletting and Assignment.
(a) Except for subleases to concessionaires made in the ordinary
course of operating the Project, Lessee shall not sell, assign or transfer all
or any portion of its leasehold estate or sublet all or any portion of the
Leased Property, nor license the use of the Marks, without first obtaining the
prior written consent of Lessor. In the event of an assignment or subletting by
Lessee which is approved by Lessor, Lessee shall nevertheless remain fully
liable for the due performance of all obligations on Lessee's part to be
performed under this Lease. No permitted assignment, sale or transfer shall be
effective until there shall have been delivered to Lessor an undertaking in
recordable form, executed by the proposed assignee or sublessee, wherein such
assignee or sublessee assumes the due performance of all obligations on
Lessee's part to be performed under this Lease.
(b) Lessee, as the debtor in possession, or the trustee for
Lessee (collectively the "Trustee") in any proceeding under Title 11 of the
United States Bankruptcy Code relating to Bankruptcy, as amended (the
"Bankruptcy Code"), shall not have the right to assign this Lease or sublet the
Leased Property to an assignee or sublessee that (i) is a competitor of Lessor
or (ii) is not a capable, reliable, qualified Person of good reputation and
character with the financial capacity to satisfy Lessee's obligations under
this Lease. The Trustee shall not have the right to assign this Lease or sublet
the Leased Property to a real estate investment trust that is, or intends to
be, publicly traded.
(c) The Trustee shall have the right to assume Lessee's rights
and obligations under this Lease only if the Trustee: (a) promptly cures or
provides adequate assurance that the Trustee will promptly cure any default
under this Lease; (b) compensates or provides adequate
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assurance that the Trustee will promptly compensate Lessor for any actual
pecuniary loss incurred by Lessor as a result of Lessee's default under this
Lease; and (c) provides adequate assurance of future performance under this
Lease. Adequate assurance of future performance by the proposed assignee shall
include, as a minimum, that: (i) any proposed assignee of this Lease shall
provide to Lessor an audited financial statement, dated no later than six (6)
months prior to the effective date of such proposed assignment or sublease with
no material change therein as of the effective date, which financial statement
shall show the proposed assignee has sufficient financial capacity to fulfill
its obligations under this Lease, or, in the alternative, the proposed assignee
shall provide a guarantor of such proposed assignee's obligations under this
Lease, which guarantor shall provide an audited financial statement meeting the
requirements of (i) above and shall execute and deliver to Lessor a guaranty
agreement in form and substance acceptable to Lessor; and (ii) any proposed
assignee shall grant to Lessor a security interest in favor of Lessor in all
furniture, fixtures, and other personal property to be used by such proposed
assignee in the Leased Property. All payments required of Lessee under this
Lease, whether or not expressly denominated as such in this Lease, shall
constitute rent for the purposes of Title 11 of the Bankruptcy Code.
(d) The parties agree that for the purposes of the Bankruptcy
Code relating to (a) the obligation of the Trustee to provide adequate
assurance that the Trustee will "promptly" cure defaults and compensate Lessor
for actual pecuniary loss, the word "promptly" shall mean that cure of defaults
and compensation will occur no later than sixty (60) days following the filing
of any motion or application to assume this Lease; and (b) the obligation of
the Trustee to compensate or to provide adequate assurance that the Trustee
will promptly compensate Lessor for "actual pecuniary loss". The term "actual
pecuniary loss" shall mean, in addition to any other provisions contained
herein relating to Lessor's damages upon default, the obligations of Lessee to
pay money under this Lease and all attorneys' fees and related costs of Lessor
incurred in connection with any default of Lessee in connection with Lessee's
bankruptcy proceedings).
(e) Any person or entity to which this Lease is assigned pursuant
to the provisions of the Bankruptcy Code shall be deemed, without further act
or deed, to have assumed all of the obligations arising under this Lease and
each of the conditions and provisions hereof on and after the date of such
assignment. Any such assignee shall, upon the request of Lessor, forthwith
execute and deliver to Lessor an instrument, in form and substance acceptable
to Lessor, confirming such assumption.
ARTICLE XXII
22.1 Officer's Certificates; Financial Statements; Lessor's Estoppel
Certificates and Covenants.
(a) At any time and from time to time upon not less than twenty
(20) days notice by Lessor, Lessee will furnish to Lessor a statement
certifying that this Lease is unmodified and
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in full force and effect (or that this Lease is in full force and effect as
modified and setting forth the modifications), the date to which the rent has
been paid, whether to the knowledge of Lessee there is any existing default or
Event of Default exists thereunder by Lessor or Lessee, and such other
information as may be reasonably requested by Lessor. Any such certificate
furnished pursuant to this Section may be relied upon by Lessor, any lender and
any prospective purchaser of the Leased Property.
(b) Lessee will furnish to Lessor a copy of the Business Plan (as
defined in the Management Agreement) and all financial reports and statements
provided by Manager under the Management Agreement within ten (10) days after
Lessee receives same from Manager.
(c) Lessee covenants to cause its officers and employees, its
Manager and its auditors to cooperate fully and promptly with Lessor and with
the auditors for Lessor in connection with the timely preparation and filing of
Lessor's filings, reports and returns under applicable federal, state and other
governmental securities, blue sky and tax laws and regulations. Lessor
covenants to cause its officers and employees and auditors to cooperate fully
with Lessee and Lessee's auditors in connection with the timely preparation and
filing of Lessee's filings, reports and returns under applicable federal, state
and other governmental securities, blue sky and tax laws and regulations.
(d) At any time and from time to time upon not less than thirty
(30) days notice by Lessee, Lessor will furnish to Lessee or to any person
designated by Lessee an estoppel certificate certifying that this Lease is
unmodified and in full force and effect (or that this Lease is in full force
and effect as modified and setting forth the modifications), the date to which
rent has been paid, whether to the knowledge of Lessor there is any existing
default or Event of Default on Lessee's part hereunder, and such other
information as may be reasonably requested by Lessee.
ARTICLE XXIII
23.1 Lessor's Right to Inspect. Lessee shall permit Lessor and its
authorized representatives as frequently as reasonably requested by Lessor to
inspect the Leased Property and Lessee's accounts and records pertaining
thereto and make copies thereof, during usual business hours upon reasonable
advance notice, subject only to any business confidentiality requirements
reasonably requested by Lessee.
ARTICLE XXIV
24.1 No Waiver. No failure by Lessor or Lessee to insist upon the
strict performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of rent during the continuance of any such breach,
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shall constitute a waiver of any such breach or of any such term. To the extent
permitted by law, no waiver of any breach shall affect or alter this Lease,
which shall continue in full force and effect with respect to any other then
existing or subsequent breach.
ARTICLE XXV
25.1 Remedies Cumulative. To the extent permitted by law, each legal,
equitable or contractual right, power and remedy of Lessor or Lessee now or
hereafter provided either in this Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power
and remedy and the exercise or beginning of the exercise by Lessor or Lessee of
any one or more of such rights, powers and remedies shall not preclude the
simultaneous or subsequent exercise by Lessor or Lessee of any or all of such
other rights, powers and remedies.
ARTICLE XXVI
26.1 Acceptance of Surrender. No surrender to Lessor of this Lease or
of the Leased Property or any part thereof, or of any interest therein, shall
be valid or effective unless agreed to and accepted in writing by Lessor and no
act by Lessor or any representative or agent of Lessor, other than such a
written acceptance by Lessor, shall constitute an acceptance of any such
surrender.
ARTICLE XXVII
27.1 No Merger of Title. There shall be no merger of this Lease or of
the leasehold estate created hereby by reason of the fact that the same person
or entity may acquire, own or hold, directly or indirectly: (a) this Lease or
the leasehold estate created hereby or any interest in this Lease or such
leasehold estate and (b) the fee estate in the Leased Property.
ARTICLE XXVIII
28.1 Conveyance by Lessor. If Lessor or any successor owner of the
Leased Property conveys the Leased Property in accordance with the terms hereof
other than as security for a debt, and the grantee or transferee of the Leased
Property expressly assumes all obligations of Lessor hereunder arising or
accruing from and after the date of such
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conveyance or transfer, Lessor or such successor owner, as the case may be,
shall thereupon be released from all future liabilities and obligations of
Lessor under this Lease arising or accruing from and after the date of such
conveyance or other transfer as to the Leased Property and all such future
liabilities and obligations shall thereupon be binding upon the new owners.
ARTICLE XXIX
29.1 Notices. All notices, demands, or other communications of any
type given by the Lessor to the Lessee, or by the Lessee to the Lessor, whether
required by this Lease or in any way related to the transaction contracted for
herein, shall be void and of no effect unless given in accordance with the
provisions of this paragraph. All notices shall be in writing and delivered to
the person to whom the notice is directed, either in person, by facsimile
transmission, or by United States Mail, as a registered or certified item,
return receipt requested. Notices delivered by mail shall be deemed given when
deposited in a post office or other depository under the care or custody of the
United States Postal Service, enclosed in a wrapper with proper postage
affixed, addressed as follows:
Lessor: Crescent Real Estate Funding III, L.P.
777 Main Street, Suite 2100
Fort Worth, Texas 76102
Attn: David M. Dean
Facsimile: (817) 321-2000
with a copy to: Robert W. Dupuy
Brown McCarroll & Oaks Hartline, L.L.P.
300 Crescent Court, Suite 1400
Dallas, Texas 75201
Facsimile: (214) 999-6170
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Lessee: COI Hotel Group, Inc.
306 West 7th Street, Suite 1025
Fort Worth, Texas 76102
Attn: Jeffrey L. Stevens, President
Facsimile: (817) 339-1001
with a copy to: Robinson & Bowden, LLP
512 Main Street, Suite 901
Fort Worth, Texas 76102
Attn: Steve Robinson
Facsimile: (817) 332-3381
ARTICLE XXX
30.1 Appraisers. If it becomes necessary to determine the fair market
value of the Leased Property for any purpose of this Lease, the party required
or permitted to give notice of such required determination shall include in the
notice the name of a person selected to act as appraiser on its behalf. Within
ten (10) days after notice, Lessor (or Lessee, as the case may be) shall by
notice to Lessee (or Lessor, as the case may be) appoint a second person as
appraiser on its behalf. The appraisers thus appointed, each of whom must be a
member of the American Institute of Real Estate Appraisers (or any successor
organization thereto) with at least five years experience in the State of Texas
appraising property similar to the Leased Property, shall, within forty-five
(45) days after the date of the notice appointing the first appraiser, proceed
to appraise the Leased Property to determine the fair market value thereof as
of the relevant date (giving effect to the impact, if any, of inflation from
the date of their decision to the relevant date); provided, however, that if
only one appraiser shall have been so appointed, then the determination of such
appraiser shall be final and binding upon the parties. If two appraisers are
appointed and if the difference between the amounts so determined does not
exceed five percent (5%) of the lesser of such amounts, then the fair market
value shall be an amount equal to fifty percent (50%) of the sum of the amounts
so determined. If the difference between the amounts so determined exceeds five
percent (5%) of the lesser of such amounts, then such two appraisers shall have
twenty (20) days to appoint a third appraiser. If no such appraiser shall have
been appointed within such twenty (20) days or within ninety (90) days of the
original request for a determination of fair market value, whichever is
earlier, either Lessor or Lessee may apply to any court having jurisdiction to
have such appointment made by such court. Any appraiser appointed by the
original appraisers or by such court shall be instructed to determine the fair
market value or fair market rental within forty-five (45) days after
appointment of such appraiser. The determination of the appraiser which differs
most in the terms of dollar amount from the determinations of the other two
appraisers shall be excluded, and fifty percent (50%) of the sum of the
remaining two determinations shall be final and binding upon Lessor and Lessee
as the fair market value or fair market rental of the Leased Property, as the
case may be. This provision for determining by
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appraisal shall be specifically enforceable to the extent such remedy is
available under applicable law, and any determination hereunder shall be final
and binding upon the parties except as otherwise provided by applicable law.
Lessor and Lessee shall each pay the fees and expenses of the appraiser
appointed by it and each shall pay one-half of the fees and expenses of the
third appraiser and one-half of all other costs and expenses incurred in
connection with each appraisal.
ARTICLE XXXI
31.1 Lessor May Grant Liens. Upon notice to but without the consent of
Lessee, Lessor may, from time to time, directly or indirectly, create or
otherwise cause to exist any lien, encumbrance or title retention agreement
("Encumbrance") upon the Leased Property, or any portion thereon or interest
therein, whether to secure any borrowing or other means of financing or
refinancing. This Lease shall be subject and subordinate to the lien of any
Encumbrance that Lessor, its successors or assigns, has placed or may hereafter
place on or against all or any part of the Leased Property, and Lessee hereby
agrees to attorn to any such lienholder and any other purchaser at the
foreclosure of such lien (including obtaining of title by lender by deed in
lieu of foreclosure), upon demand. It is expressly provided and agreed that any
such lienholder shall not be required to agree not to disturb Lessee in the
event of a foreclosure or deed in lieu thereof and that, at the option of any
such lienholder or any other purchaser at foreclosure of such lien, this Lease
may be terminated and, upon such termination, Lessee shall have no further
rights hereunder.
31.2 Breach by Lessor. It shall be a breach of this Lease if Lessor
fails to observe or perform any term, covenant or condition of this Lease on
its part to be performed and such failure continues for a period of thirty (30)
days after notice thereof from Lessee, unless such failure cannot with due
diligence be cured within a period of thirty (30) days, in which case such
failure shall not be deemed to continue if Lessor, within such 30-day period,
proceeds promptly and with due diligence to cure the failure and diligently
completes the curing thereof.
ARTICLE XXXII
32.1 Miscellaneous. Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities of, Lessee or Lessor
arising prior to any date of termination of this Lease shall survive such
termination. If any term or provision of this Lease or any application thereof
is invalid or unenforceable, the remainder of this Lease and any other
application of such term or provisions shall not be affected thereby. If any
late charges or any interest rate provided for in any provision of this Lease
are based upon a rate in excess of the maximum rate permitted by applicable
law, the parties agree that such charges shall be fixed at the maximum
permissible rate. Neither this Lease nor any provision hereof may be changed,
waived, discharged or terminated except by a written instrument in recordable
form signed by Lessor and Lessee. All
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the terms and provisions of this Lease shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. The
headings in this Lease are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof. This Lease shall be governed by
and construed in accordance with the laws of the State of Texas, but not
including its conflicts of laws rules.
32.2 Transfer of Licenses. Upon the expiration or earlier termination
of the Term of this Lease, Lessee shall use its best efforts (i) to transfer to
Lessor or Lessor's nominee all licenses, operating permits and other
governmental authorizations and all contracts, including contracts with
governmental or quasi-governmental entities, that may be necessary for the
operation of the Project (collectively, "Licenses"), or (ii) if such transfer
is prohibited by law or Lessor otherwise elects, to cooperate with Lessor or
Lessor's nominee in connection with the processing by Lessor or Lessor's
nominee of any applications for, all Licenses; provided, in either case, that
the costs and expenses of any such transfer or the processing of any such
application shall be paid by Lessor or Lessor's nominee.
32.3 Waiver of Presentment, Etc. Lessee waives all presentments,
demands for payment and for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, and notices of acceptance and waives
all notices of the existence, creation, or incurring of new or additional
obligations, except as expressly granted herein.
ARTICLE XXXIII
33.1 Memorandum of Lease. Lessor and Lessee shall promptly upon the
request of either party enter into a short form memorandum of this Lease, in
form suitable for recording under the laws of the State of Texas in which
reference to this Lease shall be made. Lessee shall pay all costs and expenses
of recording such memorandum of this Lease.
ARTICLE XXXIV
34.1 Management Agreement. To the extent any provisions of the
Management Agreement impose a greater obligation on Lessee than the
corresponding provisions of the Lease, then Lessee shall be obligated to comply
with the provisions of the Management Agreement, it being the intent of the
parties hereof that Lessee comply with the provisions of the Management
Agreement so as to avoid any default thereunder. Lessee may not amend the
Management Agreement in any way without obtaining Lessor's prior written
consent to any such amendment.
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ARTICLE XXXV
35.1 Consolidated Financials. Lessee shall deliver to Lessor (a)
within sixty (60) days after the end of each calendar year Consolidated
Financials, (b) within thirty (30) days after the end of each month monthly
operating statements for Lessee's business at the Leased Property and a copy of
the balance sheet of Lessee as of the end of such month, and (c) such other
information as Lessor may from time to time reasonably request. The foregoing
financial statements shall be certified by a member or an authorized officer
(as the case may be) of Lessee. All financial statements of Lessee delivered to
Lessor shall be true and correct in all respects, shall be prepared in
accordance with generally accepted accounting principles, consistently applied,
and fairly present the financial condition of the subject thereof as of the
dates thereof. Any materially adverse change that occurs in the financial
condition reflected therein after the date thereof shall be reported to Lessor
promptly. None of the aforesaid financial statements, or any certificate or
statement furnished to Lessor by or on behalf of Lessee in connection with the
transactions contemplated hereby, shall contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements contained therein or herein not misleading.
ARTICLE XXXVI
36.1 REIT Compliance. Lessee acknowledges that Lessor intends to
qualify as a real estate investment trust under the Internal Revenue Code of
1986, as amended (the "Tax Code"). Lessee agrees that it will not knowingly or
intentionally take or omit any action, or permit any status to exist at the
Leased Property, which Lessee knows would or could result in Lessor being
disqualified from treatment as a real estate investment trust under the Tax
Code as the provisions exist on the date hereof.
36.2 Personal Property Limitation. Anything contained in this Lease to
the contrary notwithstanding, the average of the adjusted tax bases of the
items of personal property that are leased to the Lessee under this Lease at
the beginning and at the end of any calendar year shall not exceed fifteen
percent (15%) of the average of the aggregate adjusted tax bases of the Leased
Property at the beginning and at the end of each such calendar year. This
Section 36.2 is intended to insure that the rent payable hereunder qualifies as
"rents from real property," within the meaning of Section 856(d) of the Tax
Code, or any similar or successor provisions thereto, and shall be interpreted
in a manner consistent with such intent.
36.3 Sublease Rent Limitation. Anything contained in this Lease to the
contrary notwithstanding, Lessee shall not sublet the Leased Property on any
basis such that the rental to be paid by the sublessee thereunder would be
based, in whole or in part, on either (a) the income or profits derived by the
business activities of the sublessee, or (b) any other formula such that any
portion of the rent payable hereunder would fail to qualify as "rents from real
property" within the meaning of Section 856(d) of the Tax Code, or any similar
or successor provisions thereto.
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36.4 Sublease Tenant Limitation. Anything contained in this Lease to
the contrary notwithstanding, Lessee shall not sublease the Leased Property to
any person or entity in which Lessor owns, directly or indirectly, a ten
percent (10%) or more interest, within the meaning of Section 856(d)(2)(B) of
the Tax Code, or any similar or successor provisions thereto.
36.5 Lessee Ownership Limitation. Anything contained in this Lease to
the contrary notwithstanding, neither Lessee nor any affiliate of the Lessee
shall acquire, directly or indirectly, a ten percent (10%) or more interest in
Lessor, within the meaning of Section 856(d)(2)(B) of the Internal Revenue Code
of 1986, or any similar or successor provisions thereto.
ARTICLE XXXVII
37.1 Lessor's Option to Terminate Lease.
(a) In the event Lessor consummates a bona fide contract to sell
the Leased Property to a party that is not an Affiliate of Lessor, then Lessor
may terminate the Lease by giving not less than thirty (30) days prior notice
to Lessee of Lessor's election to terminate the Lease upon the closing under
such contract. Effective upon such date, this Lease shall terminate and be of
no further force and effect except as to any obligations of the parties
existing as of such date that survive termination of this Lease and all Base
Rent and Percentage Rent shall be adjusted as of the termination date.
(b) As compensation for the early termination of its leasehold
estate under this Article XXXVII because of a sale of the Leased Property,
Lessor shall, within ninety (90) days after the closing of such sale, pay to
Lessee the fair market value of Lessee's leasehold estate hereunder as of the
closing of the sale of the Leased Property. In the event Lessor and Lessee are
unable to agree upon the fair market value of an original or replacement
leasehold estate, it shall be determined by appraisal using the appraisal
procedure set forth in Article XXX.
(c) For the purposes of this Section, fair market value of the
leasehold estate (or portion thereof) means an amount equal to the present
value of the net revenues to be derived from this Lease during the remaining
Term of this Lease based on current projections made by Lessee and Manager with
respect to future occupancy of, and future revenues to be generated by, the
Leased Property, as the case may be.
37.2 Lessor's Additional Option to Terminate Lease.
(a) Notwithstanding anything to the contrary in this Lease,
Lessor shall have the option to terminate this Lease during the twelve (12)
month period after the Commencement Date in accordance with this Section 37.2.
In order to exercise its option to terminate the Lease under this Section 37.2,
Lessor shall provide written notice thereof to Lessee within such twelve (12)
month
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period and no less than ninety (90) days prior to the effective date of such
termination (such effective date hereinafter referred to as the "Voluntary
Termination Date"). Within fifteen (15) days following Lessor's receipt of the
Statement of Operating Results (defined below), Lessor shall pay Lessee the
amount specified in Section 37.2(b), based upon the Operating Results (defined
below) for the Effective Term (defined below).
(b) Within forty-five (45) days following the Voluntary
Termination Date, Lessee shall provide to Lessor a "Statement of Operating
Results" (which statement shall include supporting documentation reasonably
requested by Lessor) for the period during which this Lease was effective
("Effective Term") reflecting in reasonable and accurate detail the operating
revenue generated and operating expenses incurred by Lessee in operating the
Leased Property during the Effective Term, with the result of revenue minus
expenses being referred to as the "Operating Results".
(i) In the event the amount of the Operating Results is a
loss, Lessor shall pay to Lessee: (A) the amount of such loss, plus (B)
$25,000.00.
(ii) In the event the amount of the Operating Results is
break-even or a profit, Lessor shall pay to Lessee $50,000.00.
(c) Effective upon the Voluntary Termination Date, this Lease
shall terminate and be of no further force and effect except as to any
obligations of the parties existing as of such date that survive termination of
this Lease (including the obligations of this Section 37.2).
ARTICLE XXXVIII
38.1 Transition Procedures. Lessee and Manager shall cooperate in good
faith to provide access and information to any prospective purchaser or lessee
of the Leased Property which may acquire the Leased Property or lease it upon
the expiration or termination of the Term. Upon any expiration or termination
of the Term, Lessor and Lessee shall do the following and, in general, shall
cooperate in good faith to effect an orderly transition of the management or
lease of the Project. The provisions of this Article 38 shall survive the
expiration or termination of this Lease until they have been fully performed.
Nothing contained herein shall limit Lessor's rights and remedies under this
Lease if such termination occurs as the result of an Event of Default.
(a) Upon the expiration or earlier termination of the Term,
Lessee shall use its best efforts (i) to transfer to Lessor or Lessor's
designee all licenses, operating permits and other governmental authorizations
and all contracts with governmental or quasi-governmental entities, that may be
necessary for the operation of the Project (collectively, "Operating Permits"),
or (ii) if such transfer is prohibited by law or Lessor otherwise elects, to
cooperate with Lessor or Lessor's designee in connection with the processing by
Lessor or Lessor's designee of any
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applications for all Operating Permits, including Lessee continuing to operate
the liquor operations under its licenses with Lessor or its designee agreeing
to indemnify and hold Lessee harmless as a result thereof except for the gross
negligence or willful misconduct of Lessee; provided, in either case, that the
costs and expenses of any such transfer or the processing of any such
application shall be paid by Lessor or Lessor's designee.
(b) Lessee shall assign or cause to be assigned to Lessor or
Lessor's designee simultaneously with the termination of this Agreement, and
the assignee shall assume all leases, contracts, concession agreements and
agreements in effect with respect to the Project then in Lessee's name;
provided, however, Lessor shall not be obligated to assume and may reject (i)
any operating or service agreements entered into subsequent to the date hereof
which have a term in excess of one year or termination rights that must be
exercised more than sixty (60) days prior to the end of the annual term, and
(ii) equipment leases which were entered into subsequent to the date hereof and
were not previously approved by Lessor (which approval shall not be
unreasonably withheld), in which event the agreement or agreements and/or
leases so rejected shall not be assigned or shall be deemed reassigned and
shall remain the property and responsibility of Lessee.
(c) To the extent that Lessor has not already received copies
thereof, copies of all books and records (including computer records) for the
Project kept by Lessee shall be promptly delivered to Lessor or Lessor's
designee.
(d) Lessee shall be entitled to retain all cash, bank accounts
and house banks, and to collect all Gross Receipts and accounts receivable
accrued through the termination date. Lessee shall be responsible for the
payment of rent, all operating expenses of the Project and all other
obligations of Lessee accrued under this Lease as of the termination date, and
Lessor shall be responsible for all operating expenses of the Project accruing
after the termination date. Lessee shall surrender the Leased Property with
Nonconsumable Inventory and Consumable Supplies in an aggregate amount and of
substantially similar quality equal to the Initial Inventory, and Lessor shall
have no obligation to purchase such Nonconsumable Inventory or any other items
of Lessee's Personal Property.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties have executed this Lease by their duly
authorized officers as of the date first above written.
LESSOR: CRESCENT REAL ESTATE
FUNDING III, L.P.,
a Delaware limited partnership
By: CRE Management III Corp., a Delaware
corporation, its sole general partner
By:
-------------------------------------
Printed Name:
---------------------------
Title:
----------------------------------
LESSEE: COI HOTEL GROUP, INC.
By:
------------------------------------------
Printed Name:
--------------------------------
Title:
---------------------------------------
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EXHIBIT "A"
The property which constitutes the "Leased Property" or "Land" under
the attached and foregoing Lease consists of the following:
(1) A certain portion of the Plaza Level as shown on the Map or Plat
of Greenway Plaza East, recorded in Volume 183, Page 1, of the
Map Records of Harris County, Texas, which portion is more
particularly described by metes and bounds below.
(2) The Hotel Building and related improvements contemplated to be
constructed on said portion of the Plaza Level and above such
Level as referred to in Paragraph 1 of the attached and
foregoing Lease.
(3) A certain portion of the Concourse Level of Greenway Plaza East
as shown on the aforesaid Map or Plat thereof, which portion of
the Concourse Level is described by metes and bounds below.
(4) The improvements contemplated to be constructed on the said
portion of the Concourse Level, extending vertically from the
top of the Concourse Level upward to the bottom of the Plaza
Level, as more particularly described in Paragraph 1 of the
attached and foregoing Lease.
The portion of the Plaza Level which constitutes a part of the leased
premises and referred to in Paragraph (1) above is more particularly described
as follows:
Being a tract or parcel of land containing 73,058 square feet (1.6772 acres)
out of the A. C. Reynolds Survey, Abstract 61, City of Houston, Harris County,
Texas, and being partially out of Greenway Plaza, Section 1, a subdivision of
record at Volume 127, Page 71, Harris County Map Records, and being more
particularly described by metes and bounds as follows:
COMMENCING for reference at the southwest corner of Lot 1, Block 1 of said
Greenway Plaza, Section 1;
THENCE N 00(degree)02'00" E, 137.87 feet along the westerly line of said Lot 1,
Block 1, and the easterly line of Edloe Street to a point on said line;
THENCE S 89(degree)58'00" E, 83.08 feet to a point in the westerly line of the
herein described tract and the POINT OF BEGINNING;
THENCE N 00(degree)02'00" E, 20.30 feet to a point for corner;
THENCE N 80(degree)07'00" E, 59.45 feet to a point for corner;
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THENCE S 09(degree)53'00" E, 20.00 feet to a point for corner;
THENCE N 80(degree)07'00" E, 100.00 feet to a point for corner;
THENCE S 09(degree)53'00" E, 34.60 feet to a point for corner;
THENCE N 80(degree)07'00" E, 20.00 feet to a point for corner;
THENCE S 09(degree)53'00" E, 81.00 feet to a point for corner;
THENCE S 80(degree)07'00" W, 20.00 feet to a point for corner;
THENCE S 09(degree)53'00" E, 245.40 feet to a point for corner;
THENCE S 80(degree)07'00" W, 226.05 feet to a point for corner;
THENCE N 00(degree)02'00" E, 366.48 feet to the POINT OF BEGINNING and
containing 73,058 square feet (1.6772 acres) of land.
The portion of the Concourse Level which constitutes a part of the
leased premises and referred to in Paragraph (3) above is more particularly
described as follows:
Being a tract or parcel of land containing 79,574 square feet (1.8268 acres)
out of the A. C Reynolds Survey, Abstract 61, City of Houston, Harris County,
Texas, and being partially out of Greenway Plaza, Section 1, a subdivision of
record at Volume 127, Page 71, Harris County Map Records, and being more
particularly described by metes and bounds as follows:
COMMENCING for reference at the southwest corner of Lot 1, Block 1 of said
Greenway Plaza, Section 1;
THENCE N 00(degree)02'00" E, 187.91 feet along the westerly line of said Lot 1,
Block 1, and the easterly line of Edloe Street to a point on said line;
THENCE S 89(degree)58'00" E, 80.42 feet to a point for corner of the herein
described tract and the POINT OF BEGINNING;
THENCE N 80(degree)07'00" E, 158.45 feet to a point for corner;
THENCE S 09(degree)53'00" E, 239.25 feet to a point for corner;
THENCE S 80(degree)07'00" W, 1.50 feet to a point for corner;
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THENCE S 09(degree)53'00" E, 171.50 feet to a point for corner;
THENCE S 80(degree)07'00" W, 228.76 feet to a point for corner;
THENCE N 00(degree)02'00" E, 416.98 feet to the POINT OF BEGINNING and
containing 79,574 square feet (1.8268 acres) of land.
References in the foregoing lease to "Greenway Plaza East" and
"Greenway Plaza Phase I" mean and refer to one and the same parcel of land, as
shown on the aforesaid map or plat; and such terms are used herein
interchangeably.
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EXHIBIT 10.76
GUARANTY OF LEASE
This GUARANTY OF LEASE ("Guaranty") is executed as of June 15, 1999 by
CRESCENT OPERATING, INC., a Delaware corporation ("Guarantor"), for the benefit
of CRESCENT REAL ESTATE FUNDING III, L.P., 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 into a Lease Agreement (the "Lease") with Lessor on even date
herewith with respect to the land, buildings, improvements and fixtures located
in Houston, Harris County, Texas, commonly known as The Renaissance Houston
Hotel (the "Leased Property");
B. Lessor is unwilling to enter into the Lease unless Guarantor
unconditionally guarantees the payment and performance of the Guaranteed
Obligations (as defined in Section 1.2 below); and
C. Guarantor is the owner of a direct or indirect interest in Lessee,
and Guarantor will directly benefit from the Lease.
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 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,
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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 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.
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<PAGE> 3
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 1.9(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.
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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 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
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<PAGE> 5
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 particularly described herein, which obligation shall be deemed
satisfied only upon the full and final payment and satisfaction of the
Guaranteed Obligations.
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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
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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 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 Funding III, L.P.
777 Main Street, Suite 2100
Fort Worth, Texas 76102
Attention: David M. Dean
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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.
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.
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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.
[REMAINDER 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
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.
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.
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.
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.
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.
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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.
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.
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.
Lease Agreement covering a hotel and apartment facility and related assets
located in Harris County, Texas, and known as "The Four Seasons Hotel" and
"Four Seasons Place Apartments", dated as of September 22, 1997 between
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited
partnership, as lessor, and COI HOTEL GROUP, INC., a Texas corporation, as
lessee, as such Lease Agreement is amended and assigned from time to time.
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EXHIBIT 10.77
ASSET MANAGEMENT AGREEMENT
THIS ASSET MANAGEMENT AGREEMENT ("Agreement") is made and entered into
as of January 1, 1999, by and between Crescent Real Estate Equities Limited
Partnership, a Delaware limited partnership ("Crescent"), and COI Hotel Group,
Inc., a Texas corporation ("Manager").
RECITALS
Crescent is the owner of the Omni Austin Hotel in Austin, Texas (the
"Hotel"), which is under a long-term lease agreement (the "Lease") with HCD
Austin Corporation., a hotel management operator ("Operator").
In order to fulfill its obligations under the Lease and to assure
proper supervision and management of Crescent's interests under the Lease,
Crescent desires to retain the services of a company qualified and experienced
in asset and hotel management and capable of supervising the performance of the
Operator.
Now therefore, for and in consideration of the premises and the mutual
covenants herein contained and subject to the following terms and conditions,
Manager and Crescent agree as follows:
ARTICLE 1
APPOINTMENT
1.1 Appointment to Manage Assets and Supervise Hotel Management.
Crescent hereby appoints Manager to manage Crescent's interests as lessor under
the Lease, and in connection therewith (a) to perform, to direct the performance
of, or to supervise the performance of Crescent's obligations under the Lease,
(b) to supervise the performance of the Operator, (c) to promote, exercise, and
protect the rights of Crescent under the Lease, (d) on behalf of Crescent to
deal with the Operator, and (e) in general to oversee, preserve, protect,
supervise, maintain, promote and utilize Crescent's assets associated with or
relating to the Hotel. In carrying out its duties, Manager shall endeavor to
assure that the Hotel is operated in an efficient and businesslike manner
consistent with the standard, status and character of the Hotel as a first class
lodging and hotel property, that revenues from operation of the Hotel are
maximized, and, subject to Section 3.3, to do and perform, or cause to be done
and performed, all other activities customary and usual in connection with the
management of the Hotel. Nothing herein shall be construed to prohibit Manager
from entering into, and Crescent is aware that Manager may enter into, asset
management agreements with owners and operators or lessees of other hotel or
resort properties.
1.2 Authority and Power. Crescent hereby authorizes Manager, subject to
Section 3.3, to exercise such powers with respect to the Lease and the interests
and assets of Crescent associated with or relating to the Hotel as may be
necessary for the performance of Manager's obligations under the terms of this
Agreement and Manager accepts such appointment under the terms and conditions
hereinafter set forth.
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1.3 Independent Contractor. In performing its obligations hereunder,
Manager shall be an independent contractor. Neither Crescent nor Manager intends
hereby to create a partnership, joint venture or trust or (except as provided
elsewhere herein) to make either party hereto the agent of the other party
hereto or to create any fiduciary relationship between Crescent and Manager or
to create any contractual relationship between Crescent and Manager except as
expressly created by this Agreement. Except as strictly provided herein, Manager
shall not in any capacity become liable for any obligations, liabilities, losses
or debts of Crescent, with respect to the Lease or the Hotel.
1.4 Representation by Manager. Manager represents and warrants to
Crescent that by entering into and performing its obligations under this
Agreement, Manager is not violating and will not violate any contractual,
fiduciary or legal obligations or responsibilities to which it is or is likely
to become subject, nor is it subject to any contractual, fiduciary or legal
obligations or responsibilities which may reasonably be expected to interfere
with its ability to perform its obligations under this Agreement.
ARTICLE 2
TERM
Manager's duties and responsibilities under this Agreement shall begin
on January 1, 1999, and unless otherwise terminated as provided in Article 6
hereof, shall continue through December 31, 2003 (the "Management Period").
ARTICLE 3
MANAGER'S RESPONSIBILITIES
3.1 Management of Hotel Generally. Subject to Section 3.3, Manager, on
behalf of Crescent, shall implement, or cause to be implemented, the decisions
of Crescent with respect to the Lease and the Hotel; shall direct the
performance of Crescent's obligations under the Lease; and shall supervise the
performance by the Operator of its obligations under the Lease; including,
without limitation: (a) strategies and tactics for carrying out Crescent's
duties under the Lease; (b) reviewing and supervising the performance by
Operator of its contractual obligations to Crescent under the Lease and/or with
respect to the Hotel; (c) assembling, organizing and maintaining records of the
Hotel's operations and activities; (d) maintaining permits and licenses required
of Crescent and necessary for the leasing or operation of the Hotel; and (e)
inspecting the Hotel to assure compliance by the Operator with the Lease.
3.2 Management of Hotel Specifically. Without limiting the preceding
and by way of illustration but not limitation, Manager shall, subject to Section
3.3, in a prudent, businesslike, skillful, and expeditious manner:
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(a) after consultation with Crescent, obtain all licenses, permits,
consents, and approvals ("Governmental Approvals") from any applicable
governmental authorities and agencies necessary for Crescent as owner
of the Hotel or as lessor under the Lease;
(b) after consultation with Crescent, obtain all consents and approvals
("Private Approvals") from any applicable associations, persons and
other parties holding rights of consent and approval necessary for
Crescent as owner of the Hotel or as lessor under the Lease;
(c) deliver to Crescent operating and capital budgets ("Operating and
Capital Budgets") for the Hotel pursuant to Section 3.7;
(d) prepare and submit to Crescent upon its request (but not more
frequently than monthly) written progress reports in form acceptable to
Crescent and reflecting significant developments affecting or relating
to the Hotel and a comparison between budgeted and actual operations,
for all periods requested by Crescent;
(e) consult with Crescent on all matters requiring Approval of Crescent
under or pursuant to Section 3.3 or elsewhere in this Agreement;
(f) permit Crescent to inspect and audit records of Manager pertaining
to the Hotel and consult with Manager on matters pertaining to the
Hotel;
(g) coordinate, be responsible for, and, where necessary, assist
Crescent in obtaining or recovering payment for all credits,
reimbursables or other funds payable to Crescent in connection with the
Lease;
(h) advise Crescent with respect to, and with Crescent's Approval
implement, any challenge to the tax rates or assessments on or
pertaining to the Hotel; and
(i) comply with the Lease, including without limitation taking or
causing Operator to take all actions in management of the Hotel as are
required to be taken and refraining from taking any action that would
cause Crescent to breach or be in default of the Lease.
3.3 Approval of Crescent Required. Manager shall not have authority or
exercise power to take any of the following actions without first obtaining
Crescent's written approval or consent ("Approval"; an action shall be
"Approved" if Approval has been granted), which may be given or withheld in
Crescent's sole discretion and judgment: (a) apply for, modify or renew a
Governmental Approval or Private Approval, if Crescent beforehand shall have
requested Manager to discuss with it the propriety or advisability thereof, (b)
enter into any agreement or transaction which may become a lien against the
Hotel or a personal obligation of Crescent involving more than One Thousand
Dollars ($1,000.00), (c) make or authorize any expenditure which exceeds any
line items in the Operating and Capital Budgets approved by Crescent, (d) sue,
defend, settle or compromise any claim by or against any third party, including
but not limited to governmental or taxing authorities, or (e)
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take any other action for which Approval is elsewhere in this Agreement
required, without first obtaining such Approval.
3.4 For Crescent's Account. The services of Manager in performing its
duties and providing services pursuant to this Agreement shall be for the
account of Crescent. Crescent agrees to be responsible for all costs, expenses,
and disbursements incurred by Manager under the terms of this Agreement in
providing asset management services hereunder and Crescent agrees to provide all
funding reasonably necessary for Manager to perform its asset management
services under this Agreement; but without Crescent's consent, Manager will not
incur any such costs or expenses or make any such disbursements except as
required or permitted in this Agreement. Whenever Manager in good faith believes
that emergency circumstances exist that require immediate actions to preserve
Crescent's assets or to protect Crescent's rights under the Lease or its
contract with the Operator, then Manager shall take such actions and incur such
reasonably necessary expenses and expenditures for the account of Crescent,
without undue delay, as Manager deems necessary under the circumstances; but
Manager shall furnish Crescent a complete reporting of such actions and expenses
as promptly as practicable.
3.5 Standards. In the performance of its obligations under this
Agreement, Manager shall act in good faith and in a manner it reasonably
believes to be in the best interest of Crescent.
3.6 Financial Reports and Records. Manager shall keep proper and
suitable books and records for the Hotel as reasonably required to protect
Crescent's assets from theft, error or fraudulent activity.
(a) Manager shall provide reports as set forth in Exhibit A
and such other reports as Crescent may from time to time request.
(b) All financial statements and reports will be prepared in
accordance with accounting principles established by Crescent; if
Crescent does not specify accounting principles to be followed by
Manager, then Manager shall keep books and records in accordance with
the Uniform System of Accounts for Hotels as approved by the American
Hotel Association.
(c) Crescent or its representatives may, at any time, conduct
examinations of the books and records maintained for Crescent by
Manager. Crescent also may perform any and all additional audit tests
relating to Manager's activities at any appropriate place. Any and all
such audits shall be at the sole expense of Crescent subject, however,
to Crescent's indemnification rights. All books and records shall be
preserved throughout the Management Period, upon termination of this
Agreement shall be promptly delivered to Crescent, and shall at all
times remain the exclusive property of Crescent.
3.7 Budgets. Manager shall for each calendar year review, analyze, and
critique the Operating and Capital Budgets prepared by the Operator and submit
to Crescent a report thereon
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together with Manager's recommendations thereon.
3.8 Bank Accounts. Manager shall monitor timely deposits of cash
receipts of Crescent in operating accounts, in banks designated by Crescent.
3.9 Compliance with Laws. Manager shall not in the performance of its
services hereunder violate any federal, state, municipal or other governmental
law, ordinance, rule or regulation. Manager shall immediately notify Crescent of
any known violation of any federal, state, municipal or other governmental law,
ordinance, rule or regulation due to the structure, condition or operation of
the Hotel or the activities therein. Manager shall obtain and maintain all
permits and licenses required for Crescent as owner of the Hotel or as lessor
under the Lease. Manager shall not in performance of its services hereunder
knowingly violate, and shall comply in all material respects with the terms of,
the Lease, mortgages, deeds of trust or other security instruments binding on
Crescent or affecting the Hotel. In the event of a conflict between the terms of
any such document and the terms of this Agreement, Manager shall not take any
action except to notify Crescent and await Crescent's instructions. Manager
shall not be required to make any payment on its own behalf or incur any
liability in order to comply with the terms or conditions of any such
instruments.
3.10 Notification of Litigation. If Manager shall be apprised of any
claim, demand, suit or other legal proceeding made or instituted against
Crescent on account of any matter connected with the Hotel, Manager shall
promptly notify Crescent thereof, shall give Crescent all information in its
possession in respect thereof, and shall assist and cooperate with Crescent in
all reasonable respects in the defense of any such claim, demand, suit or other
legal proceeding.
3.11 Confidentiality. Manager acknowledges and agrees that all
information about Crescent or the Hotel provided to it is and will continue to
be the exclusive property of Crescent and agrees to keep all such information
(other than information which is publicly known other than as a result of
Manager's disclosure in violation of this Agreement) in strictest confidence
except that limited disclosure may be made with the prior express consent of
Crescent, or as Manager determines in good faith is necessary to enable it to
perform its obligations under this Agreement, or as required by law or judicial
or regulatory process. The provisions of this Section 3.11 shall survive
termination of this Agreement.
3.12 Notice of Breaches and Defaults. Manager shall notify Crescent
immediately upon becoming aware of a breach or default by Manager under this
Agreement or the occurrence of an event which, with or without notice or the
lapse of time or both, would entitle Crescent to terminate this Agreement for
cause.
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ARTICLE 4
INSURANCE COVERAGE
Manager shall procure and maintain at all times during the term of this
Agreement workmen's compensation insurance coverage, in reasonable amounts, for
the benefit of Manager. Crescent shall add Manager to Crescent's general
liability insurance policy or policies as an additional insured at all times
during the term of this Agreement. Additionally, Manager shall procure and
maintain at all times during the term of this Agreement comprehensive form
automobile liability insurance for owned, non-owned and hired vehicles, in the
amount of $1,000,000, for the benefit of Manager.
ARTICLE 5
COMPENSATION AND REIMBURSEMENTS
5.1 Base Compensation. Manager shall receive as consideration and
remuneration for all its services under this Agreement an annual fee of $50,000
(the "Management Fee") for the first year of the Management Period; for each
subsequent year during the Management Period, a cost of living adjustment will
be determined as of the beginning of that year and applied to the Management Fee
for that year as follows: the Management Fee will be increased (but not
decreased) by an amount equal to the product calculated by multiplying the
Management Fee for the immediately preceding year, times the percentage increase
for such year of the Consumer Price Index for Urban Consumers [Fort Worth -
Arlington Metro Area] -- All Items Index, published by the US Department of
Labor, Bureau of Labor Standards. The Management Fee will be payable in advance
in equal quarterly installments (each a "Quarterly Installment") on the first
business day of each calendar quarter (that is, the first business day of each
January, April, July and October) during the Management Period. Any Quarterly
Installment not paid by the fourth business day after the date when due shall
bear simple interest at 18% per annum from and after the due date until paid;
additionally, for any Quarterly Installment not paid by the fifth business day
of the quarter to which it relates, Crescent shall become obligated to
immediately pay Manager a late charge equal to five percent of the amount of
such Quarterly Installment (exclusive of interest accrued thereon).
5.2 Bonuses. Not less frequently than each anniversary date of this
Agreement, Crescent shall give due and fair consideration to determining whether
Manager's performance under this Agreement and the resulting financial benefits
to Crescent merit, in Crescent's sole discretion, additional compensation in the
form of a cash bonus or other remuneration.
5.3 Manager's Costs to be Reimbursed. During the Management Period,
Manager will be
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entitled to reimbursement for all reasonable out of pocket expenses that its
personnel incur in accordance with this Agreement in travel to and from the
Hotel in performing its services hereunder. Crescent shall reimburse Manager for
such expenses within 30 days following actual receipt by Crescent of itemized
invoices of such expenses.
ARTICLE 6
TERMINATION
6.1 Termination for Cause.
(a) (i) Crescent shall have the right to immediately terminate
this Agreement, without recourse by Manager except as provided in
Section 6.3(b), in the event Manager commits any act which is a breach
of a material provision of this Agreement or which constitutes an act
of gross negligence, willful or wanton misconduct or is in material
violation of any mortgage, deed of trust, or other security instrument,
equipment lease, insurance contract, or other material contract or
agreement affecting the Hotel, and which is not cured within 20 days
after written demand by Crescent to Manager (provided, that Crescent
shall not be required to give Manager an opportunity to cure if in
Crescent's good faith judgment its rights or interests are likely to be
materially prejudiced by delay or if Manager either has breached the
same provision of this Agreement or has committed the same act more
than two times within the prior twelve month period).
(ii) Crescent shall have the right to terminate this
Agreement upon at least 30 days notice, without recourse by Manager
except as provided in Section 6.3(b), in the event Manager shall apply
for or consent to the appointment of a receiver, trustee, or liquidator
of Manager or of all or a substantial part of its assets, file a
voluntary petition in bankruptcy, or admit in writing its inability to
pay its debts as they come due, make a general assignment for the
benefit of creditors, file a petition or an answer seeking
reorganization or arrangement with creditors or take advantage of any
insolvency law, or file an answer admitting the material allegations of
a petition filed against Manager in any bankruptcy, reorganization, or
insolvency proceeding, or in the event an order, judgment, or on the
application of a creditor, a decree shall be entered by any court of
competent jurisdiction adjudicating Manager bankrupt or insolvent or
approving a petition seeking reorganization of Manager or appointing a
receiver, trustee, or liquidator of Manager or of all or a substantial
part of his assets, and such order, judgment or decree shall continue
unstayed and in effect for any period of 90 consecutive days.
(iii) At Crescent's election, this Agreement shall
terminate immediately upon the termination of the Lease for any reason.
(b) Manager shall have the right to immediately terminate this
Agreement, without recourse by Crescent except as provided in Section
6.3(b), in the event Crescent commits any
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act which is a breach of a material provision of this Agreement or
which constitutes an act of gross negligence, willful or wanton
misconduct or is in material violation of any mortgage, deed of trust,
or other security instrument, equipment lease, insurance contract, or
other material contract or agreement affecting the Hotel, and which is
not cured within 20 days after written demand by Manager to Crescent
(provided, that Manager shall not be required to give Crescent an
opportunity to cure if in Manager's good faith judgment its rights or
interests are likely to be materially prejudiced by delay). In
addition, Manager shall have the right to terminate this Agreement upon
at least 90 days notice, without recourse by Crescent except as
provided in Section 6.3(b), in the event Crescent shall apply for or
consent to the appointment of a receiver, trustee, or liquidator of
Crescent or of all or a substantial part of its assets, file a
voluntary petition in bankruptcy, or admit in writing its inability to
pay its debts as they come due, make a general assignment for the
benefit of creditors, file a petition or an answer seeking
reorganization or arrangement with creditors or take advantage of any
insolvency law, or file an answer admitting the material allegations of
a petition filed against Crescent in any bankruptcy, reorganization, or
insolvency proceeding, or in the event an order, judgment, or on the
application of a creditor, a decree shall be entered by any court of
competent jurisdiction adjudicating Manager bankrupt or insolvent or
approving a petition seeking reorganization of Crescent or appointing a
receiver, trustee, or liquidator of Crescent or of all or a substantial
part of its assets, and such order, judgment or decree shall continue
unstayed and in effect for any period of 90 consecutive days.
6.2 Termination Without Cause.
(a) In addition to the termination rights set forth in Section
6.1, this Agreement may be terminated at any time by Crescent, without
cause, by giving Manager at least 30 days prior written notice of
termination. Manager shall be entitled to retain any Management Fee
paid to Manager prior to termination pursuant to this Section 6.2(a).
Subject to Section 6.3(b), Manager shall have no claim, right or cause
of action against Crescent arising out of its termination of this
Agreement pursuant to the provisions of this Section 6.2(a).
(b) Manager may at any time notify Crescent in writing that
Manager intends to resign on a specified date after the expiration of
at least 6 months following the date of such notification (the
"Resignation Date"). Thereafter, this Agreement shall terminate as of
the Resignation Date and Crescent shall have no obligation to pay
Manager any compensation hereunder with respect to any period following
the Resignation Date and Manager, by so resigning, will forfeit all
claims to any compensation with respect to any period following the
Resignation Date; and Manager shall repay to Crescent that portion of
any Management Fee received by Manager prior to the Resignation Date
that is compensation for a period following the Resignation Date.
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6.3 Effect of Termination.
(a) Upon the termination of this Agreement or the resignation
of Manager, Crescent's obligation to pay Manager the Management Fee
shall cease upon the date of termination or resignation (the
"Termination Date"), and except as provided herein, the parties shall
have no further rights or obligations to the other.
(b) Notwithstanding the foregoing, the termination of this
Agreement shall not affect (i) the rights of Crescent or Manager with
respect to any damages at law or in equity either may have suffered as
a result of any breach of the Agreement by the other party hereto, (ii)
the rights of Crescent or Manager with respect to liability or claims
accrued (including but not limited to reimbursement rights), or arising
out of events occurring, prior to the Termination Date, (iii) the
indemnification or exoneration rights of Manager set forth in Sections
8.5 and 8.6, (iv) the confidentiality obligations of Manager under
Section 3.11, (v) the obligations of Manager under Section 6.4 of this
Agreement, and (vi) the provisions of this Section 6.3 and of Section
6.2. The provisions of this Section 6.3 and of Sections 6.2, 6.4, 3.11,
8.5 and 8.6 shall survive termination of this Agreement.
(c) Neither party to this Agreement shall be liable to any
other party hereto for consequential or punitive damages arising as a
result of a breach of this Agreement.
6.4 Final Accounting. Upon termination of this Agreement for any
reason, Manager shall not take or destroy any books, records, contracts,
receipts for deposits, unpaid bills, and other papers, documents or properties
and operating and maintenance information which relate to the Hotel or the Lease
or any personal property or equipment of the Hotel. Manager shall convey to
Crescent all books and records pertaining to the Hotel or Lease in its
possession or under its control and make a final accounting as promptly as
practicable but in no event later than 60 days following the Termination Date.
Manager shall cooperate with Crescent and Manager's successor to assign
contracts, transfer management responsibilities, and otherwise to make best
efforts to assure continued asset management services without interruption;
without limiting the foregoing, Manager shall not take any actions which might
reasonably be expected to interfere with or damage the continued operations of
the Hotel or its reputation, and shall not make any disparaging public remarks
about the Hotel, Crescent, or its successor. The provisions of this Section 6.4
shall survive termination of this Agreement.
ARTICLE 7
ASSIGNMENT
7.1 No Assignment. This is a personal services contract with respect to
Manager, and, therefore, Manager may not assign this Agreement nor any of
Manager's rights and/or obligations
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hereunder without the prior written consent of Crescent. Crescent may not assign
this Agreement, or any interest therein, without the prior written consent of
Manager.
7.2 Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the parties hereto, their respective legal
representatives, successors, and permitted assigns.
ARTICLE 8
GENERAL PROVISIONS
8.1 Modification and Changes. This Agreement cannot be altered,
amended, or modified except by another agreement in writing signed by Manager
and Crescent.
8.2 Understandings and Agreements. This Agreement constitutes all of
the understandings and agreements of whatsoever nature or kind existing between
the parties with respect to Manager's asset management services to Crescent in
connection with the Hotel.
8.3 Waiver. Unless in writing, and signed by the party to be charged
therewith, no consent or waiver, express or implied, by any party to this
Agreement to or for any breach or default by any other party to this Agreement
in the performance by such other party of its obligations under this Agreement
shall be deemed or construed to be a consent or waiver to or of any other breach
or default in the performance by such other party of the same or any other
obligations of such other party under this Agreement. Failure on the part of any
party to this Agreement to complain of any act or failure to act of any other
party to this Agreement or to declare any other party in default, regardless of
how long such failure continues, shall not constitute a waiver by such party of
his or its rights hereunder.
8.4 Headings. The Article and Section headings contained herein are for
convenience or reference only and are not intended to define, limit, or describe
the scope or intent of any provision of this Agreement.
8.5 INDEMNIFICATION OF MANAGER. SUBJECT TO THE LAST PARAGRAPH OF THIS
SECTION 8.5, CRESCENT SHALL INDEMNIFY AND HOLD HARMLESS THE MANAGER AS FOLLOWS:
(A) IN ANY THREATENED, PENDING OR COMPLETED ACTION, SUIT OR
PROCEEDING, WHETHER CIVIL, CRIMINAL, ADMINISTRATIVE, ARBITRATIVE OR
INVESTIGATIVE, TO WHICH MANAGER WAS OR IS A PARTY OR IS THREATENED TO
BE MADE A PARTY INVOLVING AN ALLEGED CAUSE OF ACTION ARISING FROM THE
ACTIVITIES OF MANAGER AND WHICH ACTIVITIES WERE ON BEHALF OF CRESCENT
OR THE HOTEL OR ANY APPEAL IN SUCH ACTION, SUIT OR PROCEEDING OR IN ANY
INQUIRY OR INVESTIGATION THAT COULD LEAD TO SUCH AN ACTION, SUIT OR
PROCEEDING, CRESCENT SHALL (EXCEPT AS
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OTHERWISE PROVIDED IN SECTION 8.5(C) BELOW) INDEMNIFY MANAGER AGAINST
ANY AND ALL LOSSES, CLAIMS, DEMANDS, LIABILITIES, COSTS AND EXPENSES,
INCLUDING REASONABLE ATTORNEYS' FEES, ACCOUNTANT'S FEES, JUDGMENTS,
PENALTIES, FINES AND AMOUNTS PAID IN SETTLEMENT, ACTUALLY AND
REASONABLY INCURRED BY MANAGER IN CONNECTION WITH SUCH ACTION, SUIT OR
PROCEEDING, (COLLECTIVELY "LOSSES"), WHETHER OR NOT RESULTING FROM OR
ARISING OUT OF MANAGER'S MERE NEGLIGENCE, PROVIDED THAT (I) MANAGER
ACTED IN GOOD FAITH, (II) MANAGER ACTED IN A MANNER IT REASONABLY
BELIEVED TO BE IN THE BEST INTERESTS OF CRESCENT, AND (III) MANAGER'S
CONDUCT DOES NOT CONSTITUTE A BREACH OF A MATERIAL PROVISION OF THIS
AGREEMENT AND AN ACT OF GROSS NEGLIGENCE OR WILLFUL OR WANTON
MISCONDUCT OR A MATERIAL VIOLATION OF ANY MORTGAGE, DEED OF TRUST, OR
OTHER SECURITY INSTRUMENT, EQUIPMENT LEASE, INSURANCE CONTRACT OR OTHER
MATERIAL CONTRACT OR AGREEMENT AFFECTING THE HOTEL. THE TERMINATION OF
A PROCEEDING BY JUDGMENT, ORDER, SETTLEMENT, CONVICTION OR UPON A PLEA
OF NOLO CONTENDERE, OR ITS EQUIVALENT, SHALL NOT, OF ITSELF, DETERMINE
OR CREATE A PRESUMPTION THAT MANAGER DID NOT ACT IN GOOD FAITH AND IN A
MANNER THAT IT REASONABLY BELIEVED TO BE IN THE BEST INTERESTS OF
CRESCENT, NOR SHALL ANY SUCH TERMINATION OF A PROCEEDING, OF ITSELF,
DETERMINE OR CREATE A PRESUMPTION THAT MANAGER WAS GROSSLY NEGLIGENT OR
WAS GUILTY OF WILLFUL OR WANTON MISCONDUCT OR COMMITTED A BREACH OF A
MATERIAL PROVISION OF THIS AGREEMENT UNLESS A SPECIFIC FINDING TO SUCH
EFFECT IS INCLUDED IN SUCH JUDGMENT, ORDER, SETTLEMENT, CONVICTION OR
PLEA.
(B) WITH RESPECT TO MATTERS AS TO WHICH MANAGER IS ENTITLED TO
INDEMNIFICATION HEREUNDER, ALL REASONABLE EXPENSES (INCLUDING
REASONABLE LEGAL FEES AND EXPENSES) INCURRED IN DEFENDING ANY
PROCEEDING SHALL BE PAID BY CRESCENT IN ADVANCE OF THE FINAL
DISPOSITION OF SUCH PROCEEDING UPON RECEIPT OF AN UNDERTAKING BY OR ON
BEHALF OF MANAGER TO REPAY SUCH AMOUNT IF IT SHALL ULTIMATELY BE
DETERMINED, BY A COURT OF COMPETENT JURISDICTION OR OTHERWISE, THAT
MANAGER IS NOT ENTITLED TO BE INDEMNIFIED BY CRESCENT AS AUTHORIZED
HEREUNDER.
(C) ANY SUCH INDEMNIFICATION SHALL BE MADE ONLY OUT OF THE
ASSETS OF CRESCENT, AND IN NO EVENT MAY MANAGER SUBJECT THE MANAGERS,
OFFICERS, DIRECTORS, EMPLOYEES, AFFILIATES OR AGENTS OF CRESCENT TO
PERSONAL LIABILITY BY REASON OF THESE INDEMNIFICATION PROVISIONS.
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(D) THE INDEMNIFICATION PROVIDED BY THIS SECTION 8.5 SHALL BE
IN ADDITION TO ANY OTHER RIGHTS TO WHICH MANAGER MAY BE ENTITLED, IN
ANY CAPACITY, UNDER ANY AGREEMENT, AS A MATTER OF LAW OR OTHERWISE AND
SHALL INURE TO THE BENEFIT OF THE HEIRS, SUCCESSORS, ASSIGNS AND
ADMINISTRATORS OF MANAGER.
(E) MANAGER SHALL NOT BE DENIED INDEMNIFICATION IN WHOLE OR IN
PART UNDER THIS SECTION 8.5 BECAUSE MANAGER HAD AN INTEREST IN THE
TRANSACTION WITH RESPECT TO WHICH THE INDEMNIFICATION APPLIES IF THE
TRANSACTION WAS OTHERWISE PERMITTED BY THE TERMS OF THIS AGREEMENT.
(F) THE PROVISIONS OF THIS SECTION 8.5 SHALL SURVIVE ANY
TERMINATION OF THIS AGREEMENT.
DESPITE THE FOREGOING, CRESCENT SHALL HAVE NO OBLIGATION TO INDEMNIFY MANAGER
UNDER THIS SECTION 8.5 IF AND TO THE EXTENT THAT LOSSES ARISE AS A RESULT OF OR
RELATE TO MANAGER'S BAD FAITH, BREACH OF THIS AGREEMENT OR OUT OF MANAGER'S
WILLFUL OR WANTON MISCONDUCT OR GROSS NEGLIGENCE.
8.6 Exoneration. Manager shall not be liable for obligations,
liabilities, losses or debts of Crescent or damages caused by or resulting from
actions or omissions of Crescent, except if and to the extent that such
obligations, liabilities, losses, debts or damages arise as a result of or
relate to Manager's bad faith, breach of this Agreement or out of Manager's
willful or wanton misconduct or gross negligence. Furthermore, Manager shall not
be liable to Crescent for mistakes in judgement, for actions or inactions taken
or omitted for a purpose which Manager in good faith reasonably believed to be
in the best interest of Crescent, or for losses due to mistake, action or
omission of any agent provided that such agent shall have been selected and
monitored by Manager in good faith; provided, that the foregoing do not result
from or involve gross negligence, willful or wanton misconduct, or breach of a
material provision of this Agreement. The provisions of this Section 8.6 shall
survive any termination of this Agreement.
8.7 Third Parties. None of the obligations hereunder of either party
shall run to or be enforceable by any party other than the other party to this
Agreement or by a party deriving rights hereunder as a result of an assignment
permitted pursuant to the terms hereof.
8.8 Governing Law. THE VALIDITY, ENFORCEMENT, AND INTERPRETATION OF
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO ITS CHOICE OF LAW PRINCIPLES.
8.9 Severability. In case any one or more of the provisions contained
in this Agreement shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
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construed as if such invalid, illegal, or unenforceable provision had never been
contained herein.
8.10 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original for all purposes and all
of which when taken together shall constitute a single counterpart instrument.
Executed signature pages to any counterpart instrument may be detached and
affixed to a single counterpart, which single counterpart with multiple executed
signature pages affixed thereto constitutes the original counterpart instrument.
All of these counterpart pages shall be read as though one and they shall have
the same force and effect as if all of the parties had executed a single
signature page.
8.11 Notice. Any notice or communication hereunder or in any agreement
entered into in connection with the transactions contemplated hereby must be in
writing and given by depositing the same in the United States first class mail,
addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person or
by facsimile transmission, or by sending the same by reputable overnight
courier. Such notice shall be deemed received on the date on which it is
hand-delivered or received by facsimile transmission, on the third business day
following the date on which it is so mailed, or on the business day next
following the date on which it is sent by overnight courier. For purposes of
notice, the addresses of the parties shall be:
If to Crescent: 777 Main Street, Suite 2100
Fort Worth, Texas 76102
Facsimile: 817.321.2000
Attention: David Dean
If to Manager: 306 West 7th Street, Suite 1025
Fort Worth, Texas 76102
Facsimile: 817.317.0665
Attention: Johanna Varma
Any party may change its address for notice by written notice given to the other
parties in accordance with this section.
8.12 Arbitration. Upon the demand of either party, whether made before
or after the institution of any judicial proceeding, any controversy or claim
whatsoever arising out of or relating to this Agreement or the breach or alleged
breach thereof, the performance or nonperformance of any terms hereof, or the
relationship between the parties created by or arising out of this Agreement,
shall be settled by binding arbitration in Fort Worth, Texas, in accordance with
the Commercial Arbitration Rules of the American Arbitration Association, and
judgement upon the award rendered by the arbitrator or arbitrators may be
entered in any court having jurisdiction thereof.
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IN WITNESS WHEREOF, this Agreement is executed as of January 1, 1999.
CRESCENT: CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Crescent Real Estate Equities, Ltd.,
its general partner
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
MANAGER: COI HOTEL GROUP, INC.,
a Texas corporation
By:
----------------------------------------------
Jeffrey L. Stevens, President
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EXHIBIT "A"
Reports
In accordance with Section 3.6, Manager shall prepare and submit to Crescent the
following reports:
A. Capital Projects progress reports
B. Comparisons of actual to projected operational
results and budgets
C. Financial Statements
D. All reports provided by the tenant under the Lease
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<PAGE> 1
EXHIBIT 10.78
AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into on June 11, 1999 (the
"Effective Date"), by and between Gerald W. Haddock ("Employee") and Crescent
Operating, Inc. ("Employer"), and each of their respective subsidiary entities
and other direct or indirect affiliates, the "Employer Group".
WHEREAS, Employee presently serves as President and Chief Executive Officer of
COI and certain of the other entities constituting the Employer Group;
WHEREAS, the parties wish to resolve all outstanding claims and disputes between
them in an amicable manner;
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements set forth in this Agreement, the sufficiency of which the parties
acknowledge, it is agreed as follows:
1. Employee hereby resigns from all directorships and offices of whatever
nature held by Employee with any member of the Employer Group, with such
resignation to be effective as of the Effective Date and renounces and
relinquishes all appointments as attorney-in-fact on behalf of any member
of the Employer Group.
2. In consideration for Employee's promises in this Agreement, Employer agrees
to pay to Employee within five days of the execution of this Agreement the
amount of his monthly salary through June 30, 1999, and in addition the
lump sum of $100,000 cash, provided that such payment shall be subject to
such payroll tax and other withholding as is required by law. Employee
shall have no obligation to mitigate the amounts payable to Employee under
this Agreement, nor shall the amount of any payment hereunder be reduced by
any compensation earned by Employee as a result of his performance of
services for a third party. The Employer Group also agrees to reimburse all
reasonable business expenses incurred by Employee on behalf of the Employer
Group prior to the date of his resignation, in accordance with the Employer
Group's policies and procedures regarding executive expense reimbursement.
Except as set forth specifically in this Section or as set forth in the
document(s) effecting the accelerated vesting of the New Vested Options
(defined in Section 5 below), Employee will not be entitled to any other
payment whatsoever for his promises in this Agreement.
3. Employer and Employee acknowledge that Employee's ceasing to be involved in
management of Employer will constitute an event of default under the Credit
Agreement between Employer and NationsBank of Texas (n/k/a Bank of
America); Employee agrees to cooperate with Employer upon request in its
efforts to obtain from NationsBank a waiver of that event of default (the
"Waiver"), but Employee shall not have any liability to Employer if
Employee cooperates with Employer but the Waiver is not obtained . Employer
and Employee further acknowledge that Employee is jointly and severally
obligated with certain other management personnel of Employer under that
Support Agreement in favor of NationsBank; Employer agrees that it shall be
responsible for obtaining from NationsBank and from the other management
personnel of Employer who are parties to that Support Agreement the full
and complete release of Employee (the "Release") from the Support
Agreement. Employer shall indemnify Employee and hold him harmless from and
against any claims, damages or losses incurred by Employee resulting from
(i) any event of default under the Credit Agreement occurring as a result
of the failure to obtain the Waiver for any reason or (2) Employer's
failure to obtain the Release.
4. Employee is a limited partner of COPI Colorado, LP, of which Employer is
the sole general
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partner. In its capacity as sole general partner, Employer agrees, subject
to the following conditions, that, as of a date to be mutually agreed upon
by Employer and Employee but which shall not be earlier than January 2,
2000, nor later than February 28, 2000, Employer shall either cause the
Partnership to be liquidated and wound up or cause the Partnership to
redeem Employee's limited partner interest, in either event with Employee
being entitled to receive in cash payment of an amount equal to the value
of his pro rata interest in the Partnership. Employer and Employee agree
that the Employer shall cause the Partnership to select an independent
qualified appraiser (an "Appraiser") for purposes of determining the value
of Employee's interest in the Partnership in connection with the
liquidation or redemption; but if Employee objects to such Appraiser, then
Employee, at his expense, may select an Appraiser for the same purpose, in
which event the two Appraisers shall cooperate to determine the value of
Employee's interest in the Partnership; but if the two Appraisers are
unable, within a reasonable time, to agree upon the value of Employee's
interest in the Partnership, then the two Appraisers shall select a third
Appraiser, and the third Appraiser shall determine the value of Employee's
interest in the Partnership and its valuation shall be final and binding
upon Employer and Employee. For purposes of this paragraph, it is agreed
that PricewaterhouseCoopers shall be considered an independent qualified
appraiser acceptable to each party.
5. Employee and Employer acknowledge that, contemporaneously with this
Agreement, the Compensation Committee and/or full Board of Directors of
Employer has accelerated the vesting of certain unvested stock options held
by Employee (the "New Vested Options"); identified in Exhibit A, pursuant
to the First Amended and Restated Nonqualified Stock Option Agreement
(1997) attached hereto Exhibit B and the First Amended and Restated
Nonqualified Stock Option Agreement (1999) attached hereto as Exhibit C.
Employer agrees to use all reasonable efforts to ensure that the New Vested
Options, all other options that are vested as of the Effective Date, and
all securities as to which those options may be exercised by Employee will
continue to be registered under the Securities Act of 1933 and that all
existing rights of Employee pursuant to the relevant stock option plans and
stock option agreements will be preserved. Employee represents and
acknowledges to the Employer that his interest in the stock options and
unit options previously issued to him by Employer are either his separate
property or subject to the sole management, control and disposition of
Employee.
6. The Employer Group shall provide Employee an insurance and indemnification
policy (including any fiduciary liability policy) that provides coverage
with respect to any claims made during the six (6) year period following
the Effective Date that is substantially similar to the Employer Group's
existing policies or, if substantially equivalent insurance coverage is
unavailable, the best coverage reasonably available.
7. As a further condition to the agreements contained herein, neither Employee
nor any person acting on Employee's behalf will, and neither Employee or
such other person will assist or encourage others (including those
providing financing to Employee for any purpose) to, directly or
indirectly, for a period of one (1) year from the date of this Agreement
(i) induce or attempt to persuade any persons with whom any member of the
Employer Group is now doing business, or has at any time in the past done
business, to curtail, cancel or otherwise terminate their business with any
member of the Employer Group, provided, however, that commencing on the
Effective Date, Employee may do business with investment banking firms,
real estate companies, and any other business which now does, or at any
time in the past has done, business with any member of the Employer Group,
where the Employee's conduct of such business does not otherwise violate
this Section 5(i), or (ii) without the express prior written approval of
the relevant member, employ, offer to employ or permit to post for any
position of employment any employee of
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any member of the Employer Group or otherwise interfere with the employment
by any member of the Employer Group of any individual who is an employee of
such member.
8. Employee agrees that the payments and other benefits referenced in Section
2, the covenants in Sections 3 and 4, and the modifications to the unvested
stock options contemplated by Section 5 are in full, final and complete
settlement of all claims Employee may have against any member of Employer
Group or any of such member's past and present affiliates, officers,
directors, owners, employees, agents, successors and assigns, and the
Employer Group agrees that Employee's promises in this Agreement are in
full, final and complete settlement of all claims Employer Group may have
against Employee, his heirs and assigns. Nothing in this Agreement shall be
construed as an admission of liability by any member of Employer Group or
any of such member's past and present affiliates, officers, directors,
owners, employees or agents, or by Employee.
9. (a) Employee covenants not to sue, and fully and forever releases and
discharges each member of Employer Group and each of such member's past and
present affiliates, directors, officers, owners, employees and agents, as
well as each of such member's successors and assigns (collectively, the
"COI Releasees") from any and all claims, liabilities, damages, demands,
and causes of action or liabilities of any nature or kind, whether now
known or unknown, arising out of or in any way connected with Employee's
employment or other relationship with any member of Employer Group or the
termination of that employment or other relationship. Each member of the
Employer Group covenants not to sue, and fully and forever releases
Employee, his agents, heirs and assigns (collectively, the "Haddock
Releasees"), from any and all claims, liabilities, damages, demands, and
causes of action or liabilities of any nature or kind, whether now known or
unknown, arising out of or in any way connected with Employee's employment
or other relationship with any member of the Employer Group or the
termination of that employment or other relationship.
(b) Nothing in this Agreement shall be construed to prohibit either party
from taking action to enforce this Agreement or the other agreements or
arrangements that survive in accordance with Section 18, In the event such
action is taken, the prevailing party shall be entitled to payment by the
non-prevailing party of his or its costs and expenses, including without
limitation reasonable attorney's fees, in additional to any other relief to
which he or it may be entitled.
(c) Nothing in this Agreement shall preclude the COI Releasees or the
Haddock Releasees, or any one or more of them, from raising counterclaims
and defenses in any suit brought against such Releasee by, in the case of a
suit against a COI Releasee, a Haddock Releasee, or, in the case of a suit
brought against a Haddock Releasee, a COI Releasee.
10. (a) Employee recognizes the proprietary interest of the Employer Group and
their affiliates in any Confidential Information (as hereinafter defined)
of the Employer Group and their affiliates. Employee acknowledges and
agrees that any and all Confidential Information learned by Employee during
the course of his engagement by Employer or otherwise, whether developed by
Employee alone or in conjunction with others or otherwise, is the property
of the Employer Group and their affiliates. Employee further acknowledges
and understands that his disclosure of any Confidential Information and/or
proprietary information will result in irreparable injury and damage to the
Employer Group and their affiliates. As used herein, "Confidential
Information" means all confidential and proprietary information of the
Employer Group and their affiliates, including without limitation
information derived from reports, investigations, experiments, research,
drawings, designs, plans, proposals, codes, marketing and sales programs,
client lists, client mailing lists,
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financial projections, cost summaries, pricing formulas, and all other
concepts, ideas, materials, or information prepared or performed for or by
the Employer Group or their affiliates. "Confidential Information" also
includes information related to the business, products or sales of the
Employer Group or their affiliates, or any of their respective customers,
other than information that is otherwise publicly available without breach
by any person of any duty to the Employer Group or their affiliates.
(b) Employee acknowledges and agrees that the Employer Group and their
affiliates are entitled to prevent the disclosure of Confidential
Information. As a portion of the consideration for the compensation being
paid to Employee by Employer, Employee agrees at all times to hold in
strict confidence and not to disclose or allow to be disclosed to any
person, firm or corporation, other than to persons engaged by the Employer
Group and their affiliates to further the business of the Employer Group
and their affiliates, and not to use, the Confidential Information without
the prior written consent of the Employer Group.
(c) Employee agrees to provide representatives of the Employer Group
reasonable access to the files and other information containing
Confidential Information. Employee will return to the Employer Group all
originals and copies of any material containing Confidential Information
within 14 days following written request. Employee will also return to the
Employer Group within 14 days following a written request any other items
in his possession, custody or control that are the property of a member of
the Employer Group.
(d) Notwithstanding the foregoing, (i) Employee may use for his own benefit or
the benefit of others any Confidential Information which he can show he
developed outside the course and scope of his employment with the Employer
Group; and (ii) Employee may disclose Confidential Information when
required to do so by compulsory legal process, provided that Employee
promptly upon receiving notice of such process shall notify the Employer
Group and shall cooperate to the fullest extent in any lawful efforts of
the Employer Group to protect the Confidential Information from compulsory
disclosure.
11. Employee hereby acknowledges that he is aware of the restrictions imposed
by federal and state securities laws on a person possessing material
nonpublic information about a company. In this regard, Employee hereby
agrees that while he is in possession of material nonpublic information
with respect to the Employer Group, he will not purchase or sell any
securities of Employer or any other member of the Employer Group, or
communicate such information to any third party, in violation of any such
laws.
12. Employee agrees that he will not encourage or assist any of Employer's
employees to litigate claims or file administrative charges against any
member of Employer Group or any of such member's past or present
affiliates, officers, directors, owners, employees and agents, unless
required to provide testimony or documents pursuant to a lawful subpoena or
other compulsory legal process.
13. Each of Employee and the Employer Group agrees that money damages would not
be a sufficient remedy for any breach of any provision of this Agreement by
the other, and that in addition to all other remedies which the aggrieved
party may have at law or in equity, including without limitation in the
case of a breach by Employee the cessation of payments of compensation
pursuant to Section 2 and the forfeiture of Employee's rights in the New
Vested Options, such party will be entitled, without the requirement of
posting a bond or other security, to specific performance and injunctive or
other equitable relief as a remedy for any such breach. No failure or delay
by either of Employee or Employer Group in exercising any right, power or
privilege hereunder will operate as a waiver thereof, nor will
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any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any right, power or privilege
hereunder.
14. Except as otherwise provided in Section 16, Employee and Employer Group
agree that they will treat the existence and terms of this Agreement as
confidential and will not discuss the Agreement or the Press Release
referenced in Section 16 with anyone other than: (i) his or their counsel,
accountants, or tax advisors as necessary to secure their professional
advice, (ii) as may be required by law, and (iii) in Employee's case, his
spouse.
15. Employee agrees to refrain from making any unfavorable comments, in writing
or orally, about any member of Employer Group, or their operations,
policies, or procedures, or about the Releases. Each member of Employer
Group agrees to refrain from making any unfavorable comments, in writing or
orally, about Employee or his job performance while in the service of the
Employer Group.
16. The Employer Group in its sole discretion shall issue a Press Release
concerning Employee's resignation from Employer Group and Employee
expressly covenants and agrees that neither the issuance nor the contents
of nor discussions relating to such Press Release (subject to Section 15)
shall constitute a violation of this Agreement or create a right of action
against any member of the Employer Group.
17. This Agreement shall be binding on the Employer Group and on Employee and
upon their respective heirs, representatives, successors and assigns, and
shall run to the benefit of the Releasees and each of them and to their
respective heirs, representatives, successors and assigns. The undersigned
members of the Employer Group shall be jointly and severally responsible
for any breach of this Agreement by any other member of the Employer Group.
18. This Agreement sets forth the entire agreement between Employee and the
members of Employer Group, and fully supersedes any and all prior
agreements or understandings between them regarding its subject matter;
provided, however, that nothing in this Agreement is intended to or shall
be construed to modify, impair or terminate any obligation of Employee or
the Employer Group pursuant to that certain Indemnification Agreement
covering Employee, a copy of which is attached hereto as Exhibit B, or to
deprive Employee of any indemnification rights he otherwise would have
pursuant to statute or the Employer Group's governing documents. This
Agreement may only be modified by written agreement signed by both parties.
19. Each of the undersigned members of Employer Group and Employee agree that
in the event any provision of this Agreement is deemed to be invalid or
unenforceable by any court or administrative agency of competent
jurisdiction, or in the event that any provision cannot be modified so as
to be valid and enforceable, then that provision shall be deemed severed
from the Agreement and the remainder of the Agreement shall remain in full
force and effect.
20. Employee and Employer mutually agree to cooperate fully with each other,
and to execute and deliver such other instruments, documents and
agreements, and to take such other actions reasonably requested by either
party to better evidence and reflect the transactions contemplated hereby
and to carry into effect the interests and purposes of this Agreement.
21. Employer Group will reimburse Employee for all reasonable and necessary out
of pocket travel and other expenses incurred by Employee in negotiating the
terms of this Agreement.
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22. This Agreement in all respects shall be interpreted and entered under the
laws of the State of Texas. The language of all parts of this Agreement in
all cases shall be construed as a whole, according to its fair meaning, and
not strictly for or against any of the parties.
PLEASE READ CAREFULLY. THIS
AGREEMENT AND GENERAL RELEASE INCLUDES A
RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.
CRESCENT OPERATING, INC.
By: /s/ Jeffrey L. Stevens
-------------------------------
Its: Executive Vice President
------------------------------
/s/ Gerald W. Haddock
----------------------------------
GERALD W. HADDOCK
EXHIBITS OMITTED.
6
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