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                                                                   EXHIBIT 10.40


                                                                  Execution Copy

                          CREDIT AND SECURITY AGREEMENT

         THIS CREDIT AND SECURITY AGREEMENT (as it may be modified, supplemented
or amended from time to time, this "Agreement") is made and entered into as of
September 21, 1998 between CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a
Delaware limited partnership (the "Lender"), and CRESCENT OPERATING, INC., a
Delaware corporation (the "Borrower").

                                    RECITALS

         WHEREAS, the Borrower requested that the Lender extend a credit
facility (the "Loan") in the original principal amount of $9,000,000 for the
purpose of permitting the Borrower to make certain investments identified
herein; and

         WHEREAS, the Lender is willing to extend the Loan for such purpose on
the terms and conditions set forth herein.

         NOW, THEREFORE, in consideration of the foregoing, and of the
agreements, covenants and conditions contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

SECTION 1.1       Definitions.

                  (a)      The following terms that are defined in the Uniform
                           Commercial Code in effect in the State of Texas on
                           the date hereof are used herein as so defined:
                           Accounts, Chattel Paper, Documents, Equipment, Farm
                           Products, General Intangibles, Instruments, Inventory
                           and Proceeds.

                  (b)      The following terms as used herein, have the
                           following meanings:

         "Agreement" has the meaning set forth in the initial paragraph hereof.

         "Bankruptcy Event of Default" has the meaning set forth in Section 7.1.

         "Borrower" means Crescent Operating, Inc., a Delaware corporation, and
its permitted successors and assigns.

         "Business Day" means any day except a Saturday, Sunday, or other day on
which commercial banks in Texas are authorized by law to close.

         "Cash Equivalent" means (a) securities with maturities of one year or
less from the date of acquisition issued or fully guaranteed or insured by the
United States Government or any agency thereof, (b) certificates of deposit and
Eurodollar time deposits with maturities of one


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year or less from the date of acquisition and overnight bank deposits of any
commercial bank having capital and surplus in excess of $500,000,000, (c)
repurchase obligations of any commercial bank or investment bank satisfying the
requirements of clause (b) of this definition, having a term of not more than 30
days with respect to securities issued or fully guaranteed or insured by the
United States Government or any agency thereof, (d) commercial paper issued in
the United States that is rated at least A-2 by Standard and Poor's Ratings
Group or P-2 by Moody's Investors Service, Inc., (e) securities with maturities
of one year or less from the date of acquisition issued or fully guaranteed by
any state, commonwealth or territory of the United States, by any political
subdivision or taxing authority of any such state, commonwealth or territory or
by any foreign government the securities of which state, commonwealth,
territory, political subdivision, taxing authority or foreign government are
rated at least A by Standard and Poor's Ratings Group or A by Moody's Investors
Service, Inc., (f) securities with maturities of one year or less from the date
of acquisition backed by standby letters of credit issued by any commercial bank
satisfying, the requirements of clause (b) of this definition, or (g) shares of
money market mutual or similar funds that invest substantially exclusively in
assets satisfying the requirements of clauses (a) through (f) of this
definition.

         "Closing Date" means the date this Agreement becomes effective in
accordance with Section 3.1.

         "Code" means the Uniform Commercial Code as from time to time in effect
in the State of Texas.

         "Collateral" has the meaning set forth in Section 4.1.

         "Collateral Account" has the meaning set forth in Section 4.2.

         "COPI Colorado" means COPI Colorado, L.P., a Delaware limited
partnership.

         "Debt" of any Person means at any date, (a) all obligations of such
Person that in accordance with GAAP would be classified on a balance sheet of
such Person as liabilities of such Person ("debt"), (b) all debt of others
secured by a Lien on any asset of such Person, whether or not such debt is
assumed by such Person, and (c) all debt of others guaranteed by such Person.

         "Default" means any condition or event that constitutes an Event of
Default or that with the giving of notice or lapse of time or both would, unless
cured or waived, become an Event of Default.

         "Default Rate" has the meaning set forth in Section 2.3(b).

         "Event of Default" has the meaning set forth in Section 7.1.

         "GAAP" means generally accepted accounting principles in effect from
time to time.

         "Interest Rate" has the meaning set forth in Section 2.3(a).

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         "Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.

         "Lender" means Crescent Real Estate Equities Limited Partnership, a
Delaware limited partnership, and its successors and assigns.

         "Lien" means, with respect to any asset, any mortgage, deed of trust,
lien, pledge, charge, security interest, or encumbrance of any kind in respect
of such asset.

         "Line of Credit Credit Agreement" means the Line of Credit Credit and
Security Agreement dated as of May 21, 1997 between the Borrower and the Lender,
as amended by the First Amendment to Line of Credit Credit and Security
Agreement dated as of August 11, 1998, as further amended by the Second
Amendment to Line of Credit Credit and Security Agreement dated as of September
21, 1998, relating to the loan evidenced by the Line of Credit Note, as such
agreement may be further modified, supplemented or amended from time to time.

         "Line of Credit Note" means the Amended and Restated Line of Credit
Note of the Borrower payable to the order of Lender dated August 11, 1998,
evidencing the obligation of the Borrower to repay the loan under the Line of
Credit Credit Agreement, as such note may be modified, supplemented or amended
from time to time, and any note or notes issued in substitution or replacement
therefor or in addition thereto.

         "Loan" has the meaning set forth in the recitals hereto.

         "Loan Documents" means this Agreement, the Note, the Pledge Agreement,
and all other documents, agreements, and instruments referred to in or required
to be delivered or actually delivered in connection herewith or therewith, as
any of them may be modified, supplemented, or amended from time to time.

         "Material Debt" means Debt (other than the Note) of the Borrower,
arising in one or more related or unrelated transactions, in an aggregate
principal amount exceeding $50,000.

         "Maturity Date" means May 21, 2002.

         "Note" means the Promissory Note of the Borrower payable to the order
of the Lender under the terms of this Agreement dated as of September 21, 1998,
as the same may be modified, supplemented, or amended from time to time, and any
note or notes issued in substitution or replacement therefor or in addition
thereto, substantially in the form of Exhibit A hereto, in the original
principal amount of Nine Million Dollars ($9,000,000.00), evidencing the
obligation of the Borrower to repay the Loan, as modified, supplemented or
amended from time to time.

         "Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or any agency or instrumentality thereof.


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         "Pledge Agreement" means the Amended and Restated Pledge Agreement made
by Borrower in favor of the Lender dated as of June 16, 1997, as amended by the
First Amendment to Amended and Restated Pledge Agreement dated as of September
21, 1998, as the same may be further amended, supplemented or otherwise modified
from time to time.

         "Secured Obligations" means the collective reference to the unpaid
principal of and interest on the Note, the Term Note, the Line of Credit Note,
and all other obligations and liabilities of the Borrower to the Lender whether
direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, that may arise under, out of, or connection
with, this Agreement, the Term Loan Credit and Security Agreement, the Line of
Credit Credit Agreement, the Note, the Term Note, the Line of Credit Note, the
Pledge Agreement, or any other document, made, delivered or given in connection
therewith, in each case whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses or otherwise.

         "Subsidiary" means, with respect to any Person, any corporation,
association, partnership or other business entity of which such Person owns
directly or indirectly through one or more intermediaries 50% or more of the
voting stock, partnership interests or other interests thereof or that is
controlled or capable of being controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a combination
thereof.

         "Term Loan Credit and Security Agreement" means the Amended and
Restated Credit and Security Agreement dated as of May 21, 1997 between the
Borrower and the Lender, as amended by the First Amendment to Amended and
Restated Credit and Security Agreement dated as of August 11, 1998, as further
amended by the Second Amendment to Amended and Restated Credit and Security
Agreement dated as of September 21, 1998, relating to the loan evidenced by the
Term Note, as such agreement may be further modified, supplemented or amended
from time to time.

         "Term Note" means the Amended and Restated Promissory Note of the
Borrower payable to the order of the Lender dated as of May 21, 1997, evidencing
the obligation of the Borrower to repay the loan under the Term Loan Credit and
Security Agreement, as such note may be modified, supplemented, or amended from
time to time, and any note or notes issued in substitution or replacement
therefor or in addition thereto.

         "Termination Date" shall mean the date 95 days from the date upon which
the Loan has been satisfied in full.

SECTION 1.2       Rules of Construction.

                  (a)      Words of the masculine gender shall be deemed and
                           construed to include correlative words of the
                           feminine and neuter genders. Unless the context shall
                           otherwise indicate, words importing the singular
                           number shall include the plural and vice versa.


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                  (b)      Reference to a section number, such as this Section
                           1.2, shall mean and include all provisions within
                           that section of this Agreement, unless a particular
                           subsection, paragraph or subparagraph is specified.

                  (c)      Unless otherwise specified herein, all accounting
                           terms used herein shall be interpreted, all
                           accounting determinations hereunder shall be made,
                           and all financial statements required to be delivered
                           hereunder shall be prepared in accordance with GAAP
                           as in effect from time to time, except as otherwise
                           specified herein, applied on a basis consistent
                           (except for changes concurred in by the Borrower's
                           independent public accountants) with the most recent
                           audited consolidated financial statements of the
                           Borrower delivered to the Lender.

                                   ARTICLE II
                               COMMITMENT AND NOTE

SECTION 2.1       Commitment and Fee.

                  (a)      The Lender agrees, on and subject to the terms and
                           conditions set forth in this Agreement, to advance to
                           the Borrower the principal amount of Nine Million
                           Dollars ($9,000,000.00).

                  (b)      The Borrower shall pay to the Lender a fee of $45,000
                           on the Closing Date.

SECTION 2.2       The Note.

                  (a)      The Loan will be evidenced by the Note. All
                           outstanding principal of and interest on the Loan and
                           all other amounts payable hereunder, if not sooner
                           paid, shall be due and payable on the Maturity Date.

                  (b)      Notwithstanding Section 2.2(a), the Borrower shall,
                           within one Business Day following receipt by Borrower
                           of any distribution from COPI Colorado (other than a
                           distribution in respect of tax liability incurred by
                           the Borrower as a result of being a partner in COPI
                           Colorado) make a mandatory payment of the Loan in an
                           amount equal to such distribution less an amount
                           approved by the Lender in its reasonable discretion
                           for unpaid expenses and payables incurred by Borrower
                           in the ordinary course of business and a reasonable
                           reserve for future expenses. All mandatory payments
                           made under this Section shall be applied to the
                           outstanding principal balance of the Loan and shall
                           be accompanied by a notice from the Borrower
                           specifying the amount of such distribution and the
                           date such distribution was received.


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                  (c)      Except as specified in Section 2.2(b), payments under
                           the Note shall be applied first to any fees, costs or
                           expenses due under the Note or hereunder, then to
                           interest, and then to principal.

SECTION 2.3       Interest Rate and Payments.

                  (a)      Unless an Event of Default has occurred and is
                           continuing, the Loan shall bear interest on the
                           outstanding principal amount thereof until paid in
                           full, at a rate per annum equal to Twelve Percent
                           (12%) (the "Interest Rate").

                  (b)      Upon and during an Event of Default, the Loan shall
                           accrue interest on the outstanding principal balance
                           of the Loan and, to the extent permitted by
                           applicable law, on the unpaid interest, at a rate per
                           annum equal to the Interest Rate plus an additional
                           5.0% per annum (the "Default Rate"), provided that in
                           no event shall the Default Rate exceed the maximum
                           rate of interest permitted by applicable law.

                  (c)      Interest shall be due on the first Business Day of
                           each February, May, August and November, or such
                           other date as the Borrower and the Lender may
                           mutually agree in writing.

                  (d)      On the Maturity Date, the Borrower shall repay in
                           full all accrued but unpaid interest and the entire
                           unpaid principal amount of the Loan.

SECTION 2.4       General Provisions as to Payments.

         The Borrower shall make each payment of principal of, and interest on,
the Loan not later than 11:00 a.m. Fort Worth, Texas time on the date when due,
to the Lender at the Lender's office at 777 Main Street, Suite 2100, Fort Worth,
Texas 76102 in same day or other immediately available funds. Whenever any
payment of principal of, or interest on, the Loan shall be due on a day that is
not a Business Day, the date for payment thereof shall be extended to the next
succeeding Business Day. If the date for any payment of principal is extended by
operation of law or otherwise, interest thereon shall be payable for such
extended time. All such payments shall be made without setoff or counterclaim
and without reduction for, and free from, any and all present or future taxes,
levies, imposts, duties, fees, charges, deductions, withholdings, restrictions
or conditions of any nature imposed by any government or political subdivision
or taxing authority thereof (but excluding any taxes imposed on or measured by
the overall net income of the Lender).

SECTION 2.5       Computation of Interest.

         All interest shall be computed on the basis of a year of 360 days and
paid for the actual number of days elapsed (including the first day, but
excluding the last day).

SECTION 2.6       Use of Proceeds.


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         The proceeds of the Loan shall be used solely to enable the Borrower to
invest in COPI Colorado.

SECTION 2.7       Evidence of Debt.

                  (a)      The Lender shall record (i) the amount of the advance
                           made hereunder, (ii) the amount of any principal or
                           interest due and payable or to become due and payable
                           from the Borrower to the Lender hereunder, and (iii)
                           the amount of any sum received by the Lender
                           hereunder from the Borrower.

                  (b)      The entries recorded by the Lender shall, to the
                           extent permitted by applicable law, be prima facie
                           evidence of the existence and amounts of the
                           obligations of the Borrower therein recorded;
                           provided, however, that the failure of the Lender to
                           record or any error in any record shall not in any
                           manner affect the obligation of the Borrower to repay
                           (with applicable interest) the Loan made to such
                           Borrower in accordance with the terms of this
                           Agreement.

                                   ARTICLE III
                             CONDITIONS TO BORROWING

SECTION 3.1       Conditions to Effectiveness and Further Borrowings.

         This Agreement shall become effective on the date that each of the
conditions set forth below has been satisfied (or waived in accordance with
Section 8.3):

                  (a)      The Lender has received this Agreement, duly executed
                           by the Borrower;

                  (b)      The Lender has received from the Borrower a
                           certificate that each of the representations and
                           warranties of the Borrower contained in this
                           Agreement is true, correct, and complete as of the
                           Closing Date;

                  (c)      The Lender has received a duly executed Note dated as
                           of the Closing Date;

                  (d)      The Lender has received a duly executed Pledge
                           Agreement and such other documents relating to the
                           Pledge Agreement as reasonably required by the
                           Lender;

                  (e)      The Lender has received proper financing statements
                           (Forms UCC-1 or the appropriate equivalent) necessary
                           to perfect the security interest in the Borrower's
                           interest in the Collateral (or such part thereof in
                           which a security interest can be perfected thereby);

                  (f)      The Lender has received the following (i) the
                           articles of incorporation of the Borrower as in
                           effect on the Closing Date, certified as of a recent
                           date

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                           by the Secretary of State of Delaware, (ii) the
                           bylaws of the Borrower as in effect on the Closing
                           Date, certified as of the Closing Date by its
                           corporate secretary, (iii) resolutions of the board
                           of directors of the Borrower authorizing the
                           execution, delivery and performance of this
                           Agreement, certified as of the Closing Date by its
                           corporate secretary, (iv) certificate as to the
                           incumbency of the officers of the Borrower, certified
                           by its corporate secretary, and (v) certificate of
                           good standing of the Borrower issued as of a recent
                           date by the Secretary of State of Delaware; and

                  (g)      No event that, after execution of this Agreement,
                           would constitute an Event of Default hereunder has
                           occurred and is continuing.

                                   ARTICLE IV
                                SECURITY INTEREST

SECTION 4.1       Grant of Security Interest.

                  (a)      As security for the prompt payment, performance, and
                           observance in full of the Loan, the Borrower hereby
                           pledges and assigns to the Lender, and grants to the
                           Lender a continuing security interest in and lien on
                           all of the following property now owned or at any
                           time hereafter acquired by the Borrower or in which
                           the Borrower now has or at any time in the future may
                           acquire any right, title or interest (the
                           "Collateral"):

                           (i)      all Accounts;

                           (ii)     all Chattel Paper;

                           (iii)    all Documents;

                           (iv)     all Equipment;

                           (v)      all General Intangibles;

                           (vi)     all Instruments;

                           (vii)    all Inventory;

                           (viii)   all books and recordings pertaining to the 
                                    Collateral; and

                           (ix)     to the extent not otherwise included, all
                                    Proceeds and products of any of the
                                    foregoing, in any form (whether cash or
                                    non-cash) and all collateral security and
                                    guarantees given by any Person with respect
                                    to any of the foregoing.


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SECTION 4.2       Collateral Account

                  (a)      Establishment of Collateral Account. Upon a request
                           from the Lender or upon the occurrence of an Event of
                           Default, there shall be established and at all times
                           thereafter there shall be maintained by the Borrower,
                           a non-interest bearing cash collateral account with a
                           financial institution approved by the Lender (the
                           "Collateral Account") subject to the terms of this
                           Agreement.

                  (b)      Rights, Title and Interest of Collateral Account. All
                           right, title and interest in and to the Collateral
                           Account shall vest exclusively in the Lender. The
                           Borrower shall have no rights with respect to the
                           Collateral Account and the Lender shall have sole
                           dominion and control over the Collateral Account and
                           the monies deposited therein. Monies deposited in the
                           Collateral Account shall constitute security for the
                           Secured Obligations. The Borrower hereby pledges and
                           assigns to the Lender and hereby warrants to the
                           Lender a security interest in, all right, title or
                           interest (if any) that the Borrower now has or may
                           hereafter have or purport or claim to have in or to
                           the Collateral Account and all monies held therein,
                           any investments made with such monies and any and all
                           certificates or instruments from time to time
                           representing or evidencing such investments (and all
                           proceeds thereof).

                  (c)      Maintaining the Collateral Account. Until the
                           Termination Date of this Agreement:

                           (i)      The Borrower shall maintain the Collateral
                                    Account with a financial institution
                                    approved by the Lender.

                           (ii)     All monies received by the Lender while a
                                    Default or an Event of Default has occurred
                                    and is continuing, and any monies received
                                    as a result of investments made as
                                    contemplated by subsection 4.2(c)(iii)
                                    hereof, shall be deposited in the Collateral
                                    Account.

                           (iii)    Pending the disbursement thereof pursuant to
                                    the terms of this Agreement, all monies in
                                    the Collateral Account shall (to the extent
                                    it is practical to do so) be invested by the
                                    Lender in Cash Equivalents. All such
                                    investments shall be evidenced either (a) by
                                    negotiable certificates or instruments that
                                    are held by or for the account of the Lender
                                    or (b) by book entries maintained in a State
                                    in which the Lender may be granted by book
                                    entries a security interest in the
                                    securities relating thereto. In the absence
                                    of its gross negligence or willful
                                    misconduct, the Lender shall not have any
                                    liability out of or in connection with any
                                    investment made in accordance with the
                                    provisions herein or for any loss or decline
                                    in value of any investment or from any loss
                                    resulting directly or

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                                    indirectly from any investment made pursuant
                                    to and in accordance with the provisions
                                    hereof.

SECTION 4.3       Remedies.

                  (a)      Proceeds to be Turned Over To the Lender. When a
                           Default or an Event of Default has occurred and is
                           continuing all Proceeds received by the Borrower
                           consisting of cash, checks and other near-cash items
                           shall be held by the Borrower in trust for the
                           Lender, segregated from other funds of the Borrower,
                           and shall, forthwith upon receipt by the Borrower, be
                           turned over to the Lender in the exact form received
                           by the Borrower (duly endorsed by the Borrower to the
                           Lender, if required) and held by the Lender in the
                           Collateral Account. All Proceeds while held by the
                           Lender in the Collateral Account (or by the Borrower
                           in trust for the Lender) shall continue to be held as
                           collateral security for all the Secured Obligations
                           and shall not constitute payment thereof until
                           applied as provided in subsection 4.3(b).

                  (b)      Application of Proceeds. At such intervals as may be
                           agreed upon by the Borrower and the Lender, or, if an
                           Event of Default has occurred and is continuing at
                           any time at the Lender's election, the Lender may
                           apply all or any part of Proceeds held in any
                           Collateral Account in payment of the Secured
                           Obligations in such order as the Lender may elect,
                           and any part of such funds that the Lender elects not
                           so to apply and deems not required as collateral
                           security for the Secured Obligations shall be paid
                           over from time to time by the Lender to the Borrower
                           or to whomsoever may be lawfully entitled to receive
                           the same. Any balance of such Proceeds remaining
                           after the Secured Obligations have been paid in full
                           and the Commitment has expired or otherwise been
                           terminated shall be paid over to the Borrower or to
                           whomsoever may be lawfully entitled to receive the
                           same.

                  (c)      Code Remedies. If an Event of Default has occurred
                           and is continuing, the Lender may exercise, in
                           addition to all other rights and remedies granted to
                           it in this Agreement and in any other instrument or
                           agreement securing, evidencing, or relating to the
                           Secured Obligations, all rights and remedies of a
                           secured party under the Code. Without limiting the
                           generality of the forgoing, the Lender, without
                           demand of performance or other demand, presentment,
                           protest, advertisement or notice of any kind (except
                           any notice required by law referred to below) to or
                           upon the Borrower or any other Person (all and each
                           of which demands, defenses, advertisements and
                           notices are hereby varied), may in such circumstances
                           forthwith collect, receive, appropriate and realize
                           upon the Collateral, or any part thereof, and/or may
                           forthwith sell, lease, assign, give option or options
                           to purchase, or otherwise dispose of and deliver the
                           Collateral or any part thereof (or contract to do any
                           of the foregoing), in one or more


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<PAGE>   11


                           parcels at public or private sale or sales, at any
                           exchange, broker's board or office of the Lender or
                           elsewhere upon such terms and conditions as it may
                           deem advisable and at such prices as it may deem
                           best, for cash or on credit or for future delivery
                           without assumption of any credit risk. The Lender
                           shall have the right upon any such public sale or
                           sales, and, to the extent permitted by law, upon any
                           such private sale or sales, to purchase the whole or
                           any part of the Collateral so sold, free of any right
                           or equity of redemption in the Borrower, which right
                           or equity is hereby waived or released. The Borrower
                           further agrees, at the Lender's request, to assemble
                           the Collateral and make it available to the Lender at
                           places that the Lender reasonably selects, whether at
                           the Borrower's premises or elsewhere. To the extent
                           permitted by applicable law, the Borrower waives all
                           claims, damages and demands it may acquire against
                           the Lender arising out of the exercise by them of any
                           rights hereunder. If any notice of a proposed sale or
                           other disposition of Collateral shall be required by
                           law, such notice shall be deemed reasonable and
                           proper if given at least 10 days before such sale or
                           other disposition.

                  (d)      The exercise by the Lender of or failure or refusal
                           to so exercise any right, remedy or power granted
                           under this Agreement or available to the Lender at
                           law or in equity or under statute shall in no manner
                           affect the Borrower's liability to the Lender, and
                           the Lender shall be under no obligation or duty to
                           exercise any of the rights, remedies or powers
                           conferred upon it hereby or by applicable law, and it
                           shall incur no liability for any act or failure to
                           act in connection with the collection of, or the
                           preservation of any rights under, any of the
                           Collateral.

SECTION 4.4       Lender Appointment as Attorney-in-Fact; Lender Performance of
                  Borrower's Obligations.

                  (a)      Powers. The Borrower hereby irrevocably constitutes
                           and appoints the Lender and any officer or agent
                           thereof, with full power of substitution, as its true
                           and lawful attorney-in-fact with full irrevocable
                           power and authority in the place and stead of the
                           Borrower and in the name of the Borrower or in its
                           own name, for the purpose of carrying out the terms
                           of this Agreement, to take any and all appropriate
                           action and to execute any and all documents and
                           instruments that may be necessary or desirable to
                           accomplish the purposes of this Agreement, and,
                           without limiting, the generality of the foregoing,
                           the Borrower hereby gives the Lender the power and
                           right, on behalf of the Borrower, without notice to
                           or assent by the Borrower, to do any or all of the
                           following:

                           (i)      at any time when an Event of Default has
                                    occurred and is continuing in the name of
                                    the Borrower or its own name, or otherwise,
                                    take possession of and endorse and collect
                                    any checks, drafts, notes, acceptances or
                                    other instruments for the payment of

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                                    moneys due with respect to any Collateral
                                    and file any claim or take any other action
                                    or proceeding in any court of law or equity
                                    or otherwise deemed appropriate by the
                                    Lender for the purpose of collecting any and
                                    all such moneys due with respect to any
                                    Collateral whenever payable;

                           (ii)     pay or discharge taxes and Liens levied or
                                    placed on or threatened against the
                                    Collateral, effect any repairs or any
                                    insurance called for by the terms of this
                                    Agreement and pay all or any part of the
                                    premiums therefor and the costs thereof;

                           (iii)    execute, in connection with any sale
                                    provided for in subsection 4.3(c), any
                                    endorsements, assignments or other
                                    instruments of conveyance or transfer with
                                    respect to the Collateral; and

                           (iv)     at any time when an Event of Default has
                                    occurred and is continuing (1) direct any
                                    party liable for any payment under any of
                                    the Collateral to make payment of any and
                                    all moneys due or to become due thereunder
                                    directly to the Lender or as the Lender
                                    shall direct; (2) ask or demand for,
                                    collect, receive payment of and receipt for,
                                    any and all moneys, claims and other amounts
                                    due or to become due at any time in respect
                                    of or arising out of any Collateral; (3)
                                    sign and endorse any invoices, freight or
                                    express bills, bills of lading, storage or
                                    warehouse receipts, drafts against debtors,
                                    assignments, verifications, notices and
                                    other documents in connection with any of
                                    the Collateral; (4) commence and prosecute
                                    any suits, actions or proceedings at law or
                                    in equity in any court of competent
                                    jurisdiction to collect the Collateral or
                                    any thereof and to enforce any other right
                                    in respect of any Collateral; (5) defend any
                                    suit, action or proceeding brought against
                                    the Borrower with respect to any Collateral
                                    (other than any such suit, action or
                                    proceeding brought by the Lender); (6)
                                    settle, compromise or adjust any such suit,
                                    action or proceeding (other than any such
                                    suit, action or proceeding brought by the
                                    Lender) and, in connection therewith, to
                                    give such discharges or releases as the
                                    Lender may deem appropriate; (7) generally,
                                    sell, transfer, pledge and make any
                                    agreement with respect to or otherwise deal
                                    with any of the Collateral as fully and
                                    completely as though the Lender were the
                                    absolute owner thereof for all purposes, and
                                    do, at the Lender's option and the
                                    Borrower's expense, at any time, or from
                                    time to time, all acts and things that the
                                    Lender deems necessary to protect, preserve
                                    or realize upon the Collateral and the
                                    Lender's security interests therein and to
                                    effect the intent of this Agreement, all as
                                    fully and effectively as the Borrower might
                                    do.


                                      -12-


<PAGE>   13



                  (b)      Ratification: Power Coupled With An Interest. The
                           Borrower hereby ratifies all that said attorneys
                           shall lawfully do or cause to be done by virtue
                           hereof in accordance with the terms of this
                           Agreement, absent gross negligence or willful
                           misconduct on the part of the Lender. All powers,
                           authorizations and agencies contained in this
                           Agreement are coupled with an interest and are
                           irrevocable until this Agreement is terminated and
                           the security interests created hereby are released.

SECTION 4.5       Performance by Lender of Borrower's Obligations

         If the Borrower fails to perform or comply with any of its agreements
contained in this Article IV, the Lender, at its option, but without any
obligation so to do, may perform or comply with, or otherwise cause performance
or compliance with, such agreement.

SECTION 4.6       Borrower's Reimbursement Obligation.

         The expenses of the Lender incurred in connection with actions
undertaken as provided in this Article IV, together with interest thereon at the
Default Rate, from the date of payment by the Lender to the date reimbursed by
the Borrower, shall be payable by the Borrower to the Lender on demand.

SECTION 4.7       Duty of the Lender.

         The Lender's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9-207
of the Code or otherwise, shall be to deal with it in the same manner as the
Lender deals with similar property for its own account. Neither the Lender, nor
any of its respective officers, directors, employees or agents shall be liable
for failure to demand, collect or realize upon any of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of the Borrower or any other Person or to
take any other action whatsoever with regard to the Collateral or any part
thereof. The powers conferred on the Lender hereunder are solely to protect the
Lender's interests in the Collateral and shall not impose any duty upon the
Lender to exercise any such powers. The Lender shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers,
and neither it nor any of its officers, directors, employees or agents shall be
responsible to the Borrower for any act or failure to act hereunder, except for
their own across negligence or willful misconduct.

SECTION 4.8       Execution of Financing Statements.

         Pursuant to Section 9-402 of the Code, the Borrower authorizes the
Lender to file financing statements with respect to the Collateral without the
signature of the Borrower in such form and in such filing offices as the Lender
reasonably determines appropriate to perfect the security interests of the
Lender under this Agreement. The Lender shall provide the Borrower with copies
of any such financing statements. A carbon, photographic or other reproduction
of this Agreement shall be sufficient as a financing statement for filing in any
jurisdiction.


                                      -13-


<PAGE>   14



SECTION 4.9       The Pledge Agreement.

         In addition to the security interest granted hereunder, the Borrower
shall grant to the Lender a security interest in the Pledged Partnership
Interests and the Pledged Stock (as that term is defined in the Pledge
Agreement) pursuant to the Pledge Agreement.

SECTION 4.10      Pledged Notes.

         With respect to any promissory notes now or hereinafter owned or owing
to the Borrower, such notes shall be promptly endorsed in blank and delivered to
the Lender.

SECTION 4.11      Release of Collateral.

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

                                    ARTICLE V
                         REPRESENTATIONS AND WARRANTIES

         The Borrower represents and warrants that:

SECTION 5.1       Existence and Power.

         The Borrower is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware, and has all corporate
power and authority, and all material governmental licenses, authorizations,
consents, and approvals required to carry on its business as now conducted.

SECTION 5.2       Corporate and Government Authorization; No Contravention.

         The execution, delivery, and performance by the Borrower of this
Agreement, the Pledge Agreement and the Note are within the scope of the
Borrower's power and authority, have been duly authorized by all necessary
corporate action of the Borrower, require no action by or in respect of, or
filing with, any governmental body, agency, or official and do not contravene,
or constitute a default under, the Certificate of Incorporation or Bylaws of the
Borrower or under any provision of applicable law or regulation to which the
Borrower is subject, or of any judgment, injunction, order, or decree, binding
upon the Borrower, except for such contraventions as will not, singly or in the
aggregate, have a material adverse effect on the 

                                      -14-


<PAGE>   15

ability of the Borrower to perform its obligations under this Agreement, the
Pledge Agreement or the Note.


SECTION 5.3       Binding Effect.

         This Agreement constitutes the legal, valid, binding, and enforceable
agreement of the Borrower, except as (a) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (b) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability.

SECTION 5.4       Litigation.

         There is no action, suit or proceeding pending against, or to the
knowledge of the Borrower, threatened against or affecting the Borrower before
any court or arbitrator or any governmental body, agency or official that could
materially adversely affect the business, financial position, results of
operations, or prospects of the Borrower or that could materially adversely
affect the ability of the Borrower to perform its obligations under this
Agreement, the Pledge Agreement or the Note or that in any manner draws into
question the validity of this Agreement, the Pledge Agreement or the Note.

SECTION 5.5       Taxes.

         The Borrower has filed all material tax returns and reports required by
law to have been filed and has paid all taxes and governmental charges thereby
shown to be due and payable.

SECTION 5.6       Debt.

         Except as set forth in the financial statements delivered to the Lender
pursuant to Section 5.13, the Borrower has and will have no Debt outstanding on
the Closing Date other than (a) the Debt outstanding hereunder, (b) Debt that
has previously been disclosed to the Lender in writing, and (c) Debt that will
not, in the aggregate, have a material adverse effect on the business,
operations, or prospects of the Borrower.

SECTION 5.7       Title to Assets.

                  (a)      The Borrower has legal title to or a legal and valid
                           leasehold interest in all property and assets owned
                           by it on the date hereof, and will have legal title
                           to all property and assets acquired by it at any time
                           subsequent to the date hereof, free and clear of all
                           Liens, except Liens in favor of the Lender.

                  (b)      Except for the security interest granted to the
                           Lender pursuant to this Agreement, the Borrower owns
                           each item of the Collateral free and clear of any and
                           all Liens or claims of others. No financing statement
                           or other public notice with respect to all or any
                           part of the Collateral is on file or 


                                      -15-


<PAGE>   16


                           of record in any public office, except such as have
                           been filed in favor of the Lender pursuant to this
                           Agreement or the Pledge Agreement.

SECTION 5.8       Perfected First Priority Liens.

         The security interests granted pursuant to this Agreement (a)
constitute perfected security interests in the Collateral in favor of the
Lender, as collateral security for the Secured Obligations and (b) are prior to
all other Liens on the Collateral in existence on the date hereof.

SECTION 5.9       Inventory and Equipment.

         The Inventory and the Equipment are kept at the locations listed on
Schedule 1.

SECTION 5.10      Chief Executive Office.

         The Borrower's chief executive office is located at 306 W. 7th Street,
Suite 1025, Fort Worth, Texas 76102.

SECTION 5.11      Farm Products.

         None of the Collateral constitutes, or is the Proceeds of, Farm
Products.

SECTION 5.12      No Subsidiaries.

         The Borrower has no Subsidiaries on the date hereof, other than as
previously disclosed in writing to the Lender.

SECTION 5.13      Financial Information.

         All financial information that has been or is hereafter furnished by or
on behalf of the Borrower or by any other Person at the Borrower's direction to
the Lender for the purposes of or in connection with this Agreement present
fairly the financial condition as at the dates thereof (subject to normal year
end adjustments in the case of unaudited financial statements)

SECTION 5.14      No Material Adverse Change

         There has been no material adverse change in the business, financial
condition, operations, assets, revenues, properties, or prospects of the
Borrower taken as a whole from the financial information previously provided to
Lender.


                                      -16-


<PAGE>   17



                                   ARTICLE VI
                                    COVENANTS

         The Borrower agrees that, so long as any amount payable hereunder
remains unpaid:

SECTION 6.1       Conduct of Business and Maintenance of Existence.

         The Borrower will perform the Intercompany Agreement between the Lender
and the Borrower and such activities as are necessary or incidental thereto, and
preserve, renew and keep full force and effect its existence.

SECTION 6.2       Financial Information.

         The Borrower shall deliver to the Lender:

                  (a)      as soon as available, but in no event more than one
                           hundred twenty (120) days after the end of each
                           fiscal year of the Borrower, financial statements of
                           the Borrower containing a balance sheet and the
                           related statements of operations and cash flows,
                           showing the financial condition of the Borrower at
                           the close of and for such year; and

                  (b)      as soon as available, but in no event more than sixty
                           (60) days after the end of each of the first three
                           quarters of each fiscal year of the Borrower,
                           financial statements of the Borrower containing a
                           balance sheet and the related statements of income
                           prepared on a cash basis, showing the financial
                           condition of the Borrower at the close of and for
                           such period.

         The financial statements delivered pursuant to subsections (a) and (b)
of this Section 6.2 shall be certified by the president or chief financial
officer of the Borrower as true, complete, and correct and, as to the financial
statements delivered pursuant to subsection (a) of this Section 6.2, as having
been prepared in accordance with GAAP.

SECTION 6.3       Compliance with Laws.

         The Borrower shall comply all applicable laws, ordinances, rules,
regulations, and requirements of governmental authorities except where the
necessity of compliance therewith is contested in good faith by appropriate
proceedings or where the failure to comply therewith will not materially
adversely affect the business operations, or financial condition of the Borrower
or the ability of the Borrower to perform its obligations under this Agreement,
the Pledge Agreement or the Note.


                                      -17-


<PAGE>   18



SECTION 6.4       Incurrence of Debt.

         The Borrower shall not issue, assume, guarantee, incur, or otherwise be
or become liable in respect of Debt, other than Debt expressly approved by the
Lender in writing, which approval may be withheld in the Lender's sole
discretion.

SECTION 6.5       Limitation on Liens.

         The Borrower shall not create, incur, assume or suffer to exist any
Lien upon or with respect to any of its assets, whether now or hereafter
acquired, or assign or otherwise convey any right to receive income except (a)
Liens in favor of the Lender; (b) Liens expressly approved by the Lender, which
approval shall not be unreasonably withheld; (c) Liens imposed by any
governmental authority for taxes, assessments or charges not yet due or that are
being contested in good faith and by appropriate proceedings if adequate
reserves with respect thereto are maintained on the books of the Borrower in
accordance with GAAP; and (d) Liens disclosed to the Lender on or before the
Closing Date that would not, in the aggregate, have a material adverse effect on
the business, operations, or prospects of the Borrower.

SECTION 6.6       Consolidations, Mergers, and Sales of Assets.

         The Borrower shall not wind up, liquidate or dissolve its affairs or
convey, sell, lease or otherwise dispose of (or agree to do any of the foregoing
at any future time), whether in one or a series of transactions, all or any
substantial part of its assets, unless such transaction or series of
transactions are expressly approved by the Lender, which approval shall not be
unreasonably withheld.

SECTION 6.7       Books and Records.

         The Borrower shall keep books and records that accurately reflect all
of its business affairs and transactions in all material respects. The Borrower
shall permit the Lender at reasonable times and intervals during normal business
hours to examine and photocopy extracts from any of its books or other corporate
records.

SECTION 6.8       Lien on Collateral.

         The Borrower shall, at its sole cost and expense, perform all acts and
execute all documents requested by the Lender at any time to evidence, perfect,
maintain and enforce the Lender's security interest and the first priority
thereof in the Collateral. Upon the Lender's request, at any time and from time
to time, the Borrower shall, at its sole cost and expense, execute and deliver
to the Lender one or more financing statements (in form and substance
satisfactory to the Lender) pursuant to the Code and, where permitted by law,
the Borrower hereby authorizes the Lender to execute and file one or more
financing statements signed only by the Lender or to file a copy of this
Agreement as a financing statement.


                                      -18-


<PAGE>   19



SECTION 6.9       Restriction on Distributions.

         The Borrower shall not make dividend distributions to its shareholders
at any time when there exists an outstanding balance on the Loan.

SECTION 6.10     Restriction on Certain Amendments.

         The Borrower shall not amend its organizational documents without the
prior written consent of the Lender, which consent shall not be unreasonably
withheld.

SECTION 6.11      Delivery of Instruments and Chattel Paper.

         If any amount payable under or in connection with any of the Collateral
shall be or become evidenced by any Instrument or Chattel Paper, such Instrument
or Chattel Paper shall be immediately delivered to the Lender, duly endorsed in
a manner satisfactory to the Lender, to be held as Collateral pursuant to this
Agreement.

SECTION 6.12      Maintenance of Insurance.

         The Borrower shall maintain, with financially sound and reputable
companies, insurance policies insuring the Inventory and Equipment against loss
by fire, explosion, theft and such other casualties as may be reasonably
satisfactory to the Lender, such policies to be in such form and amounts and
having such coverage as may be reasonably satisfactory to the Lender, with
losses payable to the Borrower and the Lender as their respective interests may
appear.

                  (a)      All such insurance shall (i) provide that no
                           cancellation, material reduction in amount or
                           material change in coverage thereof shall be
                           effective until at least 30 days after receipt by the
                           Lender of written notice thereof, (ii) name the
                           Lender as an insured party and (iii) be reasonably
                           satisfactory in all other respects to the Lender.

                  (b)      The Borrower shall deliver to the Lender a report of
                           a reputable insurance broker with respect to such
                           insurance in each calendar year and such supplemental
                           reports with respect thereto as the Lender may from
                           time to time reasonably request.

SECTION 6.13      Changes in Locations, Name, etc.


         The Borrower shall not unless it shall have given the Lender at least
30 days prior written notice of such change (or, in the case of Inventory and
Equipment, at least 10 days prior written notice, to the extent that the
Borrower has taken such action as reasonably may be required of it to maintain
the continuous perfection of the Lender's security interest in such Inventory or
Equipment, as the case may be):

                  (a)      permit any of the Inventory (other than
                           goods-in-transit and immaterial amounts of goods in
                           temporary locations in the ordinary course of

                                      -19-


<PAGE>   20



                           business) or Equipment to be kept at a location other
                           than those listed on Schedule 1;

                  (b)      change the location of its chief executive office
                           from that specified in subsection 5.10; or

                  (c)      change its name, identity or corporate structure to
                           such an extent that any financing statement filed by
                           the Lender in connection with this Agreement would
                           become seriously misleading.

SECTION 6.14      Further Identification of Collateral.

         The Borrower shall furnish to the Lender from time to time statements
and schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Lender may reasonably request,
all in reasonable detail.

SECTION 6.15      Notices.

         The Borrower shall advise the Lender promptly, in reasonable detail, of
(a) any Lien (other than security interests created hereby or Liens permitted
under this Agreement) on any of the Collateral and (b) the occurrence of any
other event that could reasonably be expected to have a material adverse effect
on the aggregate value of the Collateral or on the security interests created
hereby.

SECTION 6.16      Additional Collateral.

         With respect to any Person that, subsequent to the Closing Date,
becomes a Subsidiary, the Borrower shall promptly cause such new Subsidiary to
(a) execute and deliver to the Lender a guaranty of the Loan in form and
substance satisfactory to the Lender, and a new pledge agreement or such
amendments to the existing Pledge Agreement as the Lender shall deem necessary
or reasonably advisable to grant to the Lender, for the benefit of the Lender, a
Lien on the capital stock or other ownership interests of such Subsidiary that
is owned by the Borrower or any of its Subsidiaries, (b) deliver to the Lender
the certificates representing such capital stock or other ownership interests,
together with undated stock powers executed and delivered in blank by a duly
authorized officer of the Borrower or such Subsidiary, as the case may be, (c)
take all actions necessary or advisable to grant a security interest to the
Lender in the property and assets of such Subsidiary, including, without
limitation, the filing of financing statements in such jurisdictions as may be
requested by the Lender and the execution and delivery by such Subsidiary of a
security agreement in a form acceptable to the Lender.

SECTION 6.17      COPI COLORADO.

         Subject to its fiduciary duties to the other partners in COPI Colorado,
the Borrower, in its capacity as general partner of COPI Colorado, shall not
take any affirmative action to cause, or fail to take any action that would
cause, COPI Colorado to (a) create, incur, assume or suffer to exist any Lien
upon or with respect to any of its assets, whether now or hereafter acquired,

                                      -20-


<PAGE>   21



except Liens in favor of the Lender, (b) guarantee any Debt, or (c) wind up,
liquidate or dissolve its affairs or convey, sell, lease or otherwise dispose of
(or agree to do any of the foregoing at any future time), whether in one or a
series of transactions, all or any substantial part of its assets, without in
each instance (i) giving the Lender at least 10 days prior written notice of the
proposed action (including those actions taken pursuant to the Borrower's
fiduciary duties to the other partners in COPI Colorado) and (ii) receiving the
written consent of the Lender to such action, which consent shall not be
unreasonably withheld. In addition, the Borrower shall deliver to the Lender as
soon as available, but in no event more than one hundred twenty (120) days after
the end of each fiscal year of COPI Colorado, financial statements of COPI
Colorado containing a balance sheet and the related statements of operations and
cash flows, showing the financial condition of COPI Colorado at the close of and
for such year.

                                   ARTICLE VII
                                    DEFAULTS

SECTION 7.1       Events of Default.

         If one or more of the following events ("Events of Default") has
occurred and is continuing:

                  (a)      except as permitted pursuant to Section 2.2(b), the
                           Borrower fails to pay within five Business Days of
                           the due date any principal or interest on the Loan;

                  (b)      any representation or warranty made by the Borrower
                           hereunder or in any certificate furnished by or on
                           behalf of the Borrower is incorrect when made in any
                           material respect;

                  (c)      the Borrower fails to observe or perform the
                           provisions of Section 6.9 hereof for five Business
                           Days;

                  (d)      the Borrower fails to observe or perform any covenant
                           or agreement contained in this Agreement, the
                           Pledge Agreement, the Note (other than those covered
                           by clause (a), (b) or (c) above), or any other Loan
                           Document for 30 days (or, with respect to Section 6.2
                           of this Agreement, for 30 days after written notice
                           thereof has been given to the Borrower by the
                           Lender); provided however, if such default is capable
                           of cure and the Borrower is diligently proceeding to
                           cure such default, the cure period in this subsection
                           (d) shall be extended for such additional time, not
                           to exceed 30 days, as is reasonably necessary to
                           complete such cure;

                  (e)      the Borrower fails to make any payment in respect of
                           any Material Debt other than the Debt of the Borrower
                           under this Agreement and the Note when due or within
                           any applicable grace period;


                                      -21-


<PAGE>   22



                  (f)      the Borrower commences a voluntary case or other
                           proceeding seeking liquidation, reorganization, or
                           other relief with respect to itself or its debts
                           under any bankruptcy, insolvency, or other similar
                           law now or hereafter in effect or seeking the
                           appointment of a trustee, receiver, liquidator,
                           custodian, or other similar official of it or any
                           substantial part of its property, or consents to any
                           such relief or to the appointment of or taking
                           possession by any such official in an involuntary
                           case or other proceeding commenced against it, or
                           makes a general assignment for the benefit of
                           creditors, or fails generally to pay its debts as
                           they become due, or takes any action to authorize any
                           of the foregoing;

                  (g)      an involuntary case or other proceeding is commenced
                           against the Borrower seeking liquidation,
                           reorganization, rehabilitation, conservation, or
                           other relief with respect to it or its debts under
                           any bankruptcy, insolvency or other similar law now
                           or hereafter in effect or seeking the appointment of
                           a trustee, receiver, liquidator, custodian,
                           rehabilitator, conservator, or other similar official
                           of it or any substantial part of its property, and
                           such involuntary case or other proceeding remains
                           undismissed and unstayed for a period of 120 days; or
                           an order for relief is entered against the Borrower
                           under the federal bankruptcy laws or any state
                           insolvency laws as now or hereafter in effect;

                  (h)      a judgment or order for the payment of money in
                           excess of $500,000 is rendered against the Borrower
                           and such judgment or order continues unsatisfied,
                           unstayed and unbounded for a period of 30 days;
                           provided, however that a judgment or order fully
                           covered by insurance, which coverage has not been
                           disputed by the insurer, shall not be considered a
                           Default;

                  (i)      an "Event of Default" under the Line of Credit Credit
                           Agreement; or

                  (j)      an "Event of Default" under the Term Loan Credit and
                           Security Agreement;

                  then, and in every such event, the Lender may, by notice to
                  the Borrower, declare the Note (together with accrued interest
                  thereon) to be, and the Note shall thereupon become,
                  immediately due and payable without presentment, demand,
                  protest, or other notice of any kind, all of which are hereby
                  waived by the Borrower; provided that in the case of any of
                  the Events of Default specified clause (f) or (g) above (each,
                  a "Bankruptcy Event of Default"), without any notice to the
                  Borrower or any other act by the Lender, the Note (together
                  with accrued interest thereon) shall become immediately due
                  and payable without presentment, demand, protest, or other
                  notice of any kind, all of which are hereby waived by the
                  Borrower.


                                      -22-


<PAGE>   23



                                  ARTICLE VIII
                                  MISCELLANEOUS

SECTION 8.1       Notices.

         All notices requests and other communications to any party hereunder
shall be in writing (including bank wire, telex, facsimile transmission or
similar writing) and shall be given to such party: (a) in the case of the
Borrower or the Lender at their respective addresses or facsimile numbers set
forth on the signature pages hereof or (b) in the case of any party, such other
address or facsimile number as such party may hereafter specify for the purpose
by notice to the other party in accordance with this Section. All notices shall
be effective when received.

SECTION 8.2       Expenses; Indemnification.

                  (a)      The Borrower shall pay (i) all out-of-pocket expenses
                           reasonably incurred by the Lender, including
                           reasonable fees and disbursements of counsel in
                           connection with any waiver or consent hereunder or
                           any amendment hereof or any Default or alleged
                           Default hereunder, and (ii) if an Event of Default
                           occurs, all out-of-pocket expenses incurred by the
                           Lender, including reasonable fees and disbursements
                           of counsel in connection with such Event of Default
                           and collection, bankruptcy, insolvency, and other
                           enforcement proceedings resulting therefrom. The
                           Borrower shall indemnify the Lender against any
                           transfer taxes, documentary taxes, assessments or
                           charges made by any governmental authority by reason
                           of the execution and delivery of this Agreement, the
                           Pledge Agreement or the Note.

                  (b)      The Borrower shall indemnify the Lender and hold the
                           Lender harmless from and against any and all
                           liabilities, losses, damages, costs and expenses of
                           any kind (other than general overhead and
                           administrative expenses), including, without
                           limitation, the reasonable fees and disbursements of
                           counsel, which may be incurred by the Lender in
                           connection with any investigative, administrative, or
                           judicial proceeding (whether or not the Lender is
                           designated a party thereto) relating to or arising
                           out of this Agreement, the Pledge Agreement or the
                           Note or any actual or proposed use of proceeds of the
                           Loan hereunder; provided that the Lender shall not
                           have the right to be indemnified hereunder for (i)
                           any proceeding against the Lender by any governmental
                           authority charged with the supervision of the Lender
                           or (ii) its own gross negligence or willful
                           misconduct as determined by a court of competent
                           jurisdiction.

SECTION 8.3       Amendments and Waivers.

         Any provision of this Agreement, the Pledge Agreement, the Note or any
other Loan Document may be amended or waived if, but only if, such amendment or
waiver is in writing and is signed by the Lender and the Borrower.

                                      -23-


<PAGE>   24




SECTION 8.4       Successors and Assigns.

         The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
except that the Borrower may not assign or otherwise transfer any of its rights
under this Agreement without the prior written consent of the Lender. The
purchaser, assignee, transferee, or pledgee of any of the Lender's rights under
the Lender's security interest hereunder shall forthwith become vested with and
entitled to exercise all the rights, powers, and remedies given under this
Agreement to the Lender, as if said purchaser, assignee, transferee, or pledgee
were originally named as secured party herein.

SECTION 8.5       Governing Law; Submission to Jurisdiction.

         THIS AGREEMENT, THE PLEDGE AGREEMENT, THE NOTE AND THE OTHER LOAN
DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
TEXAS WITHOUT GIVING EFFECT TO THE CHOICE OF LAW
RULES THEREOF. The Borrower hereby submits to the nonexclusive Jurisdiction of
the United States District Court for the Northern District of Texas and of any
Texas state court for purposes of all legal proceedings arising out of or
relating to this Agreement or the transactions contemplated hereby. The Borrower
irrevocably waives, to the fullest extent permitted by law, any objection that
it may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such a
court has been brought in an inconvenient forum.

SECTION 8.6       Counterparts; Integration.

         This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Agreement constitutes the entire
agreement and understanding among the parties hereto and supersedes any and all
prior agreements and understandings, oral or written, relating to the subject
matter hereof.

SECTION 8.7       WAIVER OF JURY TRIAL.

         THE BORROWER AND THE LENDER HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. This waiver of right to a
trial by jury is separately given, knowingly and voluntarily, by the Borrower
and the Lender, and this waiver is intended to encompass individually each
instance and each issue as to which the right to a trial by jury would otherwise
accrue. The Borrower and the Lender are hereby authorized and requested to
submit this Agreement to any court having jurisdiction over the subject matters
and the parties hereto, so as to serve as conclusive evidence of the parties'
herein contained waiver of the right to trial by jury. Further, the Borrower and
the Lender hereby certify that no representative, attorney or agent of any other
party has represented, expressly or otherwise, to the Borrower or the Lender
that any other party will not seek to enforce this waiver of right to trial by
jury provision.


                                      -24-


<PAGE>   25



SECTION 8.8       Termination; Release.

         Until the Termination Date, this Agreement shall be a continuing
agreement and shall remain in full force and effect. After the Termination Date,
this Agreement shall terminate, and the Lender, at the request and expense of
the Borrower, will execute and deliver to Borrower a proper instrument or
instruments acknowledging the satisfaction and termination of this Agreement,
and will duly assign, transfer and deliver to the Borrower (without recourse and
without any representation or warranty) at the expense of the Lender the
Collateral if in the possession of the Lender or its agents and not theretofore
sold or otherwise applied or released pursuant to this Agreement.

SECTION 8.9       Effect of Headings.

         The Article and Section headings herein are for convenience of
reference only and shall not affect the construction hereof.

SECTION 8.10      Severability of Provisions.

         Any provision of this Agreement that is prohibited or unenforceable in
any jurisdiction shall not invalidate the remaining provisions hereof or affect
the validity or enforceability of such provisions in any other jurisdiction.

SECTION 8.11      Application of Proceeds.

         The parties agree that the Lender shall have the right to apply the
proceeds of any Collateral under this Agreement, the Line of Credit Credit
Agreement or the Term Loan Credit and Security Agreement in its sole discretion,
against the Secured Obligations under this Agreement, the Secured Obligations
under the Line of Credit Credit Agreement, or the Secured Obligations under the
Term Loan Credit and Security Agreement.


                                      -25-


<PAGE>   26



         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.

                                  CRESCENT OPERATING, INC.,



                                  By:  /s/ RICHARD P. KNIGHT
                                     -------------------------------------------
                                  Name:    Richard P. Knight
                                       -----------------------------------------
                                  Title:   Chief Financial Officer
                                        ----------------------------------------


                                  Notice Address:
                                  306 W. 7th Street
                                  Suite 1025
                                  Fort Worth, Texas 76102
                                  Facsimile: (817) 339-1001


                                  CRESCENT REAL ESTATE EQUITIES
                                  LIMITED PARTNERSHIP

                                  By:      Crescent Real Estate Equities, Ltd.,
                                           its general partner


                                           By:  /s/ BRUCE A. PICKER
                                              ----------------------------------
                                           Name:    Bruce A. Picker
                                                --------------------------------
                                           Title:   Vice President and Treasurer
                                                 -------------------------------

                                  Notice Address:
                                  777 Main Street
                                  Suite 2100
                                  Fort Worth, Texas  76102
                                  Facsimile: (817) 321-2000



                                      -26-


<PAGE>   27



Exhibits and Schedules:

Exhibit A:  Promissory Note

Exhibit B:  Form of Closing Certificate

Schedule 1:  Location of the Inventory and Equipment


                                      -27-


<PAGE>   28



                                    EXHIBIT A

                                 PROMISSORY NOTE

$9,000,000.00                                                September 21, 1998

         FOR VALUE RECEIVED, CRESCENT OPERATING, INC., a Delaware corporation
("Borrower"), promises to pay to CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership ("Lender"), at 777 Main Street,
Suite 2100, Fort Worth, Texas 76102, the principal sum of Nine Million and
No/100 Dollars ($9,000,000.00), with interest on the principal balance from time
to time at the rates hereinafter provided.

         The Borrower promises to pay interest on the unpaid principal balance
hereof from the date hereof until paid in full pursuant to the Credit and
Security Agreement, dated as of September 21, 1998, between the Borrower and the
Lender (as the same may be amended, modified or supplemented from time to time,
the "Credit Agreement"). The Borrower promises to pay the aggregate outstanding
principal amount of the Loan together with interest thereon, on the dates, in
the amounts and at the rate or rates provided in the Credit Agreement; provided
that the interest payable shall not exceed the maximum rate permitted by
applicable law (the "Maximum Rate"). Interest on the principal hereof from time
to time remaining unpaid and, to the extent permitted by applicable law,
interest on the unpaid interest, shall bear interest from and after an Event of
Default at the Default Rate provided that in no event shall the Default Rate be
more than the Maximum Rate.

         This note is the Note referred to in the Credit Agreement. This Note
and the holder hereof are entitled to all of the benefits provided for thereby
or referred to therein. Reference is hereby made to the Credit Agreement for a
statement of such benefits. Terms defined in the Credit Agreement are used
herein with the same meanings. Reference is made to the Credit Agreement for
provisions for the acceleration of the maturity hereof.

         This Note shall be payable as provided in the Credit Agreement.

         Upon the occurrence of any Event of Default (after the giving of any
notice required in the Credit Agreement and the expiration of any applicable
grace periods provided for in the Credit Agreement), all amounts then remaining
unpaid on this Note shall become immediately due and payable, and the holder
hereof shall have all rights and remedies of Lender under the Credit Agreement
and other Loan Documents. The failure to exercise the option to accelerate the
maturity of this Note upon the happening of any one or more of the Events of
Default shall not constitute a waiver of the right with respect to such uncured
default or any other event of uncured default hereunder or under any other of
the Loan Documents. The remedies of the holder hereof, as provided in the Note
and in any other of the Loan Documents, shall be cumulative and concurrent and
may be pursued separately, successively or together, as often as occasion
therefor shall arise, at the sole discretion of the holder. The acceptance by
the holder hereof of any payment under this Note that is less than payment in
full of all amounts due and payable at the time of such shall not constitute a
waiver of or impair, reduce, release, or extinguish any of the rights or
remedies of the holder hereof to exercise the foregoing option or 


<PAGE>   29

any other option granted to the holder in this Note or in any other of the Loan
Documents, at that time or at any subsequent time, or nullify any prior exercise
of any such option.

         The undersigned and all other parties now or hereafter liable for the
payment hereof, whether as endorser, surety, or otherwise, except as provided in
the Credit Agreement, severally waive demand, presentment, notice of dishonor,
notice of intention to accelerate the indebtedness evidenced hereby, notice of
the acceleration of the maturity hereof, diligence in collecting, grace, notice
and protest, and consent to all extensions that from time to time may be granted
by the holder hereof and to all partial payments hereon, whether before or after
maturity.

         If this Note is not paid when due, whether at maturity or by
acceleration, or if it is collected through a bankruptcy or other court, whether
before or after maturity, the undersigned agrees to pay all costs of collection,
including, but not limited to, reasonable attorneys fees and expenses incurred
by the holder hereof.

         All agreements between the undersigned and the holder hereof, whether
now existing or hereafter arising and whether written or oral, are hereby
limited so that in no contingency, whether by reason of acceleration of the
maturity hereof or otherwise, shall the interest contracted for, charged,
received, paid, or agreed to be paid to the holder hereof exceed the Maximum
Rate. If from any circumstance the holder hereof ever receives anything of value
deemed interest by applicable law in excess of the Maximum Rate, an amount equal
to any excess interest shall be applied to the reduction of the principal hereof
and not to the payment of interest, or if such excess interest exceeds the
unpaid balance of principal hereof, such excess shall be refunded to the
undersigned. All interest paid or agreed to be paid to the holder hereof shall,
to the extent permitted by applicable law, be amortized, prorated, allocated,
and spread throughout the full period until payment in full of the principal so
that the interest hereon for such full period shall not exceed the Maximum Rate.
This paragraph shall control all agreements between the undersigned and the
holder hereof.

         The loan transaction evidenced hereby shall not be governed by, or be
subject to, Chapter 15 of the Texas Credit Code (Title 79, Revised Civil
Statutes of Texas, 1925, as amended).

         EXCEPT WHERE FEDERAL LAW IS APPLICABLE (INCLUDING, WITHOUT LIMITATION,
ANY FEDERAL USURY CEILING OR OTHER FEDERAL LAW THAT, FROM TIME TO TIME, IS
APPLICABLE TO THE INDEBTEDNESS EVIDENCED HEREIN AND THAT PREEMPTS STATE USURY
LAWS), THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS AND THE LAWS OF THE UNITED STATES APPLICABLE TO TRANSACTIONS IN SUCH
STATE.

                                     CRESCENT OPERATING, INC.,



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


                                       -2-


<PAGE>   30



                                    EXHIBIT B


                           FORM OF CLOSING CERTIFICATE


         The undersigned, _________________, ___________________ of CRESCENT
OPERATING, INC., a Delaware corporation (the "Borrower"), hereby certifies to
the best of his knowledge that:

         1. Attached hereto as Exhibit A is a copy of the resolutions of the
board of directors of the Borrower authorizing the execution, delivery and
performance of the Credit and Security Agreement, certified as of the Closing
Date by the corporate secretary of the Borrower.

         2. Attached hereto as Exhibit B is a certificate of incumbency of the
officers of the Borrower, certified by the corporate secretary of the Borrower.

         3. Attached hereto as Exhibit C is a certificate of good standing of
the Borrower issued as of a recent date by the Secretary of State of Delaware.

         IN WITNESS WHEREOF, I have hereto set my hand this 21st day of
September, 1998.


                                    CRESCENT OPERATING, INC.


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




<PAGE>   31



                                   SCHEDULE 1

                     LOCATION OF THE INVENTORY AND EQUIPMENT



306 W. 7th Street
Suite 1025
Fort Worth, Texas 76102






<PAGE>   32


                                                                  Execution Copy

                                PROMISSORY NOTE

$9,000,000.00                                                 September 21, 1998

         FOR VALUE RECEIVED, CRESCENT OPERATING, INC., a Delaware corporation
("Borrower"), promises to pay to CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership ("Lender"), at 777 Main Street,
Suite 2100, Fort Worth, Texas 76102, the principal sum of Nine Million and
No/100 Dollars ($9,000,000.00), with interest on the principal balance from
time to time at the rates hereinafter provided.

         The Borrower promises to pay interest on the unpaid principal balance
hereof from the date hereof until paid in full pursuant to the Credit and
Security Agreement, dated as of September 21, 1998, between the Borrower and
the Lender (as the same may be amended, modified or supplemented from time to
time, the "Credit Agreement").  The Borrower promises to pay the aggregate
outstanding principal amount of the Loan together with interest thereon, on the
dates, in the amounts and at the rate or rates provided in the Credit
Agreement; provided that the interest payable shall not exceed the maximum rate
permitted by applicable law (the "Maximum Rate").  Interest on the principal
hereof from time to time remaining unpaid and, to the extent permitted by
applicable law, interest on the unpaid interest, shall bear interest from and
after an Event of Default at the Default Rate provided that in no event shall
the Default Rate be more than the Maximum Rate.

         This note is the Note referred to in the Credit Agreement.  This Note
and the holder hereof are entitled to all of the benefits provided for thereby
or referred to therein.  Reference is hereby made to the Credit Agreement for a
statement of such benefits.  Terms defined in the Credit Agreement are used
herein with the same meanings.  Reference is made to the Credit Agreement for
provisions for the acceleration of the maturity hereof.

         This Note shall be payable as provided in the Credit Agreement.

         Upon the occurrence of any Event of Default (after the giving of any
notice required in the Credit Agreement and the expiration of any applicable
grace periods provided for in the Credit Agreement), all amounts then remaining
unpaid on this Note shall become immediately due and payable, and the holder
hereof shall have all rights and remedies of Lender under the Credit Agreement
and other Loan Documents.  The failure to exercise the option to accelerate the
maturity of this Note upon the happening of any one or more of the Events of
Default shall not constitute a waiver of the right with respect to such uncured
default or any other event of uncured default hereunder or under any other of
the Loan Documents.  The remedies of the holder hereof, as provided in the Note
and in any other of the Loan Documents, shall be cumulative and concurrent and
may be pursued separately, successively or together, as often as occasion
therefor shall arise, at the sole discretion of the holder.  The acceptance by
the holder hereof of any payment under this Note that is less than payment in
full of all amounts due and payable at the time of such shall not constitute a
waiver of or impair, reduce, release, or extinguish any of the rights or
remedies of the holder hereof to exercise the foregoing option or any other
option granted to the holder in this Note or in any other of the Loan
Documents, at that time or at any subsequent time, or nullify any prior
exercise of any such option.
<PAGE>   33
         The undersigned and all other parties now or hereafter liable for the
payment hereof, whether as endorser, surety, or otherwise, except as provided
in the Credit Agreement, severally waive demand, presentment, notice of
dishonor, notice of intention to accelerate the indebtedness evidenced hereby,
notice of the acceleration of the maturity hereof, diligence in collecting,
grace, notice and protest, and consent to all extensions that from time to time
may be granted by the holder hereof and to all partial payments hereon, whether
before or after maturity.

         If this Note is not paid when due, whether at maturity or by
acceleration, or if it is collected through a bankruptcy or other court,
whether before or after maturity, the undersigned agrees to pay all costs of
collection, including, but not limited to, reasonable attorneys fees and
expenses incurred by the holder hereof.

         All agreements between the undersigned and the holder hereof, whether
now existing or hereafter arising and whether written or oral, are hereby
limited so that in no contingency, whether by reason of acceleration of the
maturity hereof or otherwise, shall the interest contracted for, charged,
received, paid, or agreed to be paid to the holder hereof exceed the Maximum
Rate.  If from any circumstance the holder hereof ever receives anything of
value deemed interest by applicable law in excess of the Maximum Rate, an
amount equal to any excess interest shall be applied to the reduction of the
principal hereof and not to the payment of interest, or if such excess interest
exceeds the unpaid balance of principal hereof, such excess shall be refunded
to the undersigned.  All interest paid or agreed to be paid to the holder
hereof shall, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full period until payment in
full of the principal so that the interest hereon for such full period shall
not exceed the Maximum Rate.  This paragraph shall control all agreements
between the undersigned and the holder hereof.

         The loan transaction evidenced hereby shall not be governed by, or be
subject to, Chapter 15 of the Texas Credit Code (Title 79, Revised Civil
Statutes of Texas, 1925, as amended).

         EXCEPT WHERE FEDERAL LAW IS APPLICABLE (INCLUDING, WITHOUT LIMITATION,
ANY FEDERAL USURY CEILING OR OTHER FEDERAL LAW THAT, FROM TIME TO TIME, IS
APPLICABLE TO THE INDEBTEDNESS EVIDENCED HEREIN AND THAT PREEMPTS STATE USURY
LAWS), THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS AND THE LAWS OF THE UNITED STATES APPLICABLE TO TRANSACTIONS IN SUCH
STATE.

                                        CRESCENT OPERATING, INC.
                              
                              
                              
                                        By: /s/ RICHARD P. KNIGHT
                                           ------------------------------------
                                        Name:   Richard P. Knight
                                             ----------------------------------
                                        Title:  Chief Financial Officer
                                              ---------------------------------


                                     -2-