<PAGE>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For the fiscal year ended December 31, 2001

                                      OR

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

                         Commission file number 0-22725

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

                Delaware                                 75-2701931
----------------------------------------    ------------------------------------
     (State or other jurisdiction of        (I.R.S. Employer Identification No.)
     incorporation or organization)

      777 Taylor Street, Suite 1050
            Fort Worth, Texas                               76102
----------------------------------------    ------------------------------------
(Address of principal executive offices)                 (Zip Code)

        Registrant's telephone number, including area code (817) 339-2200

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $0.01 per share
                                (Title of class)

                         Preferred Share Purchase Rights
                                (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
by section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.

                               YES [ ]   NO [X]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

The aggregate market value of the 9,377,414 shares of $0.01 par value common
stock held by non-affiliates (all directors, executive officers and persons
holding 10% or more of the outstanding shares of common stock are presumed to be
affiliates for the purposes of this calculation) of the registrant on March 28,
2002 was $3.9 million based upon the closing price of $0.42 on The OTC Bulletin
Board.

Number of shares of Common Stock outstanding as of March 28, 2002:  10,828,497


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                                TABLE OF CONTENTS


<Table>
<Caption>
                                                                                      PAGE
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<S>        <C>                                                                      <C>

                                     PART I.

Item 1.    Business................................................................     5
Item 2.    Properties..............................................................    22
Item 3.    Legal Proceedings.......................................................    22
Item 4.    Submission of Matters to a Vote of Security Holders.....................    23


                                    PART II.

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters...    24
Item 6.    Selected Financial Data.................................................    25
Item 7.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations...............................................    27
Item 7A.   Quantitative and Qualitative Disclosures about Market Risk..............    39
Item 8     Financial Statements and Supplementary Data.............................    39
Item 9.    Changes in and Disagreements with Accountants
           on Accounting and Financial Disclosure..................................    40


                                    PART III.

Item 10.   Directors and Executive Officers of the Registrant......................    40
Item 11.   Executive Compensation..................................................    41
Item 12.   Security Ownership of Certain Beneficial Owners and Management..........    43
Item 13.   Certain Relationships and Related Transactions..........................    44


                                    PART IV.

Item 14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......    49
</Table>


                                       2
<PAGE>


This Form 10-K contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Although Crescent Operating, Inc. (the
"Company" or "Crescent Operating") believes that the expectations reflected in
such forward-looking statements are based upon reasonable assumptions, the
Company's actual results could differ materially from those the Company expects
to achieve. The Company's auditors report included on the financial statements
included in this Annual Report on Form 10-K has expressed substantial doubt
about the Company's ability to continue to operate as a going concern. Some of
the other factors that might cause material variation from the expectations
reflected in the forward-looking statements include:

     o    the current inability of Crescent Operating to pay its deferred rent
          obligations to Crescent Real Estate Equities Limited Partnership
          ("Crescent Partnership"), the operating partnership of Crescent Real
          Estate Equities Company ("Crescent Equities", "Crescent Real Estate"
          or "CEI");

     o    the ability of Crescent Operating to generate income from the assets
          remaining after the transfers of its hospitality and land development
          businesses pursuant to the Settlement Agreement;

     o    the Company's inability to complete the transactions contemplated by
          the February 14, 2002 Settlement Agreement with Crescent Partnership,
          including but not limited to, holding a shareholders' meeting to
          approve the prepackaged bankruptcy plan contemplated by the Settlement
          Agreement; obtaining shareholder approval for that plan; or filing
          that plan in the form contemplated;

     o    failure of Crescent Equities to provide assistance and funding to the
          Company of substantially all the costs of performing the steps
          required under the Settlement Agreement for implementation of the
          prepackaged bankruptcy plan, which funding is expected to provide for
          the preparation of a proxy statement for a shareholders' meeting to
          approve the prepackaged bankruptcy plan, the solicitation of proxies
          for that meeting, and all other expenses associated therewith; the
          expenses of operating the Company from the date of the Settlement
          Agreement through the commencement of the prepackaged bankruptcy; and
          the settlement or satisfaction of all of the Company's known
          creditors;

     o    the Company's inability, after the commencement of bankruptcy
          proceedings, to control the course or outcome of the proceedings or
          its business operations, as federal bankruptcy law places the ultimate
          control over the bankrupt debtor into the discretion of the bankruptcy
          court;

     o    the unpredictable nature of course or outcome of Crescent Machinery
          Company's bankruptcy proceedings;

     o    even if the prepackaged bankruptcy plan is confirmed as contemplated,
          the Company will not have the ability to control the issuance of CEI
          common shares to Crescent Operating stockholders, following
          confirmation of the prepackaged bankruptcy plan;

     o    the Company's inability to make any forecast regarding shareholders'
          recovery in bankruptcy if the prepackaged bankruptcy plan is not
          approved by the shareholders prior to the Company's filing for
          bankruptcy protection, as the Company's debts far exceed its assets,
          and its creditors, including CEI, may not be paid in full, and,
          consequently, it is probable that if the stockholders do not approve
          the prepackaged bankruptcy plan, the stockholders would receive no
          distributions with respect to their share ownership in the Company;

     o    the Company's inability to sell its interest in the tenant of the
          AmeriCold temperature controlled logistics properties to a new entity
          that will be owned by the CEI shareholders, proceeds of which sale
          would be applied by the Company to the repayment of the Company's
          $15.0 million obligation to Bank of America;

     o    the high levels of debt that the Company maintains and the Company's
          current inability to generate revenue sufficient to meet debt service
          payments, other obligations and operating expenses;

     o    the availability of the financing that likely will be necessary to
          maintain the Company's operations and investments;


                                       3
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     o    the current and continuing underperformance or non-performance of the
          Company's existing business investments;

     o    the Company's inability to reach an agreement with its creditors which
          may result in the Company losing control of its remaining assets or
          operations or both either through foreclosure or bankruptcy;

     o    any unfavorable resolution of issues that relate to the bankruptcy
          petition of Charter Behavioral Health Systems, LLC ("CBHS"),
          including, but not limited to, judgments against the Company in
          respect of lawsuits instituted in connection with the closure of
          certain CBHS facilities prior to CBHS's filing bankruptcy;

     o    the impact of changes in the industries in which the Company's
          businesses and investments operate (including equipment sales and
          leasing and temperature controlled logistics) and the economic,
          demographic and other competitive conditions affecting those
          industries, the Company's cash flows and the value of the Company's
          investments, and

     o    the impact of terrorism acts on the industries in which the Company's
          businesses and investments operate (including equipment sales and
          leasing and temperature controlled logistics).


Given these uncertainties, readers are cautioned not to place undue reliance on
such forward-looking statements. The Company is not obligated to update these
forward-looking statements to reflect any future events or circumstances.







                                       4
<PAGE>



                                     PART I
ITEM 1. BUSINESS
                                   THE COMPANY

Crescent Operating, Inc., a Delaware corporation, was formed on April 1, 1997,
by Crescent Equities and its subsidiary Crescent Partnership. Effective June 12,
1997 Crescent Equities distributed shares of Crescent Operating common stock to
shareholders of Crescent Equities and unit holders of Crescent Partnership (the
"Spinoff"), and, on that date, Crescent Operating became a public company.
Crescent Operating was formed to be the lessee and operator of certain assets
owned or to be acquired by Crescent Partnership, but which Crescent Partnership
could not operate due to Crescent Equities' status as a real estate investment
trust ("REIT"). Unless the context otherwise requires, the terms "Crescent
Operating", "the Company", "Crescent Equities", "CEI" and "Crescent Partnership"
include the subsidiaries of each and, in the case of "CEI", "Crescent Equities"
and "Crescent Real Estate", includes "Crescent Partnership".

BUSINESS SEGMENTS

As of December 31, 2001, Crescent Operating, through various subsidiaries and
affiliates, had assets and operations comprising four business segments: (i)
Equipment Sales and Leasing, (ii) Hospitality, (iii) Temperature Controlled
Logistics and (iv) Land Development. Within these segments the Company owned the
following for all or some portion of 2001:

o    THE EQUIPMENT SALES AND LEASING SEGMENT consisted of a 100% interest in
     Crescent Machinery Company ("Crescent Machinery" or "CMC") and its
     subsidiary, a construction equipment sales, leasing and service company
     which had as many as 18 locations in seven states.

o    THE HOSPITALITY SEGMENT consisted of (i) the Company's lessee interests in
     three Upscale Business Class Hotels owned by Crescent Partnership, which
     included the Denver Marriott City Center, the Hyatt Regency Albuquerque,
     and the Renaissance Hotel in Houston, Texas; lessee interests in three
     Destination Resort Properties owned by Crescent Partnership, which included
     the Hyatt Regency Beaver Creek, the Ventana Inn and Spa and the Sonoma
     Mission Inn and Spa (including the Sonoma Mission Inn Golf and Country
     Club); lessee interests in two destination fitness resort and spa
     properties, including Canyon Ranch-Tucson and Canyon Ranch-Lenox
     (collectively, the "Hospitality Properties"); and a 5% economic interest in
     CRL Investments, Inc. ("CRL"), which has an investment in the Canyon Ranch
     Day Spa in the Venetian Hotel in Las Vegas, Nevada and participates in the
     future use of the "Canyon Ranch" name. Crescent Partnership owned the
     remaining 95% economic interest in CRL.

o    THE TEMPERATURE CONTROLLED LOGISTICS SEGMENT consisted of a 40% interest in
     the operations of Vornado Crescent Logistics Operating Partnership
     ("AmeriCold Logistics"), which operated 100 refrigerated storage properties
     with an aggregate storage capacity of approximately 525 million cubic feet.
     Crescent Partnership had a 40% interest in AmeriCold Corporation, which
     owned 89 of the 100 properties.

o    THE LAND DEVELOPMENT SEGMENT consisted of (i) a 4.65% economic interest in
     Desert Mountain, a master planned, luxury residential and recreational
     community in northern Scottsdale, Arizona (Crescent Partnership owned a
     88.35% economic interest in Desert Mountain), (ii) a 52.5% general partner
     interest in The Woodlands Operating Company, L.P. ("Woodlands Operating"),
     (iii) a 2.625% economic interest in The Woodlands Land Development Company
     L.P. ("Landevco") (2.475% through November 2001) (Crescent Partnership
     owned a 49.875% economic interest in this entity) and (iv) a 60% economic
     interest in COPI Colorado, L.P. ("COPI Colorado"), a company that has a 10%
     economic interest in Crescent Resort Development Inc. ("CRDI"), formerly
     Crescent Development Management Corp. ("CDMC"). Crescent Partnership owned
     the remaining 90% economic interest in CRDI.


                                       5
<PAGE>


BACKGROUND OF SETTLEMENT AGREEMENT

On February 6, 2002, Crescent Machinery Company - comprising the Company's
Equipment Sales and Leasing segment - filed a voluntary petition in bankruptcy.
On February 14, 2002, Crescent Operating entered into the Settlement Agreement
with Crescent Real Estate, pursuant to which the Company's interests in the Land
Development and Hospitality segments were transferred to Crescent Partnership in
partial satisfaction of the indebtedness owing from Crescent Operating. The
Company agreed to transfer the assets of its Temperature Controlled Logistics
segment in the future in connection with the satisfaction of its indebtedness to
Bank of America. The Settlement Agreement also requires the filing of a
prepackaged bankruptcy plan for Crescent Operating. This bankruptcy plan effects
the orderly termination of Crescent Operating's business. Substantially all of
Crescent Operating's assets are encumbered by liens in favor of Crescent
Partnership. Crescent Operating is in default in its obligations to Crescent
Real Estate. The Settlement Agreement also provides Crescent Operating with
funds to satisfy its creditors' claims and gives Crescent Operating stockholders
the opportunity to receive common shares of Crescent Real Estate.

TRANSACTIONS WITH CRESCENT PARTNERSHIP

Historically, Crescent Operating generally was involved with Crescent Equities
in two types of transactions: "LESSEE TRANSACTIONS" and "CONTROLLED SUBSIDIARY
TRANSACTIONS".

     o    LESSEE TRANSACTIONS were those in which Crescent Operating entered
          into a transaction to lease and operate real property owned by
          Crescent Partnership but which could not, under prior law applicable
          to REITs, be operated by Crescent Partnership due to Crescent
          Equities's status as a REIT. Lessee Transactions included the
          Company's leases of Hospitality Properties.

     o    CONTROLLED SUBSIDIARY TRANSACTIONS were those in which Crescent
          Operating invested alongside Crescent Partnership in acquisitions
          where Crescent Operating owned all of the voting stock, and Crescent
          Partnership owned all of the non-voting stock of a corporate
          acquisition vehicle which in turn acquired a target business which
          could not be operated by Crescent Partnership due to Crescent
          Equities's status as a REIT. The voting stock represented the
          controlling interest of the entity being purchased, and due to its
          status as a REIT, Crescent Equities could not hold a controlling
          interest in such entities. Controlled Subsidiary Transactions include
          investments in CRL, Desert Mountain and Landevco.

In connection with the Spinoff, Crescent Operating and Crescent Partnership
entered into the Intercompany Agreement to provide each other with rights to
participate in the types of transactions mentioned above. The Intercompany
Agreement provided, subject to certain terms, that Crescent Partnership would
provide Crescent Operating with a right of first refusal to become the lessee of
any real property acquired by Crescent Partnership if Crescent Partnership
determined that, consistent with Crescent Equities's status as a REIT, it was
required to enter into a "master" lease arrangement. Crescent Operating's right
of first refusal under the Intercompany Agreement was conditioned upon the
ability of Crescent Operating and Crescent Partnership to negotiate a mutually
satisfactory lease arrangement and the determination of Crescent Partnership, in
its sole discretion, that Crescent Operating was qualified to be the lessee. (In
general, a master lease arrangement is an arrangement pursuant to which an
entire property or project (or a group of related properties or projects) is
leased to a single lessee.) If a mutually satisfactory agreement could not be
reached within a 30-day period (or such longer period to which Crescent
Operating and Crescent Partnership agreed), Crescent Partnership could offer the
opportunity to others.

Under the Intercompany Agreement, Crescent Operating agreed not to acquire or
make (i) investments in real estate which, for purposes of the Intercompany
Agreement, included the provision of services related to real estate and
investment in hotel properties, real estate mortgages, real estate derivatives
or entities that invest in real estate assets or (ii) any other investments that
might be structured in a manner that qualified under the federal income tax
requirements applicable to REITs. Crescent Operating agreed to notify Crescent
Partnership of, and make available to Crescent Partnership, investment
opportunities developed by Crescent Operating, or of which Crescent Operating
became aware but was unable or unwilling to pursue.


                                       6
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INDEBTEDNESS TO CRESCENT PARTNERSHIP

In connection with the formation and capitalization, and the subsequent
operations and investments, of Crescent Operating since 1997, Crescent Real
Estate made loans to Crescent Operating under a line of credit and various term
loans. In connection with Crescent Real Estate's agreement to acquire certain
assets and equity interests from Crescent Operating, Crescent Real Estate agreed
that it would not charge interest on these loans from May 1, 2001 and that it
would allow Crescent Operating to defer all principal and interest payments due
under the loans until December 31, 2001. As of December 31, 2001, the
outstanding indebtedness under the line of credit and term loans was
approximately $75.4 million.

Crescent Operating subsidiaries, as tenants, have not paid to Crescent Real
Estate, as landlord, the full amount of rent due under the leases of the
Hospitality Properties. As of December 31, 2001, rent expense accrued but
deferred was approximately $41.2 million.

CHANGES IN REIT LAWS

The REIT Modernization Act, which became effective January 1, 2001, contained a
provision that permitted Crescent Equities to lease or operate certain
investment properties and assets that were leased or operated by Crescent
Operating. The REIT Modernization Act reduced the number of business
opportunities that Crescent Equities would otherwise offer to Crescent Operating
pursuant to the Intercompany Agreement. Crescent Equities expressed an interest
in acquiring from Crescent Operating certain lessee interests and voting
interests owned by Crescent Operating that the REIT Modernization Act would
allow Crescent Equities to own but which were prohibited under prior law.
Management of the Company commenced negotiations with Crescent Equities to sell
the entities within the Company's Hospitality and Land Development segments to
Crescent Equities or one of its affiliates.

2001 RESTRUCTURING PROPOSAL

On June 28, 2001, Crescent Operating and Crescent Equities entered into an asset
and stock purchase agreement (the "Purchase Agreement") in which Crescent Real
Estate agreed to acquire the Company's hotel operations, land development
interests and other assets in exchange for $78.4 million. Crescent Real Estate
also entered into an agreement, subsequently amended and restated as of October
31, 2001 (the "Capital Agreement"), to make a $10.0 million investment in
Crescent Machinery, which, along with capital from a third-party investment
firm, was expected to put Crescent Machinery on solid financial footing. The
transactions contemplated by the Purchase Agreement and Capital Agreement,
called the "Restructuring Proposal" and described in the Company's Proxy
Statement dated October 29, 2001, relating to its 2001 Annual Meeting of
Stockholders (the "Annual Meeting Proxy Statement"), also included the future
sale of the Company's 40% interest in AmeriCold Logistics. The Restructuring
Proposal was approved by the stockholders of the Company on December 6, 2001.

Following the date of the agreements, the results of operations for the
Company's hotel operations and land development interests declined due to the
slowdown in the economy. In addition, Crescent Machinery's results of operations
suffered because of the economic environment and the overall reduction in
national construction levels that has affected the equipment rental and sale
business, particularly post September 11, 2001.

As disclosed in the Annual Meeting Proxy Statement and also in the Company's
quarterly report on Form 10-Q filed November 14, 2001, Crescent Machinery was in
payment default on certain major loans from commercial lending institutions.
Among the conditions to the closing of the transactions included in the
Restructuring Proposal was the consent of Crescent Machinery's secured lenders,
including those institutions.

As the Company stated in its press release regarding the results of the
stockholders' meeting, Crescent Machinery was negotiating with these lenders
regarding these defaults and the possible restructuring of the loans, but the
differences in the positions of the lenders and Crescent Machinery were
significant and, as a result, management was not optimistic that an agreement
would be reached with these lenders. Without the consent of the lenders, it was
unlikely that the Restructuring Proposal would be consummated, and any failure
by the Company to consummate


                                       7
<PAGE>


the transactions included in the Restructuring Proposal would greatly impair the
Company's prospects to continue to operate as a going concern.

Crescent Machinery was unable to reach satisfactory agreements with its lenders
regarding restructuring of the loans. As a result, Crescent Real Estate advised
the Company that it believed that substantial additional capital, beyond the
investment called for in the Capital Agreement, would have to be made to
Crescent Machinery to adequately capitalize Crescent Machinery and satisfy
concerns of Crescent Machinery's lenders. Crescent Real Estate announced that it
was "unwilling to make this non-core investment."

On January 23, 2002, Crescent Real Estate terminated the Purchase Agreement
pursuant to which Crescent Real Estate would have acquired the Crescent
Operating hotel operations, the Crescent Operating land development interests
and other assets. On February 4, 2002, Crescent Real Estate terminated the
Capital Agreement relating to its planned investment in Crescent Machinery.

EVENTS SUBSEQUENT TO STOCKHOLDERS' MEETING

On February 6, 2002, Crescent Machinery filed for protection under the federal
bankruptcy laws.

On February 13, 2002, Crescent Real Estate delivered default notices to Crescent
Operating relating to approximately $49.0 million of unpaid rent and
approximately $76.2 million of principal and accrued interest due to Crescent
Real Estate under certain secured loans.

SETTLEMENT AGREEMENT

On February 14, 2002, Crescent Operating entered into a Settlement Agreement
with Crescent Real Estate. The Settlement Agreement also provided the basis for
Crescent Operating to file a prepackaged bankruptcy plan that the Company
believes will provide for a limited recovery to its stockholders. Pursuant to
the Settlement Agreement, Crescent Operating has transferred the following
assets to Crescent Real Estate:

     o    all of its hotel operations, in lieu of foreclosure, on February 14,
          2002 in exchange for a $23.6 million reduction in its rent obligations
          to Crescent Real Estate;

     o    all of its land development interests, through a strict foreclosure,
          on February 14, 2002, and March 22, 2002, in exchange for a $40.1
          million reduction of its debt obligations to Crescent Real Estate.

     In addition, the Settlement Agreement provides as follows:

     o    Crescent Real Estate will make sufficient funds available to Crescent
          Operating to pay all of Crescent Operating's creditors, other than
          Crescent Real Estate, in full and to cover the expenses of
          implementing the Settlement Agreement and seeking to confirm the
          bankruptcy plan. To facilitate repayment of $15.0 million, plus
          interest, owed to Bank of America, Crescent Real Estate has allowed
          Crescent Operating to secure the Bank of America debt with a pledge of
          Crescent Operating's interest in AmeriCold Logistics, LLC. The
          bankruptcy plan contemplates that the AmeriCold Logistics interest
          will be purchased by a Crescent Real Estate affiliate for a sufficient
          amount to repay the Bank of America debt.

     o    If Crescent Operating's stockholders approve the bankruptcy plan at a
          special meeting of stockholders called for that purpose, Crescent Real
          Estate will issue common shares of Crescent Equities to the Crescent
          Operating stockholders pursuant to the formula contained in the
          bankruptcy plan. If the stockholders of Crescent Operating do NOT
          accept the bankruptcy plan, they will not receive a distribution of
          common shares of Crescent Real Estate. If the total amount of claims
          and expenses paid by Crescent Real Estate in connection with the
          Crescent Operating bankruptcy and reorganization transactions equals
          or exceeds $16.0 million, the stockholders of Crescent Operating will
          receive no common shares of Crescent Real Estate and will not be
          entitled to reconsider their approval of the bankruptcy plan. Crescent
          Operating stockholders receiving Crescent Real Estate shares will be
          deemed to have released all claims they may have against Crescent
          Operating and Crescent Real Estate and those acting on their behalf
          that arose before the effective date of the plan. If the Crescent
          Operating stockholders do not approve the Crescent Operating
          bankruptcy



                                       8
<PAGE>


          plan, Crescent Operating will still seek to have that bankruptcy plan
          confirmed by the bankruptcy court. If the bankruptcy court confirms
          the plan, Crescent Operating stockholders will not receive common
          shares of Crescent Equities and will still cease to be stockholders of
          Crescent Operating on the date the plan becomes effective.

     o    Crescent Operating will cancel all outstanding shares of its common
          stock.

     o    Pursuant to both the Settlement Agreement and the bankruptcy plan,
          Crescent Operating will transfer the remaining assets of Crescent
          Operating at the direction of Crescent Real Estate.


A copy of the Settlement Agreement is attached as Exhibit 2.1 to the Company's
Current Report on Form 8-K filed March 1, 2002, with the Securities and Exchange
Commission ("SEC"); that report is available at the SEC's website at
www.sec.gov. The Settlement Agreement and the mutual releases executed in
connection with the Settlement Agreement, including Crescent Operating's release
of all claims it may have against Crescent Real Estate, are enforceable
regardless of whether the plan is approved by Crescent Operating's stockholders
or confirmed by the bankruptcy court.


OTHER CRESCENT OPERATING RECENT DEVELOPMENTS


In accordance with the Settlement Agreement on February 14, 2002, the Company
filed with the SEC a preliminary proxy statement for a special meeting of
stockholders to be held for the purpose of approving the prepackaged bankruptcy
plan contemplated by the Settlement Agreement.

Effective December 31, 2001, the Company, in connection with extending the
maturity of its $15.0 million loan from Bank of America from December 31, 2001
to August 15, 2002, agreed to modify the loan from an unsecured to a secured
credit facility. The Company, with the consent of Crescent Partnership which
agreed to subordinate its security interest in the Company's 40% interest in
AmeriCold Logistics, pledged all of its interest in AmeriCold Logistics to Bank
of America to secure the loan.

Effective February 13, 2002, all of the directors of Crescent Operating, other
than Jeffrey L. Stevens, who became the sole director of Crescent Operating,
resigned. The four directors who resigned continue to serve as trust managers of
Crescent Real Estate. In addition, two of these directors, Richard E. Rainwater
and John C. Goff, also served as officers of both Crescent Operating and
Crescent Real Estate. Mr. Rainwater continues to serve as Chairman of the Board
of Crescent Real Estate and Mr. Goff continues to serve as Vice Chairman of the
Board and Chief Executive Officer of Crescent Real Estate. Both resigned from
their executive officer positions with Crescent Operating effective February 13,
2002. The directors and officers who resigned determined that resignation was
advisable and in the interest of the Crescent Operating stockholders in order to
avoid potential conflicts of interest and the appearance of impropriety.



                           EQUIPMENT SALES AND LEASING

OVERVIEW

Crescent Machinery is engaged in the sale, leasing and service of construction
equipment and accessories to the construction industry located primarily in six
states as of December 31, 2001. Historically, construction equipment businesses
have been owned and operated primarily by individuals in a localized area.
Crescent Machinery has consolidated some of these businesses in order to gain
improvements in purchasing and operating efficiencies. All of the Crescent
Machinery locations represent major lines of equipment. This differentiates
Crescent Machinery from some of its pure rent-to-rent competition. Crescent
Machinery's locations offer new and used equipment for sale and rent, have
factory trained service personnel, and provide parts and warranty service.

Effective February 6, 2001, the Company, Crescent Machinery and SunTx Capital
Management Corp. ("SunTx") entered into a Management Rights Agreement
("Management Agreement). Under the Management Agreement, the


                                       9
<PAGE>


Company and Crescent Machinery engaged SunTx to provide general administrative
and financial advice regarding all matters not otherwise reserved for the board
of directors for Crescent Machinery for a fee of $1.0 million. This Management
Agreement terminated December 31, 2001.

Like many companies serving the construction industries, Crescent Machinery was
affected in 2001 by multiple factors impacting the industry. These factors
include excess inventories of machines available for sale or rental, severe
price competition, a slowdown in many construction markets, the reduction in the
number of new projects, the general recessionary economy, and the continued
negative effects following the terrorist attacks of September 11, 2001.

Beginning in the second quarter of 2001, Crescent Machinery's business plan
focused on right-sizing the business and creating liquidity. This plan included
the reduction of operating costs and excess or underutilized assets. As of
December 31, 2001, Crescent Machinery had reduced its inventory and rental fleet
by approximately $37.0 million since June 30, 2001 and implemented actions to
reduce expenses of approximately $5.0 million on an annualized basis. Crescent
Machinery also closed its branches in Beaumont, Texas, Van Wert, Ohio and
Franklin, Indiana in 2001.

Crescent Machinery's downsized refocus was implemented under the leadership of
Crescent Machinery's new chief executive, Eric E. Anderson, who joined Crescent
Machinery in July 2001. Mr. Anderson comes to Crescent Machinery immediately
from serving as interim chief operating officer of a company in a turnaround
situation in an unrelated industry. Mr. Anderson's previous experience also
includes serving as chairman and chief executive officer of Aviall, Inc. (NYSE:
AVL), a publicly traded aerospace distribution company, where he was
instrumental in a successful turnaround in 1996.

In reviewing the markets it serves, Crescent Machinery made the initial decision
to focus Crescent Machinery Company in the Texas and Oklahoma markets. Crescent
Machinery operated eight locations in these states, and believed its experience
with its customer base and the suppliers represented in these markets gave it a
strong position. With its decision to downsize to an eight location company in
Texas and Oklahoma, Crescent Machinery began to sell or close its branch
operations in California, Nevada and Hawaii.

As part of that business plan, Crescent Machinery continued reviewing key
factors to its business, including the business mix between the sale of
equipment and various rental and service programs; evaluating the suppliers
Crescent Machinery used or may add in the future to maximize the equipment
solutions Crescent Machinery offered its customers; standardizing best practices
across all branch locations; and implementing new compensation programs that
directly linked pay to performance.

An essential part of Crescent Machinery's plan involved restructuring its
existing lines of credit to provide debt service relief. Crescent Machinery
defaulted on certain major loans from commercial institutions due to Crescent
Machinery's decision not to pay the principal portion of payment installments
due from September through December 2001 in the total amount of approximately
$6.4 million. Outstanding principal amounts under default by Crescent Machinery
totaled $84.9 million at December 31, 2001. Crescent Machinery's lenders did not
exercise remedies available for Crescent Machinery's payment default. Crescent
Machinery did reach an agreement with one of its lenders to take back the
equipment it had financed and limit Crescent Machinery's exposure to shortfall
on the sale of the equipment to $500,000. The lender further agreed to finance
the $500,000 over three years at 1% over prime interest rate. Completion of the
return of equipment under this agreement would eliminate approximately $11.5
million of indebtedness of Crescent Machinery.

Crescent Machinery was unable to reach satisfactory agreements with other
lenders, however, and on February 6, 2002, Crescent Machinery Company filed a
voluntary petition under Chapter 11 of the U.S. Bankruptcy Code with the U.S.
Bankruptcy Court for the Northern District of Texas in Fort Worth, Texas.
Crescent Machinery intends to continue its normal operations in the sale, rental
and servicing of construction equipment, while attempting to reorganize and
restructure its debt to emerge a financially stronger and more competitive
business. Crescent Machinery plans to continue with business as usual during
this process, but certain locations will be evaluated and may be sold or closed
to improve efficiency. Crescent Machinery has already moved to close four of its
West Coast branches immediately and, subject to Bankruptcy Court approval, plans
to close all its locations outside of Texas and Oklahoma in 2002.


                                       10
<PAGE>


In addition to its equity claim as the sole shareholder of Crescent Machinery,
Crescent Operating is a creditor of Crescent Machinery, holding a $10.0 million
principal amount note receivable from Crescent Machinery.

The Company is unable to predict as of the date of the filing of this Annual
Report whether Crescent Machinery will be able to successfully reorganize its
debt and operations, or what the treatment of creditors of Crescent Machinery
and the Company, as the sole shareholder of Crescent Machinery and as a
creditor, will be under any proposed plan of reorganization of Crescent
Machinery. The payment rights and other entitlements of pre-petition creditors
of Crescent Machinery (including the Company) and the Company, as Crescent
Machinery's sole shareholder, may be substantially altered by any plan of
reorganization confirmed by the Court. Under a plan, pre-petition creditors may
receive less than 100% of the face value of their claims, and the ownership
interest of the Company in Crescent Machinery may be substantially diluted or
cancelled in whole or in part. Crescent Operating does not anticipate receiving
any distribution in the Crescent Machinery bankruptcy case. Crescent Machinery's
bankruptcy schedules reflect that the value of Crescent Machinery's assets is
less than the amount of debt. As a result, it is likely that if Crescent
Machinery is reorganized, the equity in reorganized Crescent Machinery will be
distributed to its creditors and potential new investors not to Crescent
Operating.

There can be no assurance given that a plan of reorganization of Crescent
Machinery will be approved by the creditors, or that the Bankruptcy Court will
confirm any such plan. If a plan of reorganization is not confirmed by the
Bankruptcy Court, there can be no assurance that Crescent Machinery will have
sufficient funds to continue as a going concern, to restructure its debt on
acceptable terms or continue its operations. If such a plan is not confirmed by
the Bankruptcy Court, Crescent Machinery may be forced to liquidate its assets
under Chapter 7 of the U.S. Bankruptcy Code and to cease operations, in which
case it is unlikely that the Company would realize any significant value for its
ownership interest in Crescent Machinery.

OPERATIONAL STATISTICS

<Table>
<Caption>
                                             For The Year Ended December 31,
                                     -----------------------------------------------
                                      2001       2000      1999      1998      1997
                                     ------     ------    ------    ------    ------
<S>                                  <C>        <C>       <C>       <C>       <C>

Revenue:
  New and used equipment ..........      47%        54%       60%       62%       39%
  Rental equipment ................      33%        27%       21%       19%       32%
Parts, service and supplies .......      20%        19%       19%       19%       29%
                                     ------     ------    ------    ------    ------
Total revenue .....................     100%       100%      100%      100%      100%

Expenses:
  Cost of sales:
    New and used equipment ........      91%        88%       85%       83%       89%
    Rental equipment ..............      70%        62%       55%       56%       65%
    Parts, service and supplies ...      64%        63%       67%       61%       78%
                                     ------     ------    ------    ------    ------
  Total cost of sales .............      79%        76%       75%       73%       78%
                                     ------     ------    ------    ------    ------
  Gross profit ....................      21%        24%       25%       27%       22%

  Operating expenses ..............      28%        23%       21%       19%       16%
                                     ------     ------    ------    ------    ------

Income (loss) from operations .....      (6)%        1%        3%        7%        6%
                                     ======     ======    ======    ======    ======

EBITDA ............................     (25)%       13%       14%       17%       20%
                                     ======     ======    ======    ======    ======
</Table>


Under the Capital Agreement, which terminated January 22, 2002, the Company
agreed upon a value for its investment in Crescent Machinery. Such agreed upon
value served as an indicator to the Company that the potential


                                       11
<PAGE>


existed for the impairment of certain assets as it relates to its current
investment in Crescent Machinery. As required under Statement of Financial
Accounting Standards No. 121, using all information available, the Company
determined that certain assets within Crescent Machinery have carrying values
which exceed the estimated undiscounted cash flows of those assets. As a result,
the Company recorded an adjustment of $39.2 million as "impairment loss on
assets" in the Company's results from operations for the year ended December 31,
2001 related to Crescent Machinery. The Company will continue to evaluate the
assets within Crescent Machinery for impairment and adjust such carrying values
as necessary.


                                   HOSPITALITY

OVERVIEW

Prior to the February 2002 transfer of the Company's hospitality operations to
Crescent Partnership, the Hospitality segment generally consisted of the
operations of the Hospitality Properties. Each of such properties were owned by
Crescent Partnership or its affiliates and all were leased to subsidiaries of
the Company under long term leases. In addition to these properties, the Company
also had other investments in CRL.

The Hospitality Properties were comprised of unique luxury resorts, business and
convention hotels and destination health and fitness resorts and made up a small
portion of the hospitality industry. Because Crescent Operating, for the most
part, relied on third-party operators such as Marriott and Hyatt, the Company
enjoyed the advantage of the third-party operators' nationwide advertising,
reservation services and strong management.

Each of the Hospitality Properties was under lease with Crescent Equities, with
terms expiring from December 2004 to June 2009 and generally providing for (i)
base rent, with periodic rent increases, (ii) percentage rent based on a
percentage of gross hotel revenues less food and beverage revenues above a
specified amount and (iii) a percentage of gross food and beverage revenues
above a specified amount. Under the leases, the Company's subsidiaries had
assumed the rights and obligations of the property owner under the respective
management agreement with the hotel operators (including the property management
agreements with Sonoma Management Company ("SMC") for Sonoma Mission Inn and
Spa, Sonoma Mission Inn Golf and Country Club and Ventana Inn and Spa), as well
as the obligation to pay all property taxes and other charges against the
property. As part of each of the lease agreements for eight of the Hospitality
Properties, Crescent Equities had agreed to fund all capital expenditures
relating to furniture, fixtures and equipment reserves required under the
applicable management agreements. The only exception was Canyon Ranch-Tucson, in
which instance the Company owned all furniture, fixtures and equipment
associated with the property and funded all related capital expenditures. With
the permission of Crescent Equities, the Company had deferred payment of rent on
the hospitality properties. Rent expense accrued but deferred as of December 31,
2001 was $41.2 million.

All of the Company's hotel operations, except for the Sonoma Mission Inn and
Spa, Sonoma Mission Inn Golf and Country Club and the Ventana Inn and Spa, were
managed by third party operators. The Company and its hospitality subsidiaries
had a Master Asset Management and Administrative Services Agreement with SMC
(the "SMC Management Agreement") to manage the Hyatt Albuquerque, the
Renaissance Hotel Houston and the Denver City Center Marriott. In addition, the
Company's hospitality subsidiaries had accepted assignment from the owners of
the Sonoma Mission Inn and Spa, the Sonoma Mission Inn Golf and Country Club and
the Ventana Inn and Spa of its property management agreements with SMC. The
principals of SMC are Sanjay and Johanna Varma and CEI is an equity owner in
SMC. Payment of obligations under the SMC Management Agreement was guaranteed by
the Company. For each property for which it provided asset management services,
SMC was entitled to receive a base fee equal to 0.85% of gross revenues of the
property managed plus an incentive fee of 50% of actual net income in excess of
budgeted net income. For each property for which it provided property management
services, SMC was entitled to receive a base fee equal to 2.0% of gross revenues
of the property plus an incentive fee of 20% of net operating income in excess
of a 12% annual return on investment to owner.

As consideration for its services under the SMC Management Agreement, SMC
received an annual base fee (and no incentive fee) for 2001 of approximately
$0.6 million, for its asset management services related to the Hyatt
Albuquerque, the Renaissance Houston Hotel and the Denver City Center Marriott.



                                       12
<PAGE>


The Company had limited the potential impact of downturns in the hospitality
industry on the Company by limiting its guarantee of the rent payment
obligations of its Hospitality segment subsidiaries. The Company's guarantee
related to rent payments was limited to cash generated by the Hospitality
segment, i.e. cash flows from segments other than Hospitality would not be used
to fund rent payments in the event cash flows of the Hospitality Properties were
less than scheduled rent payments.

The Company had a 5% economic interest, representing all of the voting stock, in
CRL. CRL has a 30% interest in CR License. CR License is the entity which owns
the rights to the future use of the "Canyon Ranch" name. CRL also has an
approximate 65% economic interest in the Canyon Ranch Spa Club located in the
Venetian Hotel in Las Vegas.

RECENT DEVELOPMENTS

As more fully discussed above (See - Settlement Agreement), the Company has
transferred all of its interest in the Hospitality Properties and other assets
reflected in the Hospitality segment, including the SMC Management Agreement and
all other management agreements, to Crescent Equities as provided in the
Settlement Agreement.

OPERATIONAL STATISTICS

The following table sets forth certain information about the Hospitality
Properties, excluding the Sonoma Mission Inn Golf and Country Club, Houston
Center Athletic Club ("HCAC"), CRL and the Four Seasons in Houston for the years
ended December 31, 2001 and 2000. The information below is based on available
rooms, except for Canyon Ranch-Tucson and Canyon Ranch-Lenox, which are
destination health and fitness resorts that measure performance based on
available guest nights.

<Table>
<Caption>
                                                                                        For the year ended December 31,
                                                                              ---------------------------------------------------
                                                                                  Average            Average          Revenue
                                                                                 Occupancy            Daily             Per
                                                                                    Rate               Rate        Available Room
                                                                              --------------     --------------    --------------
                                Location         Lease Expiration     Rooms    2001     2000      2001     2000     2001     2000
                                --------         ----------------     -----   -----    -----     -----    -----    -----    -----
<S>                             <C>              <C>                  <C>      <C>      <C>       <C>      <C>      <C>      <C>

Upscale Business Class
Hotels:
Denver Marriott City Center..  Denver, CO           June 2005          613       77%      84%    $ 123    $ 120    $  95    $ 101
Hyatt Regency Albuquerque....  Albuquerque, NM    December 2005        395       69       69       108      106       74       73
Renaissance Houston..........  Houston, TX          June 2009          389       64       59       113       95       73       56
                                                                     -----    -----    -----     -----    -----    -----    -----
    Total/Weighted Average                                           1,397       71%      73%    $ 116    $ 111    $  83    $  80
                                                                     =====    =====    =====     =====    =====    =====    =====

Luxury Resorts and Spas:
Hyatt Regency Beaver           Avon, CO           December 2004        276       57%      69%    $ 278    $ 254    $ 159    $ 176
Creek(1).....................
Sonoma Mission Inn & Spa.....  Sonoma, CA         October 2006         228(2)    59       75       299      302      176      226
Ventana Inn & Spa............  Big Sur, CA        December 2007         62       73       78       420      458      304      358
                                                                     -----    -----    -----     -----    -----    -----    -----
    Total/Weighted Average                                             566       60%      72%    $ 305    $ 298    $ 182    $ 216
                                                                     =====    =====    =====     =====    =====    =====    =====

<Caption>

                                                                      Guest
                                                                     Nights

<S>                             <C>              <C>                  <C>      <C>      <C>       <C>      <C>      <C>      <C>
Destination Fitness
Resorts and Spas:
Canyon Ranch-Tucson..........  Tucson, AZ           July 2006          250(3)
Canyon Ranch-Lenox...........  Lenox, MA          December 2006        212(3)
                                                                     -----    -----    -----     -----    -----    -----    -----
    Total/Weighted Average                                             462       81%(4)   86%(4) $ 469(5) $ 442(5) $ 318(6) $ 340(6)
                                                                     =====    =====    =====     =====    =====    =====    =====

Grand Total/Weighted Average                                                     71%      75%    $ 263    $ 256    $ 183    $ 191
                                                                     =====    =====    =====     =====    =====    =====    =====
</Table>

(1)  The hotel is undergoing $6.9 million renovation of all guest rooms. The
     project is scheduled to be completed by the second quarter of 2002.

(2)  In January 2000, 20 rooms, which were previously taken out of commission
     for construction of a 30,000 square foot full-service spa in connection
     with an approximately $21.0 million expansion of the hotel, were returned
     to service. The expansion was completed in the second quarter of 2000. The
     expansion also included 30 additional guest rooms. Rates were discounted
     during the construction period, which resulted in a lower average daily
     rate and revenue per available room for the year ended December 31, 1999,
     as compared to December 31, 2000.

(3)  Represents available guest nights, which is the maximum number of guests
     that the resort can accommodate per night.


                                       13
<PAGE>


(4)  Represents the number of paying and complimentary guests for the period,
     divided by the maximum number of available guest nights for the period.

(5)  Represents the average daily "all-inclusive" guest package charges for the
     period, divided by the average daily number of paying guests for the
     period.

(6)  Represents the total "all-inclusive" guest package charges for the period,
     divided by the maximum number of available guest nights for the period.



                        TEMPERATURE CONTROLLED LOGISTICS
OVERVIEW

As of the date of this annual report, Crescent Operating continues to own and
conduct its temperature-controlled logistics operations through COPI Cold
Storage LLC.

On February 14, 2002, the Company agreed in the Settlement Agreement that a
Crescent Real Estate subsidiary, Crescent Spinco, upon the effectiveness of its
registration statement, will distribute its shares to the holders of Crescent
Real Estate common shares and will purchase Crescent Operating's entire
membership interest in COPI Cold Storage LLC, for approximately $15.0 million to
$15.5 million. It is anticipated that the interest in AmeriCold Logistics will
be transferred in 2002. The proceeds are intended to payoff the Bank of America
loan for which the Company's 40% interest in AmeriCold Logistics serves as
collateral. The distribution of the Crescent Spinco shares will be made to the
holders of Crescent Real Estate common shares prior to the issuance of Crescent
Real Estate common shares to the Crescent Operating stockholders. As a result,
the holders of Crescent Operating common stock will not receive any interest in
Crescent Spinco.

The Temperature Controlled Logistics segment consists of a 40% interest in the
operations of AmeriCold Logistics. AmeriCold Logistics, headquartered in
Atlanta, Georgia, has 5,900 employees and operates 100 temperature controlled
storage facilities nationwide with an aggregate of approximately 525 million
cubic feet of refrigerated, frozen and dry storage space. Of the 100 warehouses,
AmeriCold Logistics leases 89 temperature controlled facilities with an
aggregate of approximately 445 million cubic feet from the Temperature
Controlled Logistics Partnerships, and manages 11 additional facilities
containing approximately 80 million cubic feet of space. AmeriCold Logistics
provides the frozen food industry with refrigerated storage and transportation
management services.

AmeriCold Logistics leases 89 refrigerated storage facilities used in its
business. The leases, as amended, which commenced in March 1999, generally have
a 15-year term with two five-year renewal options and provide for the payment of
fixed base rent and percentage rent based on revenues AmeriCold Logistics
receives from its customers. Fixed base rent was approximately $136.0 million in
2000 and was and will be approximately $137.0 million per annum from 2001
through 2003, $139.0 million per annum from 2004 through 2008 and $141.0 million
per annum from 2009 through February 28, 2014. Percentage rent for each lease is
based on a specified percentage of revenues in excess of a specified base
amount. The aggregate base revenue amount under five of the six leases is
approximately $350.0 million and the weighted average percentage rate is
approximately 36% through 2003, approximately 38% for the period from 2004
through 2008 and approximately 40% for the period from 2009 through February 28,
2014. The aggregate base revenue amount under the sixth lease is approximately
$32.0 million through 2001, and approximately $26.0 million for the period from
2002 through February 28, 2014, and the percentage rate is 24% through 2001,
37.5% for the period from 2002 through 2006, 40% from 2007 through 2011 and 41%
from 2012 through February 28, 2014. AmeriCold Logistics recognized $156.3
million and $170.6 million of rent expense for the year ended December 31, 2001
and December 31, 2000, respectively, which includes, effects of straight-lining,
rent to parties other than the Landlord and is before the waiver of rent
discussed below. AmeriCold Logistics is required to pay for all costs arising
from the operation, maintenance and repair of the properties, including all real
estate taxes and assessments, utility charges, permit fees and insurance
premiums, as well as property capital expenditures in excess of $9.5 million
annually. AmeriCold Logistics has the right to defer the payment of 15% of the
fixed base rent and all percentage rent for up to three years beginning on March
11, 1999 to the extent that available cash, as defined in the leases, is
insufficient to pay such rent. AmeriCold Logistics deferred $25.5 million and
$19.0 million of rent payments for the periods ending December 31, 2001 and
December 31, 2000, respectively.


                                       14
<PAGE>


On February 22, 2001, the AmeriCold Logistics leases were restructured to, among
other things, (i) reduce 2001's contractual rent to $146.0 million ($14.5
million less than 2000's contractual rent), (ii) reduce 2002's contractual rent
to $150.0 million (plus contingent rent in certain circumstances), (iii)
increase the Landlord's share of annual maintenance capital expenditures by $4.5
million to $9.5 million effective January 1, 2000 and (iv) extend the deferred
rent period to December 31, 2003 from March 11, 2002.

In the fourth quarter ended December 31, 2001, AmeriCold Logistics reversed
$25.5 million of the rent expense recorded for 2001 resulting from Temperature
Controlled Logistics Partnerships waiving of its rights to collect this portion
of the rent. Further, Temperature Controlled Logistics Partnerships waived $14.3
million of the rent expense recorded by AmeriCold Logistics for 2000 which
AmeriCold Logistics recorded as income in the fourth quarter ended December 31,
2001. The aggregate amount waived by the Landlord of $39.8 million represents a
portion of the rent due under the leases which AmeriCold Logistics deferred in
such years.

Under the terms of the partnership agreement for AmeriCold Logistics, Vornado
Operating, Inc. ("Vornado Operating") has the right to make all decisions
relating to the management and operations of AmeriCold Logistics other than
certain major decisions that require the approval of both the Company and
Vornado Operating. Vornado Operating must obtain Crescent Operating's approval
for specified matters involving AmeriCold Logistics, including approval of the
annual budget, requiring specified capital contributions, entering into
specified new leases or amending existing leases, selling or acquiring specified
assets and any sale, liquidation or merger of AmeriCold Logistics. If the
partners fail to reach an agreement on such matters during the period from
November 1, 2000 through October 30, 2007, Vornado Operating may set a price at
which it commits to either buy Crescent Operating's investment, or sell its own,
and Crescent Operating will decide whether to buy or sell at that price. If the
partners fail to reach agreement on such matters after October 30, 2007, either
party may set a price at which it commits to either buy the other party's
investment, or sell its own, and the other party will decide whether to buy or
sell at that price. Neither partner may transfer its rights or interest in the
partnership without the consent of the other partner. Vornado has consented to
Crescent Operating's transfer of its membership interest in COPI Cold Storage,
and thus Crescent Operating's general partnership interest in AmeriCold
Logistics, to a subsidiary of Crescent Real Estate. The partnership will
continue for a term through October 30, 2027, except as the partners may
otherwise agree.

As of December 31, 2001, the Company had not contributed its 40% portion of a
total $10.0 million expected contribution to AmeriCold Logistics. Accordingly,
AmeriCold Logistics cancelled its $4.0 million contribution receivable in
partners capital on December 31, 2001. In the first quarter of 2002, Vornado
Operating's previous contribution of $6.0 million, representing its 60% match of
the $10.0 million total expected contribution, was reclassified as a special
equity contribution that: (i) has priority over the original equity amounts,
with voting rights of the partner not effected, (ii) is redeemable only at
AmeriCold Logistics' option, and (iii) accrues interest at 12% compounded
annually from March 7, 2000. The partner's ownership remains at 60%.

In addition, during 2001, AmeriCold Logistics recorded a charge of $8.9 million
comprised of (i) severance and relocation costs associated with a management
restructuring and (ii) expenses arising from the consolidation of a portion of
the corporate office in Portland, Oregon into AmeriCold Logistics Atlanta
headquarters.

On May 1, 2001, Alec C. Covington became the President and Chief Executive
Officer of AmeriCold Logistics. Mr. Covington succeeded Daniel F. McNamara who
continues as Vice Chairman until May, 2002. Mr. Covington, age 45, was formerly
an Executive Vice President of SUPERVALU Inc. (NYSE:SVU) and President and Chief
Operating Officer of the SUPERVALU food distribution companies division, which
is the nation's largest distributor to grocery retailers having $17.0 billion of
revenue and 34 distribution centers. Previously, Mr. Covington was the President
and Chief Operating Officer of the wholesale division of Richfood Holdings, Inc.
when it was acquired by SUPERVALU in the fall of 1999. He has more than 25 years
of wholesale, retail and supply-chain management experience in the food
industry.

On October 22, 2001, Jonathan C. Daiker joined AmeriCold Logistics as Chief
Financial Officer. Most recently, Mr. Daiker served for five years as Executive
Vice President and Chief Financial Officer of the Simmons Company, a
manufacturer and distributor of mattresses. Prior thereto, from 1981-1995, he
held subsidiary and unit Chief Financial Officer positions with Phillips
Electronics N.V., a multibillion dollar consumer electronics company. Mr.
Daiker, a CPA, began his career with Price Waterhouse & Company.



                                       15
<PAGE>


AmeriCold Logistics is experiencing cash flow deficits which management of is
currently addressing through sales of non-core assets. In addition, AmeriCold
Logistics anticipates that the Temperature Controlled Logistics Partnerships may
further restructure the leases to provide additional cash flow.

RECENT DEVELOPMENTS

On January 23, 2002, the leases with Temperature Controlled Logistics
Partnerships were restructured to consolidate four of the non-encumbered leases
into one non-encumbered lease. The restructuring did not affect total
contractual rent due under the combined leases.

Effective December 31, 2001, the Company, in connection with extending the
maturity of its $15.0 million loan from Bank of America from December 31, 2001
to August 15, 2002, agreed to modify the loan from an unsecured to a secured
credit facility. The Company, with the consent of Crescent Partnership which
agreed to subordinate its security interest in the Company's 40% interest in
AmeriCold Logistics, pledged all of its interest in AmeriCold Logistics to Bank
of America to secure the loan.

MARKET INFORMATION

AmeriCold Logistics provides frozen food manufacturers with refrigerated
warehousing and transportation management services. The Temperature-Controlled
Logistics Properties consist of production and distribution facilities.
Production facilities differ from distribution facilities in that they typically
serve one or a small number of customers located nearby. These customers store
large quantities of processed or partially processed products in the facility
until they are further processed or shipped to the next stage of production or
distribution. Distribution facilities primarily serve customers who store a wide
variety of finished products to support shipment to end-users, such as food
retailers and food service companies, in a specific geographic market.

Transportation management services include freight routing, dispatching, freight
rate negotiation, backhaul coordination, freight bill auditing, network flow
management, order consolidation and distribution channel assessment. AmeriCold
Logistics' temperature-controlled logistics expertise and access to both the
frozen food warehouses and distribution channels enable the customers of
AmeriCold Logistics to respond quickly and efficiently to time-sensitive orders
from distributors and retailers.

Customers consist primarily of national, regional and local frozen food
manufacturers, distributors, retailers and food service organizations, including
H.J. Heinz & Co., ConAgra, Inc., Sara Lee Corp., Tyson Foods, Inc. and McCain
Foods, Inc.

Consolidation among retail and food service channels has limited the ability of
manufacturers to pass along cost increases by raising prices. Because of this,
manufacturers have been forced in the recent past to focus more intensely on
supply chain cost (such as inventory management, transportation and
distribution) reduction initiatives in an effort to improve operating
performance. As the economy continues to recover from the current recession and
stabilize at a level significantly greater than the trailing six months'
performance, AmeriCold Logistics will continue to examine key areas of its
operations to maximize long-term growth potential. These initiatives include
customer profitability, reductions of energy and labor costs and providing
complete supply chain solutions complemented by information systems to its
customers. However, as AmeriCold Logistics focuses on its key initiatives, it
will forge alliances with existing and new customers that will encourage
movement of product into its facilities and strengthen long-term revenues.

AmeriCold Logistics is the largest operator of public refrigerated warehouse
space in the country. AmeriCold Logistics operated an aggregate of approximately
18% of total public refrigerated warehouse space as of December 31, 2001. No
other person or entity operated more than 8% of total public refrigerated
warehouse space as of December 31, 2001. As a result, AmeriCold Logistics does
not have any competitors of comparable size. AmeriCold Logistics operates in an
environment in which competition is national, regional and local in nature and



                                       16
<PAGE>


in which the range of service, temperature-controlled logistics facilities,
customer mix, service performance and price are the principal competitive
factors.

OPERATIONAL INFORMATION

The following table shows the location and size of facility for each of the
properties operated by AmeriCold Logistics as of December 31, 2001:

<Table>
<Caption>
                               Total Cubic                                       Total Cubic
                  Number of      Footage                          Number of        Footage
   State         Properties   (in millions)           State       Properties    (in millions)
-------------    ----------   -------------     --------------   -----------    --------------
<S>              <C>          <C>               <C>              <C>           <C>

Alabama               5              10.8       Missouri(1)                2            46.8
Arizona               1               2.9       Nebraska                   2             4.4
Arkansas              6              33.1       New York                   1            11.8
California            12             49.8       North Carolina             3            10.0
Colorado              1               2.8       Ohio                       1             5.5
Florida               5               7.5       Oklahoma                   2             2.1
Georgia               8              49.5       Oregon                     6            40.4
Idaho                 2              18.7       Pennsylvania               4            50.8
Illinois              2              11.6       South Carolina             1             1.6
Indiana               1               9.1       South Dakota               2             6.3
Iowa                  2              12.5       Tennessee                  3            10.6
Kansas                2               5.0       Texas                      4            27.2
Kentucky              1               2.7       Utah                       1             8.6
Maine                 1               1.8       Virginia                   2             8.7
Massachusetts         5              10.5       Washington                 6            28.7
Minnesota             1               5.9       Wisconsin                  3            17.4
Mississippi           1               4.7       Canada                     1             4.8
                                                                 -----------      ----------
                                                Total                    100           524.6
                                                                 ===========      ==========
</Table>

(1)  Includes one underground facility of approximately 33.1 million cubic feet.


                                LAND DEVELOPMENT

OVERVIEW

Prior to the transfer of the Company's land development interests to Crescent
Partnership in February and March 2002 pursuant to the Settlement Agreement, the
Land Development segment consisted primarily of:

     o    a 4.65% economic interest in Desert Mountain, a master planned, luxury
          residential and recreational community in northern Scottsdale,
          Arizona;

     o    a 52.5% general partner interest in Woodlands Operating, which
          provided management, advisory, landscaping and maintenance services to
          The Woodlands, Texas and was the lessee of The Woodlands Resort and
          Conference Center;

     o    a 2.625% economic interest (2.475% through November 2001) in Landevco,
          which owned approximately 6,600 acres for commercial and residential
          development as well as a realty office, an athletic center, and
          interests in both a title company and a mortgage company; and

     o    a 60% economic interest in COPI Colorado, an entity that had a 10%
          economic interest in CRDI, formerly CDMC, which invests in entities
          that develop or manage residential and resort properties (primarily in
          Colorado) and provides support services to such properties.

The Land Development segment competed against a variety of other housing
alternatives including other planned developments, pre-existing single-family
homes, condominiums, townhouses and non-owner occupied housing, such as luxury
apartments.


                                       17
<PAGE>


DESERT MOUNTAIN

Desert Mountain is a master planned, mixed use residential and recreational
community located in northern Scottsdale, Arizona. The property consists of
8,000 acres of land located in the high Sonoran Desert that is zoned for the
development of approximately 4,500 lots. Desert Mountain includes The Desert
Mountain Club, a private golf, tennis and fitness club which serves over 2,300
members and offers five Jack Nicklaus signature 18-hole golf courses and four
clubhouses. One of these courses is Cochise, the site of the Senior PGA Tour's
The Tradition golf tournament. Lyle Anderson, the original developer of Desert
Mountain, provides advisory services in connection with the operation and
development of Desert Mountain. Pursuant to the terms of a limited partnership
agreement, Desert Mountain Development Corporation ("Desert Mountain
Development") is entitled to receive 93% of the net cash flow of Desert Mountain
after certain payments to the sole limited partner, Sonora Partners Mountain
Partnership which owns the remaining 7% interest, have been made.

THE WOODLANDS OPERATING COMPANY

The Woodlands, is an approximately 27,000-acre master-planned residential and
commercial community located approximately 27 miles north of Houston, Texas,
unique among developments in the Houston area because it functions as a
self-contained community. Amenities contained in the development, which are not
contained within other local developments, include a shopping mall, retail
centers, office buildings, a hospital, a community college, places of worship, a
conference center, 60 parks, 81 holes of golf, two man-made lakes, a riverwalk
and a performing arts pavilion.

Woodlands Operating was formed to provide management, advisory, landscaping and
maintenance services to entities affiliated with Crescent Operating and Crescent
Equities as well as to third parties. Pursuant to the terms of service
agreements, Woodlands Operating performed general management, landscaping and
maintenance, construction, design, sales, promotional and other marketing
services for certain properties in which Crescent Equities owns a direct or
indirect interest. In addition, Woodlands Operating monitored certain of the
real estate investments of, and provides advice regarding real estate and
development issues to, such entities. As compensation for its management and
advisory services, Woodlands Operating was paid a monthly advisory fee on a
cost-plus basis. As compensation for its landscaping and maintenance services,
Woodlands Operating received a monthly fee on a cost-plus basis related to
performing the required landscaping and maintenance services.

Woodlands Operating also leased The Woodlands Conference Center and Country
Club, an executive conference center with a private golf and tennis club and
certain related assets (the "Conference Center") from The Woodlands Commercial
Properties Company, L.P. ("Woodlands Commercial"), a partnership, the interests
of which are owned by Crescent Equities and certain Morgan Stanley Group funds.
Woodlands Operating leased the Conference Center on a triple net basis, with
base rent in the amount of $0.75 million per month during the eight-year term of
the lease. The lease also provides for the payment of percentage rent for each
calendar year in which gross receipts from the operation of the Conference
Center exceed certain amounts.

The Woodlands Operating partnership agreement provided that distributions be
made to partners in accordance with specified payout percentages subject to
change based upon whether certain established cumulative preferred returns were
earned. As cumulative preferred returns reach certain thresholds, distributions
to the Company from Woodlands Operating increased from 42.5% to 49.5% and then
from 49.5% to 52.5%. Beginning in 2000, both the 42.5% and the 49.5% thresholds
were met by Woodlands Operating; therefore, the payout percentage to the Company
increased to 52.5%.

THE WOODLANDS LAND COMPANY, INC.

Crescent Operating owned all of the voting stock, representing a 5% economic
interest, of The Woodlands Land Company ("LandCo"), a residential and commercial
development corporation which was formerly wholly owned by Crescent Partnership,
prior to the Settlement Agreement entered into on February 14, 2002. LandCo
holds a 52.5% general partner interest in, and is the managing general partner
of, Landevco, a Texas limited partnership in which certain Morgan Stanley funds
hold a 47.5% limited partner interest. Landevco primarily owns (i) approximately


                                       18
<PAGE>


4,900 acres of land capable of supporting the development of more than 13,100
lots for single-family homes, (ii) approximately 1,700 acres capable of
supporting more than 13.3 million net rentable square feet of commercial
development, (iii) a realty office, (iv) contract rights relating to the
operation of its property, (v) an athletic center and (vi) a 50% interest in a
title company.

The Landevco partnership agreement provided that distributions be made to
partners in accordance with specified payout percentages subject to change based
upon whether certain established cumulative preferred returns were earned. As
cumulative preferred returns reach certain thresholds, distributions to Landco
from Landevco increase from 42.5% to 49.5% and then from 49.5% to 52.5%. In
2001, the 42.5% and 49.5% thresholds were met; therefore, the payout percentage
to the Company increased to 2.625%.

CRESCENT RESORT DEVELOPMENT, INC.

CRDI's investments included direct and indirect economic interests that vary
from 25% to 64% consisting primarily of the following: (i) six residential and
commercial developments and eleven residential developments in Colorado, South
Carolina and California; (ii) a timeshare development in Colorado; (iii) two
transportation companies providing approximately 80% of the airport shuttle
service to Colorado resort areas; (iv) two private clubs consisting of various
recreational and social amenities in Colorado and California; and (v) an
interest in a partnership owning an interest in the Ritz Carlton Hotel in Palm
Beach, Florida. Until December 2000, CRDI had an indirect economic interest in a
real estate company specializing in the management of resort properties in
Colorado, Utah, South Carolina and Montana. That investment was transferred to
CDMC II, a newly formed entity having the same owners, board of directors and
officers as CRDI. In connection with that transfer, CDMC II assumed the
indebtedness of CRDI incurred in connection with that investment, all of which
is owed to Crescent Partnership. Effective March 30, 2001, CDMC II sold that
investment - a membership interest in East West Resorts, LLC ("EWR") - to a
company affiliated with the other owner of EWR, for cash and a secured
promissory note. CDMC II immediately transferred the cash and note to
Transportal Investment Corp. ("TIC") in exchange for its assumption of all of
its indebtedness and dissolved. Crescent Operating owned 1%, and Crescent
Partnership owned 99%, of TIC, which owns an interest in Transportal Network,
LLC. Transportal Network is an abandoned venture that had been planned to
provide routing and load management services and facilitate related purchases
over the internet to independent truckers, shippers and receivers. Transportal
Network ceased operations in October 2000.

Effective September 11, 1998, the Company and Gerald W. Haddock, John C. Goff
and Harry H. Frampton, III (collectively, the "CRDI Sellers") entered into a
partnership agreement (the "Partnership Agreement") to form COPI Colorado. COPI
Colorado was formed for the purpose of holding and managing the voting stock of
CRDI (and, consequently, to manage CRDI) and investing in shares of Crescent
Operating common stock. In September, 1998, the Company contributed to COPI
Colorado $9.0 million in cash in exchange for a 50% general partner interest in
COPI Colorado, and each CRDI Seller contributed to COPI Colorado approximately
667 shares of CRDI voting stock, which the CRDI Sellers owned individually, in
exchange for an approximately 16.67% limited partner interest in COPI Colorado;
as a result and until January 2000, the Company owned a 50% managing interest in
COPI Colorado and the CRDI Sellers collectively owned a 50% investment interest
in COPI Colorado. Mr. Haddock assigned his 16.67% limited partner interest to
COPI Colorado effective January 2000, causing the Company's general partner
interest to increase from 50% to 60%.

COPI Colorado purchased approximately 1.1 million shares of Crescent Operating
common stock at a total purchase price of $4.3 million. The average price paid
for such shares, excluding brokers' commissions, was $3.88 per share. COPI
Colorado did not purchase shares of Crescent Operating after August 1999.

RECENT DEVELOPMENTS

On February 13, 2002, in anticipation of the Company's entering into the
Settlement Agreement - pursuant to which the Company transferred its 60% general
partnership interest in COPI Colorado to Crescent Partnership - the partners of
COPI Colorado caused it to distribute among its partners, in accordance with
their respective ownership percentage, all of the shares of the Company's stock
it held. Messrs. Goff and Frampton each received 220,506 shares, while the
Company received 661,518 shares.


                                       19
<PAGE>


Effective February 14, 2002, the Company transferred its equity interests in the
Land Development assets and related liabilities, other than the Company's
interest in Woodlands Operating, as provided for in the Settlement Agreement.
The Company transferred its interest in Woodlands Operating to Crescent Equities
on March 22, 2002.

OPERATIONAL STATISTICS

The following table sets forth certain information as of December 31, 2001
relating to the residential development properties.


<Table>
<Caption>
                                              Total        Total       Average
                                 Total     Lots/Units   Lots/Units     Closed
                                 Lots/      Developed      Closed    Sale Price
                                 Units        Since        Since      Per Lot/        Range of Proposed
  Land Development              Planned     Inception    Inception    Unit(1)      Sale Prices Per Lot(2)
  ----------------            ----------   ----------   ----------   ----------    ----------------------
<S>                           <C>          <C>          <C>          <C>           <C>

Desert Mountain ...........        2,665        2,338        2,195   $  515,000    $400,000-$3,050,000(3)
The Woodlands .............       37,554       26,027       24,472   $   57,000    $ 16,000-$1,035,000
CRDI ......................        2,679        1,274          869          N/A    $ 25,000-$4,600,000
                              ----------   ----------   ----------

Total Land Development ....       42,898       29,639       27,536
                              ==========   ==========   ==========
</Table>

(1)  Based on lots/units closed during the Company's ownership period.

(2)  Based on existing inventory of developed lots and lots to be developed.

(3)  Includes golf membership, which as of December 31, 2001, was $225,000.


                                OTHER INVESTMENTS

CHARTER BEHAVIORAL HEALTH SYSTEMS, LLC

CBHS was the largest provider of behavioral health care treatment in the United
States. From September 9, 1999 to December 29, 2000, Crescent Operating (which
prior thereto had owned 50% of CBHS) owned a 25% common membership interest and
100% of the preferred membership interests in CBHS, and a limited partnership
interest in COPI CBHS Holdings (controlled by individual officers of Crescent
Operating), in which Crescent Operating owned 100% of the economic interests,
and which owned 65% of the common interests of CBHS. In the fourth quarter of
1999, CBHS began significant downsizing, including the closing of 18 facilities
in December 1999 and 33 facilities in January 2000. Closure of those facilities
resulted in the filing by terminated employees of several lawsuits against CBHS
and others, including Crescent Operating, for alleged violation of the WARN Act
(see "Item 3 - Legal Proceedings"). On February 16, 2000, CBHS petitioned for
relief under Chapter 11 of the United States Bankruptcy Code. Under the
protection of the bankruptcy court, CBHS has engaged in efforts to sell and
liquidate, in a controlled fashion, all of its ongoing business. On April 16,
2000, the asset purchase agreement to which a newly formed, wholly-owned
subsidiary of Crescent Operating had agreed to acquire, for $24.5 million,
CBHS's core business assets used in the operation of 37 behavioral healthcare
facilities, subject to certain conditions, terminated by its own terms because
not all of the conditions precedent to closing had been met by that date.
Subsequent to the termination of the asset purchase agreement, CBHS sold or
closed all of its remaining facilities and is in the process of final
liquidation of any remaining assets.

As a result of the liquidation of CBHS through bankruptcy, the equity investment
in CBHS became worthless. On December 29, 2000 Crescent Operating sold its 25%
common interest and its 100% preferred membership interest in CBHS, and COPI
CBHS Holdings sold its 65% common interest in CBHS, to The Rockwood Financial
Group, Inc. for a nominal sum. The Rockwood Financial Group, Inc. is wholly
owned by Jeffrey L. Stevens, Crescent Operating's Chief Executive Officer and
sole director. The sale of CBHS to the Rockwood Financial Group, Inc. was
effected as part of Crescent Operating's tax planning strategy. For the year
2000, Crescent Operating was faced with a potentially large minimum tax
liability. Crescent Operating sold its interest in CBHS in order to trigger a
loss that would significantly reduce, if not eliminate this minimum tax
liability.


                                       20
<PAGE>


MAGELLAN WARRANTS

In connection with the transaction in which the Company acquired its interest in
CBHS in 1997, the Company purchased, for $12.5 million, warrants to acquire
1,283,311 shares of Magellan Health Services, Inc. ("Magellan") common stock for
an exercise price of $30.00 per share. The Magellan warrants are exercisable in
varying increments beginning on May 31, 1998 and ending on May 31, 2009. The
Company had written down its investment in the warrants based on the estimated
fair value of the warrants of $3.0 million at December 31, 2000, using the
Black-Scholes pricing model.

As of January 1, 2001, the Company was required to adopt Statement of Financial
Standards (SFAS) No. 133, as amended by No. 138. SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, provides that all derivative
instruments be recognized as either assets or liabilities depending on the
rights or obligations under the contract and that all derivative instruments be
measured at fair value. Upon adoption, the Company was required to record the
net comprehensive loss related to its investment in Magellan warrants as a
charge in the statement of operations. Based on the value of the warrants on
December 31, 2000, the Company expensed $9.5 million on January 1, 2001 as a
cumulative effect of change in accounting principle. From January 1, 2001
forward, the Company records changes in the fair value of these warrants in the
statement of operations as investment income (loss). For the year ended December
31, 2001, the Company recorded changes in the fair value of these warrants, as
calculated using the Black-Scholes pricing model, as investment income of $1.1
million in the Company's statement of operations.

Crescent Operating transferred the Magellan warrants to Crescent Machinery
Company in 1999 as a contribution to capital. With the commencement of Crescent
Machinery's bankruptcy proceedings, the Magellan warrants became part of
Crescent Machinery's estate, subject to the claims of creditors.

For additional financial information related to the Company's business segments,
see the Company's notes to the consolidated financial statements.


RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives. The Company will apply the new
rules on accounting for goodwill and other intangible assets beginning in the
first quarter 2002. The Company will perform the first of the required
impairment test of goodwill and indefinite lived intangible assets as of January
1, 2002 and has not yet determined what the effect of these tests will be on the
earnings and financial position of the Company.

In August 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. It
also supersedes the accounting and reporting provisions of APB Opinion No. 30,
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions. SFAS No. 144 retains
the fundamental provisions of SFAS No. 121 for recognition and measurement of
the impairment of long-lived assets to be held and used and measurement of the
long-lived assets to be disposed of by sale, but broadens the definition of what
constitutes a discontinued operation and how the results of a discontinued
operation are to be measured and presented. SFAS No. 144 is effective for fiscal
years beginning after December 15, 2001. The Company will adopt SFAS No. 144 on
January 1, 2002 and believe that this adoption will not have a material impact
on their results of operations or financial position; however, due to the
Settlement Agreement discussed in this Item 1, the Hospitality and Land
Development segments will be presented as discontinued operations in future
financial statements.


                                       21
<PAGE>


                                    EMPLOYEES

As of December 31, 2001, Crescent Operating and the following consolidated
subsidiaries had the number of employees indicated below:

<Table>
<S>                                                  <C>
Crescent Operating-corporate.................                5
Equipment Sales and Leasing segment..........              337
Hospitality segment..........................              635
Land Development segment.....................              691
                                                     ---------
                                                         1,668
                                                     =========
</Table>

On May 1, 2001, Richard P. Knight resigned his position as Vice President and
Chief Financial Officer to pursue other interests.

The Company has excluded employees of Woodlands Operating, Landevco and
AmeriCold Logistics, as these subsidiaries represent equity investments for
financial reporting purposes.

ITEM 2. PROPERTIES

At December 31, 2001, the Company, through its subsidiary, Crescent Machinery,
owned fee simple interests in four properties located in Dallas and Austin,
Texas, Tulsa, Oklahoma and Van Wert, Ohio. At December 31, 2001, the Company,
directly or indirectly, also held leasehold interests in certain facilities,
including the Hospitality Properties and other leased Crescent Machinery
locations (collectively, the "Leased Properties"). As stated in Item 1 above,
the Company transferred all of the leasehold interests in the Hospitality
Properties to Crescent Partnership in February 2002. As also stated in Item 1
above, Crescent Machinery Company filed a voluntary petition in bankruptcy on
February 6, 2002, and its properties and assets - including but not limited to
the fee simple interests and leaseholds referenced in this Item 2 - are subject
to the claims of creditors; as stated in Item 1 above, the Company believes it
will not likely receive any distribution in respect of the bankruptcy
proceeding. Management believes that, for so long as it directly or indirectly
owned or controlled fee simple interests and leaseholds referenced in this Item
2, each of such owned and the Leased Properties was adequately maintained and
suitable for use in its respective capacity. The Company or certain of its
subsidiaries entered into lease agreements in respect of the Leased Properties,
pursuant to which each respective lessee was responsible for routine maintenance
of the subject property.

For further description as to the general character of the Company's properties
by segment, see Item 1.


ITEM 3. LEGAL PROCEEDINGS


CBHS became the subject of Chapter 11 bankruptcy proceedings by filing a
voluntary petition on February 16, 2000, in United States Bankruptcy Court for
the District of Delaware. Although CBHS is not a subsidiary of Crescent
Operating, Crescent Operating did own a majority (90%) economic interest in
CBHS, until December 29, 2000.

As stated above under "Charter Behavioral Health Systems, LLC", as a result of
the liquidation of CBHS through bankruptcy, the equity investment in CBHS became
worthless. On December 29, 2000, as part of Crescent Operating's tax planning,
Crescent Operating sold its 25% common interest and its 100% preferred
membership interest in CBHS, and COPI CBHS Holdings sold its 65% common interest
in CBHS to The Rockwood Financial Group, Inc. for a nominal sum.

Crescent Operating held no funded or liquidated claims against the estate of
CBHS. Crescent Operating filed proofs of claim against CBHS as a protective
matter for potential indemnification or contribution for third party lawsuits


                                       22
<PAGE>


and claims where Crescent Operating is a named defendant with CBHS, such as
lawsuits based upon alleged WARN Act violations purported to have been committed
by CBHS and/or its subsidiaries in closing behavioral health care facilities in
1999 and 2000. The only such lawsuits that have been brought against Crescent
Operating arise from WARN Act claims. In connection with a settlement entered
into among Crescent Operating, CBHS, the WARN Act plaintiffs, and others,
Crescent Operating's indemnification and contribution claims against CBHS based
on such lawsuits have been resolved. No other claims or lawsuits have been
asserted against Crescent Operating that would give rise to indemnification or
contribution claims by Crescent Operating against CBHS. In the event that, prior
to the bar date for asserting claims against Crescent Operating in its
bankruptcy case, no other claims or lawsuits are asserted against Crescent
Operating that would give rise to indemnification or contribution claims by
Crescent Operating against CBHS, Crescent Operating's claims for indemnification
or contribution in the CBHS case will be disallowed. If any such lawsuits or
claims are brought, Crescent Operating will pursue its indemnification and
contribution claims in the CBHS case as appropriate.

To date, several lawsuits, all of which seek class action certification, have
been filed against CBHS alleging violations of the WARN Act in the closing of
certain healthcare facilities in 1999 and 2000. Of those lawsuits, three also
named Crescent Operating as a defendant, but all three of those suits have since
been dismissed. An additional suit seeking similar relief was also filed against
Crescent Operating and Crescent Partnership, as well as CBHS.

A global Stipulation of Settlement of all WARN matters has been reached and
filed with the United States District Court and Bankruptcy Court for the
District of Delaware by the WARN Act claimants, CBHS, Crescent Operating,
Crescent Partnership and the Creditors Committee in the CBHS case. The
settlement was approved by the District Court by order dated March 18, 2002. As
it applies to Crescent Operating, the settlement provides that either Crescent
Operating or Crescent Partnership was required to deposit into escrow $500,000
for the benefit of the WARN Act claimants and, upon the settlement becoming
final, Crescent Operating will receive a complete release for all WARN Act
claims and any other claims in the CBHS case other than potential claims from
those CBHS employees who have opted out of the settlement. It appears that a
maximum of three such employees have opted out and none have made claims against
Crescent Operating to date. Crescent Partnership has paid the $500,000 into
escrow. This payment will not be included as an expense for the purposes of
calculating the aggregate value of the Crescent Real Estate shares to be
distributed to the Crescent Operating shareholders.

In accordance with an agreement between Gerald Haddock and Crescent Operating,
COPI Colorado redeemed the limited partnership interest of Mr. Haddock, Crescent
Operating's former Chief Executive Officer and President, in January 2000. COPI
Colorado paid Mr. Haddock approximately $2.6 million for his approximate 16.67%
limited partner interest (determined from an independent appraisal of the value
of COPI Colorado). Mr. Haddock challenged the valuation performed by the
independent appraiser and the procedures followed by Crescent Operating with
respect to the redemption and valuation process. On February 7, 2001, Crescent
Operating filed a lawsuit in the 141st Judicial Court of Tarrant County, Texas
seeking a declaratory judgment to assist in resolution of Crescent Operating's
dispute with Mr. Haddock. The parties settled their dispute, and the lawsuit was
dismissed effective as of January 2, 2002.


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

The Company's Annual Meeting of Stockholders was held on December 6, 2001. The
Company submitted three proposals to the stockholders: (i) approval of the
Restructuring Proposal (described in Item 1 above), (ii) election of two
directors - Richard E. Rainwater and Anthony M. Frank - for a term of three
years, and (iii) ratification of the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending December 31, 2001. The
Restructuring Proposal is described in Item 1. The number of votes cast for,
against or withheld, as well as the number of abstentions and broker non-votes,
with respect to each matter are set forth below:


          (1)  The Restructuring Proposal was approved, with 5,728,738 votes
               cast for, 810,700 votes cast against, 2,796 abstentions, and
               4,207,294 non-votes;


                                       23
<PAGE>


          (2)  Both nominees to the Board of Directors were elected, with the
               votes for each as follows:

<Table>
<Caption>
Name                     For            Votes Withheld
--------------------     ----------     --------------
<S>                      <C>            <C>

Richard E. Rainwater      9,759,359        990,169
Anthony M. Frank         10,028,135        721,393
</Table>


          (3)  The appointment of Ernst & Young LLP as the independent auditors
               for the Company for the year ending December 31, 2001 was
               ratified, with 10,586,328 votes cast for, 53,705 votes against
               and 109,495 abstentions.


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Effective June 12, 1997, shares of the Company's common stock were distributed
to shareholders of Crescent Equities and unit holders of Crescent Partnership of
record on May 30, 1997. For Crescent Equities shareholders, the distribution was
made on the basis of one share of Crescent Operating common stock for every 10
common shares of beneficial interest of Crescent Equities held on the record
date, and for limited partners of Crescent Partnership, the distribution was
made on the basis of one share of Crescent Operating common stock for every 5
units of limited partnership interest held on the record date. The Company's
common stock, $0.01 par value per share, began trading on the OTC Bulletin Board
on June 13, 1997. Effective September 8, 1997, the Company's common stock was
listed on the NASDAQ National Market under the symbol "COPI" and effective April
27, 2000, the Company's shares again began trading on the OTC Bulletin Board
because the Company's shares became ineligible for continued NASDAQ listing.

The following table reflects the high and low bid prices of the common stock for
each calendar quarter indicated.

<Table>
<Caption>
                 2001             HIGH           LOW
                 ----             ----           ---
<S>                             <C>           <C>

March 31....................    $   1.63       $   0.63
June 30.....................    $   1.25       $   0.65
September 30................    $   0.73       $   0.25
December 31.................    $   0.26       $   0.03

<Caption>

                 2000             HIGH           LOW
                 ----             ----           ---
<S>                             <C>           <C>

March 31....................    $   3.69       $   2.06
June 30.....................    $   2.75       $   1.25
September 30................    $   1.75       $   1.19
December 31.................    $   1.13       $   0.45
</Table>

As of April 15, 2002, there were approximately 186 holders of record of the
common stock of Crescent Operating. No cash dividends have been declared or paid
in respect of the Company's common stock. In addition, the Settlement Agreement
(See Item 1 - Settlement Agreement) limits Crescent Operating's ability to incur
additional indebtedness, incur liens, pay dividends or make certain other
restrictive payments.


                                       24
<PAGE>




ITEM 6.  SELECTED FINANCIAL DATA

The following table sets forth certain summary historical financial information
for the Company and for the Predecessor. For purposes of this table, the
Predecessor consists of Moody-Day, Inc. and Hicks Muse Tate & Furst Equity Fund
II, L.P. (collectively, the "Carter-Crowley Asset Group"). The following
information should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations in Item 7 and the
Financial Statements and Supplementary Data included in Item 8.

<Table>
<Caption>
                                                                                                                     Carter-Crowley
                                                                                                                      Asset Group
                                                              Crescent Operating, Inc.                               (Predecessor)
                                       ------------------------------------------------------------------------    ----------------
                                                                                               For the Period       For the Period
                                                                                                     From               From
                                                                                                  May 9, 1997       January 1, 1997
                                          2001          2000          1999          1998      December 31, 1997     to May 8, 1997
                                       ----------    ----------    ----------    ----------   -----------------    ----------------
<S>                                    <C>           <C>           <C>           <C>          <C>                 <C>

Operating Data:
                                       $  606,341    $  716,826    $  717,987    $  493,248    $        156,882    $          4,657
Revenues
   (Loss) income from
        operations .................      (62,382)       19,628        13,867         9,886                (993)                158
   Net (loss) income ...............      (78,133)       (3,690)       (2,695)        1,141             (22,165)                 25
   (Loss) Income per share-basic
     and diluted ...................        (7.55)         (.36)         (.26)          .10               (2.00)                 --

Balance Sheet Data:
   Total assets ....................   $  945,404    $  910,528    $  795,653    $  937,333    $        602,083
   Total debt ......................      587,110       473,517       421,874       371,139             258,129
   Total shareholders' deficit .....      (93,388)      (23,533)      (20,522)      (16,068)             (8,060)
</Table>




                                       25
<PAGE>


                          SEGMENT FINANCIAL INFORMATION
                    (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)

The following is a summary of Crescent Operating's financial information
reported by segment for the year ended December 31, 2001:

<Table>
<Caption>
                                                  EQUIPMENT                  TEMPERATURE
                                                    SALES                     CONTROLLED      LAND
                                                 AND LEASING   HOSPITALITY     LOGISTICS   DEVELOPMENT       OTHER        TOTAL
                                                 -----------   -----------   -----------   -----------    ----------    ----------
<S>                                              <C>           <C>           <C>           <C>           <C>           <C>

Revenues ......................................   $  118,501    $  226,841    $       --    $  260,999    $       --    $  606,341

Operating expenses ............................      165,234       240,238            21       256,282         6,948       668,723
                                                  ----------    ----------    ----------    ----------    ----------    ----------
Income (loss) from operations .................      (46,733)      (13,397)          (21)        4,717        (6,948)      (62,382)
                                                  ----------    ----------    ----------    ----------    ----------    ----------
Investment income (loss) ......................           --            --            --            --         1,135         1,135
                                                  ----------    ----------    ----------    ----------    ----------    ----------
Equity in earnings (losses) of
      unconsolidated subsidiaries .............           --        (4,548)       (2,275)       37,903            --        31,080
Other (income) expense
      Interest expense ........................        7,713         1,010            --        12,709         9,070        30,502
      Interest income .........................          (16)         (103)           --        (3,700)           46        (3,773)
      Other ...................................        1,713            --            --          (978)           (2)          733
                                                  ----------    ----------    ----------    ----------    ----------    ----------
Total other expense ...........................        9,410           907            --         8,031         9,114        27,462
                                                  ----------    ----------    ----------    ----------    ----------    ----------
(Loss) income before income taxes, minority
       interests and accounting change ........      (56,143)      (18,852)       (2,296)       34,589       (14,927)      (57,629)
Income tax (benefit) provision ................       (3,784)       (3,509)         (919)       11,475        (5,856)       (2,593)
                                                  ----------    ----------    ----------    ----------    ----------    ----------
(Loss) income before minority interests and
      accounting change .......................      (52,359)      (15,343)       (1,377)       23,114        (9,071)      (55,036)
Minority interests ............................           --         6,807            --       (20,395)           --       (13,588)
                                                  ----------    ----------    ----------    ----------    ----------    ----------
(Loss) income before accounting change ........      (52,359)       (8,536)       (1,377)        2,719        (9,071)      (68,624)
Cumulative effect of change in
      accounting principle ....................           --            --            --            --        (9,509)       (9,509)
                                                  ----------    ----------    ----------    ----------    ----------    ----------
Net income (loss) .............................   $  (52,359)   $   (8,536)   $   (1,377)   $    2,719    $  (18,580)   $  (78,133)
                                                  ==========    ==========    ==========    ==========    ==========    ==========

Net income (loss) per share,
      basic and diluted .......................   $    (5.06)   $    (0.83)   $    (0.13)   $     0.26    $    (1.80)   $    (7.55)
                                                  ==========    ==========    ==========    ==========    ==========    ==========

EBITDA Calculation:(1)
      Net income (loss) .......................   $  (52,359)   $   (8,536)   $   (1,377)   $    2,719    $  (18,580)   $  (78,133)
      Interest expense, net ...................        7,697            97         1,881           670         9,116        19,461
      Income tax provision (benefit) ..........       (3,784)       (5,180)         (919)        1,520        (5,856)      (14,219)
      Depreciation and amortization ...........       19,193         1,562         4,591         1,207           (75)       26,478
                                                  ----------    ----------    ----------    ----------    ----------    ----------
EBITDA ........................................   $  (29,253)   $  (12,057)   $    4,176    $    6,116    $  (15,395)   $  (46,413)
                                                  ==========    ==========    ==========    ==========    ==========    ==========

Cash flow from operating activities ...........   $   44,208    $   14,624    $       --    $ (174,586)   $  (37,688)   $ (153,442)

Cash flow from investing activities ...........   $    1,305    $   (1,397)   $       --    $   14,351    $      (19)   $   14,240

Cash flow from financing activities ...........   $  (43,633)   $     (454)   $       --    $  156,692    $    6,047    $  118,652
</Table>

(1)  EBITDA represents earnings before interest, income taxes, depreciation and
     amortization. Amounts are calculated based on the Company's ownership
     percentage of the EBITDA components. Management believes that EBITDA can be
     a meaningful measure of the Company's operating performance, cash
     generation and ability to service debt. However, EBITDA should not be
     considered as an alternative to either: (i) net earnings (determined in
     accordance with generally accepted accounting principles ("GAAP")); (ii)
     operating cash flow (determined in accordance with GAAP); or (iii)
     liquidity. There can be no assurance that the Company's calculation of
     EBITDA is comparable to similarly titled items reported by other companies.



                                       26
<PAGE>



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

OVERVIEW

The Settlement Agreement discussed above provides for a bankruptcy plan of
Crescent Operating to be implemented under the federal Bankruptcy Code. In
addition, all of the Company's assets in its Hospitality and Land Development
segments were transferred to Crescent Real Estate pursuant to the Settlement
Agreement. (See - Item 1 - Settlement Agreement)

The following discussion should be read in conjunction with the "Selected
Financial Data" and the financial statements and notes thereto, appearing
elsewhere in this report. Historical results and percentage relationships set
forth in "Selected Financial Data" should not be taken as indicative of future
operations of the Company.

The following table sets forth financial data for the Company.

<Table>
<Caption>
                                                   For the              For the             For the
                                                 Year Ended           Year Ended           Year Ended
(In thousands)                                December 31, 2001    December 31, 2000    December 31, 1999
                                              -----------------    -----------------    -----------------
<S>                                           <C>                  <C>                  <C>

REVENUES
  Equipment sales & leasing                   $         118,501    $         142,842    $         136,343
  Hospitality                                           226,841              272,157              246,763
  Land development                                      260,999              301,827              334,881
                                              -----------------    -----------------    -----------------
     Total revenues                                     606,341              716,826              717,987
                                              -----------------    -----------------    -----------------

OPERATING EXPENSES
  Equipment sales & leasing                             126,042              141,113              131,606
  Hospitality                                           183,509              212,238              191,465
  Hospitality properties rent                            55,743               63,338               54,012
  Land development                                      256,282              276,285              324,432
  Corporate general and administrative                    6,969                4,224                2,605
  Impairment of assets                                   40,178                   --                   --
                                              -----------------    -----------------    -----------------
     Total operating expenses                           668,723              697,198              704,120
                                              -----------------    -----------------    -----------------

(LOSS) INCOME FROM OPERATIONS                           (62,382)              19,628               13,867
                                              -----------------    -----------------    -----------------

INVESTMENT INCOME                                         1,135                2,285                1,890

EQUITY IN EARNINGS OF UNCONSOLIDATED
  SUBSIDIARIES                                           31,080               25,980               19,049

OTHER (INCOME) EXPENSE
  Interest expense                                       30,502               36,345               30,775
  Interest income                                        (3,773)              (4,271)              (4,046)
  Gain on termination of Four Seasons lease                  --              (18,289)
  Other                                                     733                   33                  131
                                              -----------------    -----------------    -----------------

     Total other expense                                 27,462               13,818               26,860
                                              -----------------    -----------------    -----------------

(LOSS) INCOME BEFORE INCOME TAXES,
    MINORITY INTERESTS AND ACCOUNTING
    CHANGE                                              (57,629)              34,075                7,946

INCOME TAX (BENEFIT) PROVISION                           (2,593)              11,747               (3,471)
                                              -----------------    -----------------    -----------------

(LOSS) INCOME BEFORE MINORITY INTERESTS
    AND ACCOUNTING CHANGE                               (55,036)              22,328               11,417

MINORITY INTERESTS                                      (13,588)             (26,018)             (14,112)
                                              -----------------    -----------------    -----------------

LOSS BEFORE ACCOUNTING CHANGE                           (68,624)              (3,690)              (2,695)

CUMULATIVE EFFECT OF CHANGE IN
    ACCOUNTING PRINCIPLE                                 (9,509)                  --                   --
                                              -----------------    -----------------    -----------------

NET LOSS                                      $         (78,133)   $          (3,690)   $          (2,695)
                                              =================    =================    =================
</Table>


                                       27
<PAGE>


YEAR ENDED DECEMBER 31, 2001, COMPARED TO THE YEAR ENDED DECEMBER 31, 2000

REVENUES

Total revenue decreased $110.5 million, or 15.4%, to $606.3 million for the year
ended December 31, 2001, compared with $716.8 million for the year ended
December 31, 2000. The decrease in total revenue is attributable to the factors
discussed in the following paragraphs. In addition, Crescent Operating believes
that revenues for each of the following segments were impacted significantly and
negatively by the general recession and additionally as a consequence of the
September 11, 2001 terrorist attacks against the United States and the
continuing threat of terrorism, as consumers curtail their vacation travel and
their purchase of vacation homes and as certain industries reduce their
construction expenditures.

Equipment Sales and Leasing Segment

Equipment sales and leasing revenue decreased $24.3 million, or 17.0% to $118.5
million, for the year ended December 31, 2001, compared with $142.8 million for
the year ended December 31, 2000. Significant components of the overall decrease
were:

o    a decrease of $21.2 million in new and used equipment sales due to weaker
     market conditions and increased demand from customers for rentals as
     compared to purchases; and

o    an decrease in parts, service and supplies revenue of $4.3 million for the
     current year primarily due to decreased demand for maintenance and repair
     work; partially offset by

o    an increase in rental revenue of $1.2 million during the year ended
     December 31, 2001 primarily due to same store rental growth.

Hospitality Segment

Hospitality revenue decreased $45.4 million, or 16.7%, to $226.8 million for the
year ended December 31, 2001, compared with $272.2 million for the year ended
December 31, 2000. Significant components of the overall decrease were:

o    no revenues at the Four Seasons Hotel in Houston due to the sale of hotel
     on November 3, 2000 as compared to revenues of $32.6 million for the year
     ended December 31, 2000;

o    a decrease in revenues of $18.1 million from the Denver Marriott, the Hyatt
     Regency Beaver Creek, Sonoma Mission Inn and Spa, Ventana Inn and Spa and
     Canyon Ranch-Tucson due primarily to decreased occupancy as a result of
     weaker market conditions as compared to the corresponding period in 2000;
     partially offset by

o    an increase in revenues of $6.4 million from the Renaissance Hotel, Hyatt
     Regency Albuquerque and Canyon Ranch-Lenox due primarily to increased rates
     as compared to the corresponding period in 2000 and the completion of the
     Renaissance remodel.

Land Development Segment

Land Development revenue, which represents revenue from Desert Mountain
Development and COPI Colorado prior to the elimination of the Minority
Interests, decreased $40.8 million, or 13.5%, to $261.0 million for the year
ended December 31, 2001, compared with $301.8 million for the year ended
December 31, 2000. Significant components of the overall decrease were:

o    a $51.7 million decrease in revenue from Desert Mountain Development for
     the year ended December 31, 2001 primarily due to fewer home and lot sales
     as compared to the prior year; partially offset by

o    a $10.9 million increase in revenue from COPI Colorado which can be
     attributed to (i) a $23.1 million increase in real estate sales and (ii) a
     $3.5 million increase in club operation revenue, partially offset by (iii)
     a $14.5


                                       28
<PAGE>


     million decrease in property management revenue as a result of dispositions
     in the first quarter of 2001 (iv) a $2.2 million decrease in service
     station revenue due to the sale of this property in June 2000 and (v) a
     $1.2 million decrease in transportation revenue due to cancellations
     related to the September 11th attack.

OPERATING EXPENSES

Total operating expenses decreased $28.5 million, or 4.1%, to $668.7 million for
the year ended December 31, 2001, compared with $697.2 million for the year
ended December 31, 2000. The decrease in operating expenses is attributable to
the following:

Equipment Sales and Leasing Segment

Equipment sales and leasing expenses increased $24.1 million, or 17.1%, to
$165.2 million for the year ended December 31, 2001, compared with $141.1
million for the year ended December 31, 2000. Significant components of the
overall increase were:

o    an adjustment of $39.2 million related to impairment of property, equipment
     and goodwill at Crescent Machinery;

o    an $3.9 million increase in rental expenses due mainly to an increase in
     rental inventory resulting in increased depreciation expense and
     maintenance costs for the year ended December 31, 2001; partially offset by

o    a $17.0 million decrease in new and used equipment expenses as a result of
     a decrease in new and used equipment sales; and

o    a $2.6 million decrease in parts, service and supplies expenses due
     primarily to reductions in sales of new and used equipment.


Hospitality Segment

Hospitality expenses decreased $35.4 million, or 12.8%, to $240.2 million for
the year ended December 31, 2001, compared with $275.6 million for the year
ended December 31, 2000. Significant components of the overall decrease were:

o    decreased rent and expenses associated with the Four Seasons Hotel in
     Houston in the amount of $30.4 million due to the sale of the hotel on
     November 3, 2000;

o    a decrease in rent and expenses in the amount of $12.2 million consistent
     with decreased revenues generated by certain of the Hospitality Properties
     as a result of decreased occupancy as compared to the corresponding period
     in 2000; and

o    an adjustment of $1.0 million related to impairment of goodwill at
     Rosestar; partially offset by

o    an increase in rent and expenses in the amount of $6.3 million associated
     with the Renaissance Hotel, Hyatt Regency Albuquerque and Canyon Ranch -
     Lenox.


Land Development Segment

Land development expenses, which primarily represent operating costs incurred by
Desert Mountain Development and COPI Colorado prior to the elimination of the
Minority Interests, decreased $20.0 million, or 7.2%, to $256.3 million for the
year ended December 31, 2001, compared with $276.3 million for the year ended
December 31, 2000. Significant components of the overall decrease were:

o    a $29.8 million decrease in expenses incurred by Desert Mountain
     Development during the year ended December 31, 2001 due primarily to lower
     costs associated with decreased home and lot sales; partially offset by



                                       29
<PAGE>


o    a $9.8 million increase in expenses incurred by COPI Colorado which can be
     attributed to higher costs associated with increased real estate partially
     offset by decreases in property management expenses as a result of
     dispositions in the first quarter of 2001.


Corporate General and Administrative Expenses

Corporate general and administrative expenses increased $2.8 million, or 66.7%,
to $7.0 million for the year ended December 31, 2001, compared with $4.2 million
for the year ended December 31, 2000. These expenses consisted of general
corporate overhead costs, such as legal and accounting costs, insurance costs
and corporate salaries. The increase over prior year is primarily attributable
to (i) a reserve recorded by the Company for amounts due from Crescent
Operating, Inc. Voluntary Employees' Beneficiary Association Health Care Plan
Trust, (ii) management fees payable to SunTx under the Management Agreement and
(iii) professional fees incurred in connection with the proposed restructuring
of the Company. See - Item 1 - Settlement Agreement.

INVESTMENT INCOME

Investment income decreased $1.2 million or 52.2%, to $1.1 million for the year
ended December 31, 2001, compared with $2.3 million for the year ended December
31, 2000. Significant components of the overall decrease were:

o    no gains on sales of investments in 2001 compared to gains on the sale of
     HCAC in the amount of $1.6 million and gains on sale of CS I and CS II in
     the amount of $0.7 million which occurred in 2000; and

o    increase in investment income of Magellan warrants in the amount of $1.1
     million.


EQUITY IN EARNINGS OF UNCONSOLIDATED SUBSIDIARIES

Equity in earnings of unconsolidated subsidiaries increased $5.1 million or
19.6%, to $31.1 million for the year ended December 31, 2001, compared with
$26.0 million for the year ended December 31, 2000. Significant components of
the overall increase were:

o    an increase in equity in income of Landevco in the amount of $7.5 million;
     and

o    a decrease in equity in loss of AmeriCold Logistics in the amount of $5.1
     million; partially offset by

o    an increase in the combined equity in loss of CR License and CR Las Vegas
     of $2.5 million;

o    a decrease in equity in income of CRDI in the amount of $2.5 million; and

o    a decrease in equity in income of TWOC in the amount of $2.0 million.

OTHER (INCOME) EXPENSE

Other (income) expense increased $13.7 million, or 99.3%, to $27.5 million for
the year ended December 31, 2001, compared with $13.8 million for the year ended
December 31, 2000. The increase is primarily attributable to no gains on
terminations of lease agreements in 2001 compared to gains on the lease buyout
related to the sale of the Four Seasons in the amount of $18.3 million;
partially offset by a decrease in interest expense of $5.8 million for the year
ended December 31, 2001 primarily due to lower debt balances as compared to the
year ended December 31, 2000.


                                       30
<PAGE>


MINORITY INTERESTS

Minority interests decreased $12.4 million, or 47.7%, to $13.6 million for the
year ended December 31, 2001, compared to $26.0 million for the year ended
December 31, 2000. Minority Interests consist of the non-voting interests in the
Land Development segment and in CRL Investments.

INCOME TAX (BENEFIT) PROVISION

Income tax benefit of $2.6 million for the year ended December 31, 2001
represents a decrease of $14.3 million from the year ended December 31, 2000.
Income tax benefit consisted of a $5.9 million benefit at the corporate level, a
$3.8 million benefit for the Equipment Sales and Leasing segment, a $3.5 million
benefit for the Hospitality segment, and a $0.9 million benefit for the
Temperature Controlled Logistics segment, offset by a $11.5 million provision
for the Land Development segment.

The Company generally provides for taxes using a 40% effective rate on the
Company's share of income or loss. Management continues to evaluate its ability
to realize the deferred tax assets quarterly by assessing the need for a
valuation allowance. An inability of the Company to execute business plans for
certain of the company's segments could affect the ultimate realization of the
deferred tax assets.


YEAR ENDED DECEMBER 31, 2000, COMPARED TO THE YEAR ENDED DECEMBER 31, 1999

REVENUES

Total revenue decreased $1.2 million, or less than 1%, to $716.8 million for the
year ended December 31, 2000, compared with $718.0 million for the year ended
December 31, 1999. The decrease in total revenue is attributable to the
following:

Equipment Sales and Leasing Segment

Equipment sales and leasing revenue increased $6.5 million, or 4.8% to $142.8
million, for the year ended December 31, 2000, compared with $136.3 million for
the year ended December 31, 1999. Significant components of the overall increase
were:

o    an increase in rental revenue of $9.6 million during the year ended
     December 31, 2000 primarily due to acquisitions since January 1, 1999 and
     same store rental growth; and

o    an increase in parts, service and supplies revenue of $2.0 million for the
     current year primarily due to increased demand for maintenance and repair
     work; partially offset by

o    a decrease of $5.1 million in new and used equipment sales due to increased
     demand from customers for rentals as compared to purchases.


Hospitality Segment

Hospitality revenue increased $25.4 million, or 10.3%, to $272.2 million for the
year ended December 31, 2000, compared with $246.8 million for the year ended
December 31, 1999. Significant components of the overall increase were:

o    increased revenues at Sonoma Mission Inn and Spa in the amount of $11.0
     million which can be attributed to the 30 additional guest rooms completed
     in April 2000, the return of 20 rooms in January 2000 which were taken out
     of commission in February 1999 to house a temporary spa during the
     construction of the 30,000 square foot full-service spa, as well as
     increased rates in the current year as compared to discounted rates used in
     the prior year during the construction period;


                                       31
<PAGE>


o    increased revenues of $5.6 million from the Renaissance Hotel, which was
     first leased by the Company in June 1999;

o    increased revenues of $9.3 million from Ventana Inn and Spa, Canyon Ranch -
     Tucson and Canyon Ranch - Lenox due primarily to increased rates; and

o    increased revenues of $2.1 million from the Denver Marriott due primarily
     to increased occupancy during 2000; partially offset by

o    decreased revenues at the Four Seasons Hotel in Houston of $2.7 million due
     to the sale of the hotel by Crescent Equities on November 3, 2000.

Land Development Segment

Land Development revenue, which represents revenue from Desert Mountain
Development and COPI Colorado prior to the elimination of the Minority
Interests, decreased $33.1 million, or 9.9%, to $301.8 million for the year
ended December 31, 2000, compared with $334.9 million for the year ended
December 31, 1999. Significant components of the overall decrease were:

o    a $62.4 million decrease in revenue from Desert Mountain Development for
     the year ended December 31, 2000 primarily due to fewer home and lot sales
     as compared to the prior year; partially offset by

o    a $29.3 million increase in revenue from COPI Colorado which can be
     attributed to (i) a $21.8 million increase in real estate sales primarily
     due to the sale of two parcels of land associated with the Riverfront Park
     project in Denver, Colorado, (ii) an $8.9 million increase in property
     management revenue due to acquisitions during the first half of 2000, (iii)
     a $1.5 million increase in transportation revenue due to improved snow
     conditions in December 2000 resulting in a higher number of skiers as
     compared to the prior year, partially offset by (iv) a $2.9 million
     decrease in service station revenue due to the sale of this property in
     June 2000.

OPERATING EXPENSES

Total operating expenses decreased $6.9 million, or 1.0%, to $697.2 million for
the year ended December 31, 2000, compared with $704.1 million for the year
ended December 31, 1999. The decrease in operating expenses is attributable to
the following:

Equipment Sales and Leasing Segment

Equipment sales and leasing expenses increased $9.5 million, or 7.2%, to $141.1
million for the year ended December 31, 2000, compared with $131.6 million for
the year ended December 31, 1999. Significant components of the overall increase
were:

o    an $8.1 million increase in rental expenses due mainly to an increase in
     rental inventory resulting in increased depreciation expense for the year
     ended December 31, 2000; and

o    a $3.4 million increase in operating expenses due primarily to acquisitions
     since January 1, 1999 and to the startup of the Fort Worth location in late
     1999; partially offset by

o    a $2.1 million decrease in new and used equipment expenses as a result of a
     decrease in new and used equipment sales.


Hospitality Segment

Hospitality expenses increased $30.1 million, or 12.3%, to $275.6 million for
the year ended December 31, 2000, compared with $245.5 million for the year
ended December 31, 1999. Significant components of the overall increase were:


                                       32
<PAGE>


o    increased rent and expenses associated with Sonoma Mission Inn and Spa in
     the amount of $11.1 million due to the completion of capital projects
     agreed to by the landlord. With the completion of these projects,
     contractual rent increased by $1.9 million from $6.3 million to $8.2
     million in January 2000;

o    increased rent and expenses in the amount of $8.2 million associated with
     the Renaissance Hotel, which was first leased by the Company in June 1999,
     due to the completion of capital projects agreed to by the landlord. With
     the completion of these projects, contractual rent increased by $2.6
     million from $0.7 million to $3.3 million;

o    additional rent and expenses in the amount of $11.3 million consistent with
     increased revenues generated by certain of the Hospitality Properties as a
     result of increased rates and occupancy; partially offset by

o    decreased rent and expenses associated with the Four Seasons Hotel in
     Houston in the amount of $3.3 million due to the sale of the hotel on
     November 3, 2000.


Land Development Segment

Land development expenses, which primarily represent operating costs incurred by
Desert Mountain Development and COPI Colorado prior to the elimination of the
Minority Interests, decreased $48.1 million, or 14.8%, to $276.3 million for the
year ended December 31, 2000, compared with $324.4 million for the year ended
December 31, 1999. Significant components of the overall decrease were:

o    a $77.8 million decrease in expenses incurred by Desert Mountain
     Development during the year ended December 31, 2000 due primarily to lower
     costs associated with decreased home and lot sales; partially offset by

o    a $29.4 million increase in expenses incurred by COPI Colorado which can be
     attributed to higher costs associated with increased real estate and
     property management revenues, in addition to higher transportation costs
     due to higher fuel prices and startup costs associated with additional
     services.


Corporate General and Administrative Expenses

Corporate general and administrative expenses increased $1.6 million, or 61.5%,
to $4.2 million for the year ended December 31, 2000, compared with $2.6 million
for the year ended December 31, 1999. These expenses consisted of general
corporate overhead costs, such as legal and accounting costs, insurance costs
and corporate salaries. The increase over prior year is primarily attributable
to (i) costs of approximately $0.5 million incurred in connection with
proceedings in bankruptcy court and litigation outside of bankruptcy court
arising from the Company's ownership interest in CBHS, (ii) professional fees of
approximately $0.6 million incurred in connection with the proposed
restructuring of the Company and (iii) transaction costs of approximately $0.5
million incurred by the Company in conjunction with the negotiation, execution
and termination of the asset purchase agreement with CBHS. The Company expects
to incur additional litigation expenses in the future in defending against
claims made as a result of the Company's ownership interest in CBHS. Although
management cannot quantify these future expenses due to the unpredictable nature
of litigation, management believes at this time that such expenses are not
likely, in the aggregate, to become material to the Company as a whole. See Part
I - Legal Proceedings.

INVESTMENT INCOME

Investment income increased $0.4 million or 21.1%, to $2.3 million for the year
ended December 31, 2000, compared with $1.9 million for the year ended December
31, 1999. Significant components of the overall increase were:

o    the gain on sale of HCAC in the amount of $1.6 million; partially offset by

o    a decrease in gain on sale of CS I and CS II of $0.7 million as compared to
     a gain of $1.5 million for the year ended December 31, 1999;


                                       33
<PAGE>


o    no recognition of income of $0.2 million from the investment in Hicks Muse
     as it was sold in 1999; and

o    no gain on sale from the Corporate Arena of $0.2 million recognized for the
     year ended December 31, 1999.

EQUITY IN EARNINGS OF UNCONSOLIDATED SUBSIDIARIES

o    an increase in equity in income of Landevco in the amount of $8.9 million;
     and

o    an increase in equity in loss of AmeriCold Logistics in the amount of $3.7
     million partially due to holding the investment for a full year as compared
     to ten months in the prior year as well as increased labor costs; and

o    a decrease in equity in income of CRDI projects in the amount of $1.2
     million.

OTHER (INCOME) EXPENSE

Other (income) expense decreased $13.1 million, or 48.7%, to $13.8 million for
the year ended December 31, 2000, compared with $26.9 million for the year ended
December 31, 1999. The decrease is primarily attributable to the gain on the
lease buyout related to the sale of the Four Seasons in the amount of $18.3
million, partially offset by an increase in interest expense in the amount of
$5.5 million for the year ended December 31, 2000, resulting from:

o    an increase in outstanding indebtedness in connection with acquisitions;
     partially offset by

o    a decrease in interest expense of approximately $2.0 million at Desert
     Mountain Development due to decreased indebtedness.

MINORITY INTERESTS

Minority interests increased $11.9 million, or 84.4%, to $26.0 million for the
year ended December 31, 2000, compared to $14.1 million for the year ended
December 31, 1999. Minority Interests consist of the non-voting interests in the
Land Development segment and in CRL Investments.

INCOME TAX PROVISION (BENEFIT)

Income tax provision of $11.7 million for the year ended December 31, 2000
represents an increase of $15.2 million from the year ended December 31, 1999.
Income tax provision consisted of a $4.9 million benefit at the corporate level,
a $3.8 million benefit for the Equipment Sales and Leasing segment and a $2.5
million benefit for the Temperature Controlled Logistics segment, offset by a
$17.9 million provision for the Land Development segment and a $5.0 million
provision for the Hospitality segment.

The Company generally provides for taxes using a 40% effective rate on the
Company's share of income or loss. Management continues to evaluate its ability
to realize the deferred tax assets quarterly by assessing the need for a
valuation allowance. An inability of the Company to execute business plans for
certain of the company's segments could affect the ultimate realization of the
deferred tax assets.


LIQUIDITY AND CAPITAL RESOURCES

Recognizing that cash flow from its assets would not provide the Company with
adequate capital to meet its requirements during 2000 and 2001, the Company,
during the first quarter of 2000, extended certain payment obligations by
reaching agreements with Crescent Equities to defer until February 2001 payments
on certain of Crescent Operating's obligations to Crescent Equities otherwise
scheduled to be made in 2000. During 2001, the Company and Crescent Partnership
agreed to modify certain debt agreements, subject to the consummation of the
Restructuring Proposal, to (i) defer principal and interest payments until the
earlier of December 31, 2001 or the


                                       34
<PAGE>


close of the transaction contemplated by the Purchase Agreement and (ii) cease
the accrual of interest on certain debt instruments as of May 1, 2001. Because
the transactions contemplated by the Purchase Agreement were not consummated,
the condition was not met, and the modifications became ineffective. In
addition, in August 2001, November 2001 and again in March 2002, with an
effective date of December 2001, the Company modified the due date of its line
of credit with Bank of America to be August 15, 2002.

In addition, the recession, magnified by the September 11, 2001 terrorist
attacks, has placed significant pressure on Crescent Operating's ability to meet
its obligations as they come due. Consequently, Crescent Operating and its
operating units have defaulted in the payment of their obligations owed to
Crescent Real Estate and Crescent Partnership. Based upon current and reasonably
forecasted operating results, Crescent Operating will not be able to pay all of
its obligations as they come due. In addition, the Company's auditors report
included on the financial statements included in this Annual Report on Form 10-K
has expressed substantial doubt about the Company's ability to continue to
operate as a going concern.

In February 2002, Crescent Operating was notified by Crescent Real Estate that
the Company's obligations to Crescent Real Estate were in default. Moreover,
Crescent Real Estate announced that it would seek to enforce collection by
foreclosure or otherwise of its claims against Crescent Operating and its
operating units as quickly as possible. Crescent Operating was unable to repay
the debts to Crescent Real Estate as to which a default had been declared.
Crescent Operating did not have sufficient liquidity to pay its liabilities on a
current basis. In light of these factors, Crescent Operating entered into a
Settlement Agreement with Crescent Real Estate. See - Item I - Settlement
Agreement.

The Settlement Agreement significantly restricts Crescent Operating's ability to
access capital resources. Among other things, the Settlement Agreement limits
Crescent Operating's ability to incur additional indebtedness, incur liens, pay
dividends or make certain other restrictive payments. Based on these
restrictions in the Settlement Agreement and Crescent Operating's current
financial condition, it is unlikely that Crescent Operating would have access to
any third-party financing. In connection with the Settlement Agreement, Crescent
Real Estate did provide Crescent Operating with a $3.2 million facility to
provide liquidity during the pendency of the bankruptcy case. Pursuant to this
facility, Crescent Real Estate will fund only Crescent Operating's out-of-pocket
operating expenses during the bankruptcy. Even with this financing, it is
unlikely that Crescent Operating will be able to fund its working capital
requirements.

Interest payments and rent payments accrued but deferred as of December 31, 2001
totaled approximately $6.4 million and $41.2 million, respectively. Based on the
above, the Company's auditors' report included on the financial statements
included in this Annual Report on Form 10-K has expressed substantial doubt
about the Company's ability to continue to operate as a going concern and meet
its obligations when they come due.

CASH FLOWS

Cash and cash equivalents include amounts from all consolidated subsidiaries,
including subsidiaries not wholly owned. Changes, therefore, do not necessarily
represent increases or decreases in cash directly available to the Company.

Cash and cash equivalents were $41.5 million and $62.1 million at December 31,
2001 and December 31, 2000, respectively. The 33.2% decrease is attributable to
$14.2 million and $118.7 million of cash provided by investing and financing
activities, respectively, partially offset by $153.4 million of cash used in
operating activities.

OPERATING ACTIVITIES

Net cash flows used in operating activities for the year ended December 31, 2001
were $153.4 million compared with the net cash used in operating activities of
$24.3 million and $9.4 million for the years ended December 31, 2000 and 1999,
respectively. The Company's outflow of cash used in operating activities of
$153.4 million was primarily attributable to outflows from:

     o    net loss of $78.1 million;

     o    an increase in real estate of $184.3 million; and

     o    a decrease in accounts payable and accrued expenses of $5.7 million.


                                       35
<PAGE>


The outflow of cash used in operating activities was partially offset by:

     o    increases in accounts payable and accrued expenses - CEI of $36.5
          million;

     o    decrease in inventories of $15.8 million; and

     o    decrease in accounts receivable of $7.6 million.

INVESTING ACTIVITIES

Net cash flows provided by investing activities for the year ended December 31,
2001 were $14.2 million compared with the net cash provided by investing
activities of $20.4 million and the net cash used in investing activities of
$34.5 million for the years ended December 31, 2000 and 1999, respectively. The
Company's inflow of cash provided by investing activities of $14.2 million was
primarily attributable to inflows from:

     o    distributions from investments of Controlled Subsidiaries of $41.0
          million;

     o    proceeds from the sale of property and equipment of $22.6 million; and

     o    net proceeds from sale and collection of notes receivable of $9.6
          million.

The inflow of cash provided by investing activities was partially offset by:

     o    acquisitions of business interests by Controlled Subsidiaries of $17.7
          million;

     o    purchases of property and equipment of $37.8 million; and

     o    contributions to investments of Controlled Subsidiaries of $5.9
          million.

FINANCING ACTIVITIES

Net cash flows provided by financing activities for the year ended December 31,
2001 were $118.7 million compared with the net cash provided by financing
activities of $27.0 million and $40.1 million for the years ended December 31,
2000 and 1999, respectively. The Company's inflow of cash provided by financing
activities of $118.7 million was primarily attributable to inflows from:

     o    proceeds of all long-term debt of $346.2 million; and

     o    capital contributions attributable to Minority Interests of $4.5
          million.

The inflow of cash provided by financing activities was partially offset by:

     o    payments of all long-term debt of $200.3 million; and

     o    distributions to Minority Interests of $31.7 million.

FINANCING ATTRIBUTABLE TO CORPORATE AND WHOLLY OWNED SUBSIDIARIES

As of December 31, 2001, financing instruments attributable to corporate and
wholly owned subsidiaries were as follows:

o    During 2001, the Company extended the maturity date of its $15.0 million
     unsecured bank line of credit from Bank of America, first from August 2001
     to November 2001, then from November 2001 to the earlier of December 31,
     2001 or the close of the Purchase Agreement and finally in March 2002, with
     an effective date of December 31, 2001, from December 2001 to August 2002.
     The line of credit bears interest at the LIBOR rate plus 1% per annum,
     payable monthly and all principal and unpaid interest on the line of credit
     is payable August 15, 2002. The $15.0 million available under the line of
     credit from Bank of America is fully drawn.

o    In connection with the formation and capitalization of Crescent Operating
     in the second quarter of 1997, Crescent Operating received approximately
     $14.1 million in cash from Crescent Partnership and Crescent


                                       36
<PAGE>


     Partnership loaned Crescent Operating approximately $35.9 million pursuant
     to a five-year term loan, maturing on May 8, 2002, of which approximately
     $16.2 million was outstanding as of December 31, 2001. The loan is a
     recourse loan that is collateralized, to the extent not prohibited by
     pre-existing arrangements, by a first lien on the assets which the Company
     now owns or may acquire in the future. The loan bears interest at the rate
     of 12% per annum, compounded quarterly, with required quarterly principal
     and interest payments limited by quarterly cash flow of the Company as
     defined in the applicable credit agreement. This loan is called the "1997
     Term Loan."

o    Effective March 12, 1999, the Company agreed to make a permanent reduction
     in its $30.4 million 12% line of credit with Crescent Partnership
     commensurate with the proceeds from the sale of 80% of the Company's 2%
     interest in the Temperature Controlled Logistics Partnerships. On March 12,
     1999, the Company received $13.2 million of proceeds and correspondingly
     permanently reduced the availability under the line of credit from $30.4
     million to $17.2 million. The line of credit bears interest at the rate of
     12% per annum, compounded quarterly, payable on an interest-only basis
     during its term, which expires on the later of (i) May 21, 2002 or (ii)
     five years after the last draw under the line of credit (in no event shall
     the maturity date be later than June 2007). Draws may be made under the
     line of credit until June 22, 2002. The line of credit is a recourse
     obligation and amounts outstanding thereunder are collateralized, to the
     extent not prohibited by pre-existing arrangements, by a first lien on the
     assets which the Company now owns or may acquire in the future. The line of
     credit is cross-collateralized and cross-defaulted with the Company's other
     borrowings from Crescent Partnership. As of December 31, 2001, $20.2
     million was outstanding under the line of credit. This line of credit is
     called the "1997 Revolving Loan."

o    Also effective March 12, 1999, the Company obtained from Crescent
     Partnership a $19.5 million line of credit bearing interest at a rate of 9%
     per annum. The line of credit is payable on an interest-only basis during
     its term, which expires in May 2002. The note is cross-collateralized and
     cross-defaulted with the Company's other borrowings from Crescent
     Partnership. Upon inception of this line of credit, the Company immediately
     borrowed the full $19.5 million with which it contributed approximately
     $15.5 million in connection with the formation of AmeriCold Logistics and
     used the remaining $4.0 million of proceeds to reduce the amount
     outstanding under the 12% line of credit with Crescent Partnership. As of
     December 31, 2001, $22.0 million was outstanding under the line of credit.
     This line of credit is called the "AmeriCold Loan."

o    The Company funded its contribution to COPI Colorado using the proceeds
     from a $9.0 million term loan from Crescent Partnership. The loan bears
     interest at 12% per annum, with interest payable quarterly and the full
     original principal amount of $9.0 million, together with any accrued but
     unpaid interest, payable in May 2002. The Company's interest in COPI
     Colorado secures the loan, which is cross-collateralized and
     cross-defaulted with the Company's other borrowings from Crescent
     Partnership. As of December 31, 2001, $10.6 million was outstanding under
     the line of credit. This line of credit is called the "COPI Colorado Loan."

o    As a part of the acquisitions of E.L. Lester and Company ("Lester") and
     Harvey Equipment Center, Inc. ("Harvey"), Crescent Operating issued notes
     payable in the amount of $6.0 million and $1.2 million, respectively. The
     Lester and Harvey notes are payable in semi-annual principal and interest
     payments and bear interest at 7.5% and 8.0%, respectively. All principal
     and unpaid interest on the Harvey and Lester notes are due July 2002 and
     July 2003, respectively. The Lester note is collateralized by stock of
     Lester. As of December 31, 2001, the outstanding balances on the Lester and
     Harvey notes were $2.5 million and $0.3 million, respectively. These notes
     are called the "Equipment Acquisition Notes."

o    Crescent Machinery has various equipment notes payable and floor plan notes
     under credit facilities which are collateralized by the equipment financed.
     The equipment notes are payable in monthly principal and interest payments
     and bear interest at 4.5% to 9.5% per annum and mature in 2002 due to
     defaults in payments. The floor plan notes do not bear interest, do not
     require monthly principal or interest payments and generally have terms
     ranging from three to twelve months. As of December 31, 2001, the
     outstanding balance on the equipment notes was $80.7 million and on the
     floor plan notes was $4.2 million. At December 31, 2001, Crescent Machinery
     was in default on its loans from commercial institutions because of its
     nonpayment of required principal payments with outstanding principal
     amounts under default by Crescent Machinery of $84.9 million at December
     31, 2001. These notes are called the "Equipment Financing Notes."


                                       37
<PAGE>


Subsequent to December 31, 2001, the following events occurred involving such
financing instruments:

o    On February 15, 2002, Crescent Partnership purchased Equipment Acquisition
     Notes from the note holders.

o    Due to its bankruptcy filing and to non-payment of required principal
     payments, Crescent Machinery is currently in default on its Equipment
     Financing Notes. Outstanding principal amounts under default by Crescent
     Machinery totaled $84.9 million at December 31, 2001. On February 6, 2002,
     Crescent Machinery Company filed a voluntary petition under Chapter 11 of
     the U.S. Bankruptcy Code with the U.S. Bankruptcy Court in Fort Worth,
     Texas.

o    On February 13, 2002, the Company received notice from Crescent Partnership
     that it was in default on the 1997 Term Loan, the 1997 Revolving Loan, the
     AmeriCold Loan and the COPI Colorado Loan. On February 14, 2002, pursuant
     to the Settlement Agreement, Crescent Partnership foreclosed on certain
     collateral securing such loans, which had the effect of reducing the
     aggregate indebtedness from $76.2 million to $36.1 million.

FINANCING ATTRIBUTABLE TO NON WHOLLY OWNED SUBSIDIARIES

As of December 31, 2001, financing instruments attributable to non wholly owned
subsidiaries were as follows:

o    Desert Mountain Properties has a credit agreement with Crescent Partnership
     pursuant to which Crescent Partnership has advanced funds to Desert
     Mountain Properties through a "Junior Note". The Junior Note evidences a
     $60.0 million advance from Crescent Partnership to Desert Mountain
     Properties and accrues interest at 14% per annum. The principal and
     interest on the Junior Note is payable in quarterly installments, based on
     proceeds from the operations of Desert Mountain Properties. As of December
     31, 2001, the outstanding balance of the Junior Note was $59.0 million.

o    Desert Mountain Properties entered into a $50.0 million credit facility
     with National Bank of Arizona in May 1998. The facility was amended in
     December 2001. The facility is comprised of (i) a $40.0 million line of
     credit available for vertical financing related to new home construction
     and bears an annual interest at the prime rate and (ii) a $10.0 million
     line of credit available for borrowings against certain notes receivable
     issued by Desert Mountain Properties and bears an annual interest rate of
     prime plus 1%. The credit facility expires November 2003 with interest
     payable monthly, collateralized by land owned by Desert Mountain
     Properties, deeds of trust on lots sold and home construction. As of
     December 31, 2001, the outstanding balance on the line of credit with
     National Bank of Arizona was $29.9 million.

o    Desert Mountain Properties has an unsecured promissory note payable to
     Crescent Partnership for $1.0 million. The note bears interest at 10%, with
     payments of interest due in quarterly installments. Payment of principal is
     due at the note's expiration of December 31, 2002.

o    CRDI has four lines of credit with Crescent Partnership. The first line of
     credit of $56.2 million bears interest at 11.5% per annum, compounded
     annually. Principal and interest payments are due as distributions from
     projects are received, as defined by the applicable agreement. The line of
     credit is due August 2004. As of December 31, 2001, $48.4 million was
     outstanding on the $56.2 million line of credit. The second line of credit
     of $100.0 million bears interest at 11.5% per annum, compounded annually.
     Principal and interest payments are due as distributions from projects are
     received, as defined by the applicable agreement. The line of credit is due
     September 2008. As of December 31, 2001, $72.3 million was outstanding on
     the $100.00 million line of credit. The third line of credit with Crescent
     Partnership for $40.0 million bears interest at 11.5% per annum. Principal
     and interest payments are due as distributions are received, as defined by
     the applicable credit agreement. The line of credit is due December 2006.
     As of December 31, 2001, $23.4 million was outstanding on the $40.0 million
     line of credit. The fourth line of credit with Crescent Partnership for
     $70.0 million bears interest at 11.5% per annum. Principal and interest
     payments are due as distributions are received, as defined by the
     applicable credit agreement. The line of credit is due December 2006. As of
     December 31, 2001, $36.6 million was outstanding on the $70.0 million line
     of credit. The lines of credit are collateralized by CRDI's


                                       38
<PAGE>


     interests in East West Resort Development partnerships, East West Resorts,
     LLC and other CRDI property. Generally, CRDI's loans with Crescent
     Partnership are cross-collateralized and cross-defaulted.

o    The operating entities in which CRDI invests have various construction
     loans for East West projects which are collateralized by deeds of trust,
     security agreements and a first lien on the assets conveyed. The notes are
     payable in monthly principal and interest payments and bear interest at
     4.4% to 11.3% per annum. The notes mature between 2002 and 2003. As of
     December 31, 2001, the outstanding balance on these construction notes was
     $136.6 million in the aggregate.

o    CRL has a line of credit with Crescent Partnership in the amount of $7.0
     million bearing interest at a rate of 12% per annum. The line of credit is
     due August 2003. The principal and interest are payable as CRL receives
     distributions pursuant to the CR License Operating Agreement and the CR Las
     Vegas Operating Agreement. The $7.0 million available under the line of
     credit was fully drawn as of December 31, 2001.

o    In July 2000, CRL obtained from Crescent Partnership a $0.2 million term
     note bearing interest at a rate of 12% per annum. The full original
     principal amount of $0.2 million, together with any accrued but unpaid
     interest is due August 2003. As of December 31, 2001, $0.2 million was
     outstanding on the note.

     In February and March 2002, in accordance with the Settlement Agreement,
     the Company transferred its equity interest in each of the debtors to
     Crescent Partnership.

     On a consolidated basis, this had an impact of transferring debt of $414.3
     million at December 31, 2001 back to Crescent Partnership.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At December 31, 2001, the Company had fixed and variable rate notes payable and
lines of credit subject to market risk related to changes in interest rates,
none of which were entered into for trading purposes. The Company endeavored to
manage its market risk by attempting to match anticipated inflow of cash from
its operating, investing and financing activities with anticipated outflow of
cash to fund debt payments, investments and other cash requirements. The Company
has not used derivative financial instruments to manage interest rate risk.

As of December 31, 2001, the Company's subsidiaries had amounts outstanding
under variable rate notes payable and lines of credit totaling $242.1 million,
with a weighted average interest rate of 10.5% per annum. A hypothetical 10%
increase in the weighted average interest rate on the Company's variable rate
notes and lines of credit would cause a $2.5 million increase in interest
expense and a decrease in the Company's earnings and cash flows of $0.7 million,
based on the amount of variable rate debt outstanding as of December 31, 2001.
Crescent Operating ceased either to own or to control such subsidiaries in
February 2002 and thus ceased to have market interest rate exposure with respect
to those instruments.

As of December 31, 2001, the Company had amounts outstanding under fixed rate
notes payable and lines of credit totaling $345.0 million, with a weighted
average interest rate of 11.4% per annum. Hypothetically, if market interest
rates were substantially lower than the rates on the Company's fixed rate notes
and credit lines, the Company would be able to reduce interest expense if it
were able to prepay and/or refinance those instruments. However, as explained
elsewhere in this report, Crescent Operating is unable to prepay or refinance
any of those instruments, either because Crescent Operating in February 2002
ceased either to own or to control subsidiaries holding such instruments or
because such instruments have matured due to Crescent Operating's payment
default.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information with respect to this Item is contained in the Company's Consolidated
Financial Statements as indicated in the Index on Page F-1 of this Annual Report
on Form 10-K, and is incorporated herein by reference.


                                       39
<PAGE>


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

None


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Below is the summary of the background, business experience and description of
the principal occupation of the sole director and executive officer of the
Company.

JEFFREY L. STEVENS, 53, has served as Sole Director, President and Chief
Executive Officer since February 14, 2002 and Secretary since May 1, 2001. Prior
to this appointment, he had served as Director, Executive Vice President and
Chief Operating Officer of Crescent Operating since February 1998. From May 1997
to June 1999, Mr. Stevens served as the Company's Treasurer and Secretary. From
May 1997 to February 1998, Mr. Stevens served as Chief Financial Officer of the
Company. Mr. Stevens also serves in various capacities with respect to the
Company's investments such as Chairman of Crescent Machinery and President of
the entity that holds the AmeriCold interest. As stated elsewhere in this annual
report, Crescent Machinery filed a voluntary petition in bankruptcy on February
6, 2002. Until December 1998, Mr. Stevens served in these capacities pursuant to
a services agreement between the Company and Petroleum Financial, Inc. ("PFI"),
a firm which provides accounting, financial and management services to business
enterprises, which employed Mr. Stevens until December 1998. When that services
agreement ended, Mr. Stevens was immediately employed by the Company. Mr.
Stevens is the founder of PFI, and from 1991 until December 1998 served as PFI's
President and Chief Executive Officer. Mr. Stevens became a director of Crescent
Operating in June 1997. From November 1998 to June 2000, Mr. Stevens served as
Chairman of the governing board of CBHS. For over 10 years, Mr. Stevens was a
director of Amerac Energy Corporation, an oil and gas acquisition, production
and development company ("Amerac"), and has held various positions with Amerac
since 1974. Mr. Stevens' last positions with Amerac were Senior Vice President,
Chief Financial Officer and Secretary, offices which he held until January 1997.
Mr. Stevens is also a member of the board of directors of Stewart Title of
Montgomery County, Inc. Mr. Stevens holds a Bachelor of Business Administration
(B.B.A.) from East Texas State University and is a Certified Public Accountant.


SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and related rules of the SEC require the Company's directors and
executive officers and persons who own more than 10% of a registered class of
the Company's equity securities to file with the SEC initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Related rules of the SEC also require such persons to
furnish the Company with copies of all reports filed pursuant to Section 16(a).
Based solely on the Company's review of the copies of the reports received or
written representations from certain reporting persons, the Company believes
that all Section 16(a) filing requirements applicable to its directors, officers
and shareholders owning more than 10% of the Common Stock were complied with
during the fiscal year ended December 31, 2001.


                                       40
<PAGE>


ITEM 11. EXECUTIVE COMPENSATION

                           SUMMARY COMPENSATION TABLE

<Table>
<Caption>
                                                                                                          LONG-TERM
                                                              ANNUAL COMPENSATION                    COMPENSATION AWARDS
                                                     ------------------------------------     ---------------------------------

                                                                              OTHER ANNUAL      RESTRICTED        SECURITIES
    NAME AND PRINCIPAL POSITION            YEAR      SALARY       BONUS      COMPENSATION     STOCK AWARDS   UNDERLYING OPTIONS
    ---------------------------            ----      ------       -----      ------------     ------------   ------------------
<S>                                       <C>       <C>        <C>          <C>              <C>             <C>

Jeffrey L. Stevens                         2001     $200,000         --            --               --
     President and Chief Executive         2000     $200,000         --            --               --
     Officer (2/02 - present)              1999     $166,458    $35,000            --               --          150,000(2)
     Executive Vice President and Chief
     Operating Officer

John C. Goff                               2001     $100,000         --            --               --               --
     President and Chief Executive         2000     $100,000         --            --               --               --
     Officer (6/99-2/02)                   1999     $ 55,556(1)      --            --               --          260,000(1)(2)
</Table>

(1)  Mr. Goff was elected President and Chief Executive Officer on June 11,
     1999. His annualized base salary of $100,000 in 1999 was earned from June
     11, 1999. In August 1999, Mr. Goff was granted 60,000 fully vested options
     exercisable at $4.75 per share. In December 1999, Mr. Goff was granted
     200,000 options, scheduled to vest in equal amounts over the succeeding
     five years, exercisable at $2.50 per share. Mr. Goff resigned from his
     position on February 13, 2002.

(2)  Options to purchase shares were granted under the Company's 1997 Management
     Stock Incentive Plan as amended (the "Management Stock Incentive Plan").

STOCK OPTION GRANTS

No stock options or stock appreciation rights were granted to the executive
officers of the Company during fiscal year 2001.


OPTION EXERCISES

The following table sets forth information concerning the exercise of stock
options by the Company's executive officers during fiscal year 2001, and the
number and value of unexercised stock options held by the Company's executive
officers at December 31, 2001.



          AGGREGATED OPTION EXERCISES DURING 2001 AND OPTION VALUES AT
                                DECEMBER 31, 2001


<Table>
<Caption>
                                                          NUMBER OF SECURITIES           VALUE OF UNEXERCISED
                                                     UNDERLYING UNEXERCISED OPTIONS      IN-THE-MONEY OPTIONS
                                                           AT FISCAL YEAR-END            AT FISCAL YEAR-END(1)
                                                     -----------------------------    ----------------------------
                        SHARES
                      ACQUIRED ON       VALUE
NAME                   EXERCISE        REALIZED      EXERCISABLE     UNEXERCISABLE    EXERCISABLE    UNEXERCISABLE
----                  -----------      --------      -----------     -------------    -----------    -------------
<S>                   <C>              <C>           <C>             <C>              <C>            <C>

John C. Goff              --              --            549,190               --               --            --

Jeffrey L. Stevens        --              --            202,800               --               --            --
</Table>

(1)  Based on the closing price of the Common Stock on December 28, 2001 (the
     last trading day of the fiscal year) on the OTC Bulletin Board, all of the
     options were out-of-the-money.



                                       41
<PAGE>


Under the terms of the Company's Management Stock Incentive Plan and its earlier
Amended Stock Incentive Plan, the execution of the Purchase Agreement as of June
28, 2001 caused all outstanding Company options issued under those plans to
immediately vest and become fully exercisable (provided that such options must
have been held at least six months) and caused all restrictions on outstanding
shares of restricted stock issued under such plans to lapse. As a result of this
acceleration, previously unvested outstanding stock options to purchase 396,460
shares of the Company's Common Stock became immediately vested and exercisable
as of June 29, 2001. These options are exercisable to purchase shares of Company
common stock at prices ranging from $0.99 to $20.50 per share. Options to
purchase 359,605 of such shares were held by persons who were, at the time,
directors and executive officers of the Company. At current and recent stock
prices for the Company's Common Stock, all of the accelerated options were
out-of-the-money.

COMPENSATION OF DIRECTORS

For 2001, each director who was not also an officer of the Company (an "outside
director") received an annual fee of $15,000 and 16,667 shares of restricted
stock, valued at the aggregate market price of $10,000 on the date of grant for
their service. Two directors received pro rata payment of the annual fee in the
amount of $6,250 as well as pro rata shares of restricted stock, 6,945 shares,
for their partial term served during the year. In addition, each member of the
Audit and Compensation Committees received $750 for each meeting attended, with
the committee chairman receiving an additional $450 per meeting attended; and
each member of the Intercompany Evaluation Committee received $2,500 for each
meeting attended (except for Mr. Stevens who is an officer of the Company).
Directors who are also officers of the Company receive no annual fee for their
service as directors and no fees are paid to members of the Executive Committee
for meetings attended. All directors, however, are reimbursed for expenses
incurred in attending meetings.


EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS


During the year ended December 31, 2001, the Company was not subject to any
agreement with any executive officer regarding employment or any compensatory
plan or arrangement relating to the termination of employment of change in
control of the Company.


In January 2002, following the termination of the Restructuring Proposal, the
Board of Directors of Crescent Operating determined unanimously (with Mr.
Stevens, however, abstaining) that it was in the best interests of the Company
to induce Mr. Stevens to remain with Crescent Operating and Crescent Machinery,
by having each corporation offer Mr. Stevens an employment agreement for the
next 12 months. The aggregate salary to be paid under both agreements was
$300,000, with a $150,000 bonus to be paid upon the earlier of the confirmation
by a bankruptcy court of a bankruptcy plan for Crescent Operating or the end of
the employment term. On February 6, 2002, Crescent Machinery filed a petition in
bankruptcy, and on February 13, 2002, all of the directors of the Company other
than Mr. Stevens resigned. Because of Crescent Machinery's bankruptcy, payment
of the compensation due to Mr. Stevens under the employment agreements was made
the sole responsibility of Crescent Operating.


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 2001, the Compensation Committee of the Board of Directors of the Company
was composed entirely of outside directors. The function of the Compensation
Committee was to determine compensation for the Company's executive officers, to
administer the stock incentive plans and other compensation plans adopted by the
Company, and to nominate persons to serve as directors of the Company. Decisions
regarding executive compensation during fiscal 2001 were made by the
Compensation Committee. During 2001, the Compensation Committee consisted of
Carl F. Thorne (Chairman) and Paul E. Rowsey, III, neither of whom was or has
been an officer of the Company or any of its subsidiaries or had a relationship
requiring disclosure in Item 14 of this annual report. The Compensation
Committee held no meetings in 2001. There were no Compensation Committee
interlocks during 2001.


                                       42
<PAGE>


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of April 15, 2002, unless otherwise
indicated, information regarding beneficial ownership of shares of Crescent
Operating common stock by (i) the sole director of Crescent Operating, (ii) the
sole executive officer of Crescent Operating, (iii) each person known by
Crescent Operating to beneficially own more than 5% of the Crescent Operating
common stock, and (iv) all directors and executive officers of Crescent
Operating as a group. Unless otherwise noted below, each person or entity named
in the table has sole voting power and sole investment power with respect to
each of the shares beneficially owned by such person or entity.

BENEFICIAL OWNERSHIP

<Table>
<Caption>
Name and Address of Beneficial Owner    Number of Shares     Percent of Outstanding Shares(7)
------------------------------------    ----------------     --------------------------------
<S>                                     <C>                  <C>

     Jeffrey L. Stevens (1) (2)            207,800(3)                       1.9%
   777 Taylor Street, Suite 1050
      Fort Worth, Texas 76102

        Richard E. Rainwater             1,253,714(4)                      11.5%
      777 Main Street, Suite 2250
        Fort Worth, Texas 76102

            John C. Goff                   858,121(5)                       7.5%
    777 Main Street, Suite 2100
      Fort Worth, Texas 76102

   Magten Asset Management Corp.           670,300(6)                       6.2%
          35 East 21st Street
       New York, New York 10010

All Directors and Executive Officers       207,800(3)                       1.9%
        As a Group (one person)
</Table>

----------

(1)  Indicates a director of Crescent Operating.

(2)  Indicates an executive officer of Crescent Operating.

(3)  Includes 5,000 restricted shares issued pursuant to Crescent Operating's
     Amended Stock Incentive Plan, all of which have vested, that is, the
     restrictions on the shares have lapsed, as of February 13, 2002. Also
     includes 202,800 shares underlying stock options issued pursuant to the
     Amended Plan or the Management Stock Incentive Plan, all of which were
     vested as of February 13, 2002.

(4)  Includes 45,178 shares beneficially owned by Ms. Darla D. Moore, who is Mr.
     Rainwater's spouse. However, Mr. Rainwater disclaims beneficial ownership
     with respect to all shares owned by his spouse. Includes 854,146 shares
     owned indirectly by Mr. Rainwater, including (i) 10,520 shares owned by
     Rainwater, Inc., a Texas corporation, of which Mr. Rainwater is a director
     and the sole owner; (ii) 624,224 shares owned by Office Towers LLC, a
     Nevada limited liability company, of which Mr. Rainwater and Rainwater,
     Inc. own an aggregate 100% interest; and (iii) 219,402 shares owned by The
     Richard E. Rainwater 1995 Charitable Remainder Unitrust No. 1, of which Mr.
     Rainwater is the sole trustee. Also includes 116,562 shares underlying a
     stock option which have vested.

(5)  Based solely on the Schedule 13D as amended through the amendment dated
     March 4, 2002, includes 15,256 shares owned by Goff Family, L.P., a
     Delaware limited partnership, of which Mr. Goff is a general partner, and
     61 shares held for Mr. Goff's benefit in Crescent Operating's 401(k) plan..
     Mr. Goff disclaims beneficial ownership with respect to all shares owned by
     Goff Family, L.P. in excess of his pecuniary interest in the partnership.
     Also includes 549,190 shares underlying stock options all of which were
     vested as of February 13, 2002.

(6)  Based solely on the Schedule 13G as amended through the amendment dated
     February 8, 2002, filed by Magten Asset Management Corp., it is Crescent
     Operating's understanding that (i) Magten is an investment advisor; and
     (ii) Magten has shared, but no sole, voting power and dispositive power
     with respect to all of the reported shares.

(7)  The percentage of Crescent Operating common stock a person beneficially
     owns is based on 10,828,497 outstanding shares and assumes that (i) as to
     any person listed in this table, all stock options exercisable and (ii) as
     to all other persons, no stock options are exercised.


                                       43
<PAGE>



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH CRESCENT EQUITIES AND CERTAIN OFFICERS AND STOCKHOLDERS OF
CRESCENT EQUITIES AND THE COMPANY

The Company has entered into transactions and arrangements with Crescent
Equities and Crescent Partnership and certain officers and directors of Crescent
Equities and Crescent Partnership, which are described in the following
paragraphs. Mr. Rainwater, who up until February 13, 2002, was the Chairman of
the Board of Directors of the Company and is the Chairman of the Board of Trust
Managers of Crescent Equities and owns beneficially more than ten percent of the
common shares of Crescent Equities. Mr. Goff, who up until February 13, 2002,
was the Vice Chairman of the Board and Chief Executive Officer of the Company
and is Vice Chairman of the Board and Chief Executive Officer of Crescent
Equities; he also serves as the sole director and President and Chief Executive
Officer of the sole general partner of Crescent Partnership. As of December 31,
2001, Messrs. Rainwater and Goff beneficially owned in the aggregate
approximately 14.8% of the outstanding equity securities of Crescent Equities.

As part of the Settlement Agreement, Crescent Operating transferred its general
partner interest in COPI Colorado, a Delaware limited partnership in which
Crescent Operating was the sole general partner, owning a 60% general partner
interest, to Crescent Partnership. Prior to the Settlement Agreement, COPI
Colorado distributed its holdings of Crescent Operating, Inc. common stock,
consisting of 1,102,530 shares, to the Company and COPI Colorado's other two
partners, John C. Goff and Harry Frampton, each holding a 20% limited
partnership interest. Accordingly, each of Messrs. Goff and Frampton received
approximately 220,506 shares of Crescent Operating common stock in the COPI
Colorado distribution.

Messrs. Goff and Rainwater are parties to a support agreement with Crescent
Operating and Bank of America whereby they have personally agreed to make
additional equity investments in Crescent Operating if and to the extent
Crescent Operating defaults on payment obligations on its line of credit with
Bank of America. In accordance with the Settlement Agreement, the Company agreed
that a Crescent Real Estate subsidiary, Crescent Spinco, upon the effectiveness
of its registration statement, will distribute its shares to the holders of
Crescent Real Estate common shares and will purchase Crescent Operating's entire
membership interest in COPI Cold Storage LLC, for approximately $15.0 million to
$15.5 million. The proceeds of that sale would be applied by the Company to the
repayment of the Company's $15.0 million obligation to Bank of America. Messrs.
Goff and Rainwater will be relieved of their potential personal liability under
the support agreement to the extent the transactions under the Settlement
Agreement are consummated and the proceeds are used to discharge the outstanding
balance on the Bank of America line of credit.

Effective December 31, 2001, the Company, in connection with extending the
maturity of its $15.0 million loan from Bank of America from December 31, 2001,
to August 15, 2002, agreed to modify the loan from an unsecured to a secured
credit facility. The Company, with the consent of Crescent Partnership which
agreed to subordinate its security interest in the Company' 40% interest in
AmeriCold Logistics, pledged all of its interest in AmeriCold Logistics to Bank
of America to secure the loan.

In addition, pursuant to the Settlement Agreement and the Company's bankruptcy
plan, the current and former directors and officers of the Company and the
current and former trust managers and officers of Crescent Real Estate will
receive certain liability releases from the Company and, upon the distribution
of Crescent Equities shares to the Company's stockholders, from the Company's
stockholders.


INTERCOMPANY AGREEMENT WITH CRESCENT LP

The Company was formed to be the lessee and operator of certain assets owned or
to be acquired by Crescent Equities and perform an agreement (the "Intercompany
Agreement") between the Company and Crescent LP. The Intercompany Agreement
provided, subject to certain terms, that Crescent Partnership would provide the
Company with a right of first refusal to become the lessee of any real property
acquired by Crescent Partnership if Crescent Partnership determines that,
consistent with the status of Crescent Real Estate Equities Company as a real
estate investment trust, it is required to enter into a "master lease"
arrangement. In general, a master lease arrangement is an arrangement pursuant
to which an entire property or project (or group of related properties or
projects) is leased to a single lessee. In addition to lessee transactions, the
Company and Crescent Partnership had also entered into


                                       44
<PAGE>


"controlled subsidiary transactions" under the Intercompany Agreement.
Controlled subsidiary transactions are those in which the Company invested
alongside Crescent Partnership in acquisitions where the Company owned all of
the voting stock and Crescent Partnership owned all of the non-voting stock of a
corporate acquisition vehicle which in turn would acquire a target business
which at the time could not be operated by Crescent Partnership because of
Crescent Equities' status as a REIT. In addition, under the Intercompany
Agreement, the Company had agreed not to acquire or make investments in real
estate or any other investments that may be structured in a manner that
qualified under the federal income tax requirements applicable to REITs, unless
Crescent Partnership had been given notice of the opportunities and had decided
not to pursue them.

The REIT Modernization Act, which took effect January 1, 2001, contained a
provision that would permit REITS, such as Crescent Equities, to own and operate
certain types of investments that are currently owned and operated by Crescent
Operating. As a consequence of the REIT Modernization Act, the Intercompany
Agreement was not expected to result in future business opportunities for
Crescent Operating. The Settlement Agreement provided for the termination of the
Intercompany Agreement.

LEASES WITH CRESCENT EQUITIES AND RELATED MANAGEMENT AGREEMENTS

Prior to the Company's transfer of its hospitality assets pursuant to the
Settlement Agreement, Crescent Operating or its subsidiaries leased six hotels
and two destination health and fitness resorts from Crescent Equities during all
or part of 2001. The properties are subject to long-term leases that expire
between December 2004 and June 2009 and generally provide for (i) base rent,
with periodic rent increases, (ii) percentage rent based on a percentage of
gross hotel revenues less food and beverage revenues above a specified amount
and (iii) a percentage of gross food and beverage revenues above a specified
amount. Under the leases, the Company's subsidiaries have assumed the rights and
obligations of the property owner under the respective management agreements
with the hotel operators (including the property management agreements with two
of the hotels and one golf course associated with a hotel), as well as the
obligation to pay all property taxes and charges against the properties and,
with one exception, Crescent Equities is obligated to fund all capital
expenditures related to furniture, fixtures and equipment reserves required
under the respective management agreements. Crescent Operating has executed a
master guaranty and other guaranties pursuant to which it unconditionally
guarantees payment and performance of the leases solely from its hotel and
resort-related assets and income streams.

Total rent expense related to the hotel and destination health and fitness
resort properties leased from Crescent Equities totaled approximately $55.7
million for the year ended December 31, 2001. As of December 31, 2001, the
lessees had accrued but deferred payment of approximately $41.2 million of rent
with the consent of Crescent Equities. Pursuant to the Settlement Agreement on
February 14, 2002, the hospitality assets were transferred to Crescent Equities
for a consideration of $23.6 million in deferred rent.

All of the Company's hotel operations, except for the Sonoma Mission Inn and
Spa, Sonoma Mission Inn Golf and Country Club and the Ventana Inn and Spa, were
managed by third party operators. The Company and its hospitality subsidiaries
had a Master Asset Management and Administrative Services Agreement with SMC
(the "SMC Management Agreement") to manage the Hyatt Albuquerque, the
Renaissance Hotel Houston and the Denver City Center Marriott. In addition, the
Company's hospitality subsidiaries had accepted assignment from the owners of
the Sonoma Mission Inn and Spa, the Sonoma Mission Inn Golf and Country Club and
the Ventana Inn and Spa of its property management agreements with SMC. The
principals of SMC are Sanjay and Johanna Varma and CEI is an equity owner in
SMC. Payments of obligations under the SMC Management Agreement were guaranteed
by the Company. For each property for which it provided asset management
services, SMC was entitled to receive a base fee equal to 0.85% of gross
revenues of the property managed plus an incentive fee of 50% of actual net
income in excess of budgeted net income. For each property for which it provided
property management services, SMC was entitled to receive a base fee equal to
2.0% of gross revenues of the property plus an incentive fee of 20% of net
operating income in excess of a 12% annual return on investment to owner.

As consideration for its services under the SMC Management Agreement, SMC
received an annual base fee (and no incentive fee) for 2001 of approximately
$0.6 million, for its asset management services related to the Hyatt
Albuquerque, the Renaissance Houston Hotel and the Denver City Center Marriott.


                                       45
<PAGE>


FINANCING ARRANGEMENTS WITH CRESCENT EQUITIES

Crescent Operating and certain of its subsidiaries have various debt instruments
payable to Crescent Equities, which, in the aggregate, had outstanding balances
in the amount of $317.9 million as of December 31, 2001. A portion of such debt
instruments is payable by Crescent Operating or subsidiaries of Crescent
Operating which are 100% owned ("Wholly Owned Debt") and the remainder is
payable by subsidiaries of Crescent Operating which are not 100% owned
("Non-Wholly Owned Debt").

As of December 31, 2001, Wholly Owned Debt instruments in the amount of $70.2
million consisted of the following: (i) a note payable in the amount of $16.2
million, due May 2002, at an interest rate of 12% per annum, collateralized by a
first lien on assets which Crescent Operating now owns or may acquire in the
future; (ii) a line of credit in the amount of $20.2 million, due the later of
May 2002 or five years after the last draw, at an interest rate of 12% per
annum, collateralized by a first lien on assets which Crescent Operating now
owns or may acquire in the future; (iii) a note payable in the amount of $10.6
million, due May 2002, at an interest rate of 12% per annum, collateralized by a
first lien on assets which Crescent Operating now owns or may acquire in the
future; (iv) a note payable in the amount of $0.8 million, due August 2003, at
an interest rate of 10.75% per annum, collateralized by a deed of trust in
certain real and personal property; (v) a note payable in the amount of $0.2
million, due August 2003, at an interest rate of 10.75% per annum,
collateralized by a deed of trust in certain real and personal property; (vi) a
note payable in the amount of $0.2 million, due November 2006, at an interest
rate of 7.5% per annum; and (vii) a note payable in the amount of $22.0 million,
due May 2002, at an interest rate of 9% per annum, cross-collateralized and
cross-defaulted with Crescent Operating's other borrowings with Crescent
Equities. The accrued interest related to Wholly Owned Debt totaled $6.4 million
at December 31, 2001. On February 13, 2002, Crescent Equities delivered default
notices to Crescent Operating relating to approximately $76.2 million of
principal and accrued interest due to Crescent Real Estate under certain secured
loans.

The Company, during the first quarter of 2000, extended certain payment
obligations by reaching agreements with Crescent Equities to defer until
February 2001 payments on certain of Crescent Operating's obligations to
Crescent Equities otherwise scheduled to be made in 2000. During 2001, the
Company and Crescent Partnership agreed to modify certain debt agreements,
subject to the consummation of the Restructuring Proposal, to (i) defer
principal and interest payments until the earlier of December 31, 2001 or the
close of the transaction contemplated by the Purchase Agreement and (ii) cease
the accrual of interest on certain debt instruments as of May 1, 2001. Because
the transactions contemplated by the Purchase Agreement were not consummated,
the condition was not met, and the modifications became ineffective. Interest
payments and rent payments accrued but deferred as of December 31, 2001, totaled
approximately $6.4 million and $41.2 million, respectively.

As of December 31, 2001, Non-Wholly Owned Debt instruments in the amount of
$247.7 million consisted of the following: (i) a note payable by Desert Mountain
Development Limited Partnership ("Desert Mountain Properties") in the amount of
$59.0 million, due December 2010, at an interest rate of 14% per annum,
collateralized by land, improvements and equipment at Desert Mountain
Properties; (ii) an unsecured promissory note by Desert Mountain Properties for
$1.0 million, bearing interest at 10%, with payments of interest due in
quarterly installments and principal due at the note's expiration of December
31, 2002 (iii) a line of credit (the "CRDI Credit Agreement") payable by CRDI in
the amount of $56.2 million ($48.4 million of which was outstanding), due August
2004, at an interest rate of 11.5% per annum, collateralized by the interests of
in certain property, partnerships and a limited liability company (the interest
in the limited liability company was subsequently transferred and sold in 2001,
as described below); (iv) a line of credit payable by CRDI in the amount of
$100.0 million ($72.2 million of which was outstanding), due September 2008, at
an interest rate of 11.5% per annum, collateralized by CRDI's interests in
certain property, partnerships and a limited liability company; (v) a line of
credit payable by CRDI in the amount of $70.0 million ($36.6 million of which
was outstanding), due December 2006, at an interest rate of 11.5% per annum,
collateralized by CRDI's interests in certain property, partnerships and a
limited liability company; (vi) a line of credit (the "CRL Credit Facility")
payable by CRL Investments, Inc. ("CRL") in the amount of $7.0 million, due
August 2003, at an interest rate of 12% per annum, collateralized by a first
lien on assets which CRL now owns or may acquire in the future; (vii) a line of
credit in the amount of $40.0 million ($23.4 million of which was outstanding)
payable by CRDI, due December 2006, at an interest rate of 11.5% per annum,
collateralized by CRDI's interests in certain property, partnerships and a
limited liability company; and (viii) a term note in the amount of $0.2 million
payable by CRL, due August 2003, at an interest rate of 12% per annum, and
collateralized


                                       46
<PAGE>


by a first lien on assets which the debtor now owns or may acquire in the
future. Crescent Operating's economic investment in the entities which have
Non-Wholly Owned Debt is 6% or less.

Crescent Resort Development, Inc. (formerly Crescent Development Management
Corp.)

Until February 14, 2002, Crescent Operating was the sole general partner of COPI
Colorado, LP, which owns 10% of CRDI, representing 100% of the voting stock of
CRDI. Mr. Goff is a limited partner of COPI Colorado. Until December 2000, CRDI
had an indirect economic interest in a real estate company specializing the
management of resort properties. That investment was transferred to Crescent
Development Management Corp. II, a Delaware corporation, a newly formed entity
have the same owners, board of directors and officers as CRDI, in anticipation
of the proposed restructuring of Crescent Operating involving Crescent Equities.
In connection with that transfer, CDMC II assumed the indebtedness of CRDI
incurred in connection with that investment, all of which is owed to Crescent
Partnership, and CRDI and CDMC II each guaranteed the indebtedness of the other
to Crescent Partnership. Effective March 30, 2001, CDMC II sold that investment
- a membership interests in East West Resorts, LLC - to a company affiliated
with the other owner of EWR, for cash and a secured promissory note. CDMC II
immediately transferred the cash and note to Transportal Investment Corp. in
exchange for its assumption of all of its indebtedness and dissolved. Crescent
Operating owned 1%, and Crescent Partnership owned 99%, of TIC, which owns an
interest in Transportal Network, LLC. Transportal Network is an abandoned
venture that had been planned to provide routing and load management services
and facilitate related purchases over the internet to independent truckers,
shippers and receivers. Transportal Network ceased operations in October 2000.

On February 14, 2002, in accordance with the Settlement Agreement, the Company
transferred its general partner interest in COPI Colorado to Crescent Equities.


Canyon Ranch

Effective July 27, 1998, to enable Crescent Operating to invest in the future
use of the "Canyon Ranch" name, Crescent Operating obtained a 5% economic
interest, representing all of the voting stock, of CRL Investments, Inc. The
remaining 95% interest in CRL is held by Crescent Equities. Immediately after
the formation of CRL, CRL exercised its purchase option (acquired from Crescent
Equities) to obtain a 10% economic interest in CR License, LLC, which owns the
right to use the "Canyon Ranch" name. Contemporaneously, CRL acquired a 50%
interest in CR Las Vegas, LLC, an entity that built a Canyon Ranch day spa in
the Venetian Hotel in Las Vegas. In July 2000, CRL exercised its final option to
purchase an additional 10% economic interest in CR License by paying $3.0
million, bringing CRL's total economic interest in CR License to 30%. Through
CRL and CR License, Crescent Operating has an effective 3.25% economic interest
in the Canyon Ranch Spa Club located in the Venetian Hotel in Las Vegas. In
order to exercise options with respect to CR License and to fund its obligations
to CR Las Vegas and other entities, CRL obtained the CRL Credit Facility from
Crescent Equities and in July 2000 CRL obtained from Crescent Partnership a $0.2
million term note bearing interest at 12% per annum, which matures in August
2003.

On February 14, 2002, in accordance with the Settlement Agreement, the Company
transferred its equity interest in CRL to Crescent Equities.

Temperature Controlled Logistics

A partnership, AmeriCold Logistics, of which a subsidiary of Crescent Operating
owns 40% and Vornado Operating L.P. owns 60%, owns directly or indirectly the
business operations at approximately 100 temperature controlled logistics
properties (the "AmeriCold Properties"). AmeriCold Logistics leases the
AmeriCold Properties under a triple-net master lease from a partnership in which
Crescent Equities is a 40% owner. Each of the AmeriCold Properties is subject to
one or more of the leases, each of which has an initial term of 15 years,
subject to two, five-year renewal options. The leases provide for an aggregate
base rental rate of approximately $137.0 million per annum through 2003, $139.0
million per annum from 2004 through 2008 and $141.0 million per annum from 2009
through 2014, plus percentage rent based on the gross revenues received from
customers at the AmeriCold Properties above a specified amount. In February 2001
the lessees and lessor agreed to restructure certain financial terms of the
leases, including the adjustment of the rental obligation for 2001 to $146.0
million, the adjustment of the rental obligation for 2002 to $150.0 million
(plus contingent rent in certain circumstances), the increase of the


                                       47
<PAGE>


lessor's share of capital expenditures for property maintenance by $4.5 million
to $9.5 million (effective January 1, 2000) and the extension from March 11,
2002 to December 31, 2003 of the date upon which deferred rent is required to be
paid.

In accordance with the Settlement Agreement, the Company agreed that a Crescent
Real Estate subsidiary, Crescent Spinco, upon the effectiveness of its
registration statement, will distribute its shares to the holders of Crescent
Real Estate common shares and will purchase Crescent Operating's entire
membership interest in COPI Cold Storage LLC, for approximately $15.0 million to
$15.5 million. The proceeds of which would be applied by the Company to the
repayment of the Company's $15.0 million obligation to Bank of America.

In March 1999, Crescent Operating sold Crescent Equities an additional 4%
nonvoting interest in the two subsidiaries that had an indirect interest in the
AmeriCold Properties and was granted an option to require Crescent Equities to
purchase Crescent Operating's remaining 1% interest in either or both
subsidiaries at any time within the next two years, subject to the condition
that such purchase would not, in the opinion of counsel to Crescent Equities,
adversely affect the status of Crescent Real Estate Equities Company as a REIT.
The option was exercised in December 2000 and Crescent Operating sold the
remaining 1% interests in both subsidiaries to Crescent Equities for $4.1
million.

Charter Behavioral Health Systems, LLC

From September 9, 1999 to December 29, 2000, Crescent Operating (which prior
thereto had owned 50% of CBHS) owned a 25% common membership interest and 100%
of the preferred membership interests in CBHS, and a limited partnership
interest in COPI CBHS Holdings (controlled by individual officers of Crescent
Operating), in which Crescent Operating owned 100% of the economic interests,
and which owned 65% of the common interests of CBHS. In the fourth quarter of
1999, CBHS began significant downsizing, including the closing of 18 facilities
in December 1999 and 33 facilities in January 2000. Closure of those facilities
resulted in the filing by terminated employees of several lawsuits against CBHS
and others, including Crescent Operating, for alleged violation of the WARN Act
(see Legal Proceedings). On February 16, 2000, CBHS petitioned for relief under
Chapter 11 of the United States Bankruptcy Code. Under the protection of the
bankruptcy court, CBHS has engaged in efforts to sell and liquidate, in a
controlled fashion, all of its ongoing business. On April 16, 2000, the asset
purchase agreement to which a newly formed, wholly-owned subsidiary of Crescent
Operating had agreed to acquire, for $24.5 million, CBHS's core business assets
used in the operation of 37 behavioral healthcare facilities, subject to certain
conditions, terminated by its own terms because not all of the conditions
precedent to closing had been met by that date. Subsequent to the termination of
the asset purchase agreement, CBHS sold or closed all of its remaining
facilities and is in the process of final liquidation of any remaining assets.

As a result of the liquidation of CBHS through bankruptcy, the equity investment
in CBHS became worthless. On December 29, 2000 Crescent Operating sold its 25%
common interest and its 100% preferred membership interest in CBHS, and COPI
CBHS Holdings sold its 65% common interest in CBHS, to The Rockwood Financial
Group, Inc. for a nominal sum. The Rockwood Financial Group, Inc. is wholly
owned by Jeffrey L. Stevens, Crescent Operating's Chief Executive Officer and
sole director. The sale of CBHS to the Rockwood Financial Group, Inc. was
effected as part of Crescent Operating's tax planning strategy. For the year
2000, Crescent Operating was faced with a potentially large minimum tax
liability. Crescent Operating sold its interest in CBHS in order to trigger a
loss that would significantly reduce, if not eliminate any minimum tax
liability, as CBHS was in bankruptcy and liquidation and the interest held by
Crescent Operating was worthless.






                                       48
<PAGE>


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  Documents filed as part of the Annual Report on Form 10-K:

     1.   Financial Statements

          Information with respect to this Item is contained on pages F-1 to
          F-73 of this Annual Report on Form 10-K.

     2.   Financial Statement Schedules

          Information with respect to this Item is listed on page F-1 and is
          contained on pages S-1 to S-4 of this Annual Report on Form 10-K.









                                       49
<PAGE>


     3.  Exhibits

         EXHIBIT
          NUMBER                   DESCRIPTION OF EXHIBITS
         -------                   -----------------------

         3.1        First Amended and Restated Certificate of Incorporation
                    (filed as Exhibit 3.3 to the Company's registration
                    statement on Form S-1 dated July 12, 1997 ("Form S-1") and
                    incorporated by reference herein)

         3.2        First Amended and Restated Bylaws (filed as Exhibit 3.4 to
                    Form S-1 and incorporated by reference herein)

         3.3        Amendment of Article V of First Amended and Restated Bylaws
                    (filed as Exhibit 3.3 to the Company's June 30, 1998 Form
                    10-Q ("June 30, 1998 Form 10-Q") and incorporated by
                    reference herein)

         3.4        Repeal of Amendment of Article V of First Amended and
                    Restated Bylaws (filed as Exhibit 3.4 to the Company's
                    September 30, 1998 Form 10-Q ("September 30, 1998 Form
                    10-Q") and incorporated by reference herein)

         4.1        Specimen stock certificate (filed as Exhibit 4.1 to Form S-1
                    and incorporated by reference herein)

         4.2        Preferred Share Purchase Rights Plan (filed as Exhibit 4.2
                    to Form S-1 and incorporated by reference herein)

         4.3        First Amendment to Preferred Share Purchase Rights Agreement
                    dated as of September 25, 1998, between Crescent Operating,
                    Inc. and Bank Boston, N.A., as Rights Agent (filed as
                    Exhibit 4.3 to September 30, 1998 Form 10-Q and incorporated
                    by reference herein)

         4.4        Second Amendment to Preferred Share Purchase Rights
                    Agreement dated as of March 4, 1999, between Crescent
                    Operating, Inc. and Bank Boston, N.A., as Rights Agent
                    (filed as Exhibit 4.4 to March 31, 1999 Form 10-Q ("March
                    31, 1999 Form 10-Q") and incorporated by reference herein)

         10.1       Amended Stock Incentive Plan (filed as Exhibit 10.1 to Form
                    S-1 and incorporated by reference herein)

         10.2       Intercompany Agreement between Crescent Operating, Inc. and
                    Crescent Real Estate Equities Limited Partnership (filed as
                    Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
                    for the Quarter Ended June 30, 1997 ("June 30, 1997 Form
                    10-Q") and incorporated by reference herein)

         10.3       Amended and Restated Operating Agreement of Charter
                    Behavioral Health Systems, LLC (filed as Exhibit 10.3 to
                    June 30, 1997 Form 10-Q and incorporated by reference
                    herein)

         10.5       Amended and Restated Credit and Security Agreement, dated as
                    of May 30, 1997, between Crescent Real Estate Equities
                    Limited Partnership and Crescent Operating, Inc., together
                    with related Note (filed as Exhibit 10.5 to the Company's
                    September 30, 1997 Form 10-Q ("September 30, 1997 Form
                    10-Q") and incorporated by reference herein)


         10.6       Line of Credit and Security Agreement, dated as of May 21,
                    1997, between Crescent Real Estate Equities Limited
                    Partnership and Crescent Operating, Inc., together with
                    related Line of Credit Note (filed as Exhibit 10.6 to
                    September 30, 1997 Form 10-Q and incorporated by reference
                    herein)



                                       50
<PAGE>


          10.7      Acquisition Agreement, dated as of February 10, 1997,
                    between Crescent Real Estate Equities Limited Partnership
                    and Carter-Crowley Properties, Inc. (filed as Exhibit 10.7
                    to Form S-1 and incorporated by reference herein)

          10.10     Security Agreement dated September 22, 1997 between COI
                    Hotel Group, Inc., as debtor, and Crescent Real Estate
                    Equities Limited Partnership, as lender, together with
                    related $1 million promissory note (filed as Exhibit 10.10
                    to September 30, 1997 Form 10-Q and incorporated by
                    reference herein)

          10.11     Security Agreement dated September 22, 1997 between COI
                    Hotel Group, Inc., as debtor, and Crescent Real Estate
                    Equities Limited Partnership, as lender, together with
                    related $800,000 promissory note (filed as Exhibit 10.11 to
                    September 30, 1997 Form 10-Q and incorporated by reference
                    herein)

          10.12     Amended and Restated Asset Management dated August 31, 1997,
                    to be effective July 31, 1997, between Wine Country Hotel,
                    LLC and The Varma Group, Inc. (filed as Exhibit 10.12 to
                    September 30, 1997 Form 10-Q and incorporated by reference
                    herein)

          10.13     Amended and Restated Asset Management Agreement dated August
                    31, 1997, to be effective July 31, 1997, between RoseStar
                    Southwest, LLC and The Varma Group, Inc. (filed as Exhibit
                    10.13 to September 30, 1997 Form 10-Q and incorporated by
                    reference herein)

          10.14     Amended and Restated Asset Management Agreement dated August
                    31, 1997, to be effective July 31, 1997, between RoseStar
                    Management LLC and The Varma Group, Inc. (filed as Exhibit
                    10.14 to September 30, 1997 Form 10-Q and incorporated by
                    reference herein)


          10.15     Agreement for Financial Services dated July 1, 1997, between
                    Crescent Real Estate Equities Company and Petroleum
                    Financial, Inc. (filed as Exhibit 10.15 to September 30,
                    1997 Form 10-Q and incorporated by reference herein)

          10.16     Credit Agreement dated August 27, 1997, between Crescent
                    Operating, Inc. and NationsBank of Texas, N.A. together with
                    related $15.0 million promissory note (filed as Exhibit
                    10.16 to September 30, 1997 Form 10-Q and incorporated by
                    reference herein)


          10.17     Support Agreement dated August 27, 1997, between Richard E.
                    Rainwater, John Goff and Gerald Haddock in favor of Crescent
                    Real Estate Equities Company and NationsBank of Texas, N.A.
                    (filed as Exhibit 10.17 to September 30, 1997 Form 10-Q and
                    incorporated by reference herein)

          10.18     1997 Crescent Operating, Inc. Management Stock Incentive
                    Plan (filed as Exhibit 10.18 to the Company's Annual Report
                    on Form 10-K for the year ended December 31, 1997 ("December
                    31, 1997 Form 10-K") and incorporated by reference herein)

          10.19     Memorandum of Agreement executed November 16, 1997, among
                    Charter Behavioral Health Systems, LLC, Charter Behavioral
                    Health Systems, Inc. and Crescent Operating, Inc. (filed as
                    Exhibit 10.19 to December 31, 1997 Form 10-K and
                    incorporated by reference herein)

          10.20     Purchase Agreement dated August 31, 1997, by and among
                    Crescent Operating, Inc., RoseStar Management LLC, Gerald W.
                    Haddock, John C. Goff and Sanjay Varma (filed as Exhibit
                    10.20 to December 31, 1997 Form 10-K and incorporated by
                    reference herein)

          10.21     Stock Purchase Agreement dated August 31, 1997, by and among
                    Crescent Operating, Inc., Gerald W. Haddock, John C. Goff
                    and Sanjay Varma (filed as Exhibit 10.21 to December 31,
                    1997 Form 10-K and incorporated by reference herein)



                                       51
<PAGE>


          10.22     Amended and Restated Lease Agreement, dated June 30, 1995
                    between Crescent Real Estate Equities Limited Partnership
                    and RoseStar Management LLC, relating to the Denver Marriott
                    City Center (filed as Exhibit 10.17 to the Annual Report on
                    Form 10-K of Crescent Real Estate Equities Company for the
                    Fiscal Year Ended December 31, 1995 (the "1995 CEI 10-K")
                    and incorporated by reference herein)

          10.23     Lease Agreement, dated December 19, 1995 between Crescent
                    Real Estate Equities Limited Partnership and RoseStar
                    Management LLC, relating to the Hyatt Regency Albuquerque
                    (filed as Exhibit 10.16 to the 1995 CEI 10-K and
                    incorporated by reference herein)

          10.24     Form of Amended and Restated Lease Agreement, dated January
                    1, 1996, among Crescent Real Estate Equities Limited
                    Partnership, Mogul Management, LLC and RoseStar Management
                    LLC, relating to the Hyatt Regency Beaver Creek (filed as
                    Exhibit 10.12 to the 1995 CEI 10-K and incorporated by
                    reference herein)

          10.25     Lease Agreement, dated July 26, 1996, between Canyon Ranch,
                    Inc. and Canyon Ranch Leasing, L.L.C., assigned by Canyon
                    Ranch, Inc. to Crescent Real Estate Equities Limited
                    Partnership pursuant to the Assignment and Assumption
                    Agreement of Master Lease, dated July 26, 1996 (filed as
                    Exhibit 10.24 to the Quarterly Report on Form 10-Q/A of
                    Crescent Real Estate Equities Company for the Quarter Ended
                    June 30, 1997 (the "1997 CEI 10-Q") and incorporated by
                    reference herein)

          10.26     Lease Agreement, dated November 18, 1996 between Crescent
                    Real Estate Equities Limited Partnership and Wine Country
                    Hotel, LLC (filed as Exhibit 10.25 to the Annual Report on
                    Form 10-K of Crescent Real Estate Equities Company for the
                    Fiscal Year Ended December 31, 1996 and incorporated by
                    reference herein)

          10.27     Lease Agreement, dated December 11, 1996, between Canyon
                    Ranch-Bellefontaine Associates, L.P. and Vintage Resorts,
                    L.L.C., as assigned by Canyon Ranch-Bellefontaine
                    Associates, L.P. to Crescent Real Estate Funding VI, L.P.
                    pursuant to the Assignment and Assumption Agreement of
                    Master Lease, dated December 11, 1996 (filed as Exhibit
                    10.26 to the 1997 CEI 10-Q and incorporated by reference
                    herein)

          10.28     Master Lease Agreement, dated June 16, 1997, between
                    Crescent Real Estate Funding VII, L.P. and Charter
                    Behavioral Health Systems, LLC and its subsidiaries,
                    relating to the Facilities (filed as Exhibit 10.27 to the
                    1997 CEI 10-Q and incorporated by reference herein)

          10.29     Form of Indemnification Agreement (filed as Exhibit 10.29 to
                    December 31, 1997 Form 10-K and incorporated by reference
                    herein)

          10.30     Purchase Agreement, dated as of September 29, 1997, between
                    Crescent Operating, Inc. and Crescent Real Estate Equities
                    Limited Partnership, relating to the purchase of Desert
                    Mountain Development Corporation (filed as Exhibit 10.30 to
                    December 31, 1997 Form 10-K and incorporated by reference
                    herein)

          10.31     Lease Agreement dated December 19, 1997, between Crescent
                    Real Estate Equities Limited Partnership, as Lessor, and
                    Wine Country Hotel, as Lessee, for lease of Ventana Inn
                    (filed as Exhibit 10.31 to the Company's March 31, 1998 Form
                    10-Q ("March 31, 1998 Form 10-Q") and incorporated by
                    reference herein)

          10.32     Lease Agreement dated September 22, 1997, between Crescent
                    Real Estate Equities Limited Partnership, as Lessor, and COI
                    Hotel Group, Inc., as lessee, for lease of Four Seasons
                    Hotel, Houston (filed as Exhibit 10.32 to March 31, 1998
                    Form 10-Q and incorporated by reference herein)


                                       52
<PAGE>


          10.33     Asset Purchase Agreement dated December 19, 1997, among
                    Crescent Operating, Inc., Preco Machinery Sales, Inc., and
                    certain individual Preco shareholders (filed as Exhibit
                    10.33 to March 31, 1998 Form 10-Q and incorporated by
                    reference herein)

          10.34     Asset Purchase Agreement dated April 30, 1998, among
                    Crescent Operating, Inc., Central Texas Equipment Company,
                    and certain individual Central Texas shareholders (filed as
                    Exhibit 10.34 to March 31, 1998 Form 10-Q and incorporated
                    by reference herein)

          10.35     Credit Agreement dated August 29, 1997 between Crescent Real
                    Estate Equities Limited Partnership, as lender, and Desert
                    Mountain Properties Limited Partnership, as borrower,
                    together with related Senior Note, Junior Note and deed of
                    trust (filed as Exhibit 10.35 to March 31, 1998 Form 10-Q
                    and incorporated by reference herein)

          10.36     Buy-Out Agreement dated April 24, 1998, between Crescent
                    Operating, Inc. and Crescent Real Estate Equities Limited
                    Partnership (filed as Exhibit 10.36 to March 31, 1998 Form
                    10-Q and incorporated by reference herein)

          10.37     Stock Acquisition Agreement and Plan of Merger dated June 4,
                    1998, among Machinery, Inc., Oklahoma Machinery, Inc.,
                    Crescent Machinery Company, Crescent Operating, Inc. and
                    certain individual Machinery shareholders (filed as Exhibit
                    10.37 to June 30, 1998 Form 10-Q and incorporated by
                    reference herein)

          10.38     Master Revolving Line of Credit Loan Agreement (Borrowing
                    Base and Warehouse) dated May 14, 1998, between Desert
                    Mountain Properties Limited Partnership and National Bank of
                    Arizona (filed as Exhibit 10.38 to June 30, 1998 Form 10-Q
                    and incorporated by reference herein)

          10.39     1997 Management Stock Incentive Plan (filed as Exhibit 10.39
                    to June 30, 1998 Form 10-Q and incorporated by reference
                    herein)

          10.40     Credit and Security Agreement, dated as of September 21,
                    1998, between Crescent Real Estate Equities Limited
                    Partnership and Crescent Operating, Inc., together with
                    related Note (filed as Exhibit 10.40 to September 30, 1998
                    Form 10-Q and incorporated by reference herein)

          10.41     First Amendment to Amended and Restated Pledge Agreement,
                    dated as of September 21, 1998, between Crescent Real Estate
                    Equities Limited Partnership and Crescent Operating, Inc.
                    (filed as Exhibit 10.41 to September 30, 1998 Form 10-Q and
                    incorporated by reference herein)

          10.42     First Amendment to Line of Credit and Security Agreement,
                    dated as of August 11, 1998, between Crescent Real Estate
                    Equities Limited Partnership and Crescent Operating, Inc.,
                    together with related Note (filed as Exhibit 10.42 to
                    September 30, 1998 Form 10-Q and incorporated by reference
                    herein)

          10.43     First Amendment to Amended and Restated Credit and Security
                    Agreement, dated as of August 11, 1998, between Crescent
                    Real Estate Equities Limited Partnership and Crescent
                    Operating, Inc. (filed as Exhibit 10.43 to September 30,
                    1998 Form 10-Q and incorporated by reference herein)

          10.44     Second Amendment to Amended and Restated Credit and Security
                    Agreement, dated as of September 21, 1998, between Crescent
                    Real Estate Equities Limited Partnership and Crescent
                    Operating, Inc. (filed as Exhibit 10.44 to September 30,
                    1998 Form 10-Q and incorporated by reference herein)

          10.45     Second Amendment to Line of Credit and Security Agreement,
                    dated as of September 21, 1998, between Crescent Real Estate
                    Equities Limited Partnership and Crescent Operating, Inc.
                    (filed as Exhibit 10.45 to September 30, 1998 Form 10-Q and
                    incorporated by reference herein)



                                       53
<PAGE>


          10.46     Agreement of Limited Partnership of COPI Colorado, L.P.
                    (filed as Exhibit 10.1 to that Schedule 13D Statement dated
                    September 28, 1998, filed by COPI Colorado, L.P., Crescent
                    Operating, Inc., Gerald W. Haddock, John C. Goff and Harry
                    H. Frampton, III, and incorporated by reference herein)

          10.47     Contribution Agreement effective as of September 11, 1998,
                    by and among Crescent Operating, Inc., Gerald W. Haddock,
                    John C. Goff and Harry H. Frampton, III (filed as Exhibit
                    10.2 to that Schedule 13D Statement dated September 28,
                    1998, filed by COPI Colorado, L.P., Crescent Operating,
                    Inc., Gerald W. Haddock, John C. Goff and Harry H. Frampton,
                    III, and incorporated by reference herein)

          10.48     Agreement Regarding Schedules and Other Matters made as of
                    September 11, 1998, by and among Crescent Operating, Inc.,
                    Gerald W. Haddock, John C. Goff and Harry H. Frampton, III
                    (filed as Exhibit 10.3 to that Schedule 13D Statement dated
                    September 28, 1998, filed by COPI Colorado, L.P., Crescent
                    Operating Inc., Gerald W. Haddock, John C. Goff and Harry H.
                    Frampton, III, and incorporated by reference herein)

          10.49     Stock Purchase Agreement dated as of August 7, 1998 by and
                    among Western Traction Company, The Carlston Family Trust,
                    Ronald D. Carlston and Crescent Operating, Inc. (filed as
                    Exhibit 10.49 to September 30, 1998 Form 10-Q and
                    incorporated by reference herein)


          10.50     Stock Purchase Agreement dated as of July 31, 1998 by and
                    among Harvey Equipment Center, Inc., L and H Leasing
                    Company, William J. Harvey, Roy E. Harvey, Jr., Betty J.
                    Harvey and Crescent Operating, Inc. (filed as Exhibit 10.50
                    to September 30, 1998 Form 10-Q and incorporated by
                    reference herein)

          10.51     Credit Agreement dated as of July 28, 1998, between Crescent
                    Real Estate Equities Limited Partnership and CRL
                    Investments, Inc., together with the related Note (filed as
                    Exhibit 10.51 to September 30, 1998 Form 10-Q and
                    incorporated by reference herein)

          10.52     Security Agreement dated as of July 28, 1998, between
                    Crescent Real Estate Equities Limited Partnership and CRL
                    Investments, Inc. (filed as Exhibit 10.52 to September 30,
                    1998 Form 10-Q and incorporated by reference herein)

          10.53     First Amendment to Credit Agreement effective as of August
                    27, 1998, among Crescent Operating, Inc., NationsBank, N.
                    A., and the Support Parties identified therein (filed as
                    Exhibit 10.53 to September 30, 1998 Form 10-Q and
                    incorporated by reference herein)

          10.54     Lease Agreement dated as of October 13, 1998, between
                    Crescent Real Estate Equities Limited Partnership and
                    Wine Country Golf Club, Inc., relating to Sonoma Golf
                    Club (filed as Exhibit 10.54 to September 30, 1998 Form
                    10-Q and incorporated by reference herein)

          10.55     First Amendment to Lease Agreement effective December
                    31, 1998, between Canyon Ranch Leasing, L.L.C., and
                    Crescent Real Estate Equities Limited Partnership,
                    relating to Canyon Ranch - Tucson (filed as Exhibit
                    10.55 to the Company's Annual Report on Form 10-K for
                    the year ended December 31, 1998 ("December 31, 1998
                    Form 10-K") and incorporated by reference herein)

          10.56     First Amendment to Lease Agreement effective April 1,
                    1996; Second Amendment to Lease Agreement effective
                    November 22, 1996; Third Amendment to Lease Agreement
                    effective August 12, 1998; and Fourth Amendment to Lease
                    Agreement effective December 31, 1998 between RoseStar
                    Southwest, LLC, and Crescent Real Estate Funding II
                    L.P., relating to Hyatt Regency Albuquerque (filed as
                    Exhibit 10.56 to December 31, 1998 Form 10-K and
                    incorporated by reference herein)


                                       54
<PAGE>


          10.57     First Amendment to Lease Agreement effective December
                    31, 1998, between Wine Country Hotel, LLC, and Crescent
                    Real Estate Equities Limited Partnership, relating to
                    Sonoma Mission Inn & Spa (filed as Exhibit 10.57 to
                    December 31, 1998 Form 10-K and incorporated by
                    reference herein)

          10.58     First Amendment to Amended and Restated Lease Agreement
                    effective December 31, 1998, between RoseStar
                    Management, LLC, and Crescent Real Estate Equities
                    Limited Partnership, relating to Marriott City Center,
                    Denver (filed as Exhibit 10.58 to December 31, 1998 Form
                    10-K and incorporated by reference herein)

          10.59     First Amendment to Lease Agreement effective December 31,
                    1998, between Wine Country Hotel, LLC, and Crescent Real
                    Estate Equities Limited Partnership, relating to Ventana Inn
                    (filed as Exhibit 10.59 to December 31, 1998 Form 10-K and
                    incorporated by reference herein)

          10.60     First Amendment to Amended and Restated Lease Agreement
                    effective April 1, 1996 and Second Amendment to Amended and
                    Restated Lease Agreement effective December 31, 1998,
                    between RoseStar Southwest, LLC, and Crescent Real Estate
                    Funding II, L.P., relating to Hyatt Regency Beaver Creek
                    (filed as Exhibit 10.60 to December 31, 1998 Form 10-K and
                    incorporated by reference herein)

          10.61     First Amendment to Lease Agreement effective December 31,
                    1998, between COI Hotel Group, Inc. and Crescent Real Estate
                    Equities Limited Partnership, relating to Four Seasons -
                    Houston (filed as Exhibit 10.61 to December 31, 1998 Form
                    10-K and incorporated by reference herein)

          10.62     First Amendment to Lease Agreement effective December 31,
                    1998, between Wine Country Hotel, LLC and Crescent Real
                    Estate Funding VI, L.P., relating to Canyon Ranch - Lenox
                    (filed as Exhibit 10.62 to March 31, 1999 Form 10-Q and
                    incorporated by reference herein)


          10.63     Master Guaranty effective December 31, 1998, by Crescent
                    Operating, Inc. for the benefit of Crescent Real Estate
                    Equities Limited Partnership, Crescent Real Estate Funding
                    II, L.P., and Crescent Real Estate Funding VI, L.P.,
                    relating to leases for Hyatt Regency Albuquerque, Hyatt
                    Regency Beaver Creek, Canyon Ranch-Lenox, Sonoma Mission Inn
                    & Spa, Canyon Ranch - Tucson, and Marriott City Center
                    Denver (filed as Exhibit 10.63 to December 31, 1998 Form
                    10-K and incorporated by reference herein)

          10.64     Guaranty of Lease effective December 19, 1997, by Crescent
                    Operating, Inc. for the benefit of Crescent Real Estate
                    Equities Limited Partnership, relating to Ventana Inn (filed
                    as Exhibit 10.64 to December 31, 1998 Form 10-K and
                    incorporated by reference herein)

          10.65     Amended and Restated Guaranty of Lease effective December
                    31, 1998, by Crescent Operating, Inc. for the benefit of
                    Crescent Real Estate Equities Limited Partnership, relating
                    to Four Seasons Hotel - Houston (filed as Exhibit 10.65 to
                    December 31, 1998 Form 10-K and incorporated by reference
                    herein)

          10.66     Amended and Restated Guaranty of Lease effective December
                    31, 1998, by Crescent Operating, Inc. for the benefit of
                    Crescent Real Estate Equities Limited Partnership, relating
                    to Sonoma Golf Club (filed as Exhibit 10.66 to December 31,
                    1998 Form 10-K and incorporated by reference herein)

          10.67     Credit Agreement dated August 11, 1995, between Crescent
                    Development Management Corp., as borrower, and Crescent Real
                    Estate Equities Limited Partnership, as lender; First
                    Amendment to Credit Agreement dated as of April 15, 1997;
                    Second Amendment to Credit Agreement dated as of May 8,
                    1998; and related Note and Security Agreement (filed as
                    Exhibit 10.67 to December 31, 1998 Form 10-K and
                    incorporated by reference herein)


                                       55
<PAGE>


          10.68     Credit Agreement dated January 1, 1998, between Crescent
                    Development Management Corp., as borrower, and Crescent Real
                    Estate Equities Limited Partnership, as lender, and related
                    Note and Security Agreement (filed as Exhibit 10.68 to
                    December 31, 1998 Form 10-K and incorporated by reference
                    herein)

          10.69     $3,100,000 Note dated February 29, 1996, made by Crescent
                    Development Management Corp. payable to Crescent Real Estate
                    Equities Limited Partnership (filed as Exhibit 10.69 to
                    December 31, 1998 Form 10-K and incorporated by reference
                    herein)

          10.70     Credit Agreement dated January 1, 1999, between Crescent
                    Development Management Corp., as borrower, and Crescent Real
                    Estate Equities Limited Partnership, as lender, and related
                    Line of Credit Note and Security Agreement (filed as Exhibit
                    10.70 to March 31, 1999 Form 10-Q and incorporated by
                    reference herein)

          10.71     Amended and Restated Credit Agreement dated January 1, 1999,
                    between Crescent Development Management Corp., as borrower,
                    and Crescent Real Estate Equities Limited Partnership, as
                    lender, and related Line of Credit Note and Amended and
                    Restated Security Agreement (filed as Exhibit 10.71 to March
                    31, 1999 Form 10-Q and incorporated by reference herein)


          10.72     Purchase Agreement dated March 12, 1999, between Crescent
                    Operating, Inc. and Crescent Real Estate Equities Limited
                    Partnership, relating to sale of interests in Crescent CS
                    Holdings Corp., and Crescent CS Holdings II Corp., and
                    related Put Agreement of same date (filed as Exhibit 10.72
                    to March 31, 1999 Form 10-Q and incorporated by reference
                    herein)


          10.73     Second Amendment to Lease Agreement effective April 1, 1999,
                    between Wine Country Hotel, LLC, and Crescent Real Estate
                    Funding VI, L.P., relating to Canyon Ranch-Lenox (filed as
                    Exhibit 10.73 to March 31, 1999 Form 10-Q and incorporated
                    by reference herein)

          10.74     Master Revolving Line of Credit Loan Agreement (Borrowing
                    Base and Warehouse) dated May 14, 1998, between Desert
                    Mountain Properties Limited Partnership, as borrower, and
                    National Bank of Arizona, as lender; Modification Agreement
                    dated December 30, 1998; second Modification Agreement dated
                    March 31, 1999; and related Promissory Note (Borrowing
                    Base), Promissory Note (Warehouse), Pledge Agreement, Deed
                    of Trust, and Amendment to Deed of Trust (filed as Exhibit
                    10.74 to March 31, 1999 Form 10-Q and incorporated by
                    reference herein)

          10.75     Lease Agreement dated as of June 15, 1999, between Crescent
                    Real Estate Funding III, L.P. and COI Hotel Group, Inc.,
                    relating to the Renaissance Houston Hotel (filed as Exhibit
                    10.75 to June 30, 1999 Form 10-Q and incorporated by
                    reference herein)

          10.76     Guaranty of Lease dated June 15, 1999, by Crescent
                    Operating, Inc. for the benefit of Crescent Real Estate
                    Funding III, L.P., relating to Renaissance Houston Hotel
                    (filed as Exhibit 10.76 to June 30, 1999 Form 10-Q and
                    incorporated by reference herein)

          10.77     Asset Management Agreement dated as of January 1, 1999,
                    between Crescent Real Estate Equities Limited Partnership
                    and COI Hotel Group, Inc., relating to the Omni Austin Hotel
                    (filed as Exhibit 10.77 to June 30, 1999 Form 10-Q and
                    incorporated by reference herein)

          10.78     Agreement dated June 11, 1999, by and between Gerald W.
                    Haddock and Crescent Operating, Inc. and its subsidiaries
                    and affiliates (filed as Exhibit 10.78 to June 30, 1999 Form
                    10-Q and incorporated by reference herein)


                                       56
<PAGE>


          10.79     Stock Purchase Agreement dated as of July 15, 1999, by and
                    among E. L. Lester & Company, Incorporated, E. L. Lester,
                    Jr., Howard T. Tellepsen II, Karen Tellepsen, Tom Tellepsen
                    II, Linda Lester Griffen, Crescent Operating, Inc. and
                    Crescent Machinery Company (filed as Exhibit 10.79 to the
                    Company's September 30, 1999 Form 10-Q ("September 30, 1999
                    Form 10-Q") and incorporated by reference herein)

          10.80     Stock Purchase Agreement dated as of July 8, 1999, by and
                    among Solveson Crane Rental, Inc., Solveson Family Revocable
                    Trust, and Crescent Machinery Company (filed as Exhibit
                    10.80 to September 30, 1999 Form 10-Q and incorporated by
                    reference herein)

          10.81     Second Amendment to Credit Agreement effective as of August
                    27, 1999, among Crescent Operating, Inc., Bank of America,
                    N. A. (formerly NationsBank, N. A.), and the Support Parties
                    identified therein (filed as Exhibit 10.81 to September 30,
                    1999 Form 10-Q and incorporated by reference herein)

          10.82     First Amendment to 1997 Crescent Operating, Inc. Management
                    Stock Incentive Plan (filed as Exhibit 10.82 to the
                    Company's December 31, 1999 Form 10-K ("December 31, 1999
                    Form 10-K") and incorporated by reference herein)

          10.83     Form of Sales and Service Agreement between BLAW KNOX
                    Construction Equipment Corporation and certain of Crescent
                    Machinery Company and its subsidiaries (filed as Exhibit
                    10.83 to December 31, 1999 Form 10-K and incorporated by
                    reference herein)

          10.84     Form of Heavy Equipment Distributor Agreement between
                    Compaction America, Inc. and certain of Crescent Machinery
                    Company and its subsidiaries (filed as Exhibit 10.84 to
                    December 31, 1999 Form 10-K and incorporated by reference
                    herein)

          10.85     Form of Gradall Equipment Distributor Agreement between The
                    Gradall Company and certain of Crescent Machinery Company
                    and its subsidiaries (filed as Exhibit 10.85 to December 31,
                    1999 Form 10-K and incorporated by reference herein)

          10.86     Form of Distributor Selling Agreement between Ingersoll-Rand
                    Company and certain of Crescent Machinery Company and its
                    subsidiaries (filed as Exhibit 10.86 to December 31, 1999
                    Form 10-K and incorporated by reference herein)

          10.87     Form of JCB Dealership Agreement between JCB Inc. and
                    certain of Crescent Machinery Company and its subsidiaries
                    (filed as Exhibit 10.87 to December 31, 1999 Form 10-K and
                    incorporated by reference herein)

          10.88     Form of Distributor Agreement between LBX Company, LLC, and
                    certain of Crescent Machinery Company and its subsidiaries
                    (filed as Exhibit 10.88 to December 31, 1999 Form 10-K and
                    incorporated by reference herein)

          10.89     Form of Distributor Agreement between Liebherr Construction
                    Equipment Co. and certain of Crescent Machinery Company and
                    its subsidiaries (filed as Exhibit 10.89 to December 31,
                    1999 Form 10-K and incorporated by reference herein)

          10.90     Form of Distributor Agreement between Link-Belt Construction
                    Equipment Company and certain of Crescent Machinery Company
                    and its subsidiaries (filed as Exhibit 10.90 to December 31,
                    1999 Form 10-K and incorporated by reference herein)

          10.91     Form of Dealer Floor Plan Financing and Security Agreement
                    between General Electric Capital Corporation and certain of
                    Crescent Machinery Company and its subsidiaries (filed as
                    Exhibit 10.91 to December 31, 1999 Form 10-K and
                    incorporated by reference herein)



                                       57
<PAGE>


          10.92     Taxable REIT Subsidiary Election Agreement dated December
                    17, 1999, among Crescent Real Estate Equities Company,
                    Crescent Real Estate Equities Limited Partnership, Crescent
                    Operating, Inc. and Crescent Development Management Corp.
                    (filed as Exhibit 10.92 to December 31, 1999 Form 10-K and
                    incorporated by reference herein)

          10.93     Taxable REIT Subsidiary Election Agreement dated December
                    17, 1999, among Crescent Real Estate Equities Company,
                    Crescent Real Estate Equities Limited Partnership, Crescent
                    Operating, Inc. and Crescent CS Holdings II Corp. (filed as
                    Exhibit 10.93 to December 31, 1999 Form 10-K and
                    incorporated by reference herein)

          10.94     Taxable REIT Subsidiary Election Agreement dated December
                    17, 1999, among Crescent Real Estate Equities Company,
                    Crescent Real Estate Equities Limited Partnership, Crescent
                    Operating, Inc. and Crescent CS Holdings Corp. (filed as
                    Exhibit 10.94 to December 31, 1999 Form 10-K and
                    incorporated by reference herein)

          10.95     Taxable REIT Subsidiary Election Agreement dated December
                    17, 1999, among Crescent Real Estate Equities Company,
                    Crescent Real Estate Equities Limited Partnership, Crescent
                    Operating, Inc. and Desert Mountain Development Corp. (filed
                    as Exhibit 10.95 to December 31, 1999 Form 10-K and
                    incorporated by reference herein)

          10.96     Taxable REIT Subsidiary Election Agreement dated December
                    17, 1999, among Crescent Real Estate Equities Company,
                    Crescent Real Estate Equities Limited Partnership, Crescent
                    Operating, Inc. and The Woodlands Land Company, Inc. (filed
                    as Exhibit 10.96 to December 31, 1999 Form 10-K and
                    incorporated by reference herein)

          10.97     $19.5 Million Credit and Security Agreement affective as of
                    March 11, 1999, between Crescent Real Estate Equities
                    Limited Partnership and Crescent Operating, Inc. with
                    related Promissory Note (filed as Exhibit 10.97 to December
                    31, 1999 Form 10-K and incorporated by reference herein)

          10.98     First Amendment to Credit and Security Agreement effective
                    as of March 11, 1999, between Crescent Real Estate Equities
                    Limited Partnership and Crescent Operating, Inc. (filed as
                    Exhibit 10.98 to December 31, 1999 Form 10-K and
                    incorporated by reference herein)

          10.99     Third Amendment to Amended and Restated Credit and Security
                    Agreement effective as of March 11, 1999, between Crescent
                    Real Estate Equities Limited Partnership and Crescent
                    Operating, Inc. (filed as Exhibit 10.99 to December 31, 1999
                    Form 10-K and incorporated by reference herein)

          10.100    Third Amendment to Line of Credit Credit and Security
                    Agreement effective as of March 11, 1999, between Crescent
                    Real Estate Equities Limited Partnership and Crescent
                    Operating, Inc. (filed as Exhibit 10.100 to December 31,
                    1999 Form 10-K and incorporated by reference herein)

          10.101    Agreements for Wholesale Financing (with Addendum) between
                    Deutsche Financial Services Corporation and, respectively,
                    Western Traction Company, Machinery Inc., Solveson Crane
                    Rentals Inc., Harvey Equipment Center Inc., and Crescent
                    Machinery Company, with Guarantees (filed as Exhibit 10.101
                    to December 31, 1999 Form 10-K and incorporated by reference
                    herein)

          10.102    Master Security Agreements between Associates Commercial
                    Corporation and, respectively, Crescent Machinery Company
                    and Western Traction Company; Security Agreement between
                    Associates Commercial Corporation and Western Traction
                    Company; Addendum; and Continuing Guaranty by Crescent
                    Machinery Company (filed as Exhibit 10.102 to December 31,
                    1999 Form 10-K and incorporated by reference herein)



                                       58
<PAGE>


          10.103    First Amendment to Amended and Restated Credit Agreement
                    dated as of December 20, 1999, between Crescent Real Estate
                    Equities Limited Partnership and Crescent Development
                    Management Corp. with related Line of Credit Note and letter
                    amendment to related security agreement (filed as Exhibit
                    10.103 to December 31, 1999 Form 10-K and incorporated by
                    reference herein)

          10.104    $5,600,000 Promissory Note dated February 28, 2000, made by
                    East West Resorts, LLC payable to Crescent Real Estate
                    Equities Limited Partnership (filed as Exhibit 10.104 to the
                    Company's March 31, 2000 Form 10-Q ("March 31, 2000 Form
                    10-Q") and incorporated by reference herein)

          10.105    Mutual Termination of Asset Management Agreement for Omni
                    Austin Hotel, Austin, Texas, effective January 31, 2000,
                    between Crescent Real Estate Equities Limited Partnership
                    and COI Hotel Group, Inc. (filed as Exhibit 10.105 to March
                    31, 2000 Form 10-Q and incorporated by reference herein)

          10.106    Master Asset Management and Administrative Services
                    Agreement dated February 1, 2000, by and among Sonoma
                    Management Corp. I, Crescent Operating, Inc. and each of its
                    subsidiaries identified therein (filed as Exhibit 10.106 to
                    March 31, 2000 Form 10-Q and incorporated by reference
                    herein)

          10.107    Management Agreement effective February 1, 2000, between
                    Sonoma Management Corp. I, as Manager, and Crescent Real
                    Estate Funding VIII, L.P., as Owner and assignor to the
                    Company, relating to Ventana Inn & Spa (filed as Exhibit
                    10.107 to March 31, 2000 Form 10-Q and incorporated by
                    reference herein)

          10.108    Management Agreement effective February 1, 2000, between
                    Sonoma Management Corp. I, as Manager, and Crescent Real
                    Estate Funding VIII, L.P., as Owner and assignor to the
                    Company, relating to Sonoma Mission Inn Golf and Country
                    Club (filed as Exhibit 10.108 to March 31, 2000 Form 10-Q
                    and incorporated by reference herein)

          10.109    Management Agreement effective February 1, 2000, between
                    Sonoma Management Corp. I, as Manager, and Crescent Real
                    Estate funding VIII, L.P., as Owner and assignor to the
                    Company, relating to Sonoma Mission Inn and Spa (filed as
                    Exhibit 10.109 to March 31, 2000 Form 10-Q and incorporated
                    by reference herein)

          10.110    Termination of Lease Agreement for The Four Seasons Hotel,
                    Houston, effective November 3, 2000, between COI Hotel
                    Group, Inc. and Crescent Real Estate Funding IX, L.P. (filed
                    as Exhibit 10.110 to the Company's September 30, 2000 Form
                    10-Q ("September 30, 2000 Form 10-Q") and incorporated by
                    reference herein)

          10.111    First Amendment to Credit and Security agreement effective
                    February 1, 2000, between Crescent Realty Estate Equities
                    Limited Partnership and Crescent Operating, Inc. relating to
                    $19.5 Million Credit and Security Agreement effective March
                    11, 1999 (filed as Exhibit 10.111 to September 30, 2000 Form
                    10-Q and incorporated by reference herein)

          10.112    Second Amendment to Credit and Security Agreement effective
                    February 1, 2000, between Crescent Real Estate Equities
                    Limited Partnership and Crescent Operating, Inc. relating to
                    $9 Million Credit and Security Agreement effective September
                    21, 1998 (filed as Exhibit 10.112 to September 30, 2000 Form
                    10-Q and incorporated by reference herein)

          10.113    Fourth Amendment to Amended and Restated Credit and Security
                    Agreement effective February 1, 2000, between Crescent Real
                    Estate Equities Limited Partnership and Crescent Operating,
                    Inc. relating to Amended and Restated Credit and Security
                    Agreement effective May 21, 1997 (filed as Exhibit 10.113 to
                    September 30, 2000 Form 10-Q and incorporated by reference
                    herein)



                                       59
<PAGE>


          10.114    Fourth Amendment to Line of Credit Credit and Security
                    Agreement effective February 1, 2000, between Crescent Real
                    Estate Equities Limited Partnership and Crescent Operating,
                    Inc. relating to Line of Credit Credit and Security
                    Agreement effective May 21, 1997 (filed as Exhibit 10.114 to
                    September 30, 2000 Form 10-Q and incorporated by reference
                    herein)

          10.115    Credit Agreement dated September 21, 2000, between Crescent
                    Development Management Corp., as borrower, and Crescent Real
                    Estate Equities Limited Partnership, as lender, and related
                    Line of Credit Note and Security Agreement (filed as Exhibit
                    10.115 to December 31, 2000 Form 10-K and incorporated by
                    reference herein)

          10.116    Assignment of Interest in East West Resorts, LLC (CDMC to
                    COPI); Assignment of Interest in East West Resorts, LLC
                    (COPI to CDMC); and Assignment, Assumption and Consent
                    Agreement dated December 31, 2000, among Crescent
                    Development Management Corp., Crescent Development
                    Management Corp. II, and Crescent Real Estate Equities
                    Limited Partnership (filed as Exhibit 10.116 to December 31,
                    2000 Form 10-K and incorporated by reference herein)

          10.117    Assignment of Membership Interest dated December 29, 2000
                    between Crescent Operating, Inc. and Rockwood Financial
                    Group, Inc.; Assignment of Membership Interest dated
                    December 29, 2000 between COPI CBHS Holdings, L.P. and
                    Rockwood Financial Group, Inc.; and related Indemnification
                    Agreement dated December 29, 2000 among COPI CBHS Holdings,
                    L.P., Crescent Operating, Inc. and Rockwood Financial Group,
                    Inc. (filed as Exhibit 10.117 to December 31, 2000 Form 10-K
                    and incorporated by reference herein)

          10.118    Severance Agreement dated February 5, 2001, between Richard
                    P. Knight and Crescent Operating, Inc. and Crescent
                    Machinery Company (filed as Exhibit 10.118 to March 31, 2001
                    Form 10-Q and incorporated by reference herein)

          10.119    Second Amendment to Credit and Security Agreement effective
                    January 31, 2001, between Crescent Real Estate Equities
                    Limited Partnership and Crescent Operating, Inc. relating to
                    $19.5 million Credit and Security Agreement effective March
                    11, 1999 (filed as Exhibit 10.119 to March 31, 2001 Form
                    10-Q and incorporated by reference herein)

          10.120    Third Amendment to Credit and Security Agreement effective
                    January 31, 2001, between Crescent Real Estate Equities
                    Limited Partnership and Crescent Operating, Inc. relating to
                    $9.0 million Credit and Security Agreement effective
                    September 21, 1998 (filed as Exhibit 10.120 to March 31,
                    2001 Form 10-Q and incorporated by reference herein)

          10.121    Fifth Amendment to Line of Credit Credit and Security
                    Agreement effective January 31, 2001, between Crescent Real
                    Estate Equities Limited Partnership and Crescent Operating,
                    Inc. relating to Line of Credit Credit and Security
                    Agreement effective May 21, 1997 (filed as Exhibit 10.121 to
                    March 31, 2001 Form 10-Q and incorporated by reference
                    herein)

          10.122    Fifth Amendment to Amended and Restated Credit and Security
                    Agreement effective January 31, 2001, between Crescent Real
                    Estate Equities Limited Partnership and Crescent Operating,
                    Inc. relating to Amended and Restated Credit and Security
                    Agreement effective May 21, 1997 (filed as Exhibit 10.122 to
                    March 31, 2001 Form 10-Q and incorporated by reference
                    herein)

          10.123    Third Amendment to Credit and Security Agreement effective
                    February 15, 2001, between Crescent Real Estate Equities
                    Limited Partnership and Crescent Operating, Inc. relating to
                    $19.5 million Credit and Security Agreement effective March
                    11, 1999 (filed as Exhibit 10.123 to March 31, 2001 Form
                    10-Q and incorporated by reference herein)

          10.124    Fourth Amendment to Credit and Security Agreement effective
                    February 15, 2001, between Crescent Real Estate Equities
                    Limited Partnership and Crescent Operating, Inc. relating to
                    $9.0 million Credit and Security Agreement effective
                    September 21, 1998 (filed as Exhibit 10.124 to March 31,
                    2001 Form 10-Q and incorporated by reference herein)

          10.125    Sixth Amendment to Line of Credit Credit and Security
                    Agreement effective February 15, 2001, between Crescent Real
                    Estate Equities Limited Partnership and Crescent Operating,



                                       60
<PAGE>


                    Inc. relating to Line of Credit Credit and Security
                    Agreement effective May 21, 1997 (filed as Exhibit 10.125 to
                    March 31, 2001 Form 10-Q and incorporated by reference
                    herein)

          10.126    Sixth Amendment to Amended and Restated Credit and Security
                    Agreement effective February 15, 2001, between Crescent Real
                    Estate Equities Limited Partnership and Crescent Operating,
                    Inc. relating to Amended and Restated Credit and Security
                    Agreement effective May 21, 1997 (filed as Exhibit 10.126 to
                    March 31, 2001 Form 10-Q and incorporated by reference
                    herein)

          10.127    Fourth Amendment to Credit and Security Agreement effective
                    March 5, 2001, between Crescent Real Estate Equities Limited
                    Partnership and Crescent Operating, Inc. relating to $19.5
                    million Credit and Security Agreement effective March 11,
                    1999 (filed as Exhibit 10.127 to March 31, 2001 Form 10-Q
                    and incorporated by reference herein)

          10.128    Fifth Amendment to Credit and Security Agreement effective
                    March 5, 2001, between Crescent Real Estate Equities Limited
                    Partnership and Crescent Operating, Inc. relating to $9.0
                    million Credit and Security Agreement effective September
                    21, 1998 (filed as Exhibit 10.128 to March 31, 2001 Form
                    10-Q and incorporated by reference herein)

          10.129    Seventh Amendment to Line of Credit Credit and Security
                    Agreement effective March 5, 2001, between Crescent Real
                    Estate Equities Limited Partnership and Crescent Operating,
                    Inc. relating to Line of Credit Credit and Security
                    Agreement effective May 21, 1997 (filed as Exhibit 10.129 to
                    March 31, 2001 Form 10-Q and incorporated by reference
                    herein)

          10.130    Seventh Amendment to Amended and Restated Credit and
                    Security Agreement effective March 5, 2001, between Crescent
                    Real Estate Equities Limited Partnership and Crescent
                    Operating, Inc. relating to Amended and Restated Credit and
                    Security Agreement effective May 21, 1997 (filed as Exhibit
                    10.130 to March 31, 2001 Form 10-Q and incorporated by
                    reference herein)

          10.131    Management Rights Agreement dated as of February 6, 2001, by
                    and among Crescent Operating, Inc., Crescent Machinery
                    Company, Crescent Machinery Company, LP, and SunTX Capital
                    Management Corp. (filed as Exhibit 10.131 to June 30, 2001
                    Form 10-Q and incorporated by reference herein)

          10.132    Fifth Amendment to Credit and Security Agreement effective
                    June 28, 2001, between Crescent Real Estate Equities Limited
                    Partnership and Crescent Operating, Inc. relating to $19.5
                    million Credit and Security Agreement effective March 11,
                    1999 (filed herewith)

          10.133    Sixth Amendment to Credit and Security Agreement effective
                    June 28, 2001, between Crescent Real Estate Equities Limited
                    Partnership and Crescent Operating, Inc. relating to $9.0
                    million Credit and Security Agreement effective September
                    21, 1998 (filed herewith)

          10.134    Eighth Amendment to Line of Credit Credit and Security
                    Agreement effective June 28, 2001, between Crescent Real
                    Estate Equities Limited Partnership and Crescent Operating,
                    Inc. relating to Line of Credit Credit and Security
                    Agreement effective May 21, 1997 (filed herewith)

          10.135    Eighth Amendment to Amended and Restated Credit and Security
                    Agreement effective June 28, 2001, between Crescent Real
                    Estate Equities Limited Partnership and Crescent Operating,
                    Inc. relating to Amended and Restated Credit and Security
                    Agreement effective May 21, 1997 (filed herewith)

          10.136    Sixth Amendment to Credit and Security Agreement effective
                    October 31, 2001, between Crescent Real Estate Equities
                    Limited Partnership and Crescent Operating, Inc. relating to
                    $19.5 million Credit and Security Agreement effective March
                    11, 1999 (filed herewith)

          10.137    Seventh Amendment to Credit and Security Agreement effective
                    October 31, 2001, between Crescent Real Estate Equities
                    Limited Partnership and Crescent Operating, Inc. relating to
                    $9.0 million Credit and Security Agreement effective
                    September 21, 1998 (filed herewith)


                                       61
<PAGE>
          10.138    Ninth Amendment to Line of Credit Credit and Security
                    Agreement effective October 31, 2001, between Crescent Real
                    Estate Equities Limited Partnership and Crescent Operating,
                    Inc. relating to Line of Credit Credit and Security
                    Agreement effective May 21, 1997 (filed herewith)

          10.139    Ninth Amendment to Amended and Restated Credit and Security
                    Agreement effective October 31, 2001, between Crescent Real
                    Estate Equities Limited Partnership and Crescent Operating,
                    Inc. relating to Amended and Restated Credit and Security
                    Agreement effective May 21, 1997 (filed herewith)

          10.140    Agreement for the Purchase and Sale of Assets and Stock
                    dated June 28, 2001 by and among Crescent Real Estate
                    Equities Limited Partnership and Crescent Operating, Inc.,
                    Rosestar Management LLC, Canyon Ranch Leasing, L.L.C., Wine
                    Country Hotel, LLC, Rosestar Southwest, LLC, COI Hotel
                    Group, Inc. and COPI Colorado, LP (filed as Annex A to Proxy
                    Statement for 2001 Annual Meeting of Shareholders and
                    incorporated by reference herein)

          10.141    Amended and Restated Securities Purchase Agreement, made and
                    entered into as of June 28, 2001, amended and restated as of
                    October 31, 2001 by and among Crescent Machinery Company,
                    L.P., Crescent Machinery Holdings, L.P., CMC GP, LLC,
                    Crescent Machinery Company, Crescent Operating, Inc., COPI
                    Colorado, LP, CRE Equipment Holdings, LLC, Crescent Real
                    Estate Equities Limited Partnership, and SunTX CMLP, Inc.
                    (filed as Annex E to Proxy Statement for 2001 Annual Meeting
                    of Shareholders and incorporated by reference herein)

          10.142    Third Amendment to Credit Agreement effective as of August
                    27, 2001, among Crescent Operating, Inc., Bank of America,
                    N.A. (formerly NationsBank, N.A.), and the Support Parties
                    identified therein (filed herewith)

          10.143    Fourth Amendment to Credit Agreement effective as of
                    November 27, 2001, among Crescent Operating, Inc., Bank of
                    America, N.A. (formerly NationsBank, N.A.), and the Support
                    Parties identified therein, together with related $15.0
                    million promissory note (filed herewith)

          10.144    Fifth Amendment to Credit Agreement effective as of December
                    31, 2001, among Crescent Operating, Inc., Bank of America,
                    N.A. (formerly NationsBank, N.A.), and the Support Parties
                    identified therein, together with related $15.0 million
                    promissory note, modified and extended as of December 31,
                    2001 (filed herewith)

          10.145    Assignment/Pledge (Security Agreement) effective as of
                    December 31, 2001 by Crescent Operating to Bank of America,
                    N.A. (formerly NationsBank, N.A.) (filed herewith)


          21        List of Subsidiaries of Crescent Operating, Inc.

          23.1      Consent of Ernst & Young LLP

          23.2      Consent of Deloitte & Touche LLP

          23.3      Consent of Arthur Andersen LLP - Denver

          23.4      Consent of Arthur Andersen LLP - Houston

          99        Letter to Securities and Exchange Commission




                                       62
<PAGE>


(b)  Reports on Form 8-K:

     No reports on Form 8-K were filed during the last quarter of the year ended
     December 31, 2001.


(c)  Exhibits Required by Item 601 of Regulation S-K:

     Exhibits required are listed under Item 14(a)(3).


(d)  Financial Statement Schedules Required by Regulation S-X:

     Information with respect to this Item is contained on Pages F-1 to F-73 of
     this Annual Report on Form 10-K.












                                       63
<PAGE>


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 1st day of May,
2002.


                                     CRESCENT OPERATING, INC.
                                     (Registrant)

                                     By /s/ Jeffrey L. Stevens
                                        -------------------------------------
                                            Jeffrey L. Stevens
                                        President and Chief Executive Officer



Pursuant to the requirements of the Securities Exchange Act of 1934 as amended,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<Table>
<Caption>
        SIGNATURE                                TITLE                              DATE
        ---------                                -----                              ----
<S>                            <C>                                            <C>

/s/ Jeffrey L. Stevens
--------------------------     President, Chief Executive Officer, Chief         May 1, 2002
    Jeffrey L. Stevens         Financial and Accounting Officer and Sole
                               Director
</Table>









                                       64



<PAGE>



                            CRESCENT OPERATING, INC.
                          INDEX TO FINANCIAL STATEMENTS


The following Consolidated Financial Statements of the Registrant are submitted
herewith in response to Item 8 and Item 14(a)1:

<Table>
<Caption>
                                                                                PAGE
                                                                                ----
<S>                                                                            <C>
CRESCENT OPERATING, INC.

     Reports of Independent Auditors.........................................    F-3

     Consolidated Balance Sheets.............................................   F-10

     Consolidated Statements of Operations...................................   F-11

     Consolidated Statements of Changes in Shareholders' Equity (Deficit)....   F-12

     Consolidated Statements of Cash Flows...................................   F-13

     Notes to Consolidated Financial Statements..............................   F-14

     The following financial statement schedule of the Registrant and
     its subsidiaries is submitted herewith in response to Item 14(a)2:

     Schedule I - Condensed Financial Information of the Registrant..........    S-1


The following Consolidated Financial Statements are submitted herewith
in response to Rule 3-09 of Regulation S-X:

VORNADO CRESCENT LOGISTICS OPERATING PARTNERSHIP AND SUBSIDIARY

     Independent Auditors Report.............................................   F-41

     Consolidated Balance Sheets.............................................   F-42

     Consolidated Statements of Operations...................................   F-44

     Consolidated Statements of Partners' Capital ...........................   F-45

     Consolidated Statements of Cash Flows...................................   F-46

     Notes to Consolidated Financial Statements..............................   F-48
</Table>


                                      F-1
<PAGE>


<Table>
<S>                                                                         <C>
VORNADO CRESCENT LOGISTICS OPERATING PARTNERSHIP AND SUBSIDIARY

     Independent Auditors Report...........................................   F-58

     Consolidated Balance Sheets...........................................   F-59

     Consolidated Statements of Operations.................................   F-61

     Consolidated Statements of Partners' Capital .........................   F-62

     Consolidated Statements of Cash Flows.................................   F-63

     Notes to Consolidated Financial Statements............................   F-65

THE WOODLANDS OPERATING COMPANY, L.P. AND SUBSIDIARY

     Report of Independent Public Accountants..............................   F-74

     Consolidated Balance Sheets...........................................   F-75

     Consolidated Statements of Earnings...................................   F-76

     Consolidated Statements of Changes in Partners' Equity (Deficit)......   F-77

     Consolidated Statements of Cash Flows.................................   F-78

     Notes to Consolidated Financial Statements............................   F-79

THE WOODLANDS LAND DEVELOPMENT COMPANY, L.P. AND SUBSIDIARY

     Report of Independent Public Accountants..............................   F-82

     Consolidated Balance Sheets...........................................   F-83

     Consolidated Statements of Earnings...................................   F-84

     Consolidated Statements of Changes in Partners' Equity ...............   F-85

     Consolidated Statements of Cash Flows.................................   F-86

     Notes to Consolidated Financial Statements............................   F-87
</Table>


All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.








                                       F-2
<PAGE>


                         REPORT OF INDEPENDENT AUDITORS


Board of Directors and Shareholders
Crescent Operating, Inc.

We have audited the accompanying consolidated balance sheets of Crescent
Operating, Inc. and subsidiaries (the Company) as of December 31, 2001 and 2000,
and the related consolidated statements of operations, shareholders' equity
(deficit), and cash flows for each of the three years in the period ended
December 31, 2001. Our audits also included the financial statement schedule
listed in the index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits. We
did not audit the financial statements of The Woodlands Land Development
Company, L.P., The Woodlands Operating Company, L.P., Crescent Resort
Development, Inc. and subsidiaries or Vornado Crescent Logistics Operating
Partnership and Subsidiary, which statements reflect total assets constituting
51.9% and 43.6%, respectively, of consolidated assets as of December 31, 2001
and 2000, and total revenues constituting 30.9%, 24.6%, and 19.2%, respectively,
of consolidated revenues for each of the three years in the period ended
December 31, 2001. Those statements were audited by other auditors whose reports
have been furnished to us, and our opinion, insofar as it relates to data
included for The Woodlands Land Development Company, L.P., The Woodlands
Operating Company, L.P., Crescent Resort Development, Inc. and subsidiaries and
Vornado Crescent Logistics Operating Partnership, is based solely on the reports
of the other auditors.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the reports of other auditors
provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Crescent Operating, Inc. and subsidiaries
at December 31, 2001 and 2000, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December
31, 2001, in conformity with accounting principles generally accepted in the
United States. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

The accompanying financial statements have been prepared assuming that Crescent
Operating, Inc. will continue as a going concern. The Company has incurred
recurring net losses, has a net capital deficiency and has debts in default and
other liabilities which it is unable to liquidate in the normal course of
business. In addition, as more fully discussed in Note 3, the Company has
entered into an agreement with Crescent Equities (CEI) in which substantially
all of the assets and operations which comprise the hospitality and land
development segments of the Company have been transferred to CEI subsequent to
December 31, 2001. This agreement also provides for the Company to file a
prepackaged bankruptcy plan. On February 6, 2002, Crescent Machinery Company, a
wholly owned subsidiary of the Company, filed for bankruptcy protection under
Chapter 11 of the federal bankruptcy laws. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.

As discussed in Note 15 of the financial statements, in 2001, the Company
changed its method of accounting for warrants.

                                          ERNST & YOUNG LLP
Dallas, Texas
April 19, 2002



                                      F-3
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To the Executive Committee of
The Woodlands Operating Company, L.P.:


We have audited the consolidated balance sheets of The Woodlands Operating
Company, L.P. (a Texas limited partnership) and subsidiary as of December 31,
2001 and 2000 and the related consolidated statements of earnings, changes in
partners' deficit and cash flows for each of the three years ended December 31,
2001 (not presented separately herein). These financial statements are the
responsibility of The Woodlands Operating Company, L.P.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Woodlands Operating
Company, L.P. and subsidiary as of December 31, 2001 and 2000 and the results of
their operations and their cash flows for each of the three years ended December
31, 2001 in conformity with accounting principles generally accepted in the
United States.


ARTHUR ANDERSEN LLP


Houston, Texas
January 25, 2002



                                      F-4
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To the Executive Committee of
The Woodlands Land Development Company, L.P.:


We have audited the consolidated balance sheets of The Woodlands Land
Development Company, L.P. (a Texas limited partnership) and subsidiaries as of
December 31, 2001 and 2000 and the related consolidated statements of earnings
and comprehensive income, changes in partners' equity and cash flows for each of
the three years ended December 31, 2001 (not presented separately herein). These
financial statements are the responsibility of The Woodlands Land Development
Company, L.P.'s management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Woodlands Land Development
Company, L.P. and subsidiaries as of December 31, 2001 and 2000 and the results
of their operations and their cash flows for each of the three years ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States.


ARTHUR ANDERSEN LLP


Houston, Texas
January 25, 2002



                                      F-5
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Executive Committee of
The Woodlands Operating Company, L.P.:


We have audited the accompanying consolidated balance sheets of The Woodlands
Operating Company, L.P. (a Texas limited partnership) and subsidiary as of
December 31, 2000 and 1999 and the related consolidated statements of earnings,
changes in partners' equity and cash flows for each of the three years ended
December 31, 2000. These financial statements are the responsibility of The
Woodlands Operating Company, L.P.'s management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Woodlands Operating
Company, L.P. and subsidiary as of December 31, 2000 and 1999 and the results of
their operations and their cash flows for each of the three years ended December
31, 2000 in conformity with accounting principles generally accepted in the
United States.


ARTHUR ANDERSEN LLP


Houston, Texas
January 15, 2001






                                      F-6
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Executive Committee of
The Woodlands Land Development Company, L.P.:


We have audited the accompanying consolidated balance sheets of The Woodlands
Land Development Company, L.P. (a Texas limited partnership) and subsidiary as
of December 31, 2000 and 1999 and the related consolidated statements of
earnings, changes in partners' equity and cash flows for each of the three years
ended December 31, 2000. These financial statements are the responsibility of
The Woodlands Land Development Company, L.P.'s management. Our responsibility is
to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Woodlands Land Development
Company, L.P. and subsidiaries as of December 31, 2000 and 1999 and the results
of their operations and their cash flows for each of the three years ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States.


ARTHUR ANDERSEN LLP


Houston, Texas
January 15, 2001





                                      F-7
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Shareholders of
Crescent Resort Development, Inc.

We have audited the consolidated balance sheets of CRESCENT RESORT DEVELOPMENT,
INC. (a Delaware corporation and formerly known as Crescent Development
Management Corp.) AND SUBSIDIARIES as of December 31, 2001 and 2000 and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2001. These
financial statements referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Crescent Resort Development,
Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.



                                            /s/ ARTHUR ANDERSEN LLP



Denver, Colorado,
January 25, 2002.



                                      F-8
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To Crescent Development Management Corp. II:

We have audited the consolidated balance sheet of CRESCENT DEVELOPMENT
MANAGEMENT CORP. II (a Delaware corporation) AND SUBSIDIARY as of December 31,
2000 and the related consolidated statement of shareholders' equity for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Crescent
Development Management Corp. II and subsidiary as of December 31, 2000 for the
year then ended in conformity with accounting principles generally accepted in
the United States.


                                            /s/ ARTHUR ANDERSEN LLP



Denver, Colorado,
February 9, 2001.



                                      F-9
<PAGE>


                            CRESCENT OPERATING, INC.
                          CONSOLIDATED BALANCE SHEETS
                             (AMOUNTS IN THOUSANDS)

<Table>
<Caption>
                                                               December 31, 2001  December 31, 2000
                                                               -----------------  -----------------
<S>                                                            <C>                <C>

                 ASSETS

CURRENT ASSETS
  Cash and cash equivalents                                      $     41,528        $     62,078
  Accounts receivable, net                                             48,933              62,318
  Inventories                                                          23,864              42,710
  Notes receivable                                                      3,211               3,940
  Prepaid expenses and other current assets                            12,596              21,616
                                                                 ------------        ------------
     Total current assets                                             130,132             192,662
                                                                 ------------        ------------

PROPERTY AND EQUIPMENT, NET                                           197,736             219,739

INVESTMENTS                                                            61,996              70,396

OTHER ASSETS
  Real estate                                                         442,484             279,597
  Intangible assets, net                                               42,152              88,840
  Deferred tax assets                                                  39,485              30,677
  Other assets                                                         31,419              28,617
                                                                 ------------        ------------
     Total other assets                                               555,540             427,731
                                                                 ------------        ------------

TOTAL ASSETS                                                     $    945,404        $    910,528
                                                                 ============        ============

LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES
  Accounts payable and accrued expenses                          $     81,085        $    100,009
  Accounts payable and accrued expenses - CEI                          50,970              17,198
  Current portion of long-term debt - CEI                              74,634              17,023
  Current portion of long-term debt                                   203,039              78,104
  Deferred revenue                                                     71,933              90,392
                                                                 ------------        ------------
     Total current liabilities                                        481,661             302,726

LONG-TERM DEBT - CEI, NET OF CURRENT PORTION                          243,286             242,666

LONG-TERM DEBT, NET OF CURRENT PORTION                                 66,151             135,724

OTHER LIABILITIES                                                      88,805              78,417
                                                                 ------------        ------------

     Total liabilities                                                879,903             759,533
                                                                 ------------        ------------

MINORITY INTERESTS                                                    158,889             174,528
                                                                 ------------        ------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' DEFICIT
Preferred stock, $.01 par value, 10,000 shares authorized,
        no shares issued or outstanding                                    --                  --
Common stock, $.01 par value, 22,500 shares authorized,
      11,490 and 11,443 shares issued, respectively                       115                 114
Additional paid-in capital                                             17,781              17,754
Deferred compensation on restricted shares                                 --                (177)
Accumulated other comprehensive loss                                   (1,436)             (9,509)
Accumulated deficit                                                  (105,542)            (27,409)
Treasury stock at cost, 1,103 shares                                   (4,306)             (4,306)
                                                                 ------------        ------------
     Total shareholders' deficit                                      (93,388)            (23,533)
                                                                 ------------        ------------

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT                      $    945,404        $    910,528
                                                                 ============        ============
</Table>

        See accompanying notes to the consolidated financial statements.


                                      F-10
<PAGE>


                            CRESCENT OPERATING, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 (Amounts in thousands, except per share data)


<Table>
<Caption>
                                                     For the            For the            For the
                                                   Year Ended         Year Ended         Year Ended
                                                December 31, 2001  December 31, 2000  December 31, 1999
                                                -----------------  -----------------  -----------------
<S>                                             <C>                <C>                <C>


REVENUES
   Equipment sales & leasing                     $      118,501      $      142,842      $      136,343
   Hospitality                                          226,841             272,157             246,763
   Land development                                     260,999             301,827             334,881
                                                 --------------      --------------      --------------

      Total revenues                                    606,341             716,826             717,987
                                                 --------------      --------------      --------------

OPERATING EXPENSES
   Equipment sales & leasing                            126,042             141,113             131,606
   Hospitality                                          183,509             212,238             191,465
   Hospitality properties rent - CEI                     55,743              63,338              54,012
   Land development                                     256,282             276,285             324,432
   Corporate general and administrative                   6,969               4,224               2,605
   Impairment of assets (Note 2)                         40,178                  --                  --
                                                 --------------      --------------      --------------

      Total operating expenses                          668,723             697,198             704,120
                                                 --------------      --------------      --------------

(LOSS) INCOME FROM OPERATIONS                           (62,382)             19,628              13,867

INVESTMENT INCOME                                         1,135               2,285               1,890

EQUITY IN EARNINGS OF
    UNCONSOLIDATED SUBSIDIARIES                          31,080              25,980              19,049

OTHER (INCOME) EXPENSE
   Interest expense                                      30,502              36,345              30,775
   Interest income                                       (3,773)             (4,271)             (4,046)
   Gain on termination of Four Seasons lease                 --             (18,289)                 --
   Other                                                    733                  33                 131
                                                 --------------      --------------      --------------

      Total other expense                                27,462              13,818              26,860
                                                 --------------      --------------      --------------

(LOSS) INCOME BEFORE INCOME TAXES,
    MINORITY INTERESTS AND ACCOUNTING CHANGE            (57,629)             34,075               7,946

INCOME TAX (BENEFIT) PROVISION                           (2,593)             11,747              (3,471)
                                                 --------------      --------------      --------------

(LOSS) INCOME BEFORE MINORITY INTERESTS AND
    ACCOUNTING CHANGE                                   (55,036)             22,328              11,417

MINORITY INTERESTS                                      (13,588)            (26,018)            (14,112)
                                                 --------------      --------------      --------------

LOSS BEFORE ACCOUNTING CHANGE                           (68,624)             (3,690)             (2,695)

CUMULATIVE EFFECT OF CHANGE
    IN ACCOUNTING PRINCIPLE (NOTE 15)                    (9,509)                 --                  --
                                                 --------------      --------------      --------------

NET LOSS                                         $      (78,133)     $       (3,690)     $       (2,695)
                                                 ==============      ==============      ==============

BASIC AND DILUTED LOSS PER SHARE
   Loss before change in accounting              $        (6.63)     $        (0.36)     $        (0.26)
   Change in accounting                                   (0.92)                 --                  --
                                                 --------------      --------------      --------------
   Net loss per share                            $        (7.55)     $        (0.36)     $        (0.26)
                                                 ==============      ==============      ==============


WEIGHTED AVERAGE SHARES OUTSTANDING
   Basic                                                 10,344              10,326              10,363
                                                 ==============      ==============      ==============
   Diluted                                               10,344              10,326              10,363
                                                 ==============      ==============      ==============
</Table>


        See accompanying notes to the consolidated financial statements.


                                      F-11
<PAGE>



                            CRESCENT OPERATING, INC.
           CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
                             (AMOUNTS IN THOUSANDS)


<Table>
<Caption>
                                                                                                                       Deferred
                                                             Common stock       Treasury stock                       compensation
                                                           ----------------   -----------------     Additional       on restricted
                                                            Shares   Amount   Shares     Amount   paid-in capital       shares
                                                           -------   ------   ------    -------   ---------------   --------------
<S>                                                       <C>       <C>       <C>       <C>       <C>               <C>

DECEMBER 31, 1998                                           11,402     114     (700)    (2,852)           17,667             (210)

Comprehensive income (loss):

     Net loss                                                   --      --       --         --                --               --

     Unrealized loss on Magellan warrants                       --      --       --         --                --               --



Comprehensive income (loss)

Stock options exercised                                          7      --       --         --                 7               --

Issuance of restricted common stock                              6      --       --         --                40              (40)

Amortization of restricted common stock                         --      --       --         --                --               52

Purchase of treasury stock                                      --      --     (403)    (1,454)               --               --
                                                           -------    ----   ------    -------    --------------   --------------

DECEMBER 31, 1999                                           11,415     114   (1,103)    (4,306)           17,714             (198)

Comprehensive income (loss):

     Net loss                                                   --      --       --         --                --               --

     Unrealized gain on Magellan warrants                       --      --       --         --                --               --



Comprehensive income (loss)


Issuance of restricted common stock                             28      --       --         --                40               --

Amortization of restricted common stock                         --      --       --         --                --               21
                                                           -------    ----   ------    -------    --------------   --------------

DECEMBER 31, 2000                                           11,443    $114   (1,103)   $(4,306)   $       17,754   $         (177)

Comprehensive income (loss):

     Net loss                                                   --      --       --         --                --               --

     Proportionate share of other comprehensive
          loss of equity method investee entity                 --      --       --         --                --               --

     Cumulative effect of change in accounting principle        --      --       --         --                --               --



Comprehensive income (loss)

Issuance of restricted common stock                             47       1       --         --                27               --

Amortization of restricted common stock                         --      --       --         --                --              177
                                                           -------    ----   ------    -------    --------------   --------------

DECEMBER 31, 2001                                           11,490    $115   (1,103)   $(4,306)   $       17,781   $           --
                                                           =======    ====   ======    =======    ==============   ==============

<Caption>

                                                               Accumulated
                                                                  other
                                                              comprehensive     Accumulated
                                                              income (loss)       deficit          Total
                                                             --------------    --------------    --------
<S>                                                          <C>               <C>               <C>

DECEMBER 31, 1998                                                   (9,763)          (21,024)    (16,068)

Comprehensive income (loss):

     Net loss                                                           --            (2,695)     (2,695)

     Unrealized loss on Magellan warrants                             (364)               --        (364)
                                                                                                --------
                                                                                                  (3,059)
Comprehensive income (loss)

Stock options exercised                                                 --                --           7

Issuance of restricted common stock                                     --                --          --

Amortization of restricted common stock                                 --                --          52

Purchase of treasury stock                                              --                --      (1,454)
                                                            --------------    --------------    --------

DECEMBER 31, 1999                                                  (10,127)          (23,719)    (20,522)

Comprehensive income (loss):

     Net loss                                                           --            (3,690)     (3,690)

     Unrealized gain on Magellan warrants                              618                --         618
                                                                                                --------
                                                                                                  (3,072)
Comprehensive income (loss)


Issuance of restricted common stock                                     --                --          40

Amortization of restricted common stock                                 --                --          21
                                                            --------------    --------------    --------

DECEMBER 31, 2000                                           $       (9,509)   $      (27,409)   $(23,533)

Comprehensive income (loss):

     Net loss                                                           --           (78,133)    (78,133)

     Proportionate share of other comprehensive
          loss of equity method investee entity                     (1,436)               --      (1,436)

     Cumulative effect of change in accounting principle             9,509                --       9,509
                                                                                                --------

Comprehensive income (loss)                                                                      (70,060)

Issuance of restricted common stock                                     --                --          28

Amortization of restricted common stock                                 --                --         177
                                                            --------------    --------------    --------

DECEMBER 31, 2001                                           $       (1,436)   $     (105,542)   $(93,388)
                                                            ==============    ==============    ========
</Table>


        See accompanying notes to the consolidated financial statements.



                                      F-12
<PAGE>

                            CRESCENT OPERATING, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (AMOUNTS IN THOUSANDS)

<Table>
<Caption>
                                                                                  For the           For the            For the
                                                                                Year Ended         Year Ended         Year Ended
                                                                             December 31, 2001  December 31, 2000  December 31, 1999
                                                                             -----------------  -----------------  -----------------
<S>                                                                          <C>                <C>                <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                   $       (78,133)   $        (3,690)   $        (2,695)
   Adjustments to reconcile net loss
     to net cash used in operating activities:
       Depreciation                                                                    26,636             25,863             21,388
       Amortization                                                                     4,585             11,962             12,354
       Provision for deferred income taxes                                             (6,646)           (12,072)           (24,636)
       Equity in income of unconsolidated subsidiaries                                (31,080)           (25,980)           (18,963)
       Change in fair value of Magellan warrants                                       (1,135)                --                 --
        Impairment of assets                                                           40,178                 --                 --
       Cumulative effect of change in accounting principle                              9,509                 --                 --
       Minority interests                                                              13,588             26,018             14,113
       Gain on sale of property and equipment                                          (1,398)            (3,421)            (4,491)
       Loss (gain) on sale of investments                                                (201)           (20,574)            (2,308)
       Changes in assets and liabilities, net of effects from acquisitions:
           Accounts receivable                                                          7,593            (13,676)           (13,075)
           Inventories                                                                 15,767              6,107             (9,049)
           Prepaid expenses and current assets                                          1,793            (11,442)            (1,610)
           Real estate                                                               (184,304)           (82,990)           (40,646)
           Other assets                                                                  (442)             1,129              2,451
           Accounts payable and accrued expenses                                       (5,698)            29,827             17,076
           Accounts payable and accrued expenses - CEI                                 36,515              5,929              3,463
           Deferred revenue, current and noncurrent                                    (1,642)            41,676             36,452
           Other liabilities                                                            1,073                978                794
                                                                              ---------------    ---------------    ---------------
                Net cash used in operating activities                                (153,442)           (24,356)            (9,382)
                                                                              ---------------    ---------------    ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of business interests, net of cash acquired                                  --                 --            (28,511)
  Acquisition of business interests by
      Controlled Subsidiaries, net of cash acquired                                   (17,677)            (8,791)            (3,782)
  Purchases of property and equipment                                                 (37,846)           (68,656)           (79,476)
  Proceeds from sale of investments                                                        --             17,848             23,540
  Proceeds from sale of property and equipment                                         22,599             35,368             30,500
  Net proceeds from sale and collection of notes receivable                             9,572             10,665              8,322
  Net distributions from investments                                                    2,494              3,706              1,640
  Distributions from investments of Controlled Subsidiaries                            41,040             33,524             23,962
  Contributions to investments of Controlled Subsidiaries                              (5,942)            (3,234)           (11,851)
   Other                                                                                   --                 --              1,139
                                                                              ---------------    ---------------    ---------------
                Net cash provided by (used in) investing activities                    14,240             20,430            (34,517)
                                                                              ---------------    ---------------    ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds of long-term debt                                                          334,389            329,626            248,392
  Payments on long-term debt                                                         (196,844)          (265,229)          (206,173)
  Proceeds of long-term debt - CEI                                                     11,842              3,175             95,033
  Payments on long-term debt - CEI                                                     (3,454)            (8,075)          (107,321)
  Capital contributions by minority interests                                           4,450             37,822             35,517
  Distributions to minority interests                                                 (31,731)           (66,287)           (20,759)
  Purchase of treasury stock                                                               --                 --             (1,455)
  Other                                                                                    --             (4,045)            (3,128)
                                                                              ---------------    ---------------    ---------------
                Net cash provided by financing activities                             118,652             26,987             40,106
                                                                              ---------------    ---------------    ---------------

NET DECREASE AND INCREASE IN CASH AND
  CASH EQUIVALENTS                                                                    (20,550)            23,061             (3,793)

CASH AND CASH EQUIVALENTS,
  BEGINNING OF PERIOD                                                                  62,078             39,017             42,810
                                                                              ---------------    ---------------    ---------------

CASH AND CASH EQUIVALENTS,                                                    $        41,528    $        62,078    $        39,017
                                                                              ===============    ===============    ===============
</Table>


        See accompanying notes to the consolidated financial statements.


                                      F-13
<PAGE>


                            CRESCENT OPERATING, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   ORGANIZATION AND NATURE OF BUSINESS:

     Crescent Operating, Inc. ("Crescent Operating") was formed on April 1,
     1997, by Crescent Real Estate Equities Company ("Crescent Equities" or
     "CEI") and its subsidiary Crescent Real Estate Equities Limited Partnership
     ("Crescent Partnership") to be the lessee and operator of certain assets
     owned or to be acquired by Crescent Partnership and perform an agreement
     ("Intercompany Agreement") between Crescent Operating and Crescent
     Partnership, pursuant to which each has agreed to provide the other with
     rights to participate in certain transactions. On May 8, 1997, Crescent
     Partnership contributed $14.1 million in cash to Crescent Operating.
     Effective June 12, 1997, Crescent Equities distributed shares of Crescent
     Operating common stock to shareholders of Crescent Equities and unit
     holders of Crescent Partnership of record on May 30, 1997.

     Crescent Operating is a diversified management company that, through
     various subsidiaries and affiliates (collectively with Crescent Operating,
     the "Company"), in 2001 operated primarily in four business segments:
     Equipment Sales and Leasing, Hospitality, Temperature Controlled Logistics
     and Land Development. Through these segments, Crescent Operating does
     business throughout the United States. Crescent Operating is currently in
     the process of liquidating its businesses pursuant to the Settlement
     Agreement (See Note 3 - Settlement Agreement) with Crescent Equities.


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

     The accompanying consolidated financial statements of Crescent Operating
     include the accounts of the Company and all subsidiaries controlled by the
     Company after elimination of material intercompany accounts and minority
     interests. Subsidiaries not controlled by the Company, but for which the
     Company has the ability to exercise significant influence, are accounted
     for on the equity method.

     The financial results of the Company include the following:

     o    Subsidiaries which are wholly owned and consolidated:

          o    Crescent Machinery Company ("Crescent Machinery");

          o    Rosestar Management LLC ("Rosestar"); and

          o    COI Hotel Group, Inc. ("COI Hotel").

     o    Subsidiaries which are not wholly owned but the Company controls and
          therefore consolidates ("Controlled Subsidiaries"):

          o    A 5% economic interest, representing 100% of the voting stock,
               in:

               -    The Woodlands Land Company, Inc. ("LandCo") which has a
                    52.5% (49.5% through November 2001) general partner interest
                    in The Woodlands Land Development Company, L.P.
                    ("Landevco");
               -    Desert Mountain Development Corporation ("Desert Mountain
                    Development") which consolidates its 93% general partner
                    interest in Desert Mountain Properties Limited Partnership
                    ("DMPLP"); and
               -    CRL Investments, Inc. ("CRL"), which beneficially owns
                    approximately 65% of CR Las Vegas, LLC ("CR Las Vegas") and
                    30% of CR License, LLC ("CR License").


                                      F-14
<PAGE>


          o    A 60% general partner interest in COPI Colorado, L.P. ("COPI
               Colorado") which owns 10% of Crescent Resort Development, Inc.
               ("CRDI"), formerly Crescent Development Management Corp.
               ("CDMC"). The 10% interest in CRDI represents 100% of the voting
               stock, and therefore, CRDI is consolidated into COPI Colorado.

     o    Subsidiaries which the Company reports on the equity method of
          accounting:

          o    A 52.5% (42.5% in 2000 and 1999) non-controlling interest in the
               Woodlands Operating Company, L.P. ("Woodlands Operating" or
               "TWOC") which is controlled by a four member committee of which
               the Company controls two positions;

          o    A 40% interest in Vornado Crescent Logistics Operating
               Partnership ("AmeriCold Logistics");

          o    A direct 25% common membership interest in Charter Behavioral
               Health Systems, LLC ("CBHS") (sold in 2000);

          o    An indirect 65% common membership interest in CBHS held through a
               limited partner interest in COPI CBHS Holdings, L.P. (sold in
               2000); and

          o    A 1% interest in each of Crescent CS Holdings Corporation ("CS
               I") and Crescent CS Holdings II Corporation ("CS II"),
               (collectively, "Temperature Controlled Logistics Partnerships" or
               "TCLP") (sold in 2000).

     o    A 15.8% common and 21.1% preferred interest in Transportal Network,
          Inc. ("Transportal Holding"), which has a 76% interest in Transportal
          Network LLC ("Transportal"), all of which the Company reports on the
          cost method of accounting (abandoned during 2000).

     USE OF ESTIMATES

     The financial statements include estimates and assumptions made by
     management that affect the carrying amounts of assets and liabilities,
     reported amounts of revenues and expenses and the disclosure of contingent
     assets and liabilities. Actual results may differ from these estimates.

     CASH AND CASH EQUIVALENTS

     The Company considers all highly liquid investments with a maturity of
     three months or less to be cash equivalents. Cash of $5.8 million resides
     with certain subsidiaries and restrictions limit transfers to the parent
     company.

     INVENTORIES

     Inventories consist of new and used equipment held for sale, equipment
     parts, food, beverages and supplies, all of which are stated at the lower
     of cost or market using the first-in, first-out (FIFO) or specific
     identification methods.

     PROPERTY AND EQUIPMENT

     Property and equipment is recorded at cost. The Company uses the
     straight-line method of depreciation for financial statement purposes. The
     estimated useful lives used in computing depreciation are as follows:

<Table>
<S>                                                      <C>
Land improvements...............................           10-15 years
Rental equipment................................            2-10 years
Building and improvements.......................              30 years
Transportation equipment........................             3-5 years
Furniture, fixtures, and other equipment........            5-10 years
</Table>

     From time-to-time, Crescent Machinery offers its rental customers the
     opportunity to purchase rented equipment for a stated value at a future
     point in time. In such instances, Crescent Machinery depreciates the
     specific rental item in accordance with the contract. Expenditures for
     maintenance and repairs are charged to expense as incurred. Expenditures
     for renewals or betterments are capitalized. The cost of property replaced,


                                      F-15
<PAGE>


     retired, or otherwise disposed of is removed from the asset account along
     with the related accumulated depreciation.

     Long-lived assets are evaluated when indications of impairment are present,
     and provisions for possible losses are recorded when undiscounted cash
     flows estimated to be generated by those assets are less than the assets'
     carrying value. Under the Capital Agreement, which terminated January 22,
     2002, the Company agreed upon a value for its investment in CMC. Such
     agreed upon value served as an indicator to the Company that the potential
     existed for the impairment of certain assets as it relates to its current
     investment in Crescent Machinery. As required under Statement of Financial
     Accounting Standards No. 121, using all information available, the Company
     determined that certain assets within Crescent Machinery have carrying
     values which exceed the estimated undiscounted cash flows of those assets.
     The Company estimated the undiscounted cash flow of these assets using all
     available information including: (i) industry knowledge of asset values,
     (ii) recent results in auctions of Crescent Machinery's equipment and (iii)
     return of equipment to creditors in exchange for debt credit as part of the
     bankruptcy process. As a result, the Company recorded an adjustment of
     $25.7 million as "impairment of assets" in the Company's results from
     operations for the year ended December 31, 2001 related to property and
     equipment. The Company did not recognize any losses from impairment during
     1999 or 2000.

     The Company will continue to evaluate the assets within Crescent Machinery
     for impairment and adjust such carrying values as necessary.

     REAL ESTATE

     Real estate represents raw land, developed land, homes constructed or under
     construction, repurchased lots, applicable capitalized interest, and
     applicable capitalized general and administrative costs. Real estate is
     recorded at cost.

     Interest is capitalized based on the estimated average yearly interest rate
     applied to cumulative capital expenditures for property under development.
     Approximately $15.3 million and $11.3 million of interest was capitalized
     for the years ended December 31, 2001 and 2000, respectively. Payroll and
     related costs associated with the development of a specific subdivision of
     land are capitalized. Once sales of property begin in a specific
     subdivision, capitalized costs are expensed as cost of sales.

     INTANGIBLE ASSETS

     Intangible assets consist of goodwill and membership intangibles. Goodwill
     represents the excess of the acquisition costs over the fair value of net
     identifiable assets of businesses acquired and is amortized on a
     straight-line basis over 6-30 years. Membership intangibles represent the
     purchase price values allocated to club memberships to be sold. Intangibles
     are evaluated periodically as events or circumstances indicate a possible
     inability to recover their carrying amounts. Such evaluation is based on
     various analyses, including cash flow and profitability projections. The
     analyses involve significant management judgment to evaluate the capacity
     of an acquired operation to perform within projections.

     As required under Statement of Financial Accounting Standards No. 121,
     using all information available, the Company determined that certain assets
     within Crescent Machinery, and Rosestar had carrying values which exceed
     the estimated undiscounted cash flows of those assets. Goodwill impairment
     on Crescent Machinery is due to the recent bankruptcy filing and to the
     closure of certain locations. Goodwill impairment on Rosestar is due to the
     transfer of the hospitality properties to Crescent Partnership pursuant to
     the February 14, 2002 Settlement Agreement. As a result, the Company
     recorded an adjustment of $13.5 million and $1.0 million as "impairment of
     assets" in the Company's results from operations for the year ended
     December 31, 2001 related to intangible assets at Crescent Machinery and
     Rosestar. The Company will continue to evaluate the assets for impairment
     and adjust such carrying values as necessary.


                                      F-16
<PAGE>


     DEFERRED COMPENSATION ON RESTRICTED SHARES

     Deferred compensation on restricted shares issued to employees is being
     amortized to expense over the vesting period of the restricted shares.

     REVENUE RECOGNITION

     Revenues from equipment rentals under operating leases are recognized as
     the revenue becomes earned according to the provisions of the lease.
     Revenues from full-service hotels and luxury health resorts are recognized
     as services are provided. Club initiation fees and membership conversion
     fees at Desert Mountain Development are deferred and recognized on a
     straight-line basis over the number of months remaining until the Turnover
     Date as defined in the year 2010. Deposits for future services are deferred
     and recognized as revenue in the period services are provided.

     ADVERTISING AND MARKETING COSTS

     Advertising and marketing costs are expensed as incurred. Advertising and
     marketing costs expensed for the years ended December 31, 2001, 2000 and
     1999 were approximately $13.7 million, $14.9 million and $13.0 million.

     MINORITY INTERESTS

     Minority Interests represent the non-voting interests owned by shareholders
     in LandCo, Desert Mountain Development, and CRL, as well as the limited
     partners of COPI Colorado.

     INCOME TAX PROVISION

     Income taxes are provided for the tax effects of transactions reported in
     the financial statements and consist of taxes currently due plus deferred
     taxes related primarily to differences between the treatment of certain
     items for financial statement purposes and the treatment of those items for
     tax purposes. The deferred tax assets and liabilities represent the future
     tax return consequences of those differences, which will either be taxable
     or deductible when the assets and liabilities are recovered or settled.

     RECLASSIFICATIONS

     Certain prior year information has been reclassified to conform to current
     year presentation.

     STOCK BASED COMPENSATION

     The Company measures compensation costs associated with the issue of share
     options using the intrinsic method under which compensation costs related
     to share options issued pursuant to compensatory plans are measured based
     on the difference between the quoted market price of the shares at the
     measurement date (originally the date of grant) and the exercise price and
     charged to expense over the periods during which the grantee performs the
     related services. All share options issued to date by the Company have
     exercise prices equal to the market price of the shares at the dates of
     grant.

     RECENT ACCOUNTING PRONOUNCEMENTS

     In June 2001, the Financial Accounting Standards Board issued Statements of
     Financial Accounting Standards ("SFAS") No. 141, Business Combinations, and
     No. 142, Goodwill and other Intangible Assets, effective for fiscal years
     beginning after December 15, 2001. Under the new rules, goodwill and
     intangible assets deemed to have indefinite lives will no longer be
     amortized but will be subject to annual impairment tests in accordance with
     the Statements. Other intangible assets will continue to be amortized over
     their useful lives. The Company will apply the new rules on accounting for
     goodwill and other intangible assets beginning in the first quarter 2002.
     The Company will perform the first of the required impairment test of
     goodwill and indefinite lived intangible assets as


                                      F-17
<PAGE>


     of January 1, 2002 and has not yet determined what the effect of these
     tests will be on the earnings and financial position of the Company.

     As of January 1, 2001, the Company was required to adopt SFAS No. 133, as
     amended by SFAS No. 138. SFAS No. 133, Accounting for Derivative
     Instruments and Hedging Activities, provides that all derivative
     instruments be recognized as either assets or liabilities depending on the
     rights or obligations under the contract and that all derivative
     instruments be measured at fair value. Upon adoption, the Company was
     required to record the net accumulated comprehensive loss related to its
     investment in Magellan warrants as a charge in the statement of operations.
     Based on the value of the warrants on December 31, 2000, the Company
     expensed $9.5 million on January 1, 2001 as a cumulative effect of change
     in accounting principle. From January 1, 2001 forward, the Company records
     changes in the fair value of these warrants in the statement of operations
     as investment income (loss). For the year ended December 31, 2001, the
     Company recorded changes in the fair value of these warrants, as calculated
     using the Black-Scholes pricing model, as investment income of $1.1 million
     in the Company's statement of operations. See Note 15.

     In August 2001, the Financial Accounting Standards Board issued SFAS No.
     144 Accounting for the Impairment or Disposal of Long-Lived Assets which
     supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
     and for Long-Lived Assets to be Disposed Of. It also supersedes the
     accounting and reporting provisions of APB Opinion No. 30, Reporting the
     Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
     and Infrequently Occurring Events and Transactions. SFAS No. 144 retains
     the fundamental provisions of SFAS No. 121 for recognition and measurement
     of the impairment of long-lived assets to be held and used and measurement
     of the long-lived assets to be disposed of by sale, but broadens the
     definition of what constitutes a discontinued operation and how the results
     of a discontinued operation are to be measured and presented. SFAS No. 144
     is effective for fiscal years beginning after December 15, 2001. The
     Company will adopt SFAS No. 144 on January 1, 2002 and believe that this
     adoption will not have a material impact on their results of operations or
     financial position; however, due to the Settlement Agreement discussed in
     Note 3, the Land Development and Hospitality segments will be presented as
     discontinued operations in future financial statements.


3.   SETTLEMENT AGREEMENT:

     On June 28, 2001, Crescent Operating and Crescent Equities entered into an
     asset and stock purchase agreement (the "Purchase Agreement") in which
     Crescent Equities agreed to acquire the Company's hotel operations, land
     development interests and other assets in exchange for $78.4 million.
     Crescent Equities also entered into an agreement, subsequently amended and
     restated as of October 31, 2001, the Capital Agreement, to make a $10.0
     million investment in Crescent Machinery, which, along with capital from a
     third-party investment firm, was expected to put Crescent Machinery on
     solid financial footing. The transactions contemplated by the Purchase
     Agreement and Capital Agreement, called the "Restructuring Proposal" and
     described in the Company's Proxy Statement dated October 29, 2001, relating
     to its 2001 Annual Meeting of Stockholders, also included the future sale
     of the Company's 40% interest in AmeriCold Logistics. The Restructuring
     Proposal was approved by the stockholders of the Company on December 6,
     2001.

     Following the date of the agreements, the results of operations for the
     Company's hotel operations and land development interests declined due to
     the slowdown in the economy. In addition, Crescent Machinery's results of
     operations suffered because of the economic environment and the overall
     reduction in national construction levels that has affected the equipment
     rental and sale business, particularly post September 11, 2001.

     As disclosed in the Annual Meeting Proxy Statement and also in the
     Company's quarterly report on Form 10-Q filed November 14, 2001, Crescent
     Machinery was in payment default on certain major loans from commercial
     lending institutions. Among the conditions to the closing of the
     transactions included in the Restructuring Proposal was the consent of
     Crescent Machinery's secured lenders, including those institutions. As the
     Company stated in its press release regarding the results of the
     stockholders' meeting, Crescent Machinery was negotiating with these
     lenders regarding these defaults and the possible restructuring of the
     loans, but the differences in the positions of the lenders and Crescent
     Machinery were significant and, as a result, management was not optimistic
     that an agreement would be reached with these lenders. Without the consent
     of the lenders, it was unlikely that the Restructuring Proposal would be
     consummated, and any failure by the Company to


                                      F-18
<PAGE>


     consummate the transactions included in the Restructuring Proposal would
     greatly impair the Company's prospects to continue to operate as a going
     concern.

     Crescent Machinery was unable to reach satisfactory agreements with its
     lenders regarding restructuring of the loans. As a result, Crescent Real
     Estate advised the Company that it believed that substantial additional
     capital, beyond the investment called for in the Capital Agreement, would
     have to be made to Crescent Machinery to adequately capitalize Crescent
     Machinery and satisfy concerns of Crescent Machinery's lenders. Crescent
     Real Estate announced that it was "unwilling to make this non-core
     investment."

     On January 23, 2002, Crescent Real Estate terminated the Purchase Agreement
     pursuant to which Crescent Real Estate would have acquired the Crescent
     Operating hotel operations, the Crescent Operating land development
     interests and other assets. On February 4, 2002, Crescent Real Estate
     terminated the Capital Agreement relating to its planned investment in
     Crescent Machinery.

     On February 6, 2002, Crescent Machinery Company filed a voluntary petition
     under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court
     for the Northern District of Texas in Fort Worth, Texas.

     On February 13, 2002, Crescent Real Estate delivered default notices to
     Crescent Operating relating to approximately $49.0 million of unpaid rent
     and approximately $76.2 million of principal and accrued interest due to
     Crescent Real Estate under certain secured loans.

     On February 14, 2002, Crescent Operating entered into a Settlement
     Agreement (the "Settlement Agreement") with Crescent Real Estate. The
     Settlement Agreement also provided the basis for Crescent Operating to file
     a prepackaged bankruptcy plan that the Company believes will provide for a
     limited recovery to its stockholders. Pursuant to the Settlement Agreement,
     Crescent Operating has transferred the following assets to Crescent Real
     Estate:

     o    all of its hotel operations, in lieu of foreclosure, on February 14,
          2002 in exchange for a $23.6 million reduction in its rent obligations
          to Crescent Real Estate;

     o    all of its land development interests, through a strict foreclosure,
          on February 14, 2002, and March 22, 2002, in exchange for a $40.1
          million reduction of its debt obligations to Crescent Real Estate.

     In addition, the Settlement Agreement provides as follows:

     o    Crescent Real Estate will make sufficient funds available to Crescent
          Operating to pay all of Crescent Operating's creditors, other than
          Crescent Real Estate, in full and to cover the expenses of
          implementing the Settlement Agreement and seeking to confirm the
          bankruptcy plan. To facilitate repayment of $15.0 million, plus
          interest, owed to Bank of America, Crescent Real Estate has allowed
          Crescent Operating to secure the Bank of America debt with a pledge of
          Crescent Operating's interest in AmeriCold Logistics, LLC. The
          bankruptcy plan contemplates that the AmeriCold Logistics interest
          will be purchased by a Crescent Real Estate affiliate for a sufficient
          amount to repay the Bank of America debt.

     o    If Crescent Operating's stockholders approve the bankruptcy plan at a
          special meeting of stockholders called for that purpose, Crescent Real
          Estate will issue common shares of Crescent Equities to the Crescent
          Operating stockholders pursuant to the formula contained in the
          bankruptcy plan. If the stockholders of Crescent Operating do not
          accept the bankruptcy plan, they will not receive a distribution of
          common shares of Crescent Real Estate. If the total amount of claims
          and expenses paid by Crescent Real Estate in connection with the
          Crescent Operating bankruptcy and reorganization transactions equals
          or exceeds $16.0 million, the stockholders of Crescent Operating will
          receive no common shares of Crescent Real Estate and will not be
          entitled to reconsider their approval of the bankruptcy plan. Crescent
          Operating stockholders receiving Crescent Real Estate shares will be
          deemed to have released all claims they may have against Crescent
          Operating and Crescent Real Estate and those acting on their behalf
          that arose before the effective date of the plan. If the Crescent
          Operating stockholders do not approve the Crescent Operating
          bankruptcy plan, Crescent Operating will still seek to have that
          bankruptcy plan confirmed by the bankruptcy court. If the bankruptcy
          court confirms the plan, Crescent Operating stockholders will not
          receive common shares of



                                      F-19
<PAGE>


          Crescent Equities and will still cease to be stockholders of Crescent
          Operating on the date the plan becomes effective.

     o    Crescent Operating will cancel all outstanding shares of its common
          stock.

     o    Pursuant to both the Settlement Agreement and the bankruptcy plan,
          Crescent Operating will transfer the remaining assets of Crescent
          Operating at the direction of Crescent Real Estate.


4.   ACQUISITIONS AND DISPOSITIONS:

     Equipment Sales & Leasing

     Effective March 4, 1999, the Company acquired certain assets of Westco
     Tractor & Equipment, Inc. ("Westco"), a company engaged in equipment sales,
     leasing and servicing, located in Santa Rosa, California. The purchase
     price of approximately $2.6 million was comprised of $0.5 million cash and
     the assumption of liabilities of $2.1 million.

     Effective July 1, 1999, the Company acquired all of the stock of E. L.
     Lester and Company ("Lester"), a company engaged in equipment sales,
     leasing and servicing, located in Houston, Texas. The purchase price of
     approximately $17.2 million was comprised of $8.9 million cash, the
     issuance of notes payable by Crescent Operating in the amount of $6.0
     million and the assumption of liabilities of $2.3 million.

     Effective July 1, 1999, the Company acquired all of the stock of Solveson
     Crane Rental, Inc. ("Solveson"), a company engaged in equipment sales,
     leasing and servicing, located in Tracy, California. The purchase price of
     approximately $7.3 million was comprised of $3.0 million cash and the
     assumption of liabilities of $4.3 million.

     In 2001, the Franklin, Indiana, Van Wert, Ohio and Beaumont, Texas Crescent
     Machinery locations were closed and their assets were transferred to other
     locations for utilization.

     On February 6, 2002, Crescent Machinery Company filed a voluntary petition
     under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court
     in Fort Worth, Texas. CMC intends to continue its normal operations in the
     sale, rental and servicing of construction equipment, while attempting to
     reorganize and restructure its debt to emerge a financially stronger and
     more competitive business. CMC plans to continue with business as usual
     during this process, but certain locations will be evaluated and may be
     sold or closed to improve efficiency. Crescent Machinery has already moved
     to close four of its west coast branches immediately and, subject to
     Bankruptcy Court approval, plans to close all its locations outside of
     Texas and Oklahoma in 2002.

     Hospitality

     Effective June 19, 1999, the Company entered into a lease with Crescent
     Real Estate Funding III, L.P. ("Funding III") for the 389-room Renaissance
     Hotel located in Houston, Texas. The lease is for a term of 10 years and
     provides for base rent and percentage rent. Under the lease, Funding III
     may terminate the lease, at its option, for a period of one year under
     certain conditions. The other terms of the lease are generally consistent
     with those in hospitality leases with Crescent Partnership.

     Effective January 31, 2000, Houston Center Athletic Club Venture ("HCAC")
     sold substantially all of its assets to an unrelated party. Through a
     wholly owned subsidiary, the Company received proceeds from the sale of
     $2.4 million resulting in an approximate $1.5 million gain which was
     recognized by Crescent Operating in the first quarter of 2000.

     On November 3, 2000, Crescent Equities completed the sale of the Four
     Seasons Hotel in Houston and, in connection therewith, exercised its right
     under the lease agreement to terminate the lease. As required under the
     lease agreement, Crescent Equities paid the Company the fair market value
     of the remaining term of the lease in the fourth quarter of 2000 which was
     agreed to be $16.6 million and resulted in a gain of $18.3 million (the
     difference primarily consisting of the elimination of the straight-line
     rent liability related to the lease).


                                      F-20
<PAGE>


     On February 14, 2002, the Company transferred all of its interest in the
     Hospitality assets and related liabilities to Crescent Equities as provided
     in the Settlement Agreement.

     Temperature Controlled Logistics

     Effective March 12, 1999, the Company sold 80% of its 5% interest in the
     Temperature Controlled Logistics Partnerships to Crescent Partnership for
     $13.2 million and received the right to require Crescent Partnership to
     purchase the remaining 20% for approximately $3.4 million at any time
     during the next two years, subject to compliance with certain regulatory
     matters. This 5% interest represented a 2% interest in various corporations
     and limited liability companies owned by the Temperature Controlled
     Logistics Partnerships. Crescent Operating, through a wholly owned limited
     liability company, then became a 40% partner of AmeriCold Logistics, a
     newly formed partnership, the remaining 60% of which is owned by Vornado
     Operating, Inc. ("Vornado Operating"). This transaction required a capital
     contribution of approximately $15.5 million from Crescent Operating. As a
     result of the restructuring transaction, the operations formerly associated
     with the Temperature Controlled Logistics Partnerships are now conducted by
     AmeriCold Logistics.

     AmeriCold Logistics leases the refrigerated storage facilities used in its
     business. The leases, as amended, which commenced in March 1999, generally
     have a 15-year term with two five-year renewal options and provide for the
     payment of fixed base rent and percentage rent based on revenues AmeriCold
     Logistics receives from its customers. Fixed base rent is approximately
     $137.0 million per annum through 2003, $139.0 million per annum from 2004
     through 2008 and $141.0 million per annum from 2009 through February 28,
     2014. Percentage rent for each lease is based on a specified percentage of
     revenues in excess of a specified base amount. The aggregate base revenue
     amount under five of the six leases is approximately $350.0 million and the
     weighted average percentage rate is approximately 36% through 2003,
     approximately 38% for the period from 2004 through 2008 and approximately
     40% for the period from 2009 through February 28, 2014. The aggregate base
     revenue amount under the sixth lease is approximately $32.0 million through
     2001, and approximately $26.0 million for the period from 2002 through
     February 28, 2014, and the percentage rate is 24% through 2001, 37.5% for
     the period from 2002 through 2006, 40% from 2007 through 2011 and 41% from
     2012 through February 28, 2014. AmeriCold Logistics recognized $156.3
     million, $170.6 million and $135.8 million of rent expense for the years
     ended December 31, 2001, December 31, 2000 and from March 11, 1999
     (acquisition date) through December 31, 1999, respectively, which includes,
     effects of straight-lining, rent to parties other than the Landlord and is
     before the waiver of rent discussed below. AmeriCold Logistics is required
     to pay for all costs arising from the operation, maintenance and repair of
     the properties, including all real estate taxes and assessments, utility
     charges, permit fees and insurance premiums, as well as property capital
     expenditures in excess of $5.0 million annually. AmeriCold Logistics has
     the right to defer the payment of 15% of the fixed base rent and all
     percentage rent for up to three years beginning on March 11, 1999 to the
     extent that available cash, as defined in the leases, is insufficient to
     pay such rent. AmeriCold Logistics deferred rent obligations were $25.4
     million, $19.0 million and $5.4 million as of December 31, 2001, December
     31, 2000 and December 31, 1999, respectively.

     Under the terms of the partnership agreement for AmeriCold Logistics,
     Vornado Operating, Inc. ("Vornado Operating") has the right to make all
     decisions relating to the management and operations of AmeriCold Logistics
     other than certain major decisions that require the approval of both the
     Company and Vornado Operating. Vornado Operating must obtain Crescent
     Operating's approval for specified matters involving AmeriCold Logistics,
     including approval of the annual budget, requiring specified capital
     contributions, entering into specified new leases or amending existing
     leases, selling or acquiring specified assets and any sale, liquidation or
     merger of AmeriCold Logistics. If the partners fail to reach an agreement
     on such matters during the period from November 1, 2000 through October 30,
     2007, Vornado Operating may set a price at which it commits to either buy
     Crescent Operating's investment, or sell its own, and Crescent Operating
     will decide whether to buy or sell at that price. If the partners fail to
     reach agreement on such matters after October 30, 2007, either party may
     set a price at which it commits to either buy the other party's investment,
     or sell its own, and the other party will decide whether to buy or sell at
     that price. Neither partner may transfer its rights or interest in the
     partnership without the consent of the other partner. The partnership will
     continue for a term through October 30, 2027, except as the partners may
     otherwise agree.


                                      F-21
<PAGE>


     During the second quarter of 2000, the Company restructured its business
     venture with Vornado Operating, Inc. and Crescent Equities to pursue a
     business-to-business internet opportunity relating to the Temperature
     Controlled Logistics business. As a result of the restructuring, the
     Company was relieved of its previously reported obligation to fund initial
     startup costs previously reported, which resulted in net investment income
     of $1.2 million during the second quarter of 2000 and left no basis in the
     investment. In October 2000, operations were ceased after Transportal
     failed to secure outside funding. The closure has no impact on the
     financial statements of Crescent Operating, and the Company has no
     obligation for future cash funding.

     On December 1, 2000, the Company exercised a preexisting put option to sell
     the remaining 20% of its 5% interest in the Temperature Controlled
     Logistics Partnerships to Crescent Partnership for $4.1 million, which
     resulted in a gain of $0.7 million recognized in the fourth quarter of
     2000.

     On February 22, 2001, the AmeriCold Logistics leases were restructured to,
     among other things, (i) reduce 2001's contractual rent to $146.0 million
     ($14.5 million less than 2000's contractual rent), (ii) reduce 2002's
     contractual rent to $150.0 million (plus contingent rent in certain
     circumstances), (iii) increase the Landlord's share of annual maintenance
     capital expenditures by $4.5 million to $9.5 million effective January 1,
     2000 and (iv) extend the deferred rent period to December 31, 2003 from
     March 11, 2002.

     In the fourth quarter ended December 31, 2001, AmeriCold Logistics reversed
     $25.5 million of the rent expense recorded for 2001 resulting from
     Temperature Controlled Logistics Partnerships waiving of its rights to
     collect this portion of the rent. Further, Temperature Controlled Logistics
     Partnerships waived $14.3 million of the rent expense recorded by AmeriCold
     Logistics for 2000 which AmeriCold Logistics recorded as income in the
     fourth quarter ended December 31, 2001. The aggregate amount waived by the
     Landlord of $39.8 million represents a portion of the rent due under the
     leases which AmeriCold Logistics deferred in such years.

     On January 23, 2002, the leases with Temperature Controlled Logistics
     Partnerships were restructured to consolidate four of the non-encumbered
     leases into one non-encumbered lease. The restructuring did not affect
     total contractual rent due under the combined leases.

     On February 14, 2002, the Company agreed in the Settlement Agreement to
     sell its interest in AmeriCold Logistics to an affiliate of Crescent
     Equities for approximately $15.0 million to $15.5 million. It is
     anticipated that the interest in AmeriCold Logistics will be transferred
     during 2002.

     Land Development

     Effective September 11, 1998, the Company and Gerald W. Haddock, John C.
     Goff and Harry H. Frampton, III (collectively, the "CRDI Sellers") entered
     into a partnership agreement (the "Partnership Agreement") to form COPI
     Colorado. COPI Colorado's purpose is to hold and manage the voting stock of
     CRDI (and, consequently, to manage CRDI) and to invest in shares of
     Crescent Operating common stock. In September, 1998, the Company
     contributed to COPI Colorado $9.0 million in cash in exchange for a 50%
     general partner interest in COPI Colorado, and each CRDI Seller contributed
     to COPI Colorado approximately 667 shares of CRDI voting stock, which the
     CRDI Sellers owned individually, in exchange for an approximately 16.67%
     limited partner interest in COPI Colorado; as a result and until January
     2000, the Company owned a 50% managing interest in COPI Colorado and the
     CRDI Sellers collectively owned a 50% investment interest in COPI Colorado.

     In accordance with an agreement between Gerald Haddock and the Company,
     COPI Colorado redeemed the limited partnership interest of Mr. Haddock, the
     Company's former Chief Executive Officer and President, in January 2000.
     COPI Colorado paid Mr. Haddock approximately $2.8 million for his
     approximate 16.67% limited partner interest (determined from an independent
     appraisal of the value of COPI Colorado). See Note 16.

     On April 29, 1999, a partnership in which CRDI has a 64% economic interest
     finalized the purchase of Riverfront Park (previously known as "The
     Commons"), a master planned residential development on 23 acres in the
     Central Platte Valley near downtown Denver, Colorado, for approximately
     $25.0 million. The acreage is in close proximity to several major
     entertainment and recreational facilities, including, Coors Field (home to
     the Major League Baseball's Colorado Rockies), Elitch Gardens (an amusement
     park), the new Pepsi Center (home


                                      F-22
<PAGE>


     to the National Hockey League's Colorado Avalanche and the National
     Basketball Association's Denver Nuggets) and the new downtown Commons Park.
     An adjacent 28 acres is expected to be commercially developed by another
     company, thus providing a major mixed-use community adjacent to the lower
     downtown area of Denver.

     On August 27, 1999 and October 27, 1999, the Company sold its investments
     in Hillwood and Corporate Arena, respectively, for an aggregate sales price
     of approximately $1.4 million. Together, the sales resulted in an
     approximate $0.2 million gain in 1999.

     On September 22, 2000, a limited partnership in which CRDI is a majority
     limited partner acquired a majority interest in the Northstar-at-Tahoe
     resort, a premier, up-scale ski resort located in North Lake Tahoe,
     California. The development is expected to span ten years and include an
     enhanced core village with new restaurants and retail shops, hotels and
     spas, and an extensive residential product mix of over 2,000 condominium
     and townhome units.

     In December 2000, CRDI transferred its investment in a real estate company
     that specializes in the management of resort properties in Colorado, Utah,
     South Carolina and Montana to CDMC II. CDMC II is a newly formed entity
     having the same owners, board of directors and officers as CRDI. In
     connection with that transfer, CDMC II assumed the indebtedness of CRDI
     incurred in connection with that investment, all of which is owed to
     Crescent Partnership.

     On February 14, 2002, the Company transferred all of its interest in the
     Land Development assets and related liabilities to Crescent Equities as
     provided in the Settlement Agreement.

     Healthcare

     On September 9, 1999, Crescent Operating, Magellan, Crescent Partnership
     and CBHS completed a recapitalization of CBHS and restructuring of the
     relationships among the parties. In connection with the restructuring,
     Magellan transferred its remaining hospital-based assets (including Charter
     Advantage, Charter Franchise Services, LLC, the call center assets, the
     Charter name and related intellectual property and certain other assets) to
     CBHS, and released CBHS from all accrued and future franchise fees. As a
     result of the transfer, Magellan is no longer obligated to provide
     franchise services to CBHS. Magellan also transferred 80% of its CBHS
     common membership interest and all of its CBHS preferred membership
     interest to CBHS, leaving Magellan with a 10% common membership interest.
     Simultaneously, Crescent Operating reorganized its holdings leaving
     Crescent Operating with a 25% common membership interest and 100% of the
     preferred membership interest in CBHS, and a limited partnership controlled
     by individual officers of Crescent Operating and in which Crescent
     Operating owns 100% of the economic interests, with a 65% common membership
     interest in CBHS. Prior to the restructuring, Crescent Operating and
     Magellan each held a 50% common membership interest, and a 50% preferred
     membership interest in CBHS.

     On February 16, 2000, CBHS petitioned for relief under Chapter 11 of the
     United States Bankruptcy Code. Under the protection of the bankruptcy
     court, CBHS is engaged in efforts to sell and liquidate, in a controlled
     fashion, all of its ongoing business. On April 16, 2000, the asset purchase
     agreement to which a newly formed, wholly-owned subsidiary of Crescent
     Operating had agreed to acquire, for $24.5 million, CBHS's core business
     assets used in the operation of 37 behavioral healthcare facilities,
     subject to certain conditions, terminated by its own terms because not all
     of the conditions precedent to closing had been met by that date.

     On December 29, 2000 the Company sold its 25% common interest and its 100%
     preferred membership interest in CBHS, and COPI CBHS Holdings sold its 65%
     common interest in CBHS, to The Rockwood Financial Group, Inc. ("Rockwood")
     for a nominal sum. The Rockwood Financial Group, Inc. is wholly owned by
     Jeffrey L. Stevens, Crescent Operating's Chief Executive Officer, Chief
     Operating Officer and sole director. The sale of CBHS to the Rockwood was
     effected as part of the Company's tax planning strategy. For the year 2000,
     the Company was faced with a potentially large minimum tax liability. The
     Company sold its interest in CBHS in order to trigger a loss that would
     significantly reduce, if not eliminate any minimum tax liability, as CBHS
     was in bankruptcy and liquidation and the interest held by the Company was
     worthless.


                                      F-23
<PAGE>

     Other

     On March 31, 1999, the Company sold its investment in Hicks-Muse Tate &
     Furst II, LP for $8.1 million to an unrelated party. The sale resulted in a
     $0.3 million gain which was recognized in the first quarter of 1999.

     All of the acquisitions were accounted for as purchases and operations have
     been included in the consolidated financial statements of the Company from
     the date that management took over the operational control of the acquired
     entity.


5.   PROPERTY & EQUIPMENT, NET:

     Property and equipment consisted of the following (in thousands):

<Table>
<Caption>
                                                December 31, 2001    December 31, 2000
                                                -----------------    -----------------
<S>                                             <C>                 <C>

Rental equipment (Crescent Machinery) .......   $          88,929    $         124,818
Land and improvements .......................              65,764               65,884
Buildings and improvements ..................              55,376               35,813
Furniture, fixtures, and other equipment ....              22,641               26,756
Construction in progress (DMPLP) ............              14,291                8,650
Transportation equipment ....................               7,275                7,390
                                                -----------------    -----------------
                                                          254,276              269,311
Less accumulated depreciation ...............             (56,540)             (49,572)
                                                -----------------    -----------------
                                                $         197,736    $         219,739
                                                =================    =================
</Table>

6.   INVESTMENTS:

     Investments consisted of the following (in thousands):

<Table>
<Caption>
                                         December 31, 2001   December 31, 2000
                                         -----------------   -----------------
<S>                                      <C>                 <C>

Investment in Landevco ...............   $          43,577   $          44,027
Investment in CRDI projects ..........               8,124               8,170
Investment in CR License .............               5,012               5,485
Investment in Magellan warrants ......               4,127               2,992
Investment in AmeriCold Logistics ....                 706               4,417
Investment in CR Las Vegas ...........                 450               5,305
                                         -----------------   -----------------
                                         $          61,996   $          70,396
                                         =================   =================
</Table>

     Investment income (loss) consisted of the following (in thousands):

<Table>
<Caption>
                                         Year Ended          Year Ended           Year Ended
                                      December 31, 2001   December 31, 2000   December 31, 1999
                                      -----------------   -----------------   -----------------
<S>                                  <C>                <C>                <C>

Change in fair value of Magellan
warrants ..........................   $           1,135   $              --   $              --
Gain on sale of HCAC ..............                  --               1,563                  --
Gain on sale of CSI and CSII ......                  --                 722               1,493
Hicks-Muse income .................                  --                  --                 239
Gain on sale of Corporate Arena ...                  --                  --                 158
                                      -----------------   -----------------   -----------------
                                      $           1,135   $           2,285   $           1,890
                                      =================   =================   =================
</Table>



                                      F-24
<PAGE>

     Equity in earnings (loss) of unconsolidated subsidiaries consisted of the
following (in thousands):

<Table>
<Caption>
                                                 Year Ended           Year Ended          Year Ended
                                             December 31, 2001    December 31, 2000    December 31, 1999
                                             -----------------    -----------------    -----------------
<S>                                          <C>                  <C>                  <C>

Equity in income of Landevco .............   $          35,706    $          28,250    $          19,351
Equity in income of TWOC .................               2,494                4,485                  886
Equity in income (loss) of Transportal
Network ..................................                  --                  375                 (395)
Equity in income of TCLP .................                  --                   40                  325
Equity in income of HCAC .................                  --                    7                  296
Equity in income (loss) of
CRDI Projects ............................                (297)               2,217                3,431
Equity in loss of CR License .............                (473)                (311)                (203)
Equity in loss of AmeriCold Logistics ....              (2,275)              (7,374)              (3,698)
Equity in loss of CR Las Vegas, LLC ......              (4,075)              (1,709)                (944)
                                             -----------------    -----------------    -----------------
                                             $          31,080    $          25,980    $          19,049
                                             =================    =================    =================
</Table>

7.   INTANGIBLE ASSETS:

     Intangible assets, net of accumulated amortization, consisted of the
     following (in thousands):

<Table>
<Caption>
                                           December 31, 2001   December 31, 2000
                                           -----------------   -----------------
<S>                                        <C>                 <C>

Goodwill, net - Crescent Machinery .....   $              --   $          14,011
Goodwill, net - Rosestar ...............                  --               1,202
Goodwill, net - COPI Colorado / CDMC ...              14,664              45,077
Membership intangible, net - DMPLP .....              27,488              28,550
                                           -----------------   -----------------
                                           $          42,152   $          88,840
                                           =================   =================
</Table>

     Accumulated amortization as of December 31, 2001 and 2000 was $36,344 and
     $39,135, respectively.


8.   ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

     Accounts payable and accrued expenses consisted of the following (in
     thousands):

<Table>
<Caption>
                                            December 31, 2001   December 31, 2000
                                            -----------------   -----------------
<S>                                        <C>                  <C>

Accounts payable ........................   $          34,015   $          54,195
Accrued taxes ...........................              10,506              13,948
Accrued interest ........................              10,390               3,027
Accrued salaries and bonuses ............               9,195               9,139
Deferred liabilities ....................               4,174               4,180
Property management payable .............               1,033               3,947
Land development construction accrual ...               1,932               1,987
Other accrued expenses ..................               9,840               9,586
                                            -----------------   -----------------
                                            $          81,085   $         100,009
                                            =================   =================
</Table>




                                      F-25
<PAGE>



9.   OTHER LIABILITIES:

     Other liabilities consisted of the following (in thousands):

<Table>
<Caption>
                                                 December 31, 2001   December 31, 2000
                                                 -----------------   -----------------
<S>                                              <C>                 <C>

Deferred revenue .............................   $          71,330   $          69,265
Straight line hospitality rent adjustment ....               4,750               3,677
Other ........................................              12,725               5,475
                                                 -----------------   -----------------
                                                 $          88,805   $          78,417
                                                 =================   =================
</Table>


10.  LONG-TERM DEBT:

     The Company's long-term debt facilities are composed of (i) corporate and
     wholly owned debt, and (ii) non wholly owned debt. Corporate and wholly
     owned debt relates to debt facilities at the Crescent Operating level or
     owed by entities which are owned 100% by Crescent Operating. Non wholly
     owned debt represents non-recourse debt owed by entities which are
     consolidated in the Company's financial statements but are not 100% owned
     by the Company; the Company's economic investment in these entities is 6%
     or less. Following is a summary of the Company's debt financing (amounts in
     thousands):

<Table>
<Caption>
                                                                                  December 31, 2001     December 31, 2000
                                                                                  -----------------     -----------------
<S>                                                                               <C>                  <C>
     LONG-TERM DEBT - CORPORATE AND WHOLLY OWNED SUBSIDIARIES

Equipment notes payable to finance companies due 2002, payments of
principal and interest due monthly, bear interest from 4.5% to 9.5%,
collateralized by equipment (Crescent Machinery) (in default) .................   $           80,683   $          115,091

Floor plan debt payable, three to twelve month terms at 0%
interest (Crescent Machinery) (in default) ....................................                4,190               12,632

Line of credit in the amount of $19.5 million payable to Crescent
Partnership due May 2002, bears interest at 9%, payments of interest only
due quarterly, cross collateralized and cross-defaulted with the Company's
other borrowing from Crescent Partnership (Crescent Operating)(in default) ....               22,025               19,949

Line of credit in the amount of $17.2 million payable to Crescent
Partnership due the later of May 2002 or five years after the last draw (in
no event shall the maturity date be later than June 2007), bears interest
at 12%, payments of interest only due quarterly, collateralized, to the
extent not prohibited by pre-existing arrangements, by a first lien on the
assets which the Company now owns or may acquire in the future (Crescent
Operating) (in default) .......................................................               20,205               17,727

Note payable to Crescent Partnership due May 2002, bears interest at 12%,
payments of principal and interest due quarterly, collateralized, to the
extent not prohibited by pre-existing arrangements, by a first lien on the
assets which the Company now owns or may acquire in the future (Crescent
Operating)(in default) ........................................................               16,238               14,247
</Table>



                                   F-26
<PAGE>


<Table>
<S>                                                                               <C>                  <C>
Line of credit in the amount of $15.0 million payable to Bank of America
due August 2002, bears interest at LIBOR plus 1% (3.4% and 7.0% at
December 31, 2001 and December 31, 2000, respectively), payments of
interest only due monthly (Crescent Operating) ................................               15,000               15,000

Note payable to Crescent Partnership due May 2002, bears interest at 12%,
payments of interest only due quarterly, collateralized by a first lien on
the assets which the Company now owns or may acquire in the future
(Crescent Operating) (in default) .............................................               10,572                9,276

Notes payable to the sellers of E. L. Lester and Company due July 1, 2003,
bear interest at 7.5%, payments of principal and interest due semi-annually,
collateralized by stock of Lester (Crescent Operating) ........................                2,463                3,957

Note payable to Crescent Partnership maturing August 2003, bears interest
at 10.75%, payments of principal and interest due monthly, collateralized
by a deed of trust for certain personal property and certain real property
(Rosestar) ....................................................................                  749                1,106

Notes payable to the sellers of Harvey Equipment due July 31, 2002, bear
interest at 8%, payments of principal and interest due semi-annually (Crescent
Operating) ....................................................................                  324                  625

Note payable to Crescent Partnership maturing August 2003, bears interest
at 10.75%, payments of principal and interest due monthly, collateralized
by a deed of trust in certain real property and certain personal property
(Rosestar) ....................................................................                  203                  299

Note payable to Crescent Partnership due November 2006, bears interest at
7.5%, payments of interest only due annually (Rosestar) .......................                  191                  191

                                                                                  ------------------   ------------------
     Total debt - corporate and wholly owned subsidiaries .....................              172,843              210,100
                                                                                  ==================   ==================
 LONG-TERM DEBT - NON WHOLLY OWNED SUBSIDIARIES

Construction loans for various East West Resort Development partnership
projects, maturing through 2003, bear interest from 4.4% to 11.3%, payments
of principal and interest or interest only payable monthly, collateralized
by deeds of trust, security agreements and a first lien on the related
assets (CRDI) .................................................................              136,620               62,316

Line of credit in the amount of $100.0 million payable to Crescent
Partnership, due September 2008, bearing interest at 11.5%, principal and
interest payments due as distributions are received, collateralized by
CRDI's interests in East West Resort Development partnerships, East West
Resorts LLC, and other CRDI property (CRDI) ...................................               72,250               32,155
</Table>



                                   F-27
<PAGE>


<Table>
<S>                                                                               <C>                  <C>
Junior note payable to Crescent Partnership maturing December 2010, bears
interest at 14%, payments of principal and interest due quarterly based on
sales proceeds from DMPLP, collateralized by land, improvements and
equipment owned by DMPLP(DMPLP) ...............................................               59,000               59,000

Line of credit in the amount of $56.2 million payable to Crescent
Partnership due August 2004, bears interest at 11.5% with principal and
interest payments due as distributions from projects are received, as
defined by the applicable credit agreement, collateralized by CRDI's
interests in East West Resort Development partnerships, East West Resorts,
LLC, and other CRDI property (CRDI) ...........................................               48,354               39,342

Line of credit in the amount of $70.0 million payable to Crescent
Partnership due December 2006, bears interest at 11.5% with principal and
interest payments due as distributions from projects are received, as
defined by the applicable credit agreement, collateralized by CRDI's
interests in East West Resort Development partnerships, East West Resorts,
LLC, and other CRDI property (CRDI) ...........................................               36,571                   --

Line of credit in the amount of $50.0 million payable to National Bank of
Arizona due November 2003, bears interest at rates from prime to prime plus
1% (4.75% to 5.75% and 9.5% to 10.5% at December 31, 2001 and 2000,
respectively), payments of interest only due monthly, collateralized by
certain land owned by DMPLP, deeds of trusts on lots sold and home
construction (DMPLP) ..........................................................               29,910                9,808

Line of credit in the amount of $40.0 million payable to Crescent
Partnership due December 2006, bears interest at 11.5% with principal and
interest payments due as distributions from projects are received, as
defined by the applicable credit agreement, collateralized by CRDI's
interests in East West Resort Development partnerships, East West Resorts
LLC, and other CRDI property (CRDI) ...........................................               23,396               33,903

Line of credit in the amount of $7.0 million payable to Crescent
Partnership due August 2003, bears interest at 12% with principal and
interest payments due as distributions are received, collateralized by a
first lien on the assets which the Company now owns or may acquire in the
future (CRL) ..................................................................                7,000                7,000

Note payable to Crescent Partnership maturing December 2002, bears interest
at 10%, payments of interest due quarterly(DMPLP) .............................                1,000                   --

Term note in the amount of $0.2 million payable to Crescent Partnership,
due August 2003, bears interest at 12% with principal and interest payments
due as distributions are received, collateralized by a first lien on the
assets which the Company now owns or may acquire in the future (CRL) ..........                  166                  166
</Table>


                                   F-28
<PAGE>


<Table>
<S>                                                                               <C>                  <C>
Line of credit in the amount of $22.9 million payable to Crescent
Partnership due January 2003, bears interest at 12.0%, principal and
interest payments due as distributions from projects are received, as
defined by the applicable credit agreement, collateralized by CRDI's
interests in East West Resort Development partnerships, East West Resorts
LLC, and other CRDI property (CRDI) ...........................................                   --               17,379

Note payable to Crescent Partnership maturing June 2005, bears interest at
12%, with payments of interest only due quarterly and payments of principal
payable annually in accordance with an increasing amortization schedule,
collateralized by CRDI's interests in East West Resort Development
partnerships, East West Resorts LLC and other CRDI property (CRDI) ............                   --                2,348

                                                                                  ------------------   ------------------

               Total debt - non wholly owned subsidiaries .....................              414,267              263,417
                                                                                  ------------------   ------------------

               Total long-term debt ...........................................   $          587,110   $          473,517
                                                                                  ==================   ==================

     Current portion of long-term debt - CEI ..................................   $           74,634   $           17,023

     Current portion of long-term debt ........................................              203,039               78,104

     Long-term debt - CEI, net of current portion .............................              243,286              242,666

     Long-term debt, net of current portion ...................................               66,151              135,724
                                                                                  ------------------   ------------------

               Total long-term debt ...........................................   $          587,110   $          473,517
                                                                                  ==================   ==================
</Table>

    The weighted average interest rate on long-term debt at December 31, 2001
    was approximately 11.0%. Substantially all of the Company's assets are
    pledged as collateral under various debt agreements. Payment of dividends on
    Crescent Operating common stock is prohibited under certain of the debt
    agreements. The debt agreements contain certain reporting requirements and
    financial covenants, including requirements that the Company maintain
    certain financial ratios. As of December 31, 2001, the Company had not
    complied with all debt covenants. The Company has modified certain debt
    agreements with Crescent Equities extending the timing of principal and
    interest payments until December 31, 2001. Interest payments accrued but
    deferred as of December 31, 2001 of $6.4 million is included in Accounts
    payable and accrued expenses - CEI within the Company's consolidated
    financial statements. On February 13, 2002, the Company received notice from
    CEI that it was in default of its loan agreements covering approximately
    $76.2 million of principal and accrued interest. On February 14, 2002, the
    Company entered into the Settlement Agreement whereby the Company
    transferred to Crescent Equities its assets related to the hospitality
    business for extinguishment of $23.6 million in deferred rent and allowed
    CEI to foreclose on its equity interests in the residential land development
    entities for extinguishment of indebtedness of $40.1 million in notes
    payable. Along with the transfer of the equity interests in land
    development, all non wholly owned debt, totaling $414.3 million at December
    31, 2001, will no longer be reported in the Company's financial statements -
    (See Note 3 - Settlement Agreement).

    As of December 31, 2001, combined aggregate principal maturities of all
    long-term debt were as follows (in thousands):

<Table>
<S>                                                                <C>

2002 ............................................................  $    277,673
2003 ............................................................        69,455
2004 ............................................................        51,396
2005 ............................................................         2,137
2006 ............................................................        30,354
Thereafter ......................................................       156,095
                                                                   ------------
    Total .......................................................  $    587,110
                                                                   ============
</Table>


                                   F-29

<PAGE>



11.  SHAREHOLDERS' EQUITY:

     Common Stock

     The Company's authorized capital stock consists of 10.0 million shares of
     preferred stock, par value $0.01 per share and 22.5 million shares of
     common stock, par value $0.01 per share. As of December 31, 2001, there
     were 11,490,015 shares of common stock issued and no shares of preferred
     stock issued.

     Preferred Share Purchase Rights

     The Board of Directors has adopted a rights plan that provides that each
     holder of Crescent Operating common stock also receives a right to purchase
     from the Company one-hundredth of a share of Series A Junior Preferred
     Stock, par value $0.01, at a price of $5.00 per share, subject to
     adjustment. These rights can only be exercised in certain events and are
     intended to provide the Company certain anti-takeover protection. The
     Company had reserved 225,000 shares of Series A Junior Preferred Stock for
     this plan.

     Warrants

     In conjunction with the acquisition of a 50% member interest in CBHS, the
     Company issued warrants to acquire 282,508 shares of Crescent Operating
     common stock at an exercise price of $18.29 per share.

     Treasury Stock

     As of December 31, 2001, COPI Colorado had purchased 1,102,530 million
     shares of Crescent Operating common stock, which has been recorded as
     treasury stock, at a total purchase price of approximately $4.3 million.
     The average price paid, including broker commissions, was $3.88 per share.

     On February 13, 2002, in anticipation of the Company's entering into the
     Settlement Agreement (See Note 3 - Settlement Agreement) - pursuant to
     which the Company transferred its 60% general partnership interest in COPI
     Colorado to Crescent Partnership - the partners of COPI Colorado caused it
     to distribute among its partners, in accordance with their respective
     ownership percentage, all of the shares of the Company's stock it held.
     Messrs. Goff and Frampton each received 220,506 shares, while the Company
     received 661,518 shares.


12.  STOCK OPTION PLANS:

     The Company has two stock incentive plans, the 1997 Amended Stock Incentive
     Plan (the "Amended Plan") and the 1997 Management Stock Incentive Plan (the
     "Management Plan").

     The Amended Plan, effective May 8, 1997, initially established the maximum
     number of options and/or shares of restricted stock that the Company may
     grant at 1.0 million shares. The maximum aggregate number of shares
     issuable under the Amended Plan shall increase automatically on January 1
     of each year by an amount equal to 8.5% of the increase in the number of
     shares of common stock outstanding since January 1 of the preceding year,
     subject to certain adjustment provisions. As of December 31, 2001, the
     number of shares the Company may have outstanding under the Amended Plan is
     1,019,694. All stock options granted by the Company are out-of-the-money
     and will not have value under the Settlement Agreement or in bankruptcy.

     On May 13, 1997, each holder of shares of restricted stock in Crescent
     Equities or options in Crescent Equities or Crescent Partnership was
     granted an equivalent number of shares of restricted stock or options in
     Crescent Operating, based on a ratio of one share of restricted stock or
     option to purchase Crescent Operating common stock for each 10 shares of
     restricted stock in Crescent Equities or options for Crescent Equities
     common shares, and one option to purchase Crescent Operating common stock
     for each 5 options for units in Crescent Partnership. Under the Amended
     Plan, the Company has granted 857,185 options and 10,000 restricted shares,
     net of forfeitures, through December 31, 2001.



                                   F-30
<PAGE>

     The Management Plan provides that the maximum number of options and/or
     shares of restricted stock that the Company may grant to employees,
     officers, directors or consultants is 1.0 million shares. Under the
     Management Plan, the Company has granted 485,000 options and 81,328
     restricted shares, net of forfeitures through December 31, 2001.

     Under both Plans, options are granted at a price no less than the market
     value of the shares on the date of grant, vest over a period determined by
     the Board of Directors, and expire ten years from the date of grant. The
     Company has reserved 586,181 shares for future options, warrants and
     restricted shares.

     A summary of the stock option status of the Company's Amended and
     Management Plans as of December 31, 2001 and changes during the periods
     then ended is presented in the table below:

<Table>
<Caption>
                                                        Weighted Average
                                           Options       Exercise Price
                                         ------------   ----------------
<S>                                     <C>             <C>

Outstanding as of December 31, 1998 ....        864,344    $       2.52
   Granted .............................        615,400            3.13
   Exercised ...........................         (7,210)           0.99
   Forfeited ...........................       (126,342)           2.20
                                           ------------    ------------
Outstanding as of December 31, 1999 ....      1,346,192            2.84
   Granted .............................             --              --
   Exercised ...........................             --              --
   Forfeited ...........................        (26,358)           3.92
                                           ------------    ------------
Outstanding as of December 31, 2000 ....      1,319,834            2.81
   Granted .............................             --              --
   Exercised ...........................             --              --
   Forfeited ...........................        (49,210)           3.82
                                           ------------    ------------
Outstanding as of December 31, 2001 ....      1,270,624    $       2.77
                                           ============    ============

Exercisable as of December 31, 2001 ....      1,270,624    $       2.77
</Table>

     Exercise prices, number of shares and the weighted-average remaining
     contractual life ("Average Life") at December 31, 2001 were as follows:

<Table>
<Caption>
                      Options Outstanding          Options Exercisable
                    -----------------------    ---------------------------
Exercise Price       Number    Average Life       Number      Average Life
----------------    --------   ------------    -----------    ------------
<S>                 <C>        <C>             <C>            <C>

$  0.99              717,034     3 years          717,034        3 years
$  2.50 -  5.44      485,000     8 years          485,000        8 years
$ 15.50 - 20.50       68,600     6 years           68,600        6 years
</Table>

     The Company applies APB No. 25 in accounting for options granted pursuant
     to the Amended Plan and the Management Plan (collectively, the "Plans").
     Accordingly, no compensation cost has been recognized for the Plans. Had
     compensation cost for the Plans been determined based on the fair market
     value at the grant dates for awards under the Plans consistent with SFAS
     No. 123, the Company's net income (loss) and earning (loss) per share would
     have been the following pro forma amounts (in thousands). The following pro
     forma amounts may not be representative of the effects on reported net
     income for future years.

<Table>
<Caption>
                                        As Reported                Proforma
                                        -----------   ------------------------------------
                                           2001         2001          2000         1999
                                         --------     --------     ---------     --------
<S>                                      <C>          <C>          <C>           <C>

Net loss (in thousands)...............   $(78,133)    $(78,906)    $  (3,924)    $ (3,004)
Loss per share........................   $  (7.55)    $  (7.63)    $   (0.38)    $  (0.29)
</Table>

     The Company did not grant any options during the years ended December 31,
     2001 and 2000. For the year ended December 31, 1999, the weighted average
     grant date fair value of each option granted was $2.29.


                                   F-31
<PAGE>


     The fair value of each option was estimated at the date of grant using the
     Black-Scholes option-pricing model with the following weighted average
     assumptions for 1999: risk-free interest rates of 5.6%; expected volatility
     of 91.6%; expected dividend yields of 0%; expected lives of five years.


13.  EARNINGS PER SHARE:

     Earnings (loss) per share ("EPS") is calculated as follows (in thousands,
     except per share data):

<Table>
<Caption>
                                      Year ended                         Year ended                          Year ended
                                  December 31, 2001                  December 31, 2000                    December 31, 1999
                       ----------------------------------    ---------------------------------    ---------------------------------
                          Net      Wtd. avg.    Per share      Net      Wtd. avg.    Per share       Net     Wtd. avg.    Per share
                         Loss       shares        amount      Loss        shares       Amount       Loss      Shares        Amount
                       --------    ---------   ----------    -------    ---------   ----------    -------    ---------   ----------
<S>                    <C>         <C>         <C>           <C>        <C>         <C>           <C>        <C>         <C>

Basic EPS ..........   $(78,133)      10,344   $    (7.55)   $(3,690)      10,326   $    (0.36)   $(2,695)      10,363   $    (0.26)

Effect of
Dilutive
Securities:
Stock Options ......         --           --                      --           --                      --           --
                       --------    ---------                 -------    ---------                 -------    ---------

Diluted EPS ........   $(78,133)      10,344   $    (7.55)   $(3,690)      10,326   $    (0.36)   $(2,695)      10,363   $    (0.26)
                       ========    =========   ==========    =======    =========   ==========    =======    =========   ==========
</Table>

     The Company had 1,270,624, 1,319,834 and 1,344,792 options in 2001, 2000
     and 1999, respectively, which were not included in the calculation of
     diluted EPS as they were anti-dilutive.


14.  INCOME TAXES:

     The components of the Company's income tax provision (benefit) were as
     follows (in thousands):

<Table>
<Caption>
                                                  Year Ended           Year Ended           Year Ended
                                               December 31, 2001    December 31, 2000    December 31, 1999
                                               -----------------    -----------------    -----------------
<S>                                            <C>                  <C>                  <C>

Current:
   Federal .................................   $           3,547    $          21,394    $          18,706
   State ...................................                 506                2,551                2,459
                                               -----------------    -----------------    -----------------
                                                           4,053               23,945               21,165
                                               -----------------    -----------------    -----------------
Deferred:
   Federal .................................              (5,816)             (10,673)             (21,556)
   State ...................................                (830)              (1,525)              (3,080)
                                               -----------------    -----------------    -----------------
                                                          (6,646)             (12,198)             (24,636)
                                               -----------------    -----------------    -----------------
    Total income tax provision (benefit) ...   $          (2,593)   $          11,747    $          (3,471)
                                               =================    =================    =================
</Table>


     Reconciliations of the federal statutory income tax rate to the effective
     tax rate were as follows:

<Table>
<Caption>
                                                         Year Ended           Year Ended            Year Ended
                                                     December 31, 2001     December 31, 2000     December 31, 1999
                                                     -----------------     -----------------     -----------------
<S>                                                  <C>                   <C>                   <C>

Federal statutory income tax rate ................                35.0%                 35.0%                 35.0%
State income taxes, net of federal tax benefit ...                 5.0                   5.0                   5.0
Minority interests ...............................                 4.1                  (6.8)                (23.1)
Change in valuation allowance ....................               (34.2)                   --                 (47.1)
Impairment/amortization ..........................                (7.2)                   --                    --
Net operating loss benefit .......................                  --                    --                  (8.5)
Other, net .......................................                 1.2                   1.3                  (5.0)
                                                     -----------------     -----------------     -----------------
    Effective tax rate ...........................                 3.9%                 34.5%                (43.7)%
                                                     =================     =================     =================
</Table>


                                   F-32
<PAGE>



     Significant components of the Company's deferred tax assets and liabilities
     were as follows (in thousands):

<Table>
<Caption>
                                                     December 31,
                                            ----------------------------
                                                2001            2000
                                            ------------    ------------
<S>                                         <C>             <C>

Deferred tax assets:
   Equity in losses of subsidiaries .....   $      1,009    $        817
   Deferred revenue/rentals .............         29,701          33,680
   Accrued expenses .....................            755           3,559
   Inventories ..........................          1,281             894
   Net operating loss carryforwards .....         49,161          26,281
   Other ................................          4,272              83
                                            ------------    ------------
      Deferred tax assets ...............         86,179          65,314
                                            ------------    ------------
Deferred tax liabilities:
   Prepaid expenses .....................         (1,108)         (1,094)
   Depreciable property and equipment ...        (10,507)        (20,181)
   Real estate ..........................        (10,981)         (9,650)
                                            ------------    ------------
      Deferred tax liabilities ..........        (22,596)        (30,925)
                                            ------------    ------------

Valuation allowance .....................        (22,954)           (406)
                                            ------------    ------------
      Net deferred tax assets ...........   $     40,629    $     33,983
                                            ============    ============

Current deferred tax assets .............   $      1,145    $      3,306
Noncurrent deferred tax assets ..........         39,484          30,677
                                            ------------    ------------
      Net deferred tax assets ...........   $     40,629    $     33,983
                                            ============    ============
</Table>

     At December 31, 2001, the Company had net operating loss carryforwards
     ("NOL") of approximately $122.0 million, which will expire after years 2002
     through 2021. A portion of this NOL was acquired subject to restrictive tax
     limitations. Due to the anticipated restructuring of the Company (See Note
     3 - Settlement Agreement), significant amounts of taxable income are
     anticipated to be realized in future years due to cancellation of
     indebtedness and other transactions. Management has not been able to
     conclude that it is more likely than not that all of the deferred tax asset
     will be realized. Accordingly, management has established a $23.0 million
     valuation reserve for that portion of the deferred tax asset which may not
     be realized upon completion of the anticipated restructuring or may be
     subject to capital loss or other limitations. The investments held by the
     Company that are considered to be Controlled Subsidiary Transactions have
     entered into agreements to elect to become Taxable REIT Subsidiaries
     ("TRS") of Crescent Equities for federal income tax reporting purposes
     effective January 1, 2001.


15.  MAGELLAN WARRANTS:

     In connection with the transaction in which Crescent Operating acquired its
     50% membership interest in CBHS, the Company purchased, for $12.5 million,
     warrants to acquire 1,283,311 shares of Magellan common stock for an
     exercise price of $30.00 per share. The Magellan warrants are exercisable
     in varying increments over the period which began on May 31, 1998 and ends
     on May 31, 2009. Prior to January 1, 2001, the fair value of theses
     warrants, using the Black-Scholes pricing model, would be determined and
     the resulting difference between the cost and the estimated fair value of
     the warrants was included in the consolidated financial statements as
     accumulated comprehensive income (loss) for the period ended. As of January
     1, 2001, the Company was required to adopt SFAS No. 133, as amended by SFAS
     No. 138. Upon adoption, the Company was required to record the net
     accumulated comprehensive loss related to its investment in Magellan
     warrants as a charge in the statement of operations. Based on the value of
     the warrants on December 31, 2000, the Company expensed $9.5 million on
     January 1, 2001 as a cumulative effect of change in accounting principle.
     From January 1, 2001 forward, the Company recorded changes in the fair
     value of these warrants in the statement of operations as investment income
     (loss). For the year ended December 31, 2001, the Company recorded changes
     in the fair value of these warrants, as calculated using the Black-Scholes
     pricing model, as


                                      F-33
<PAGE>


     investment income of $1.1 million in the Company's statement of operations.
     See Note 2 for the discussion of the change in accounting for the Magellan
     warrants effective January 1, 2001 as required under SFAS No. 133.


16.  COMMITMENTS AND CONTINGENCIES:

     Lease Commitments

     The Hospitality segment leases eight hotel and resort properties (the
     "Hospitality Properties") from Crescent Equities. Generally, the leases are
     on a triple net basis during 120-month terms and expire from December 2004
     to June 2009. The leases provide for the payment to Crescent Partnership or
     its subsidiaries of (i) base rent, with periodic rent increases, (ii)
     percentage rent based on a percentage of gross room revenues above a
     specified amount, and (iii) a percentage of gross food and beverage
     revenues above a specified amount. Base rental expense under the leases is
     recognized on a straight-line basis over the terms of the respective
     leases. The Land Development segment leases office space, model homes,
     housekeeping and laundry facilities and certain equipment. Pursuant to the
     Settlement Agreement, the Company transferred its hospitality assets and
     equity interests in land development to Crescent Equities in February and
     March 2002, therefore the future lease obligations related to these assets
     and interest are eliminated (See Note 3 - Settlement Agreement). The
     Equipment Sales and Leasing segment leases rental delivery and service
     trucks and land and buildings at various locations.

     Total lease expense for all segments during the periods ended December 31,
     2001, 2000 and 1999 was approximately $66.6 million, $74.2 million and
     $62.5 million, respectively. Included in lease expense was percentage rent
     for the Hospitality Properties for the periods ended December 31, 2001,
     2000 and 1999 of $14.2 million, $19.0 million and $14.7 million,
     respectively. Future minimum lease payments due under such leases as of
     December 31, 2001, were as follows (in thousands):

<Table>
<S>                      <C>
2002 .................   $     50,894
2003 .................         49,913
2004 .................         49,646
2005 .................         40,689
2006 .................         29,757
Thereafter ...........         65,565
                         ------------
                         $    286,464
                         ============
</Table>

     Contingencies

     CBHS became the subject of Chapter 11 bankruptcy proceedings by filing a
     voluntary petition on February 16, 2000, in United States Bankruptcy Court
     for the District of Delaware. Although CBHS is not a subsidiary of Crescent
     Operating, Crescent Operating did own a majority (90%) economic interest in
     CBHS, until December 29, 2000.

     As stated above under "Charter Behavioral Health Systems, LLC", as a result
     of the liquidation of CBHS through bankruptcy, the equity investment in
     CBHS became worthless. On December 29, 2000, as part of Crescent
     Operating's tax planning, Crescent Operating sold its 25% common interest
     and its 100% preferred membership interest in CBHS, and COPI CBHS Holdings
     sold its 65% common interest in CBHS to The Rockwood Financial Group, Inc.
     for a nominal sum.

     Crescent Operating held no funded or liquidated claims against the estate
     of CBHS. Crescent Operating filed proofs of claim against CBHS as a
     protective matter for potential indemnification or contribution for third
     party lawsuits and claims where Crescent Operating is a named defendant
     with CBHS, such as lawsuits based upon alleged WARN Act violations
     purported to have been committed by CBHS and/or its subsidiaries in closing
     behavioral health care facilities in 1999 and 2000. The only such lawsuits
     that have been brought against Crescent Operating arise from WARN Act
     claims. In connection with a settlement entered into among Crescent
     Operating, CBHS, the WARN Act plaintiffs, and others, Crescent Operating's
     indemnification and contribution claims against CBHS based on such lawsuits
     have been resolved. No other claims or lawsuits have been


                                      F-34
<PAGE>


     asserted against Crescent Operating that would give rise to indemnification
     or contribution claims by Crescent Operating against CBHS. In the event
     that, prior to the bar date for asserting claims against Crescent Operating
     in its bankruptcy case, no other claims or lawsuits are asserted against
     Crescent Operating that would give rise to indemnification or contribution
     claims by Crescent Operating against CBHS, Crescent Operating's claims for
     indemnification or contribution in the CBHS case will be disallowed. If any
     such lawsuits or claims are brought, Crescent Operating will pursue its
     indemnification and contribution claims in the CBHS case as appropriate.

     To date, several lawsuits, all of which seek class action certification,
     have been filed against CBHS alleging violations of the WARN Act in the
     closing of certain healthcare facilities in 1999 and 2000. Of those
     lawsuits, three also named Crescent Operating as a defendant, but all three
     of those suits have since been dismissed. An additional suit seeking
     similar relief was also filed against Crescent Operating and Crescent
     Partnership, as well as CBHS.

     A global Stipulation of Settlement of all WARN matters has been reached and
     filed with the United States District Court and Bankruptcy Court for the
     District of Delaware by the WARN Act claimants, CBHS, Crescent Operating,
     Crescent Partnership and the Creditors Committee in the CBHS case. The
     settlement was approved by the District Court by order dated March 18,
     2002. As it applies to Crescent Operating, the settlement provides that
     either Crescent Operating or Crescent Partnership was required to deposit
     into escrow $500,000 for the benefit of the WARN Act claimants and, upon
     the settlement becoming final, Crescent Operating will receive a complete
     release for all WARN Act claims and any other claims in the CBHS case other
     than potential claims from those CBHS employees who have opted out of the
     Settlement. It appears that a maximum of three such employees have opted
     out and none have made claims against Crescent Operating to date. Crescent
     Partnership has paid the $500,000 into escrow. This payment will not be
     included as an expense for the purposes of calculating the aggregate value
     of the Crescent Real Estate shares to be distributed to the Crescent
     Operating shareholders.

     In accordance with an agreement between Gerald Haddock and the Company,
     COPI Colorado redeemed the limited partnership interest of Mr. Haddock, the
     Company's former Chief Executive Officer and President, in January 2000,
     COPI Colorado paid Mr. Haddock approximately $2.6 million for his
     approximate 16.67% limited partner interest (determined from an independent
     appraisal of the value of COPI Colorado). Mr. Haddock has challenged the
     valuation performed by the independent appraiser and the procedures
     followed by the Company with respect to the redemption and valuation
     process. The Company believes that it has complied with all terms of the
     agreement as it relates to the liquidation of Mr. Haddock from the
     partnership. In February 2001, the Company filed a lawsuit seeking a
     declaratory judgment to assist in resolution of the Company's dispute with
     Mr. Haddock. This lawsuit has been settled and the order dismissing the
     suit was filed on January 2, 2002.

     The Company is a party to other legal actions related to certain of its
     investments. Material losses related to such cases have not been deemed
     probable by management after consultation with outside counsel, and no
     financial statement accruals have been made. Based on the status of the
     cases, the Company is unable to determine a range of possible losses, if
     any, that might be incurred in connection with this litigation. The Company
     believes it is not probable that the ultimate resolution of this litigation
     will have a material adverse effect on its financial position and results
     of operations.



                                      F-35
<PAGE>


17.  SUPPLEMENTAL CASH FLOW INFORMATION:

     Supplemental cash flow information is summarized as follows (in thousands):

<Table>
<Caption>
                                                                          December 31,
                                                           ------------------------------------------
                                                               2001           2000           1999
                                                           ------------   ------------   ------------
<S>                                                        <C>            <C>            <C>

Interest paid, net of amounts capitalized ..............   $     28,564   $     29,729   $     27,422
                                                           ============   ============   ============
Income taxes paid ......................................   $     19,468   $     17,293   $     24,755
                                                           ============   ============   ============

 Non-cash investing and financing activities:
    In conjunction with the acquisitions by the
    Company, liabilities were assumed as follows:
         Fair value of assets acquired .................   $         --   $         --   $     43,178

         Stock issued for the acquisitions .............             --             --             --

         Notes payable issued for acquisitions .........             --             --         (6,000)

         Cash paid for the acquisitions ................             --             --        (28,511)
                                                           ------------   ------------   ------------
             Liabilities assumed .......................   $         --   $         --   $      8,667
                                                           ============   ============   ============

    Decrease in intangible and deferred income for
    amount associated with sales of club memberships ...   $      1,062   $      6,387   $      7,172
                                                           ============   ============   ============
</Table>


18.  FAIR VALUES OF FINANCIAL INSTRUMENTS:

     The carrying amount of cash and cash equivalents, accounts receivable,
     inventories, notes receivable, prepaid expenses and other current assets,
     and accounts payable and accrued expenses approximates fair value as of
     December 31, 2001 because of the short maturity of these instruments.
     Similarly, the carrying value of line of credit borrowings approximates
     fair value as of that date because the applicable interest rates fluctuate
     based on published market rates. In the opinion of management, without
     consideration of the financial position of the Company, the interest rates
     associated with the long-term debt approximates the market interest rates
     for this type of instrument, and as such, the carrying values approximate
     fair value at December 31, 2001.


19.  BUSINESS SEGMENT INFORMATION:

     Crescent Operating's assets and operations are located entirely within the
     United States and are comprised of four business segments: (i) Equipment
     Sales and Leasing, (ii) Hospitality, (iii) Temperature Controlled Logistics
     and (iv) Land Development. In addition to these four business segments, the
     Company has grouped its investment in Magellan warrants, its previous
     investment in CBHS, interest expense on corporate debt and general
     corporate overhead costs such as legal and accounting costs, insurance
     costs and corporate salaries as "Other" for segment reporting purposes.
     Because the Company sold its investment in CBHS in 2000 and did not
     recognize income or loss from CBHS in 1999 or 2000, the Company no longer
     reports its operations related to CBHS as a separate segment. The Company
     uses net income as the measure of segment profit or loss.

     The Equipment Sales and Leasing segment is engaged in the sale, leasing and
     service of construction equipment and accessories to the construction and
     utility industries located primarily in seven states. Crescent Machinery's
     leasing activities consist principally of leasing construction equipment
     and accessories under various leases, which are primarily short-term
     operating leases.

     The Hospitality segment generally consists of the operations of the
     Hospitality Properties. Each of such properties is owned by Crescent
     Partnership or its affiliates and all are leased to subsidiaries of the
     Company under long term leases. In addition to these properties, the
     Company also has other investments in CRL.


                                      F-36
<PAGE>


     The Temperature Controlled Logistics segment consists primarily of a 40%
     interest in the operations of AmeriCold Logistics. Prior to reorganization
     of this segment effective March 12, 1999, this segment consisted of a 2%
     economic interest in the operations of The Temperature Controlled Logistics
     Partnerships. AmeriCold Logistics is the largest operator of public
     refrigerated storage space in the country in terms of public storage space
     operated.

     The Land Development segment consists of (i) a 4.65% economic interest in
     Desert Mountain, a master planned, luxury residential and recreational
     community in northern Scottsdale, Arizona, (ii) a 52.5% general partner
     interest in Woodlands Operating, which provides management, advisory,
     landscaping and maintenance services to entities affiliated with Crescent
     Operating and Crescent Equities, (iii) a 2.625% economic interest in
     Landevco, which owns approximately 6,600 acres for commercial and
     residential development as well as a realty office, an athletic center, and
     an interest in a title company and (iv) a 6% economic interest in CRDI,
     whose operations consist principally of investing in partnerships and other
     entities that directly or indirectly develop and manage residential and
     resort properties (primarily in Colorado) or provide related services.

     Business segment information is summarized as follows (in thousands):

<Table>
<Caption>
                                                For the Year Ended   For the Year Ended   For the Year Ended
                                                 December 31, 2001    December 31, 2000    December 31, 1999
                                                ------------------   ------------------   ------------------
<S>                                             <C>                  <C>                  <C>
Revenues:
   Equipment Sales and Leasing ...............   $         118,501    $         142,842    $         136,343
   Hospitality ...............................             226,841              272,157              246,763
   Land Development ..........................             260,999              301,827              334,881
   Temperature Controlled Logistics ..........                  --                   --                   --
   Other .....................................                  --                   --                   --
                                                 -----------------    -----------------    -----------------
   Total revenues ............................   $         606,341    $         716,826    $         717,987
                                                 =================    =================    =================

Income (loss) from operations:
   Equipment Sales and Leasing ...............   $         (46,733)   $           1,729    $           4,737
   Hospitality ...............................             (13,397)              (3,419)               1,286
   Land Development ..........................               4,717               25,542               10,449
   Temperature Controlled Logistics ..........                 (21)                 (27)                  (2)
   Other .....................................              (6,948)              (4,197)              (2,603)
                                                 -----------------    -----------------    -----------------
   Total income (loss) from operations .......   $         (62,382)   $          19,628    $          13,867
                                                 =================    =================    =================

Depreciation and amortization:
   Equipment Sales and Leasing ...............   $          19,193    $          18,254    $          15,041
   Hospitality ...............................               1,563                1,356                1,023
   Land Development ..........................              10,540               18,286               17,811
   Temperature Controlled Logistics ..........                  --                   --                   --
   Other .....................................                 (75)                 (71)                (133)
                                                 -----------------    -----------------    -----------------
   Total depreciation and amortization .......   $          31,221    $          37,825    $          33,742
                                                 =================    =================    =================

Investment income (loss):
   Equipment Sales and Leasing ...............   $              --    $              --    $              --
   Hospitality ...............................                  --                1,563                   --
   Land Development ..........................                  --                   --                  158
   Temperature Controlled Logistics ..........                  --                  722                1,493
   Other .....................................               1,135                   --                  239
                                                 -----------------    -----------------    -----------------
     Total investment income (loss) ..........   $           1,135    $           2,285    $           1,890
                                                 =================    =================    =================

Equity in income (loss) of unconsolidated
 subsidiaries:
   Equipment Sales and Leasing ...............   $              --    $              --    $              --
   Hospitality ...............................              (4,548)              (2,013)                (851)
   Land Development ..........................              37,903               34,952               23,668
   Temperature Controlled Logistics ..........              (2,275)              (6,959)              (3,768)
   Other .....................................                  --                   --                   --
                                                 -----------------    -----------------    -----------------
     Total investment income (loss) ..........   $          31,080    $          25,980    $          19,049
                                                 =================    =================    =================
</Table>



                                      F-37
<PAGE>


<Table>
<S>                                              <C>                  <C>                  <C>
Interest expense, net:
   Equipment Sales and Leasing ...............   $           7,697    $          10,585    $           6,747
   Hospitality ...............................                 907                  805                  618
   Land Development ..........................               9,009               12,672               11,326
   Temperature Controlled Logistics ..........                  --                   --                   --
   Other .....................................               9,116                8,012                8,038
                                                 -----------------    -----------------    -----------------
   Total interest expense, net ...............   $          26,729    $          32,074    $          26,729
                                                 =================    =================    =================

Income tax expense (benefit)
   Equipment Sales and Leasing ...............   $          (3,784)   $          (3,763)   $          (1,081)
   Hospitality ...............................              (3,509)               5,010                  (50)
   Land Development ..........................              11,475               17,888                7,293
   Temperature Controlled Logistics ..........                (919)              (2,506)                (911)
   Other .....................................              (5,856)              (4,882)              (8,722)
                                                 -----------------    -----------------    -----------------
   Total income tax expense (benefit) ........   $          (2,593)   $          11,747    $          (3,471)
                                                 =================    =================    =================

Capital expenditures:
   Equipment Sales and Leasing ...............   $          21,064    $          48,228    $          58,107
   Hospitality ...............................               1,345                1,964                2,388
   Land Development ..........................              15,417               18,427               18,930
   Temperature Controlled Logistics ..........                  --                   --                   --
   Other .....................................                  20                   37                   51
                                                 -----------------    -----------------    -----------------
   Total capital expenditures ................   $          37,846    $          68,656    $          79,476
                                                 =================    =================    =================

Investment in unconsolidated subsidiaries:
   Equipment Sales and Leasing ...............   $              --    $              --    $              --
   Hospitality ...............................               5,462               10,790               12,017
   Land Development ..........................              51,701               52,197               51,220
   Temperature Controlled Logistics ..........                 706                4,417               14,859
   Other .....................................               4,127                2,992                2,374
                                                 -----------------    -----------------    -----------------
   Total investment in
          unconsolidated subsidiaries ........   $          61,996    $          70,396    $          80,470
                                                 =================    =================    =================

Identifiable assets:
   Equipment Sales and Leasing ...............   $          93,647    $         192,151    $         184,964
   Hospitality ...............................              40,416               44,810               44,805
   Land Development ..........................             761,984              643,514              535,911
   Temperature Controlled Logistics ..........               6,015                8,829               16,337
   Other .....................................              43,342               21,224               13,636
                                                 -----------------    -----------------    -----------------
   Total identifiable assets .................   $         945,404    $         910,528    $         795,653
                                                 =================    =================    =================
</Table>


20.  RELATED PARTY TRANSACTIONS:

     INTERCOMPANY AGREEMENT

     Generally, Crescent Operating is involved with Crescent Equities in two
     types of transactions: "Lessee Transactions" and "Controlled Subsidiary
     Transactions". Lessee Transactions are those in which Crescent Operating
     enters into a transaction to lease and operate real property that is owned
     by Crescent Partnership but which cannot be operated by Crescent
     Partnership due to Crescent Equities status as a REIT. Controlled
     Subsidiary Transactions are those in which Crescent Operating invests
     alongside Crescent Partnership in acquisitions where Crescent Operating
     owns all of the voting stock, and Crescent Partnership owns all of the
     non-voting stock of a corporate acquisition vehicle which in turn acquires
     a target business which cannot be operated by Crescent Partnership due to
     Crescent Equities' status as a REIT. The voting stock represents the
     control of the entity being purchased and due to its status as a REIT, up
     until the REIT Modernization Act which became effective January 1, 2001,
     Crescent Equities could not have such ownership.


                                      F-38
<PAGE>


     Crescent Operating and Crescent Partnership have entered into the
     Intercompany Agreement to provide each other with rights to participate in
     the types of transactions mentioned above. The Intercompany Agreement
     provides, subject to certain terms, that Crescent Partnership will provide
     Crescent Operating with a right of first refusal to become the lessee of
     any real property acquired by Crescent Partnership if Crescent Partnership
     determines that, consistent with Crescent Equities' status as a REIT, it is
     required to enter into a "master" lease arrangement. Crescent Operating's
     right of first refusal under the Intercompany Agreement is conditioned upon
     the ability of Crescent Operating and Crescent Partnership to negotiate a
     mutually satisfactory lease arrangement and the determination of Crescent
     Partnership, in its sole discretion, that Crescent Operating is qualified
     to be the lessee. In general, a master lease arrangement is an arrangement
     pursuant to which an entire property or project (or a group of related
     properties or projects) is leased to a single lessee. If a mutually
     satisfactory agreement cannot be reached within a 30-day period (or such
     longer period to which Crescent Operating and Crescent Partnership may
     agree), Crescent Partnership may offer the opportunity to others.

     Under the Intercompany Agreement, Crescent Operating has agreed not to
     acquire or make (i) investments in real estate which, for purposes of the
     Intercompany Agreement, includes the provision of services related to real
     estate and investment in hotel properties, real estate mortgages, real
     estate derivatives or entities that invest in real estate assets or (ii)
     any other investments that may be structured in a manner that qualifies
     under the federal income tax requirements applicable to REITs. Crescent
     Operating has agreed to notify Crescent Partnership of, and make available
     to Crescent Partnership, investment opportunities developed by Crescent
     Operating, or of which Crescent Operating becomes aware but is unable or
     unwilling to pursue.

     Effective February 14, 2002, the Company entered into the Settlement
     Agreement with Crescent Equities. The Settlement Agreement provided for the
     cancellation of the Intercompany Agreement.

     OTHER TRANSACTIONS

     The Company leases full service hotels and destination health and fitness
     resorts from Crescent Partnership, or other subsidiaries of Crescent
     Equities, under operating leases. Crescent Partnership has agreed to fund
     all capital expenditures relating to furniture, fixtures and equipment
     reserves required under applicable management agreements on all properties
     except for Canyon Ranch-Tucson. Total rent expense related to these leases
     totaled approximately $55.7 million, $63.3 million and $54.0 million for
     the years ended December 31, 2001, 2000 and 1999, respectively.

     The Company has various debt instruments payable to Crescent Partnership
     with an aggregate amount outstanding at December 31, 2001 and 2000 of
     $317.9 million and $259.7 million, respectively. See Note 10 for additional
     information.

     Included in notes receivable is a note from Landevco payable to Landco in
     the amount of $10.6 million as of December 31, 2001. The note bears
     interest at 15.0% per annum with quarterly interest payments and principal
     due upon maturity of July 2007. Interest income recognized for the years
     ended December 31, 2001, 2000 and 1999 was $1.9 million, $1.6 million and
     $1.7 million, respectively.

     Effective February 1, 2000, The Varma Asset Management Agreements were
     terminated by mutual agreement of the parties; at the same time, Crescent
     Operating and its hospitality subsidiaries entered into a Master Asset
     Management and Administrative Services Agreement with the Sonoma Management
     Company ("SMC") to manage the Hyatt Albuquerque, the Four Seasons Hotel
     Houston, the Renaissance Hotel Houston and the Denver City Center Marriott.
     At the same time, the Company's hospitality subsidiaries accepted
     assignment from the owners of the Sonoma Mission Inn and Spa, the Sonoma
     Mission Inn Golf and Country Club and the Ventana Inn and Spa of its
     property management agreements with SMC. The principals of SMC are Sanjay
     and Johanna Varma and Crescent Equities is an equity owner in SMC. Payment
     of obligations under the Master Asset Management and Administrative
     Services Agreement (the "SMC Management Agreement") are guaranteed by the
     Company. For each property for which it provides asset management services,
     SMC will receive a base fee equal to 0.85% of gross revenues of the
     property managed plus an incentive fee of 50% of actual net income in
     excess of budgeted net income. For each property for which it provides
     property management services, SMC will receive a base fee equal to 2.0% of
     gross revenues of the property plus an incentive fee of 20% of net
     operating income in excess of 12% annual return on investment to owner. As


                                      F-39
<PAGE>


     consideration for its services under the SMC Management Agreement, Sonoma
     Management received an annual base fee (and no incentive fee) for 2001 of
     approximately $0.6 million, for its asset management services related to
     the Hyatt Albuquerque, the Renaissance Houston Hotel and the Denver City
     Center Marriott. Pursuant to the Settlement Agreement, the Company's
     obligations under the SMC Management Agreement with SMC were transferred to
     Crescent Equities (See Note 3 - Settlement Agreement).


21.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED):

     Amounts in thousands, except per share amounts:

<Table>
<Caption>
                                                                Year Ended December 31, 2001
                                                 ------------------------------------------------------------
                                                     First          Second          Third           Fourth
                                                 ------------    ------------    ------------    ------------
<S>                                              <C>             <C>             <C>             <C>

Revenues .....................................   $    163,439    $    123,445    $    120,637    $    198,820
Income (loss) from operations ................          2,405          (8,926)         (9,800)        (46,061)
Income (loss) before minority interests,
income taxes and accounting change ...........            294          (8,332)        (16,017)        (33,574)
Minority interests ...........................         (2,088)         (3,806)            330          (8,024)
Income tax provision (benefit) ...............         (2,183)          5,084           1,410          (6,904)
Income (Loss) from accounting change .........         (9,509)             --              --              --
Net (loss) ...................................         (9,120)        (17,222)        (17,097)        (34,694)
Basic and Diluted (loss) per share
Income (Loss) before change in accounting ....           0.04           (1.67)          (1.65)          (3.35)
Change in accounting .........................          (0.92)             --              --              --
                                                 ------------    ------------    ------------    ------------
Net loss per share ...........................          (0.88)          (1.67)          (1.65)          (3.35)
</Table>

<Table>
<Caption>
                                                                               Year Ended December 31, 2000
                                                               ------------------------------------------------------------
                                                                  First           Second           Third          Fourth
                                                               ------------    ------------    ------------    ------------
<S>                                                       <C>             <C>             <C>             <C>

Revenues ...................................................   $    167,551    $    176,397    $    182,133    $    190,745
Income (loss) from operations ..............................          7,973           5,582           6,557            (484)
Income (loss) before minority interests and income taxes ...          6,237            (684)          3,440          25,082
Minority interests .........................................         (6,731)         (2,954)         (6,660)         (9,673)
Income tax provision (benefit) .............................          1,488            (226)            950           9,535
Net income (loss) ..........................................         (1,982)         (3,412)         (4,170)          5,874
Basic income (loss) per share ..............................           (.19)           (.33)           (.40)            .56
Diluted income (loss) per share ............................           (.19)           (.33)           (.40)            .56
</Table>




                                      F-40
<PAGE>



INDEPENDENT AUDITORS' REPORT


To the Partners
Vornado Crescent Logistics Operating Partnership and Subsidiary:

We have audited the accompanying consolidated balance sheets of Vornado Crescent
Logistics Operating Partnership and Subsidiary (the "Partnership") as of
December 31, 2001 and 2000, and the related consolidated statements of
operations, partners' capital, and cash flows for the years ended December 31,
2001 and 2000 and for the period from March 11, 1999 (date of inception) to
December 31, 1999. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the consolidated financial position of Vornado Crescent Logistics
Operating Partnership and Subsidiary at December 31, 2001 and 2000, and their
consolidated results of operations and cash flows for the years ended December
31, 2001 and 2000 and for the period from March 11, 1999 (date of inception) to
December 31, 1999, in conformity with accounting principles generally accepted
in the United States of America.



February 20, 2002
(March 11, 2002 as to Note 4)


                                      F-41
<PAGE>

VORNADO CRESCENT LOGISTICS OPERATING
PARTNERSHIP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2001 AND 2000
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------

<Table>
<Caption>
                                                                 2001            2000
<S>                                                          <C>             <C>

ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                                  $     28,189    $      6,215
  Restricted cash                                                  21,388          14,736
  Trade accounts receivable, net of allowance for doubtful
     accounts of $2,442 and $3,502, respectively                   67,415          79,780
  Other current assets                                              4,559           4,930
  Working capital to be collected on behalf of
    AmeriCold Corporation                                          (5,358)         (7,507)
                                                             ------------    ------------


Total current assets                                              116,193          98,154

PROPERTY, PLANT, AND EQUIPMENT:
  Land                                                             14,794          16,831
  Buildings and improvements                                        2,880           2,476
  Machinery and equipment                                          49,270          44,131
                                                             ------------    ------------

                                                                   66,944          63,438

  Less accumulated depreciation                                   (19,574)        (10,722)
                                                             ------------    ------------

      Property, plant, and equipment, net                          47,370          52,716

OTHER ASSETS                                                       11,544          12,988
                                                             ------------    ------------

                                                             $    175,107    $    163,858
                                                             ============    ============
</Table>

                                                                     (Continued)

See notes to consolidated financial statements.


                                      F-42
<PAGE>


VORNADO CRESCENT LOGISTICS OPERATING
PARTNERSHIP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2001 AND 2000
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------

<Table>
<Caption>
                                                                        2001            2000
<S>                                                                 <C>             <C>

LIABILITIES AND PARTNERS' CAPITAL

CURRENT LIABILITIES:
  Accounts payable                                                  $     14,039    $     23,277
  Accrued expenses                                                        50,006          36,017
  Current portion of long-term debt                                        1,906             577
  Current portion of capitalized lease obligations                           967             398
  Unearned revenue                                                         8,373           9,242
  Due to AmeriCold Corporation                                            32,216          27,074
                                                                    ------------    ------------

      Total current liabilities                                          107,507          96,585
                                                                    ------------    ------------

LONG-TERM DEBT                                                            22,840           6,360

LONG-TERM CAPITALIZED LEASE OBLIGATIONS                                    4,449           1,351

DEFERRED RENT OBLIGATIONS TO AMERICOLD
  CORPORATION                                                              8,335          24,411

STRAIGHT-LINE RENT LIABILITY TO AMERICOLD
  CORPORATION                                                             10,811           6,762

OTHER LIABILITIES                                                         13,399          12,176
                                                                    ------------    ------------

        Total liabilities                                                167,341         147,645

COMMITMENTS

PARTNERS' CAPITAL:
  Partners' capital                                                       44,723          48,723
  Accumulated deficit                                                    (33,368)        (27,680)
  Accumulated other comprehensive loss - minimum pension charge           (3,589)           (830)
                                                                    ------------    ------------

Less: capital contribution receivable                                         --          (4,000)
                                                                    ------------    ------------

        Total partners' capital                                            7,766          16,213
                                                                    ------------    ------------

                                                                    $    175,107    $    163,858
                                                                    ============    ============
</Table>

                                                                     (Concluded)

See notes to consolidated financial statements.


                                      F-43
<PAGE>


VORNADO CRESCENT LOGISTICS OPERATING
PARTNERSHIP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 AND
FOR THE PERIOD FROM MARCH 11, 1999 (DATE OF INCEPTION)
TO DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------

<Table>
<Caption>
                                                                           2001            2000            1999
<S>                                                                <C>             <C>             <C>

REVENUES                                                           $    647,259    $    676,158    $    557,708

OPERATING EXPENSES:
  Cost of operations (not including depletion, depreciation,
    and amortization)                                                   474,663         478,809         399,615
  Rent expense on leases with AmeriCold Corporation,
    net of $25,469 in reduction in 2001 contractual rents               130,807         170,640         135,811
  Reduction in 2000 contractual rents                                   (14,343)             --              --
  General and administrative                                             37,691          35,933          26,542
  Severance and other charges                                             8,895              --              --
  Depletion, depreciation, and amortization                              11,477           7,803           4,789
                                                                   ------------    ------------    ------------

      Total operating expenses                                          649,190         693,185         566,757
                                                                   ------------    ------------    ------------

OPERATING LOSS                                                           (1,931)        (17,027)         (9,049)

OTHER INCOME (EXPENSE):
  Interest expense                                                       (4,702)         (2,136)           (534)
  Other                                                                     945             727             339
                                                                   ------------    ------------    ------------

NET LOSS                                                           $     (5,688)   $    (18,436)   $     (9,244)
                                                                   ============    ============    ============
</Table>

See notes to consolidated financial statements


                                      F-44

<PAGE>


VORNADO CRESCENT LOGISTICS OPERATING
PARTNERSHIP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31,
2001 AND 2000 AND FOR THE PERIOD FROM MARCH 11, 1999 (DATE OF INCEPTION) TO
DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------

<Table>
<Caption>
                                                                               ACCUMULATED
                                                                                  OTHER
                                                                              COMPREHENSIVE       CAPITAL
                                               PARTNERS'      ACCUMULATED     LOSS - MINIMUM    CONTRIBUTION
                                                CAPITAL         DEFICIT       PENSION CHARGE     RECEIVABLE        TOTAL
                                             ------------    ------------    ---------------    ------------    ------------
<S>                                          <C>             <C>             <C>                <C>             <C>

Capital contribution                         $     38,723    $         --    $            --    $         --    $     38,723

  Net loss                                             --          (9,244)                --              --          (9,244)
                                             ------------    ------------    ---------------    ------------    ------------
BALANCE - December 31, 1999                        38,723          (9,244)                --              --          29,479

Capital contribution                               10,000              --                 --          (4,000)          6,000

COMPREHENSIVE LOSS:

  Net loss                                             --         (18,436)                --              --         (18,436)

  Adjustment for minimum pension liability             --              --                                 --            (830)
                                                                                                                ------------

  Total comprehensive loss                             --              --                 --              --         (19,266)
                                             ------------    ------------    ---------------    ------------    ------------

BALANCE - December 31, 2000                        48,723         (27,680)              (830)         (4,000)         16,213

  Cancellation of capital commitment               (4,000)             --                 --           4,000              --

COMPREHENSIVE LOSS:

  Net loss                                             --          (5,688)                --              --          (5,688)

  Adjustment for minimum pension liability             --              --             (2,759)             --          (2,759)
                                                                                                                ------------
  Total comprehensive loss                             --              --                 --              --          (8,447)
                                             ------------    ------------    ---------------    ------------    ------------
BALANCE - December 31, 2001                  $     44,723    $    (33,368)   $        (3,589)   $         --    $      7,766
                                             ============    ============    ===============    ============    ============
</Table>


See notes to consolidated financial statements.

                                      F-45
<PAGE>


VORNADO CRESCENT LOGISTICS OPERATING
PARTNERSHIP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000 AND
FOR THE PERIOD FROM MARCH 11, 1999 (DATE OF INCEPTION)
TO DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------

<Table>
<Caption>
                                                                      2001            2000            1999
<S>                                                              <C>             <C>             <C>

OPERATING ACTIVITIES:
  Net loss                                                       $     (5,688)   $    (18,436)   $     (9,244)
  Adjustments to reconcile net loss
    to net cash provided by operating activities:
    Provision for bad debts                                             2,653           1,645           1,685
    Depletion, depreciation and amortization                           11,477           7,803           4,789
    Straight line rent expense                                          4,049           3,673           3,089
    Reduction in 2000 contractual rent                                (14,343)             --              --
    Gain on settlement and curtailment of benefit plan                     --              --          (1,363)
    Changes in assets and liabilities, net of acquisitions:
      Restricted cash                                                  (6,652)          2,151              --
      Trade accounts receivable                                        10,843          (2,524)            239
      Other assets                                                       (522)             (9)         (6,420)
      Accounts payable and accrued expenses                             2,071          (8,081)         (1,493)
      Due to AmeriCold Corporation                                      7,028          (2,158)         29,232
      Deferred rent obligations                                        (1,733)         19,011           5,400
      Other liabilities                                                   354             (69)            (11)
                                                                 ------------    ------------    ------------

        Net cash provided by operating activities                       9,537           3,006          25,903

INVESTING ACTIVITIES:
  Purchase of non-real estate assets                                       --              --         (38,723)
  Additions to property, plant, and equipment                          (2,368)        (12,302)         (9,666)
                                                                 ------------    ------------    ------------

        Net cash provided by investing activities                      (2,368)        (12,302)        (48,389)

FINANCING ACTIVITIES:
  Proceeds from issuance of long-term debt                             18,940           7,014              --
  Repayment of long-term debt                                          (1,131)            (47)             --
  Repayment of capital lease obligation                                  (855)             --              --
  Repayment of due to AmeriCold Corporation                            (2,149)         (5,444)         (8,249)
  Capital contributions                                                    --           6,000          38,723
                                                                 ------------    ------------    ------------

        Net cash provided by financing activities                      14,805           7,523          30,474
                                                                 ------------    ------------    ------------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                21,974          (1,773)          7,988

CASH AND CASH EQUIVALENTS:
  Beginning of period                                                   6,215           7,988              --
                                                                 ------------    ------------    ------------

  End of period                                                  $     28,189    $      6,215    $      7,988
                                                                 ============    ============    ============
</Table>

                                                                     (Continued)

See notes to consolidated financial statements.


                                      F-46
<PAGE>


VORNADO CRESCENT LOGISTICS OPERATING
PARTNERSHIP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
FOR THE PERIOD FROM MARCH 11, 1999 (DATE OF INCEPTION)
TO DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------

<Table>
<Caption>
                                                                   2001           2000           1999
<S>                                                            <C>            <C>            <C>

SUPPLEMENTAL DISCLOSURES:
  Interest paid                                                $      2,787   $        753   $        331
                                                               ============   ============   ============

SUPPLEMENTAL INFORMATION ABOUT NONCASH
  ACTIVITIES:
  Acquisition of fixed assets under capital leases             $      4,522             --             --
                                                               ============   ============   ============
  Liabilities assumed in connection with acquisition of
    non-real estate assets                                               --             --   $     13,198
                                                               ============   ============   ============
  Initial working capital to be collected on behalf of
    AmeriCold Corporation                                                --             --   $     21,200
                                                               ============   ============   ============
</Table>

                                                                     (Concluded)


See notes to consolidated financial statements.





                                      F-47
<PAGE>


VORNADO CRESCENT LOGISTICS OPERATING
PARTNERSHIP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2001 AND 2000 AND FOR THE YEARS ENDED DECEMBER 31, 2001 AND
2000 AND FOR THE PERIOD FROM MARCH 11,1999
(DATE OF INCEPTION) TO DECEMBER 31,1999
--------------------------------------------------------------------------------


1.   ORGANIZATION AND BUSINESS

     Vornado Crescent Logistics Operating Partnership (the "Partnership") was
     formed on March 11, 1999. The Partnership holds its assets and conducts its
     business through its wholly owned subsidiary AmeriCold Logistics, LLC
     (collectively "the Company" or "AmeriCold Logistics"). At December 31,
     2001, AmeriCold Logistics, headquartered in Atlanta, Georgia, has 5,900
     employees and operates 100 temperature controlled warehouse facilities
     nationwide with an aggregate of approximately 525 million cubic feet of
     refrigerated, frozen, and dry storage space. Of the 100 warehouses,
     AmeriCold Logistics leases 89 temperature controlled warehouses with an
     aggregate of approximately 445 million cubic feet from the Vornado
     REIT/Crescent REIT Partnership ("AmeriCold Corporation"), and manages 11
     additional warehouses containing approximately 80 million cubic feet of
     space. AmeriCold Logistics provides the frozen food industry with
     refrigerated warehousing and transportation management services.
     Refrigerated warehouses are comprised of production and distribution
     facilities. Production facilities typically serve one or a small number of
     customers, generally food processors, located nearby. These customers store
     large quantities of processed or partially processed products in the
     facility until they are shipped to the next stage of production or
     distribution. Distribution facilities primarily warehouse a wide variety of
     customers' finished products until future shipment to end-users. Each
     distribution facility generally services the surrounding regional market.
     AmeriCold Logistics' transportation management services include freight
     routing, dispatching, freight rate negotiation, backhaul coordination,
     freight bill auditing, network flow management, order consolidation, and
     distribution channel assessment. Additionally, AmeriCold Logistics mines
     limestone at two of its locations.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Basis of Presentation - The consolidated financial statements of the
     Partnership include the accounts of the Partnership and its subsidiary. The
     Partnership is owned 60% by Vornado Operating L.P. ("Vornado") and 40% by
     COPI Cold Storage L.L.C. (an affiliate of Crescent Operating Inc.)
     ("Crescent"). The partnership agreement provides that net income and losses
     are allocated to each partner's account in relation to their ownership
     interests. Subject to certain provisions, the Partnership continues for a
     term through October 2027. Vornado's $6,000,000 contribution to the
     Partnership in March 2000 was unmatched by Crescent, who recently filed for
     bankruptcy protection. Accordingly, the $4,000,000 contribution receivable
     shown in partner's capital was cancelled at December 31, 2001. During the
     first quarter of 2002, Vornado's $6,000,000 became a special equity
     contribution that: (i) has priority over the original equity amounts, with
     voting rights of Vornado not effected, (ii) is redeemable only at the
     Partnership's option, and (iii) accrues interest at 12% compounded annually
     from March 7, 2000. Vornado's share of the Partnership remains at 60%.

     Estimates - Management has made estimates and assumptions that affect the
     reported amounts of assets and liabilities and disclosure of contingent
     assets and liabilities at the date of the financial statements and the
     reported amounts of revenues and expenses during the reporting period.
     Actual results could differ from those estimates.


                                      F-48
<PAGE>


     On February 6, 2002, Crescent Operating filed a voluntary petition under
     Chapter 11 of the U.S. Bankruptcy Code. Subject to confirmation of a plan
     of reorganization and shareholder approval, it had agreed to transfer its
     interest in AmeriCold Logistics to an entity that will be owned by the
     shareholders of Crescent Real Estate Equities. It is uncertain at this time
     whether or when this plan will be approved and what effect, if any, this
     will have on the operation and management of AmeriCold Logistics.

     Cash and Cash Equivalents - Cash and cash equivalents consist of highly
     liquid investments with maturities when purchased of three months or less.

     Restricted Cash - Cash restricted for uses related to payment of rent
     ($7,229,000 at December 31, 2001 and 2000) and settlement of certain
     self-insured liabilities ($14,159,000 and $7,507,000 at December 31, 2001
     and 2000, respectively) are classified as restricted cash.

     Property, Plant, and Equipment - Depreciation and amortization are computed
     on the straight-line method over the estimated useful lives of the
     respective assets. Depreciation and amortization begin the month in which
     the asset is placed into service.

     The Company's long-lived assets are reviewed for impairment if events or
     changes in circumstances indicate that the carrying amounts may not be
     recoverable. In such an event, a comparison is made of the expected future
     operating cash flows of the long-lived assets on an undiscounted basis to
     the carrying amounts of long-lived assets. If the carrying amounts of the
     long-lived assets exceed the sum of the expected undiscounted cash flows,
     an impairment charge is recognized in an amount equal to the excess of the
     carrying amount over the estimated fair value of the long-lived assets. The
     Company also periodically reviews the appropriateness of the estimated
     useful lives of its long-lived assets.

     Capitalized Leases - Capitalized leases are recorded at the lower of the
     present value of future lease payments or the fair market value of the
     property. Capitalized leases are depreciated on a straight-line basis over
     the estimated asset life or lease term for equipment, whichever is shorter.
     Depreciation expense on capital leases is included in depreciation and
     amortization expense.

     Revenue Recognition - Revenues include storage, transportation and handling
     fees, and management fees for locations managed on behalf of third parties.
     Storage revenues are recognized as services are provided. Transportation
     fees and expenses are recognized upon tender of product to common carriers,
     which is not materially different than if such revenues and expenses were
     recognized upon delivery. Management fees are recognized when AmeriCold
     Logistics is contractually entitled to such fees. Costs related to managed
     facilities are included in operating expenses. AmeriCold Logistics charges
     customers for both inbound and outbound handling in advance but defers the
     outbound handling revenue until the product has been shipped. Revenues from
     the sale of limestone are recognized upon delivery to customers.

     Significant Customer - During 2001 and 2000, H.J. Heinz & Co. accounted for
     approximately 16% and 18% of total revenue, respectively.

     Income Taxes - AmeriCold Logistics has elected to be treated as a
     partnership for income tax purposes. Taxable income or loss of AmeriCold
     Logistics is reported in the income tax returns of the partners.
     Accordingly, no provision for income taxes is made in the financial
     statements of AmeriCold Logistics.


                                      F-49
<PAGE>


     Fair Value of Financial Instruments - All financial instruments of the
     Company are reflected in the accompanying consolidated balance sheets at
     historical cost which, in management's estimation, based upon an
     interpretation of available market information and valuation methodologies,
     reasonably approximates their fair values. Such fair values are not
     necessarily indicative of the amounts that would be realized upon
     disposition of the Company's financial instruments.

     Collective Bargaining Agreements - At December 31, 2001, approximately 21%
     of the Company's labor force was covered by collective bargaining
     agreements. Collective bargaining agreements covering approximately 7% of
     the labor force will expire in 2002.

     Derivatives - In June 1998, the Financial Accounting Standards Board
     ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
     133, Accounting for Derivative Instruments and Hedging Activities, as
     amended in June 2000 by SFAS No. 138, Accounting for Certain Derivative
     Instruments and Certain Hedging Activities. SFAS No. 133, as amended,
     requires the Company to recognize all derivatives on the balance sheet at
     fair value. The Company adopted SFAS No. 133, as amended, on January 1,
     2001. The adoption of these standards did not have a material impact on the
     Company's consolidated financial statements, as the Company does not use
     derivatives.

     Recent Accounting Pronouncement - In August 2001, the FASB issued SFAS No.
     144, Accounting for the Impairment or Disposal of Long-Lived Assets. This
     Statement supersedes SFAS No. 121, Accounting for the Impairment of
     Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 144
     also supercedes previous guidance for segments of a business to be
     disposed. The Company is required to adopt SFAS No. 144 on January 1, 2002.
     The Company does not expect SFAS No. 144 to have a significant effect on
     its consolidated financial position or results of operations.

     Reclassifications - Certain reclassifications have been made to the 2000
     and 1999 balances to conform with the 2001 presentation.

3.   ACCRUED EXPENSES

     Detail of accrued expenses as of December 31, 2001 and 2000 is as follows:


<Table>
<Caption>
(amounts in thousands)                                   2001           2000
<S>                                                  <C>            <C>

Accrued payroll and related expense                  $     10,127   $      9,854
Accrued workers' compensation                               8,580          8,443
Severance and other charges                                 6,764             --
Other accrued expenses                                     24,535         17,720
                                                     ------------   ------------

                                                     $     50,006   $     36,017
                                                     ============   ============
</Table>







                                      F-50
<PAGE>


4.   LONG-TERM DEBT

<Table>
<Caption>
(amounts in thousands)                 2001            2000
<S>                               <C>             <C>

Notes payable to Vornado:
  12% promissory note payable     $      3,000    $      3,000
  12% promissory note payable            3,840              --
  14% promissory note payable            4,856              --

Notes payable to Crescent:
  12% promissory note payable            2,000           2,000
  12% promissory note payable            3,500              --
  14% promissory note payable            6,190              --

Note payable to bank                     1,360           1,937
                                  ------------    ------------

                                        24,746           6,937
Less: current maturities                (1,906)           (577)
                                  ------------    ------------

                                  $     22,840    $      6,360
                                  ============    ============
</Table>

     The 12% promissory notes payable to Vornado and Crescent, as amended, are
     due December 31, 2004 and may be repaid at any time prior to their
     maturity. Until the notes are paid, aggregate interest-only payments of
     $123,000 are due on a monthly basis. These notes are secured by certain
     property and equipment with a net book value of approximately $15,606,000.
     The 14% promissory notes payable to Vornado and Crescent, as amended, are
     payable in aggregate monthly installments of principal and interest of
     $224,999 with a maturity date of December 31, 2004. The notes are secured
     by certain property and equipment with a net book value of approximately
     $22,483,000. Effective March 11, 2002, the Vornado and Crescent notes were
     amended to extend maturity dates to December 31, 2004. The note payable to
     the bank due January 2003 is payable in equal monthly installments of
     principal and interest and may be repaid prior to its maturity date,
     subject to certain prepayment penalties. This loan bears interest at the
     rate of 10.72% per annum. The note is secured by certain equipment with a
     net book value of approximately $1,287,000.

5.   TRANSACTIONS WITH AMERICOLD CORPORATION AND OWNERS

     During 2001 and 2000 and 1999, AmeriCold Logistics received a management
     fee of $268,000 and $255,000 and $201,000, respectively, from AmeriCold
     Corporation for administrative services performed. During 2001 and 2000 and
     1999, AmeriCold Logistics recorded a management fee of $487,000 and
     $487,000 and $329,000, respectively, to Vornado Realty L.P. At December 31,
     2001 and 2000, other accrued liabilities included $1,303,000 and $816,000,
     respectively, owed to Vornado Realty L.P. At December 31, 2001 and 2000,
     $1,131,000 and $1,061,000, respectively, were receivable from Crescent for
     expenditures made on its behalf for a new business venture. Due to the
     uncertainty of collection, the Company established a reserve for this
     amount at December 31, 2001. Such amounts are included in other assets.

6.   LEASE COMMITMENTS

     AmeriCold Logistics has operating leases with the AmeriCold Corporation
     covering the warehouses used in this business. The leases, as amended,
     generally have a 15-year term with two five-year renewal options and
     provide for the payment of fixed base rent and percentage rent based on
     revenues AmeriCold Logistics receives from its customers. Fixed base rent
     is approximately $137,000,000 per annum through 2003, $139,000,000 per
     annum from 2004 through 2008, and $141,000,000 per annum from 2009 through
     2014. Percentage rent for each lease is based on a specified percentage of
     revenues in excess of a specified base amount. The aggregate base revenue



                                      F-51
<PAGE>


     amount under five of the six leases is approximately $350 million, and the
     weighted-average percentage rate is approximately 36% for the initial
     five-year period, approximately 38% for the period from 2004 through 2008,
     and approximately 40% for the period from 2009 through February 28, 2014.
     The aggregate base revenue amount under the sixth lease is approximately
     $32,000,000 through 2001, and approximately $26,000,000 for the period from
     2002 through February 28, 2014, and the percentage rate is 24% through
     2001, 37.5% for the period from 2002 through 2006, 40% from 2007 through
     2011, and 41% from 2012 through February 28, 2014. The fixed base rent for
     each of the two five-year renewal options is equal, generally, to the
     greater of the then fair market value rent or the fixed base rent for the
     immediately preceding lease year plus 5%. AmeriCold Logistics has the right
     to defer the payment of 15% of fixed base rent and all percentage rent for
     the period March 1999 to December 31, 2003 to the extent that available
     cash, as defined in the leases, is insufficient to pay such rent. Pursuant
     to the agreement, AmeriCold Logistics exercised its deferral rights and
     deferred approximately $25,469,000 and $19,011,000 in 2001 and 2000,
     respectively, in fixed and percentage rent. As part of the February 2001
     lease amendments, contractual rents due to AmeriCold Corporation were
     reduced to $146,000,000 for 2001 and $150,000,000 (plus additional
     contingent rent in certain circumstances) for 2002. On December 27, 2001,
     the leases were amended to reduce fixed and percentage rent under the four
     non-encumbered leases by $25,469,000 to $17,918,000 for 2001 and by
     $14,343,000 to $38,223,000 for 2000. On January 23, 2002, the leases with
     AmeriCold Corporation were restructured to consolidate the four
     non-encumbered leases into one non-encumbered lease. The restructuring did
     not affect total contractual rent due under the combined leases.

     The Company anticipates that AmeriCold Corporation may further restructure
     the leases with the Company to provide additional cash flow to the Company.

     AmeriCold Logistics is also required to pay for all costs arising from the
     operation, maintenance and repair of the properties, including all real
     estate taxes and assessments, utility charges, permit fees, and insurance
     premiums, as well as property capital expenditures in excess of $9,500,000
     annually.

     AmeriCold Logistics also has both operating and capital lease agreements
     for equipment and other facilities. AmeriCold Logistics pays taxes,
     insurance, and maintenance costs on substantially all of the leased
     property. Lease terms generally range from five to 20 years with renewal or
     purchase options.

     At December 31, 2001, future minimum fixed lease payments under the leases
     with AmeriCold Corporation and future minimum lease payments under
     operating leases other than leases with AmeriCold Corporation were as
     follows:

(amounts in thousands)

YEAR ENDED
DECEMBER 31,

<Table>
<Caption>
                                   AMERICOLD       OTHER
                                 CORPORATION      LESSORS          TOTAL
<S>                              <C>            <C>            <C>

2002                             $    137,340   $      7,255   $    144,595
2003                                  137,327          5,220        142,547
2004                                  139,729          3,932        143,661
2005                                  138,920          3,546        142,466
2006                                  138,920          3,545        142,465
Thereafter                          1,011,241          2,748      1,013,989
                                 ------------   ------------   ------------

                                 $  1,703,477   $     26,246   $  1,729,723
                                 ============   ============   ============
</Table>


     Rent expense under leases with AmeriCold Corporation for 2001 was
     $115,780,000 for fixed rent, net of a $25,469,000 contractual rent
     adjustment, and $15,027,000 for percentage rent. Rent expense under leases
     with AmeriCold Corporation for 2000 was $139,723,000 for fixed rent and
     $30,917,000 for percentage rent. Rent expense under leases with AmeriCold
     Corporation for 1999 was $109,031,000 for fixed rent and $26,780,000 for
     percentage rent.

     Rent expense under leases with other lessors was $8,068,000, $6,407,000,
     and $4,739,000 for 2001, 2000, and 1999, respectively.



                                      F-52
<PAGE>



     At December 31, 2001, future minimum lease payments under capital leases
     are as follows:

        (amounts in thousands)

        YEAR ENDED
        DECEMBER 31,

<Table>
<S>                                             <C>
2002                                            $      1,407
2003                                                   1,284
2004                                                   1,201
2005                                                   1,199
2006                                                   1,069
Thereafter                                               638
                                                ------------

Total minimum obligations                              6,798
Less interest portion                                 (1,382)
                                                ------------

Present value of net minimum payments                  5,416
Less current portion                                    (967)
                                                ------------

Long term portion                               $      4,449
                                                ============
</Table>

     At December 31, 2001 and 2000, property leased under capital leases had a
     total cost of $7,974,000 and $2,751,000 and total accumulated depreciation
     of $2,976,000 and $1,171,000, respectively.

7.   SEVERANCE AND OTHER CHARGES

     During the year ended December 31, 2001, the Company recorded a charge of
     $8,895,000 comprised of (i) severance and relocation costs associated with
     a management restructuring, and (ii) expenses arising from the
     consolidation of a portion of the corporate office in Portland, Oregon into
     the Company's Atlanta headquarters. Severance related charges of $7,725,000
     are for the termination of 199 employees, located primarily in the Atlanta
     and Portland offices. Through December 31, 2001, the Company had terminated
     30 of the employees. The remaining charges of $1,170,000 consist primarily
     of a signing bonus, recruitment and other exit costs. These charges and the
     related liability at December 31, 2001 are summarized below:

<Table>
<Caption>
(amounts in thousands)                  SEVERANCE        OTHER           TOTAL
<S>                                   <C>             <C>             <C>

Charges                               $      7,725    $      1,170    $      8,895
Expenditures                                  (961)         (1,170)         (2,131)
                                      ------------    ------------    ------------

Severance Liability                   $      6,764    $         --    $      6,764
                                      ============    ============    ============
</Table>


8.   CONTINGENCIES

     In the normal course of business, the Company is party to a number of
     lawsuits. The Company does not believe that the resolution of these
     lawsuits will have a material effect on its financial position, results of
     operations or cash flows.

9.   EMPLOYEE BENEFIT PLANS

     Defined Benefit Pension and Postretirement Plans - AmeriCold Logistics has
     defined benefit pension plans that cover substantially all employees, other
     than union employees covered by union pension plans under collective
     bargaining agreements. Benefits under AmeriCold Logistics' plans are based
     on years of credited service and compensation during the years preceding
     retirement, or on years of credited service and established monthly benefit
     levels. The Company also has postretirement health care plans that provide
     medical and life insurance coverage to eligible retired employees.


                                      F-53
<PAGE>

      Actuarial information regarding the defined benefit pension plans and
      postretirement benefits other than pensions as of December 31, 2001 and
      2000 is as follows:

<Table>
<Caption>
                                                                                             2001
                                                                         -----------------------------------------------
                                                                               PENSION BENEFITS
                                                                         -----------------------------
                                                                                            NATIONAL          OTHER
                                                                          RETIREMENT        SERVICE       POSTRETIREMENT
(amounts in  thousands)                                                  INCOME PLAN      RELATED PLAN       BENEFITS
<S>                                                                      <C>              <C>              <C>

CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year                                  $     35,424     $      8,633     $      1,289
Service cost                                                                    2,977              223               55
Interest cost                                                                   2,562              632              126
Participant contributions                                                          --               --                7
Actuarial (gain) loss                                                           2,090             (327)             292
Settlements                                                                        --               --               --
Plan amendments                                                                    --              187               --
Benefits paid                                                                  (4,777)            (524)             (37)
                                                                         ------------     ------------     ------------

Benefit obligation at end of year                                        $     38,276     $      8,824     $      1,732
                                                                         ============     ============     ============

CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year                           $     26,218     $      9,377     $         --
Actual return on plan assets                                                     (122)             (81)              --
Employer contributions                                                          4,650              115               30
Participant contributions                                                          --               --                7
Benefits paid                                                                  (4,777)            (524)             (37)
                                                                         ------------     ------------     ------------

Fair value of plan assets at end of year                                 $     25,969     $      8,887     $         --
                                                                         ============     ============     ============

Funded status                                                            $    (12,307)    $         63     $     (1,732)
Unrecognized actuarial (gain) loss                                              7,423            1,830               18
Unrecognized prior service cost                                                 1,182              332             (518)
Minimum liability adjustment                                                   (4,771)              --               --
                                                                         ------------     ------------     ------------

(Accrued) prepaid benefit cost                                           $     (8,473)    $      2,225     $     (2,232)
                                                                         ============     ============     ============


Amounts recognized in the consolidated balance sheet consist of:
  Accrued benefit liability                                              $     (8,473)    $         --     $     (2,232)
  Prepaid asset                                                                    --            2,225               --
  Intangible asset                                                              1,182               --               --
  Accumulated other comprehensive loss                                          3,589               --               --
                                                                         ------------     ------------     ------------

Net amount recognized                                                    $     (3,702)    $      2,225     $     (2,232)
                                                                         ============     ============     ============

Weighted-average assumptions as of December 31, 2001:
Discount rate                                                                    7.25%            7.25%            7.25%
Expected return                                                                  9.50%            9.50%             N/A
Rate of compensation increase                                                    4.00%             N/A              N/A
</Table>


                                      F-54
<PAGE>



<Table>
<Caption>
                                                                               2000
                                                          ---------------------------------------------
                                                                PENSION BENEFITS
                                                          ----------------------------
                                                                            NATIONAL          OTHER
                                                           RETIREMENT       SERVICE      POSTRETIREMENT
(amounts in  thousands)                                    INCOME PLAN    RELATED PLAN      BENEFITS
<S>                                                       <C>             <C>             <C>

CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year                   $     33,710    $      9,351    $      1,920
Service cost                                                     1,641             211              45
Interest cost                                                    2,518             707             106
Actuarial (gain) loss                                            2,826          (1,168)           (257)
Settlements                                                         --              --            (521)
Benefits paid                                                   (5,271)           (468)             (4)
                                                          ------------    ------------    ------------

Benefit obligation at end of year                         $     35,424    $      8,633    $      1,289
                                                          ============    ============    ============

CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year            $     28,774    $      9,635    $         --
Actual return on plan assets                                     1,475             (38)             --
Employer contributions                                           1,240             248               4
Benefits paid                                                   (5,271)           (468)             (4)
                                                          ------------    ------------    ------------

Fair value of plan assets at end of year                  $     26,218    $      9,377    $         --
                                                          ============    ============    ============

Funded status                                             $     (9,205)   $        743    $     (1,289)
Unrecognized actuarial (gain) loss                               2,805           1,283            (260)
Unrecognized prior service cost                                  1,264             152            (582)
Minimum liability adjustment                                    (2,091)             --              --
                                                          ------------    ------------    ------------

(Accrued) prepaid benefit cost                            $     (7,227)   $      2,178    $     (2,131)
                                                          ============    ============    ============


Amounts recognized in the consolidated balance sheet
 consist of:
  Accrued benefit liability                               $     (7,227)   $         --    $     (2,131)
  Prepaid asset                                                     --           2,178              --
  Intangible asset                                               1,261              --              --
  Accumulated other comprehensive loss                             830              --              --
                                                          ------------    ------------    ------------

Net amount recognized                                     $     (5,136)   $      2,178    $     (2,131)
                                                          ============    ============    ============

Weighted-average assumptions as of December 31, 2000:
Discount rate                                                     7.75%           7.75%           7.50%
Expected return                                                   9.50%           9.50%            N/A
Rate of compensation increase                                     4.00%            N/A             N/A
</Table>


                                      F-55
<PAGE>


<Table>
<Caption>
                                                                 2001
                                             ---------------------------------------------
                                                   PENSION BENEFITS
                                             ----------------------------
                                                               NATIONAL         OTHER
                                               RETIREMENT      SERVICE      POSTRETIREMENT
                                              INCOME PLAN    RELATED PLAN      BENEFITS
<S>                                          <C>             <C>             <C>

(amounts in thousands)
COMPONENTS OF NET PERIODIC
  BENEFIT COST:
  Service cost                               $      2,977    $        223    $         55
  Interest cost                                     2,562             632             126
  Expected return on plan assets                   (2,591)           (876)             --
  Recognized net actuarial loss (gain)                186              84              15
  Amortization of prior service cost                   81               6             (65)
                                             ------------    ------------    ------------

                                             $      3,215    $         69    $        131
                                             ============    ============    ============

<Caption>

                                                                 2000
                                             ---------------------------------------------
                                                   PENSION BENEFITS
                                             ----------------------------
                                                               NATIONAL         OTHER
                                               RETIREMENT      SERVICE      POSTRETIREMENT
                                              INCOME PLAN    RELATED PLAN      BENEFITS
<S>                                          <C>             <C>             <C>

(amounts in thousands)
COMPONENTS OF NET PERIODIC
  BENEFIT COST:
  Service cost                               $      1,641    $        211    $         45
  Interest cost                                     2,518             707             106
  Expected return on plan assets                   (3,153)         (1,094)             --
  Recognized net actuarial loss (gain)               (119)             90              --
  Amortization of prior service cost                   80               6             (65)
                                             ------------    ------------    ------------

                                             $        967    $        (80)   $         86
                                             ============    ============    ============

<Caption>

                                                                 1999
                                             ---------------------------------------------
                                                   PENSION BENEFITS
                                             ----------------------------
                                                               NATIONAL         OTHER
                                               RETIREMENT      SERVICE      POSTRETIREMENT
                                              INCOME PLAN    RELATED PLAN      BENEFITS
<S>                                          <C>             <C>             <C>

(amounts in thousands)
COMPONENTS OF NET PERIODIC
  BENEFIT COST:
  Service cost                               $      1,297    $        254    $        147
  Interest cost                                     2,461             576             346
  Expected return on plan assets                   (2,531)           (820)             --
  Recognized net actuarial loss (gain)                338              18              67
  Amortization of prior service cost                  104               5             (56)
                                             ------------    ------------    ------------

                                             $      1,669    $         33    $        504
                                             ============    ============    ============
</Table>


                                      F-56
<PAGE>


     The medical plan for retirees provides a fixed dollar benefit for each year
     that the retiree is receiving benefits. All increases in medical costs are
     paid by the retiree; thus, there is no assumed health care cost trend.

     Multiemployer Plans - Americold Logistics contributes to defined benefit
     multiemployer plans that cover substantially all union employees. Amounts
     charged to pension cost and contributed to the plans in 2001, 2000, and
     1999 were approximately $1,235,000, $1,252,000, and $1,211,000,
     respectively.

     Profit Sharing - AmeriCold Logistics has defined contribution employee
     benefit plans, which cover all eligible employees. The plans also allow
     contributions by plan participants in accordance with Section 401(k) of the
     Internal Revenue Code. Profit sharing expense for 2001 and 2000 and 1999
     was approximately $5,403,000 and $3,084,000 and $4,060,000, respectively.

     Deferred Compensation - AmeriCold Logistics has deferred compensation and
     supplemental retirement plan agreements with certain of its executives. The
     agreements provide for certain benefits at retirement or disability, and
     also provide for survivor benefits in the event of death of the employee.
     AmeriCold Logistics charges expense for the accretion of the liability each
     year.

     The net (income) expense for all deferred compensation and supplemental
     retirement plans for 2001 and 2000 and 1999 was approximately ($12,000) and
     $123,000 and $164,000, respectively.

















                                      F-57
<PAGE>


INDEPENDENT AUDITORS' REPORT




To the Partners
Vornado Crescent Logistics Operating Partnership and Subsidiary:

We have audited the accompanying consolidated balance sheets of Vornado Crescent
Logistics Operating Partnership and Subsidiary (the "Partnership") as of
December 31, 2000 and 1999, and the related consolidated statements of
operations, partners' capital, and cash flows for the year ended December 31,
2000 and for the period from March 11, 1999 (date of inception) to December 31,
1999. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the consolidated financial position of Vornado Crescent Logistics
Operating Partnership and Subsidiary at December 31, 2000 and 1999, and their
consolidated results of operations and cash flows for the year ended December
31, 2000 and for the period from March 11, 1999 (date of inception) to December
31, 1999 in conformity with accounting principles generally accepted in the
United States of America.


DELOITTE & TOUCHE LLP

February 27, 2001









                                      F-58
<PAGE>


VORNADO CRESCENT LOGISTICS OPERATING
PARTNERSHIP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 1999
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------

<Table>
<Caption>
ASSETS                                                                     2000            1999
<S>                                                                    <C>             <C>

CURRENT ASSETS:
  Cash and cash equivalents                                            $      6,215    $      7,988
  Restricted cash                                                            14,736          16,887
  Trade accounts receivable, net of allowance for doubtful
     accounts of $3,502 and $2,036, respectively                             77,889          77,010
  Other current assets                                                        6,821           7,891
  Working capital to be collected on behalf of Real Estate Companies         (7,507)        (12,951)
                                                                       ------------    ------------

                                                                             98,154          96,825

PROPERTY, PLANT, AND EQUIPMENT:
  Land                                                                       18,533          18,442
  Buildings and improvements                                                  2,476           1,517
  Machinery and equipment                                                    44,131          33,127
                                                                       ------------    ------------

                                                                             65,140          53,086

  Less accumulated depreciation                                             (10,722)         (4,230)
                                                                       ------------    ------------

      Property, plant, and equipment, net                                    54,418          48,856

OTHER ASSETS                                                                  9,108           7,831
                                                                       ------------    ------------

                                                                       $    161,680    $    153,512
                                                                       ============    ============
</Table>

                                                                     (Continued)


                                      F-59
<PAGE>
VORNADO CRESCENT LOGISTICS OPERATING
PARTNERSHIP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 1999
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------

<Table>
<Caption>
                                                                      2000            1999
<S>                                                               <C>             <C>

LIABILITIES AND PARTNERS' CAPITAL

CURRENT LIABILITIES:
  Accounts payable                                                $     23,277    $     28,350
  Accrued expenses                                                      43,653          44,570
  Current portion of long-term debt                                        577              --
  Unearned revenue                                                       9,242           9,630
  Due to Real Estate Companies                                          27,074          29,232
                                                                  ------------    ------------

      Total current liabilities                                        103,823         111,782
                                                                  ------------    ------------

LONG-TERM DEBT                                                           6,360              --

DEFERRED RENT OBLIGATIONS TO REAL ESTATE
  COMPANIES                                                             24,411           5,400

STRAIGHT-LINE RENT LIABILITY                                             6,762           3,089

OTHER LIABILITIES                                                        4,111           3,762
                                                                  ------------    ------------

        Total liabilities                                              145,467         124,033

COMMITMENTS

PARTNERS' CAPITAL:
  Partners' capital                                                     48,723          38,723
  Accumulated deficit                                                  (27,680)         (9,244)
  Accumulated other comprehensive loss - minimum pension charge           (830)             --
                                                                  ------------    ------------

Less: capital contribution receivable                                   (4,000)             --
                                                                  ------------    ------------

        Total partners' capital                                         16,213          29,479
                                                                  ------------    ------------

                                                                  $    161,680    $    153,512
                                                                  ============    ============
</Table>

                                                                     (Concluded)

See notes to consolidated financial statements.



                                      F-60
<PAGE>


VORNADO CRESCENT LOGISTICS OPERATING
PARTNERSHIP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000 AND FOR THE PERIOD
FROM MARCH 11, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------

<Table>
<Caption>
                                                          2000            1999
<S>                                                   <C>             <C>

REVENUES                                              $    676,158    $    557,708

OPERATING EXPENSES:
  Cost of operations                                       478,809         399,615
  Rent expense on leases with Real Estate Companies        170,640         135,811
  General and administrative                                35,933          26,542
  Depreciation and amortization                              7,803           4,789
                                                      ------------    ------------

      Total operating expenses                             693,185         566,757
                                                      ------------    ------------

OPERATING LOSS                                             (17,027)         (9,049)

OTHER INCOME (EXPENSE):
  Interest expense                                          (2,136)           (534)
  Other income                                                 727             339
                                                      ------------    ------------

NET LOSS                                              $    (18,436)   $     (9,244)
                                                      ============    ============
</Table>

See notes to consolidated financial statements.




                                      F-61
<PAGE>


VORNADO CRESCENT LOGISTICS OPERATING PARTNERSHIP
AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 2000 AND FOR THE PERIOD FROM
MARCH 11, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------

<Table>
<Caption>
                                                                                 ACCUMULATED
                                                                                    OTHER
                                                                                 COMPREHENSIVE     CAPITAL
                                                   PARTNERS'     ACCUMULATED    LOSS - MINIMUM   CONTRIBUTION
                                                    CAPITAL        DEFICIT      PENSION CHARGE    RECEIVABLE        TOTAL
                                                  ------------   ------------   --------------   ------------    ------------
<S>                                               <C>            <C>             <C>             <C>             <C>

Capital contribution                              $     38,723   $         --    $         --    $         --    $     38,723

  Net loss                                                  --         (9,244)             --              --          (9,244)
                                                  ------------   ------------    ------------    ------------    ------------

BALANCE - December 31, 1999                             38,723         (9,244)             --              --          29,479

Capital contribution                                    10,000             --              --          (4,000)          6,000

COMPREHENSIVE LOSS:

  Net loss                                                  --        (18,436)             --              --         (18,436)

  Adjustment for minimum pension liability                  --             --            (830)             --            (830)
                                                  ------------   ------------    ------------    ------------    ------------
                                                                                                                      (19,266)
                                                                                                                 ------------
BALANCE - December 31, 2000                       $     48,723   $    (27,680)   $       (830)   $     (4,000)   $     16,213
                                                  ============   ============    ============    ============    ============
</Table>


See notes to consolidated financial statements.



                                      F-62
<PAGE>


VORNADO CRESCENT LOGISTICS OPERATING
PARTNERSHIP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000 AND FOR THE PERIOD FROM
MARCH 11, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------

<Table>
<Caption>
                                                                    2000            1999
<S>                                                             <C>             <C>

OPERATING ACTIVITIES:
  Net loss                                                      $    (18,436)   $     (9,244)
  Adjustments to reconcile net loss
    to net cash provided by operating activities:
    Provision for bad debts                                            1,645           1,685
    Depreciation and amortization                                      7,803           4,789
    Straight lining of rent expense                                    3,673           3,089
    Gain on settlement and curtailment of benefit plan                    --          (1,363)
    Changes in assets and liabilities, net of acquisitions:
      Restricted cash                                                  2,151              --
      Trade accounts receivable                                       (2,524)            239
      Other assets                                                        (9)         (6,420)
      Accounts payable and accrued expenses                           (8,081)         (1,493)
      Due to Real Estate Companies                                    (2,158)         29,232
      Deferred rent obligations                                       19,011           5,400
      Other liabilities                                                  (69)            (11)
                                                                ------------    ------------

        Net cash provided by operating activities                      3,006          25,903

INVESTING ACTIVITIES:
  Purchase of non-real estate assets                                      --         (38,723)
  Additions to property, plant, and equipment                        (12,302)         (9,666)
                                                                ------------    ------------

        Net cash used in investing activities                        (12,302)        (48,389)

FINANCING ACTIVITIES:
  Proceeds from issuance of long-term debt                             7,014              --
  Repayment of long-term debt                                            (47)             --
  Repayment of due to Real Estate Companies                           (5,444)         (8,249)
  Capital contributions                                                6,000          38,723
                                                                ------------    ------------

        Net cash provided by financing activities                      7,253          30,474
                                                                ------------    ------------

NET CHANGE IN CASH AND CASH EQUIVALENTS                               (1,773)          7,988

CASH AND CASH EQUIVALENTS:
  Beginning of period                                                  7,988              --
                                                                ------------    ------------

  End of period                                                 $      6,215    $      7,988
                                                                ============    ============
</Table>


                                                                     (Continued)

                                      F-63
<PAGE>


VORNADO CRESCENT LOGISTICS OPERATING
PARTNERSHIP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000 AND FOR THE PERIOD FROM
MARCH 11, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------

<Table>
<Caption>
                                                           2000       1999

<S>                                                       <C>       <C>
SUPPLEMENTAL DISCLOSURES:
  Interest paid                                           $   753   $    331
                                                          =======   ========

SUPPLEMENTAL INFORMATION ABOUT NONCASH
  ACTIVITIES:
  Liabilities assumed in connection with acquisition of
    non-real estate assets                                          $ 13,198
                                                                    ========
  Initial working capital to be collected on behalf of
    Real Estate Companies                                           $ 21,200
                                                                    ========
</Table>

                                                                     (Concluded)


See notes to consolidated financial statements.




                                      F-64
<PAGE>


VORNADO CRESCENT LOGISTICS OPERATING
PARTNERSHIP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999 AND FOR THE YEAR ENDED
DECEMBER 31, 2000 AND FOR THE PERIOD FROM
MARCH 11, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------------------


2.   ORGANIZATION AND BUSINESS

     Vornado Crescent Logistics Operating Partnership (the "Partnership") was
     formed on March 11, 1999. The Partnership holds its assets and conducts its
     business through its wholly owned subsidiary AmeriCold Logistics, LLC
     (collectively "AmeriCold Logistics"). At December 31, 2000, AmeriCold
     Logistics, headquartered in Atlanta, Georgia, has 6,700 employees and
     operates 99 temperature controlled warehouse facilities nationwide with an
     aggregate of approximately 518 million cubic feet of refrigerated, frozen,
     and dry storage space. Of the 99 warehouses, AmeriCold Logistics leases 88
     temperature controlled warehouses with an aggregate of approximately 439
     million cubic feet from the Vornado REIT/Crescent REIT Partnership, and
     manages 11 additional warehouses containing approximately 79 million cubic
     feet of space. AmeriCold Logistics provides the frozen food industry with
     refrigerated warehousing and transportation management services.
     Refrigerated warehouses are comprised of production and distribution
     facilities. Production facilities typically serve one or a small number of
     customers, generally food processors, located nearby. These customers store
     large quantities of processed or partially processed products in the
     facility until they are shipped to the next stage of production or
     distribution. Distribution facilities primarily warehouse a wide variety of
     customers' finished products until future shipment to end-users. Each
     distribution facility generally services the surrounding regional market.
     AmeriCold Logistics' transportation management services include freight
     routing, dispatching, freight rate negotiation, backhaul coordination,
     freight bill auditing, network flow management, order consolidation, and
     distribution channel assessment. Additionally, AmeriCold Logistics mines
     limestone at two of its locations.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Basis of Presentation - The consolidated financial statements of the
     Partnership include the accounts of the Partnership and its subsidiary. The
     Partnership is owned 60% by Vornado Operating L.P. and 40% by COPI Cold
     Storage L.L.C. (an affiliate of Crescent Operating Inc.). The partnership
     agreement provides that net income and losses are allocated to each
     partner's account in relation to their ownership interests. Subject to
     certain provisions, the Partnership continues for a term through October
     2027. Certain reclassifications to prior year amounts have been made to
     conform with the current year's presentation. Management has made estimates
     and assumptions that affect the reported amounts of assets and liabilities
     and disclosure of contingent assets and liabilities at the date of the
     financial statements and the reported amounts of revenues and expenses
     during the reporting period. Actual results could differ from those
     estimates.

     Cash and Cash Equivalents - Cash and cash equivalents consist of highly
     liquid investments purchased with original maturities of three months or
     less.

     Restricted Cash - Cash restricted for uses related to payment of rent
     ($7,229 at December 31, 2000 and 1999) and settlement of certain
     self-insured liabilities ($7,507 and $9,658 at December 31, 2000 and 1999,
     respectively) are classified as restricted cash.

     Property, Plant, and Equipment - Depreciation and amortization are computed
     on the straight-line method over the estimated useful lives of the
     respective assets. Depreciation and amortization begin the month in which
     the asset is placed into service.


                                      F-65
<PAGE>


     Properties are reviewed for impairment if events or changes in
     circumstances indicate that the carrying amount of the property may not be
     recoverable. In such an event, a comparison is made of the current and
     projected operating cash flows of each such property into the foreseeable
     future on an undiscounted basis to the carrying amount of such property.
     Such carrying amount would be adjusted, if necessary, to estimated fair
     value to reflect an impairment in the value of the asset.

     Revenue Recognition - Revenues include storage, transportation and handling
     fees, and management fees for locations managed on behalf of third parties.
     Storage revenues are recognized as services are provided. Transportation
     fees and expenses are recognized upon tender of product to common carriers,
     which is not materially different than if such revenues and expenses were
     recognized upon delivery. Management fees are recognized when the Company
     is contractually entitled to such fees. Costs related to managed facilities
     are included in operating expenses. AmeriCold Logistics charges customers
     for both inbound and outbound handling in advance but defers the outbound
     handling revenue until the product has been shipped. Revenues from the sale
     of limestone are recognized upon delivery to customers.

     Income Taxes - AmeriCold Logistics has elected to be treated as a
     partnership for income tax purposes. Taxable income or loss of AmeriCold
     Logistics is reported in the income tax returns of the partners.
     Accordingly, no provision for income taxes is made in the financial
     statements of AmeriCold Logistics.

     Fair Value of Financial Instruments - All financial instruments of the
     Company are reflected in the accompanying consolidated balance sheets at
     historical cost which, in management's estimation, based upon an
     interpretation of available market information and valuation methodologies,
     reasonably approximates their fair values. Such fair values are not
     necessarily indicative of the amounts that would be realized upon
     disposition of the Company's financial instruments.

     Recently Issued Accounting Standards - In June 1998, the Financial
     Accounting Standards Board issued Statement of Financial Accounting
     Standards No. 133, Accounting for Derivative Instruments and Hedging
     Activities ("SFAS No. 133") which establishes accounting and reporting
     standards for derivative instruments, including certain derivative
     instruments embedded in other contracts, and for hedging activities. The
     Company is required to adopt SFAS No. 133, as amended by SFAS No. 138,
     effective January 1, 2001. Because the Company does not currently utilize
     derivatives or engage in hedging activities, management does not anticipate
     that implementation of this statement will have a material effect on the
     Company's financial statements.

3.   ACQUISITION

     In March 1999, AmeriCold Logistics purchased all of the non-real estate
     assets of a group of companies owned by Vornado Realty Trust and
     subsidiaries of Crescent Real Estate Equities Company and Crescent
     Operating, Inc. (the "Real Estate Companies").

     The purchase price of the non-real estate assets was $48.7 million
     including the assumption of approximately $10 million of liabilities in
     connection with the closure of one of the warehouse facilities. In
     addition, the Company acquired capitalized leased assets and assumed $3.2
     million of capitalized lease obligations as a result of the purchase.


                                      F-66
<PAGE>


     The purchase method of accounting was applied to this acquisition.
     Approximate fair values assigned to assets and liabilities acquired were as
     follows:

      (amounts in thousands)

<Table>
<S>                                             <C>
Property, plant, and equipment                  $     43,421
Other assets                                           8,500
                                                ------------
                                                      51,921
Other liabilities                                    (13,198)
                                                ------------

                                                $     38,723
                                                ============
</Table>

     Results of operations are presented from the date of acquisition in 1999.

4.   ACCRUED EXPENSES

     Detail of accrued expenses as of December 31, 2000 and 1999 is as follows:


<Table>
<Caption>
(amounts in thousands)                                   2000           1999

<S>                                              <C>            <C>
Accrued payroll and related expense              $      9,854   $      8,855
Accrued employee retirement and other benefits          7,636          8,521
Accrued workers' compensation                           8,443          7,961
Other accrued expenses                                 17,720         19,233
                                                 ------------   ------------

                                                 $     43,653   $     44,570
                                                 ============   ============
</Table>

5.   LONG-TERM DEBT

<Table>
<S>                                                 <C>
(amounts in thousands)
Promissory Notes, due March 2002                     $      5,000
Promissory Note, payable in equal monthly
  installments through January 2003                         1,937
                                                     ------------

                                                            6,937

  Less: current maturities                                   (577)
                                                     ------------

                                                     $      6,360
                                                     ============
</Table>


     The promissory notes are due in March 2002. At the Company's option, these
     loans may be repaid at any time. Until the notes are paid, monthly
     interest-only payments are due at the annual rate of 12%. The notes are
     secured by certain property with a net book value of approximately
     $18,400,000.

     The promissory note payable in equal monthly installments may be repaid
     prior to its maturity, subject to certain prepayment penalties. This loan
     bears interest at the rate of 10.72% per annum. The note is secured by
     certain equipment with a net book value of approximately $1,967,000.


                                      F-67
<PAGE>


6.    TRANSACTIONS WITH REAL ESTATE COMPANIES AND OWNERS

      During 2000 and 1999, AmeriCold Logistics received a management fee of
      $255,000 and $201,000, respectively, from the Real Estate Companies for
      administrative services performed. During 2000 and 1999, AmeriCold
      Logistics paid a management fee of $487,000 to Vornado Realty L.P.

      At December 31, 2000 and 1999, $1,061,000 and $952,000, respectively, were
      receivable from the Partnership's owners for expenditures made on their
      behalf for a new business venture. Such amounts have been included in
      other assets.

7.    LEASE COMMITMENTS (SEE ALSO LEASE RESTRUCTURING DISCUSSION - NOTE 9)

      AmeriCold Logistics entered into leases with the Real Estate Companies
      covering the warehouses used in this business. The leases, as amended in
      2000, which commenced in March 1999, generally have a 15-year term with
      two five-year renewal options and provide for the payment of fixed base
      rent and percentage rent based on revenues AmeriCold Logistics receives
      from its customers. Fixed base rent is approximately $137 million per
      annum through 2003, $139 million per annum from 2004 through 2008, and
      $141 million per annum from 2009 through 2014. Percentage rent for each
      lease is based on a specified percentage of revenues in excess of a
      specified base amount. The aggregate base revenue amount under five of the
      six leases is approximately $350 million, and the weighted-average
      percentage rate is approximately 36% for the initial five-year period,
      approximately 38% for the period from 2004 through 2008, and approximately
      40% for the period from 2009 through February 28, 2014. The aggregate base
      revenue amount under the sixth lease is approximately $32,000,000 through
      2001, and approximately $26,000,000 for the period from 2002 through
      February 28, 2014, and the percentage rate is 24% through 2001, 37.5% for
      the period from 2002 through 2006, 40% from 2007 through 2011, and 41%
      from 2012 through February 28, 2014.

      The fixed base rent for each of the two five-year renewal options is
      equal, generally, to the greater of the then fair market value rent or the
      fixed base rent for the immediately preceding lease year plus 5%.

      AmeriCold Logistics has the right to defer the payment of 15% of fixed
      base rent and all percentage rent for up to three years beginning in March
      1999 to the extent that available cash, as defined in the leases, is
      insufficient to pay such rent. Pursuant to the agreement, AmeriCold
      Logistics exercised its deferral rights and deferred approximately $19.0
      million and $5.4 million in 2000 and 1999, respectively, in fixed and
      percentage rent.

      AmeriCold Logistics is also required to pay for all costs arising from the
      operation, maintenance and repair of the properties, including all real
      estate taxes and assessments, utility charges, permit fees, and insurance
      premiums, as well as property capital expenditures in excess of $5,000,000
      annually.

      AmeriCold Logistics also has operating lease agreements for equipment and
      other facilities. AmeriCold Logistics pays taxes, insurance, and
      maintenance costs on substantially all of the leased property. Lease terms
      generally range from 5 to 20 years with renewal or purchase options.



                                      F-68
<PAGE>


      At December 31, 2000, future minimum fixed lease payments under these
      leases with the Real Estate Companies and future minimum lease payments
      under operating leases other than leases with the Real Estate Companies
      were as follows:

      (amounts in thousands)

YEAR ENDED
DECEMBER 31,

<Table>
<Caption>
                                  REAL ESTATE       OTHER
                                   COMPANIES       LESSORS         TOTAL
                                 ------------   ------------   ------------
<S>                              <C>            <C>            <C>
2001                             $    137,201   $      8,068   $    145,269
2002                                  137,340          7,001        144,341
2003                                  137,327          5,175        142,502
2004                                  139,729          3,921        143,650
2005                                  138,920          3,538        142,458
Thereafter                          1,157,752          4,026      1,161,778
                                 ------------   ------------   ------------

                                 $  1,848,269   $     31,729   $  1,879,998
                                 ============   ============   ============
</Table>

      Rent expense under all lease obligations for 2000 was $139,723,000 for
      fixed rent and $30,917,000 for percentage rent. Rent expense under all
      lease obligations for 1999 was $109,031,000 for fixed rent and $26,780,000
      for percentage rent.

8.    EMPLOYEE BENEFIT PLANS

      Defined Benefit Pension Plans - AmeriCold Logistics has defined benefit
      pension plans that cover substantially all employees, other than union
      employees covered by union pension plans under collective bargaining
      agreements. Benefits under AmeriCold Logistics' plans are based on years
      of credited service and compensation during the years preceding
      retirement, or on years of credited service and established monthly
      benefit levels.

      Postretirement Benefits Other Than Pensions - During 1999, AmeriCold
      Logistics settled and curtailed postretirement healthcare and life
      insurance benefits for a substantial portion of its employees. As a
      result, AmeriCold Logistics recorded a gain of approximately $1,363,000.

      Actuarial information regarding the defined benefit pension plans and
      postretirement benefits other than pensions as of December 31, 2000 and
      1999 is as follows:



                                      F-69
<PAGE>


<Table>
<Caption>
                                                                            2000
                                                        --------------------------------------------
                                                              PENSION BENEFITS
                                                        ----------------------------
                                                                          NATIONAL         OTHER
                                                         RETIREMENT       SERVICE      POSTRETIREMENT
(amounts in  thousands)                                  INCOME PLAN    RELATED PLAN      BENEFITS
<S>                                                     <C>             <C>             <C>

CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year                 $     33,710    $      9,351    $      1,920
Service cost                                                   1,641             211              45
Interest cost                                                  2,518             707             106
Actuarial (gain) loss                                          2,826          (1,168)           (257)
Settlements                                                       --              --            (521)
Benefits paid                                                 (5,271)           (468)             (4)
                                                        ------------    ------------    ------------

Benefit obligation at end of year                       $     35,424    $      8,633    $      1,289
                                                        ============    ============    ============

CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year          $     28,774    $      9,635    $         --
Actual return on plan assets                                   1,475             (38)             --
Employer contributions                                         1,240             248               4
Benefits paid                                                 (5,271)           (468)             (4)
                                                        ------------    ------------    ------------

Fair value of plan assets at end of year                $     26,218    $      9,377    $         --
                                                        ============    ============    ============

Funded status                                           $     (9,205)   $        743    $     (1,289)
Unrecognized actuarial (gain) loss                             2,805           1,283            (260)
Unrecognized prior service cost                                1,264             152            (582)
Minimum liability adjustment                                  (2,091)             --              --
                                                        ------------    ------------    ------------
(Accrued) prepaid benefit cost                          $     (7,227)   $      2,178    $     (2,131)
                                                        ============    ============    ============


Amounts recognized in the consolidated balance sheet
consist of:
  Accrued benefit liability                             $     (7,227)   $         --    $     (2,131)
  Prepaid asset                                                   --           2,178              --
  Intangible asset                                             1,261              --              --
  Accumulated other comprehensive loss                           830              --              --
                                                        ------------    ------------    ------------
Net amount recognized                                   $     (5,136)   $      2,178    $     (2,131)
                                                        ============    ============    ============

Weighted-average assumptions as of December 31, 2000:
Discount rate                                                   7.75%           7.75%           7.50%
Expected return                                                 9.50%           9.50%            N/A
Rate of compensation increase                                   4.00%            N/A             N/A
</Table>




                                      F-70



<PAGE>

<Table>
<Caption>
                                                                                      1999
                                                                   --------------------------------------------
                                                                        PENSION BENEFITS
                                                                   ---------------------------
                                                                                    NATIONAL         OTHER
                                                                    RETIREMENT      SERVICE      POSTRETIREMENT
(amounts in  thousands)                                            INCOME PLAN    RELATED PLAN      BENEFITS
<S>                                                                <C>            <C>            <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of period                            $ 33,052       $ 11,653       $  7,150
Service cost                                                            1,297            254            147
Interest cost                                                           2,461            576            346
Actuarial (gain) loss                                                  (3,903)           404           (320)
Curtailments                                                               --             --         (2,735)
Settlements                                                                --             --         (1,940)
Plan transfers                                                          2,930         (2,930)            --
Plan amendments                                                            --             --           (664)
Benefits paid                                                          (2,127)          (606)           (64)
                                                                     --------       --------       --------

Benefit obligation at end of period                                  $ 33,710       $  9,351       $  1,920
                                                                     ========       ========       ========

CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of period                     $ 25,693       $ 10,058       $     --
Actual return on plan assets                                            3,364          1,060             --
Employer contributions                                                     --            967             64
Plan transfers                                                          1,844         (1,844)            --
Benefits paid                                                          (2,127)          (606)           (64)
                                                                     --------       --------       --------

Fair value of plan assets at end of period                           $ 28,774       $  9,635       $     --
                                                                     ========       ========       ========

Funded status                                                        $ (4,936)           285       $ (1,920)
Unrecognized actuarial (gain) loss                                     (1,809)         1,409             (2)
Unrecognized prior service cost                                         1,338            157           (648)
                                                                     --------       --------       --------
(Accrued) prepaid benefit cost                                       $ (5,407)      $  1,851       $ (2,570)
                                                                     ========       ========       ========


Amounts recognized in the consolidated balance sheet consist of:
  Accrued benefit liability                                          $ (5,407)      $     --       $ (2,570)
  Prepaid asset                                                            --          1,851             --
                                                                     --------       --------       --------
Net amount recognized                                                $ (5,407)      $  1,851       $ (2,570)
                                                                     ========       ========       ========

Weighted-average assumptions as of December 31, 1999:
Discount rate                                                            7.75%          7.75%          7.75%
Expected return                                                          9.50%          9.50%           N/A
Rate of compensation increase                                            4.00%           N/A            N/A
</Table>


                                      F-71
<PAGE>

<Table>
<Caption>
                                                             2000
                                          --------------------------------------------
                                                PENSION BENEFITS
                                          ---------------------------
                                                           NATIONAL         OTHER
                                           RETIREMENT      SERVICE      POSTRETIREMENT
                                          INCOME PLAN    RELATED PLAN      BENEFITS
<S>                                       <C>            <C>            <C>
(amounts in thousands)
COMPONENTS OF NET PERIODIC
  BENEFIT COST:
  Service cost                               $ 1,641        $   211        $    45
  Interest cost                                2,518            707            106
  Expected return on plan assets              (3,153)        (1,094)            --
  Recognized net actuarial loss (gain)          (119)            90             --
  Amortization of prior service cost              80              6            (65)
                                             -------        -------        -------

                                             $   967        $   (80)       $    86
                                             =======        =======        =======
</Table>

<Table>
<Caption>
                                                          1999
                                        --------------------------------------------
                                              PENSION BENEFITS
                                        ---------------------------
                                                         NATIONAL         OTHER
                                         RETIREMENT      SERVICE      POSTRETIREMENT
                                        INCOME PLAN    RELATED PLAN      BENEFITS
<S>                                     <C>            <C>            <C>
(amounts in thousands)
COMPONENTS OF NET PERIODIC
  BENEFIT COST:
  Service cost                             $ 1,297        $   254        $   147
  Interest cost                              2,461            576            346
  Expected return on plan assets            (2,531)          (820)            --
  Recognized net actuarial loss                338             18             67
  Amortization of prior service cost           104              5            (56)
                                           -------        -------        -------

                                           $ 1,669        $    33        $   504
                                           =======        =======        =======
</Table>


      The medical plan for retirees provides a fixed dollar benefit for each
      year that the retiree is receiving benefits. All increases in medical
      costs are paid by the retiree, thus, there is no assumed health care cost
      trend.

      Profit Sharing - AmeriCold Logistics has defined contribution employee
      benefit plans which cover all eligible employees. The plans also allow
      contributions by plan participants in accordance with Section 401(k) of
      the Internal Revenue Code. Profit sharing expense for 2000 and 1999 was
      approximately $3,084,000 and $4,060,000, respectively.

      Deferred Compensation - AmeriCold Logistics has deferred compensation and
      supplemental retirement plan agreements with certain of its executives.
      The agreements provide for certain benefits at retirement or disability,
      and also provide for survivor benefits in the event of death of the
      employee. AmeriCold Logistics charges expense for the accretion of the
      liability each year.

      The net expense for all deferred compensation and supplemental retirement
      plans for 2000 and 1999 was approximately $123,000 and $164,000,
      respectively.


                                      F-72
<PAGE>

9.    SUBSEQUENT EVENT

      On February 22, 2001 the leases with the Real Estate Companies were
      restructured to, among other things, (i) reduce 2001's contractual rent to
      $146,000,000 ($14,500,000 less than 2000's contractual rent), (ii) reduce
      2002's contractual rent to $150,000,000 (plus contingent rent in certain
      circumstances), (iii) increase the Real Estate Companies' share of annual
      maintenance capital expenditures by $4,500,000 to $9,500,000 effective
      January 1, 2000, and (iv) extend the deferred rent period to December 31,
      2003 from March 11, 2002.


                                      F-73
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Executive Committee of
The Woodlands Operating Company, L.P.:


We have audited the accompanying consolidated balance sheets of The Woodlands
Operating Company, L.P. (a Texas limited partnership) and subsidiary as of
December 31, 2000 and 1999 and the related consolidated statements of earnings,
changes in partners' equity and cash flows for each of the three years ended
December 31, 2000. These financial statements are the responsibility of The
Woodlands Operating Company, L.P.'s management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Woodlands Operating Company, L.P. and subsidiary as of December 31, 2000 and
1999 and the consolidated results of their operations and cash flows for each of
the three years ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States.


ARTHUR ANDERSEN LLP

Houston, Texas
January 15, 2001


                                      F-74
<PAGE>

              THE WOODLANDS OPERATING COMPANY, L.P. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2000 AND 1999
                             (DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                                                2000            1999
                                                              --------        --------
<S>                                                           <C>             <C>
ASSETS
Cash and cash equivalents .............................       $  3,817        $  1,677
Trade receivables, net of allowance for doubtful
      accounts of $295 and $302 .......................          6,071           6,839
Inventory .............................................          1,217           1,046
Prepaid and other current assets ......................            432             264
Property and equipment, at cost less accumulated
    depreciation of $1,172 and $673 ...................          2,430           2,109
Other assets ..........................................            738           1,200
                                                              --------        --------
                                                              $ 14,705        $ 13,135
                                                              ========        ========

LIABILITIES AND EQUITY
Liabilities
    Accounts payable ..................................       $ 10,857        $  8,113
    Accrued liabilities ...............................          2,636           2,273
    Deferred revenue ..................................          7,045           5,300
    Other liabilities .................................            336             468
                                                              --------        --------
                                                                20,874          16,154

Commitments and contingencies (Note 2)

Partners' deficit (Note 3) ............................         (6,169)         (3,019)
                                                              --------        --------
                                                              $ 14,705        $ 13,135
                                                              ========        ========
</Table>


                                      F-75
<PAGE>

              THE WOODLANDS OPERATING COMPANY, L.P. AND SUBSIDIARY
                       CONSOLIDATED STATEMENTS OF EARNINGS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                             (DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                                                2000            1999            1998
                                                              --------        --------        --------
<S>                                                           <C>             <C>             <C>
REVENUES
    Conference Center and Country Club operations .....       $ 53,355        $ 47,945        $ 47,609
    Management fees and other .........................         29,394          26,690          27,151
                                                              --------        --------        --------
                                                                82,749          74,635          74,760
                                                              --------        --------        --------

OPERATING EXPENSES
    Conference Center and Country Club operations .....         52,166          47,325          46,162
    Operating, general and administrative .............         26,712          24,531          25,246
DEPRECIATION AND AMORTIZATION .........................          1,035             863             751
                                                              --------        --------        --------
                                                                79,913          72,719          72,159
                                                              --------        --------        --------

OPERATING EARNINGS ....................................          2,836           1,916           2,601

OTHER INCOME ..........................................            (14)            (28)            (37)
                                                              --------        --------        --------

NET EARNINGS ..........................................       $  2,850        $  1,944        $  2,638
                                                              ========        ========        ========
</Table>


                                      F-76
<PAGE>


              THE WOODLANDS OPERATING COMPANY, L.P. AND SUBSIDIARY
        CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                             (DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                           WOCOI         MS/TWC
                                         Investment       Joint         MS/TWC,
                                          Company        Venture          Inc.          Total
                                         ----------      -------        -------        -------
<S>                                      <C>             <C>            <C>            <C>
Balance, December 31, 1997 ........       $   594        $   790        $    15        $ 1,399
Distributions .....................        (2,550)        (3,390)           (60)        (6,000)
Earnings ..........................         1,121          1,491             26          2,638
                                          -------        -------        -------        -------
Balance, December 31, 1998 ........          (835)        (1,109)           (19)        (1,963)
Distributions .....................        (1,275)        (1,695)           (30)        (3,000)
Earnings ..........................           826          1,098             20          1,944
                                          -------        -------        -------        -------
Balance, December 31, 1999 ........        (1,284)        (1,706)           (29)        (3,019)
Distributions .....................        (3,266)        (2,679)           (55)        (6,000)
Earnings ..........................         1,927            900             23          2,850
                                          -------        -------        -------        -------
Balance, December 31, 2000 ........       $(2,623)       $(3,485)       $   (61)       $(6,169)
                                          =======        =======        =======        =======
</Table>


                                      F-77
<PAGE>

              THE WOODLANDS OPERATING COMPANY, L.P. AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                             (DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                                                     2000           1999           1998
                                                                   -------        -------        -------
<S>                                                                <C>            <C>            <C>
OPERATING ACTIVITIES
Net earnings ...............................................       $ 2,850        $ 1,944        $ 2,638
Adjustments to reconcile net earnings  to
    cash provided by (used for) operating activities
      Depreciation and amortization ........................         1,035            863            751
      Deferred Country Club initiation fees, net ...........         1,745          2,468          2,062
      Other ................................................          (671)          (329)          (113)
                                                                   -------        -------        -------
                                                                     4,959          4,946          5,338
      Changes in operating assets and liabilities
        Trade receivables, inventory and prepaid assets ....           429         (2,167)           656
        Other assets .......................................           462            522         (1,687)
        Accounts payable ...................................         2,744         (3,826)         6,388
        Accrued liabilities ................................           363            458         (2,360)
                                                                   -------        -------        -------
Cash provided by (used for) operating activities ...........         8,957            (67)         8,335
                                                                   -------        -------        -------

INVESTING ACTIVITIES
Capital expenditures .......................................          (817)        (1,106)          (519)
                                                                   -------        -------        -------

FINANCING ACTIVITIES
Distributions to partners ..................................        (6,000)        (3,000)        (6,000)
                                                                   -------        -------        -------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...........         2,140         (4,173)         1,816
CASH AND CASH EQUIVALENTS, beginning of year ...............         1,677          5,850          4,034
                                                                   -------        -------        -------

CASH AND CASH EQUIVALENTS, end of year .....................       $ 3,817        $ 1,677        $ 5,850
                                                                   =======        =======        =======
</Table>


                                      F-78
<PAGE>

              THE WOODLANDS OPERATING COMPANY, L.P. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2000


(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         CONTROL. The Woodlands Operating Company, L.P. ("Woodlands Operating"),
The Woodlands Land Development Company, L.P. ("Woodlands Development") and The
Woodlands Commercial Properties Company, L.P. ("Woodlands Commercial") are owned
by entities controlled by Crescent Real Estate Equities Limited Partnership or
Crescent Operating, Inc. (together "Crescent") and Morgan Stanley Real Estate
Fund II, L.P. ("Morgan Stanley"). Woodlands Development and Woodlands Commercial
are successors to The Woodlands Corporation. Prior to July 31, 1997, The
Woodlands Corporation was a wholly owned subsidiary of Mitchell Energy &
Development Corp. On July 31, 1997 The Woodlands Corporation was acquired by
Crescent and Morgan Stanley and merged into Woodlands Commercial, a Texas
limited partnership. Woodlands Commercial was then divided into two
partnerships: Woodlands Commercial and Woodlands Development. WECCR General
Partnership ("WECCR GP") is a wholly owned subsidiary of Woodlands Operating.
Woodlands Operating manages assets owned by Woodlands Commercial and Woodlands
Development.

         PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of Woodlands Operating and WECCR GP. All significant
intercompany transactions and accounts are eliminated in consolidation.

         BUSINESS. Woodlands Operating's activities are concentrated in The
Woodlands, a planned community located north of Houston, Texas. Consequently,
these operations and the associated credit risks may be affected, either
positively or negatively, by changes in economic conditions in this geographical
area. Woodlands Operating provides services to Woodlands Development and
Woodlands Commercial under management and advisory services agreements. These
agreements are automatically renewed annually. Woodlands Development and
Woodlands Commercial pay Woodlands Operating an advisory fee equal to 3% above
cost. In addition, they reimburse Woodlands Operating for all cost and expenses
incurred on their behalf. For the years ended December 31, 2000, 1999 and 1998,
Woodlands Operating recorded revenues of $12,606,000, $10,597,000 and
$11,050,000 for services provided to Woodlands Development and $6,398,000,
$7,480,000 and $7,343,000 for services provided to Woodlands Commercial.

         WECCR GP leases The Woodlands Conference Center, Resort and Country
Club ("the Facilities") from Woodlands Commercial. This agreement has an
eight-year term ending July 31, 2005. WECCR GP operates the Facilities and pays
Woodlands Commercial a base rent of $750,000 per month and a quarterly
percentage rent based on the gross receipts of the Facilities. For the years
ended December 31, 2000, 1999 and 1998, rent under the lease agreement totaled
$14,349,000, $13,011,000 and $12,799,000.

         DEPRECIATION. Depreciation of property and equipment is provided on the
straight-line method over the estimated useful lives of the assets, which range
from three to ten years.

         INVENTORY. Inventory is carried at replacement cost and consists of
golf-related clothing and equipment sold at golf course pro shops in The
Woodlands.

         INCOME TAXES. No provision for Federal income taxes is included in the
accompanying financial statements since Woodlands Operating is not a tax-paying
entity and all income and expenses are reported by the partners for tax
reporting purposes.

         The tax returns, the qualification of Woodlands Operating for tax
purposes and the amount of distributable partnership income or loss are subject
to examination by Federal taxing authorities. If such examinations result in
changes with respect to partnership qualification or in changes to distributable
partnership income or loss, the tax liability of the partners could be changed
accordingly.


                                      F-79
<PAGE>

         STATEMENTS OF CASH FLOWS. Short-term investments with maturities of
three months or less are considered to be cash equivalents. There were no
significant non-cash investing or financing activities for the years ended
December 31, 2000, 1999 and 1998.

         REVENUE RECOGNITION. Country club initiation fees are deferred and
recognized over the estimated life of membership, which is approximately nine
years.

         USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.

         RECENT ACCOUNTING PRONOUNCEMENTS. Staff Accounting Bulletin No. 101
("SAB 101") provides interpretive guidance on the proper revenue recognition,
presentation and disclosure in financial statements. Woodlands Operating has
reviewed its revenue recognition policies and determined that it is in
compliance with generally accepted accounting principles and the related
interpretive guidance set forth in SAB 101.

(2) COMMITMENTS AND CONTINGENCIES

         LEGAL ACTIONS. Woodlands Operating is a party to claims and legal
actions arising in the ordinary course of business and to recurring examinations
by the Internal Revenue Service and other regulatory agencies. Management
believes, after consultation with outside counsel, that adequate financial
statement accruals have been provided for all known litigation contingencies
where losses are deemed probable. Woodlands Operating believes it is not
probable that the ultimate resolution of this litigation will have a material
adverse effect on its financial position and results of operations.

         LEASES. Woodlands Operating has various facility and equipment lease
agreements including the Facility lease described in Note 1. Rental expenses for
operating leases for the years ended December 31, 2000, 1999 and 1998 total
$15,419,000, $14,364,000 and $13,898,000. Lease terms extend to 2009 and have an
average remaining term of seven years. Minimum rentals for the five years
subsequent to December 31, 2000 total approximately $10,032,000; $9,950,000;
$9,571,000; $9,442,000, $5,712,000 and $1,739,000 thereafter.

         INCENTIVE PLAN. Woodlands Operating instituted an incentive
compensation plan for certain employees effective January 1, 1998. The plan is
unfunded and while certain payments are made currently, a portion of the payment
is deferred and paid only upon the occurrence of certain future events.
Woodlands Development and Woodlands Commercial will reimburse any incentive plan
payments made in the future.

(3) PARTNERS' DEFICIT

         Crescent's ownership interest in Woodlands Operating is WOCOI
Investment Company, which holds a 42.5% general partner interest. Morgan
Stanley's ownership interests are MS/TWC Joint Venture, which holds a 56.5%
limited partner interest, and MS TWC, Inc., which holds a 1% general partner
interest.

         The partnership agreement provides, among other things, the following:

                (i) Woodlands Operating is governed by an Executive Committee
composed of equal representation from its respective general partners.

                (ii) Net income and losses from operations are currently
allocated so that partners' capital accounts stand in the ratio of the
percentage interest listed above.

                (iii) Distributions are made to partners based on specified
payout percentages and include cumulative preferred returns to Morgan Stanley's
affiliates. The payout percentage to Morgan Stanley's affiliates is 57.5% until
the affiliates receive distributions equal to their capital contributions and a
12% cumulative preferred return compounded quarterly. Then, the payout
percentage to Morgan Stanley's affiliates is 50.5% until the affiliates


                                      F-80
<PAGE>

receive distributions equal to their capital contributions and an 18% cumulative
preferred return compounded quarterly. Thereafter, the payout percentage to
Morgan Stanley's affiliates is 47.5%.

                (iv) Woodlands Operating will continue to exist until December
31, 2040 unless terminated earlier due to specified events.

                (v) No additional partners may be admitted to Woodlands
Operating unless specific conditions in the partnership agreements are met.
Partnership interests may be transferred to affiliates of Crescent or Morgan
Stanley. Crescent has the right of first refusal to buy the partnership
interests of the Morgan Stanley affiliates at the same terms and conditions
offered to a third party purchaser, or sell its affiliates' interests to the
same third party purchaser.

                (vi) Crescent and Morgan Stanley have the right to offer to
purchase the other partner's affiliates' partnership interests in the event of
failure to make specified capital contributions or a specified default by the
other. Specified defaults include bankruptcy, breach of partnership covenants,
transfer of partnership interests except as permitted by the partnership
agreements, and fraud or gross negligence.

(4) EMPLOYEE SAVINGS PLAN

     Woodlands Operating has a 401(k) defined contribution plan that is
available to all full-time employees who meet specified service requirements.
The plan is administered by a third party. Contributions to the plan are based
on a match of employee contributions up to a specified limit. For the years
ended December 31, 2000, 1999 and 1998 Woodlands Operating contributions totaled
$634,000, $547,000 and $582,000.


                                      F-81
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Executive Committee of
The Woodlands Land Development Company, L.P.:


We have audited the accompanying consolidated balance sheets of The Woodlands
Land Development Company, L.P. (a Texas limited partnership) and subsidiary as
of December 31, 2000 and 1999 and the related consolidated statements of
earnings, changes in partners' equity and cash flows for each of the three years
ended December 31, 2000. These financial statements are the responsibility of
The Woodlands Land Development Company, L.P.'s management. Our responsibility is
to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Woodlands Land Development Company, L.P. and subsidiary as of December 31, 2000
and 1999 and the consolidated results of their operations and cash flows for
each of the three years ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States.


ARTHUR ANDERSEN LLP

Houston, Texas
January 15, 2001


                                      F-82
<PAGE>

           THE WOODLANDS LAND DEVELOPMENT COMPANY, L.P. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2000 AND 1999
                             (DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                                              2000           1999
                                                            --------       --------
<S>                                                         <C>            <C>
ASSETS
Cash and cash equivalents ...........................       $ 10,739       $    486
Trade receivables ...................................            989            465
Inventory ...........................................             56             36
Prepaid and other current assets ....................          2,072            727
Notes and contracts receivable (Notes 2 and 10) .....         30,471         35,787
Real estate (Notes 3 and 4) .........................        395,940        375,663
Other assets ........................................          4,342          4,391
                                                            --------       --------
                                                            $444,609       $417,555
                                                            ========       ========

LIABILITIES AND EQUITY
Liabilities
    Accounts payable ................................       $ 27,935       $ 19,264
    Accrued liabilities .............................          3,598          3,148
    Credit facility (Notes 5 and 10) ................        217,000        237,000
    Other debt (Notes 5 and 10) .....................         38,356          3,285
    Deferred revenue ................................          6,272          1,603
    Other liabilities ...............................          7,128          8,250
    Note payable to affiliated company (Note 8) .....         15,880         23,303
    Notes payable to partners (Notes 6 and 10) ......         25,000         25,000
                                                            --------       --------
                                                             341,169        320,853

Commitments and contingencies (Notes 4 and 7)

Partners' equity (Note 9) ...........................        103,440         96,702
                                                            --------       --------
                                                            $444,609       $417,555
                                                            ========       ========
</Table>


                                      F-83
<PAGE>

           THE WOODLANDS LAND DEVELOPMENT COMPANY, L.P. AND SUBSIDIARY
                       CONSOLIDATED STATEMENTS OF EARNINGS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                             (DOLLARS IN THOUSANDS)


<Table>
<Caption>
                                                                2000             1999             1998
                                                              ---------        ---------        ---------
<S>                                                           <C>              <C>              <C>
REVENUES
Residential lot sales .................................       $ 127,435        $  92,904        $  77,824
Commercial land sales .................................          39,486           24,820           43,778
Other (Notes 3 and 4) .................................           9,963           13,135           10,349
                                                              ---------        ---------        ---------
                                                                176,884          130,859          131,951
                                                              ---------        ---------        ---------
COSTS AND EXPENSES
Residential lot cost of sales .........................          64,269           51,352           45,203
Commercial land cost of sales .........................          15,411           10,024           17,533
Operating expenses (Note 8) ...........................          25,249           18,705           19,471
Depreciation and amortization .........................           1,267              753              464
                                                              ---------        ---------        ---------
                                                                106,196           80,834           82,671
                                                              ---------        ---------        ---------

OPERATING EARNINGS ....................................          70,688           50,025           49,280
                                                              ---------        ---------        ---------

OTHER (INCOME) EXPENSE
Interest expense (Notes 5, 6 and 8) ...................          29,424           23,833           24,000
Interest capitalized ..................................         (26,438)         (21,659)         (22,106)
Amortization of debt costs ............................           1,083            1,211            1,243
Other .................................................             149              226              329
                                                              ---------        ---------        ---------
                                                                  4,218            3,611            3,466
                                                              ---------        ---------        ---------

EARNINGS BEFORE EXTRAORDINARY CHARGE AND CUMULATIVE
    EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE ........          66,470           46,414           45,814

EXTRAORDINARY CHARGE (Note 5) .........................              --              883               --

CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
    PRINCIPLE (Note 11) ...............................              --               --              639
                                                              ---------        ---------        ---------

NET EARNINGS ..........................................       $  66,470        $  45,531        $  45,175
                                                              =========        =========        =========
</Table>


                                      F-84
<PAGE>

           THE WOODLANDS LAND DEVELOPMENT COMPANY, L.P. AND SUBSIDIARY
             CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                             (DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                            The
                                          Woodlands         MS/TWC
                                            Land             Joint           MS/TWC,
                                        Company, Inc.       Venture            Inc.            Total
                                        -------------      ---------        ---------        ---------
<S>                                       <C>              <C>              <C>              <C>
Balance, December 31, 1997 ........       $  31,405        $  41,748        $     739        $  73,892
Contributions .....................           2,575            3,423               60            6,058
Distributions .....................         (15,299)         (20,338)            (360)         (35,997)
Net earnings ......................          19,199           25,524              452           45,175
                                          ---------        ---------        ---------        ---------
Balance, December 31, 1998 ........          37,880           50,357              891           89,128
Contributions .....................           2,550            3,390               60            6,000
Distributions .....................         (18,682)         (24,836)            (439)         (43,957)
Net earnings ......................          19,351           25,725              455           45,531
                                          ---------        ---------        ---------        ---------
Balance, December 31, 1999 ........          41,099           54,636              967           96,702
Contributions .....................           2,550            3,390               60            6,000
Distributions .....................         (27,947)         (37,129)            (656)         (65,732)
Net earnings ......................          28,260           37,547              663           66,470
                                          ---------        ---------        ---------        ---------
Balance, December 31, 2000 ........       $  43,962        $  58,444        $   1,034        $ 103,440
                                          =========        =========        =========        =========
</Table>


                                      F-85
<PAGE>

           THE WOODLANDS LAND DEVELOPMENT COMPANY, L.P. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                             (DOLLARS IN THOUSANDS)

<Table>
<Caption>
                                                                           2000             1999             1998
                                                                        ---------        ---------        ---------
<S>                                                                     <C>              <C>              <C>
OPERATING ACTIVITIES
Net earnings ....................................................       $  66,470        $  45,531        $  45,175
Adjustments to reconcile net earnings to
    cash provided by operating activities
      Cost of land sold .........................................          79,680           61,376           62,736
      Depreciation and amortization .............................           1,267              753              464
      Gain on sale of property ..................................              --           (4,239)            (699)
      Partnership distributions greater (less) than earnings ....             184              365              (61)
      (Increase) decrease in notes and contracts receivable
                                                                            5,316           (5,747)          (9,108)
      Other .....................................................           5,301            4,750           (4,697)
                                                                        ---------        ---------        ---------
                                                                          158,218          102,789           93,810
      Land development capital expenditures .....................         (58,060)         (71,969)         (50,035)
      Changes in operating assets and liabilities
        Trade receivables, inventory and prepaid assets .........          (1,889)          (1,075)               1
        Other assets ............................................              49           (2,383)           1,855
        Accounts payable and accrued liabilities ................           9,610            7,153           (1,118)
                                                                        ---------        ---------        ---------
Cash provided by operating activities ...........................         107,928           34,515           44,513
                                                                        ---------        ---------        ---------

INVESTING ACTIVITIES
Capital expenditures ............................................         (45,591)              --               --
Acquisition of commercial property ..............................              --               --          (10,100)
Proceeds from sale of property ..................................              --            5,398            4,819
                                                                        ---------        ---------        ---------
Cash provided by (used for) investing activities ................         (45,591)           5,398           (5,281)
                                                                        ---------        ---------        ---------

FINANCING ACTIVITIES
Contributions from partners .....................................           6,000            6,000            6,058
Distributions to partners .......................................         (65,732)         (43,957)         (35,997)
Debt borrowings .................................................           3,513          252,438            3,263
Debt repayments .................................................         (20,169)        (251,308)         (30,250)
Repayment of affiliated company note ............................          (7,423)          (2,697)              --
Subsidiary debt financing .......................................          31,727               --               --
                                                                        ---------        ---------        ---------
Cash used for financing activities ..............................         (52,084)         (39,524)         (56,926)
                                                                        ---------        ---------        ---------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................          10,253              389          (17,694)
CASH AND CASH EQUIVALENTS, beginning of year ....................             486               97           17,791
                                                                        ---------        ---------        ---------

CASH AND CASH EQUIVALENTS, end of year ..........................       $  10,739        $     486        $      97
                                                                        =========        =========        =========
</Table>


                                      F-86
<PAGE>

           THE WOODLANDS LAND DEVELOPMENT COMPANY, L.P. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2000


(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         CONTROL. The Woodlands Land Development Company, L.P. ("Woodlands
Development"), The Woodlands Commercial Properties Company, L.P. ("Woodlands
Commercial"), WECCR General Partnership ("WECCR GP"), and The Woodlands
Operating Company, L.P. ("Woodlands Operating") are owned by entities controlled
by Crescent Real Estate Equities Limited Partnership or Crescent Operating, Inc.
(together "Crescent") and Morgan Stanley Real Estate Fund II, L.P. ("Morgan
Stanley"). Woodlands Development and Woodlands Commercial are successors to The
Woodlands Corporation. Prior to July 31, 1997, The Woodlands Corporation was a
wholly owned subsidiary of Mitchell Energy & Development Corp. On July 31, 1997
The Woodlands Corporation was acquired by Crescent and Morgan Stanley and merged
into Woodlands Commercial, a Texas limited partnership. Woodlands Commercial was
then divided into two partnerships: Woodlands Commercial and Woodlands
Development. Woodlands Operating manages assets owned by Woodlands Development
as described in Note 8. In July 2000, Woodlands Development and Woodlands
Commercial established Woodlands VTO 2000 Land, LP ("VTO Land"), a subsidiary of
Woodlands Development, and Woodlands VTO 2000 Commercial, LP ("VTO Commercial"),
a subsidiary of Woodlands Commercial. These subsidiaries purchased certain
commercial properties owned by Woodlands Development and Woodlands Commercial.

         PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of Woodlands Development and its subsidiary. All
significant intercompany transactions and accounts are eliminated in
consolidation.

         BUSINESS. Woodlands Development's real estate activities are
concentrated in The Woodlands, a planned community located north of Houston,
Texas. Consequently, these operations and the associated credit risks may be
affected, either positively or negatively, by changes in economic conditions in
this geographical area. Activities associated with The Woodlands include
residential and commercial land sales and the construction of commercial
buildings.

         REAL ESTATE. Costs associated with the acquisition and development of
real estate, including holding costs consisting principally of interest and ad
valorem taxes, are capitalized as incurred. Capitalization of such holding costs
is limited to properties for which active development continues. Capitalization
ceases upon completion of a property or cessation of development activities.
Where practicable, capitalized costs are specifically assigned to individual
assets; otherwise, costs are allocated based on estimated values of the affected
assets.

         LAND SALES. Earnings from sales of real estate are recognized when a
third-party buyer has made an adequate cash down payment and has attained the
attributes of ownership. Notes received in connection with land sales are
discounted when the stated purchase prices are significantly different from
those that would have resulted from similar cash transactions. The cost of land
sold is generally determined as a specific percentage of the sales revenues
recognized for each land development project. These percentages are based on
total estimated development costs and sales revenues for each project.

         DEPRECIATION. Depreciation of operating assets is provided on the
straight-line method over the estimated useful lives of the assets, which range
from three to fifty years.

         INCOME TAXES. No provision for Federal income taxes is included in the
accompanying financial statements since the Woodlands Development is not a
tax-paying entity and all income and expenses are reported by the partners for
tax reporting purposes.

         The tax returns, the qualification of Woodlands Development for tax
purposes and the amount of distributable partnership income or loss are subject
to examination by Federal taxing authorities. If such examinations result in


                                      F-87
<PAGE>

changes with respect to partnership qualification or in changes to distributable
partnership income or loss, the tax liability of the partners could be changed
accordingly.

         STATEMENTS OF CASH FLOWS. Short-term investments with original
maturities of three months or less are considered to be cash equivalents. The
reported amounts for proceeds from issuance of debt and debt repayments exclude
the impact of borrowings with initial terms of three months or less. For the
years ended December 31, 2000, 1999 and 1998, Woodlands Development paid
interest totaling $30,018,000, $22,541,000 and $25,361,000 related to debt
described in Notes 5, 6 and 8.

         USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.

         RECENT ACCOUNTING PRONOUNCEMENTS. On January 1, 2001, Woodlands
Development adopted SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities" as amended by SFAS No. 138 "Accounting for Certain
Derivative Instruments and Certain Hedging Activities, an amendment of FASB
Statement No. 133". These standards establish accounting and reporting standards
for derivative instruments and hedging activities. In particular, they require a
company to record derivative instruments on the balance sheet at fair value and
recognize changes in fair value currently in earnings unless specific hedge
accounting criteria are satisfied. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally document
and assess the effectiveness of transactions that receive hedge accounting. The
adoption of these standards will result in a reduction of its derivative
instruments by $206,000. See Note 5 for additional information regarding the
Woodlands Development's derivative instruments and hedging activities.

         Staff Accounting Bulletin No. 101 ("SAB 101") provides interpretive
guidance on the proper revenue recognition, presentation and disclosure in
financial statements. Woodlands Development has reviewed its revenue recognition
policies and determined that it is in compliance with generally accepted
accounting principles and the related interpretive guidance set forth in SAB
101.

(2) NOTES AND CONTRACTS RECEIVABLE

         Notes receivable are carried at cost, net of discounts. At December 31,
2000 and 1999, Woodlands Development held utility district receivables totaling
$30,471,000 and $33,559,000. Utility district receivables, the collection of
which is dependent on the ability of utility districts in The Woodlands to sell
bonds, have a market interest rate of approximately 5.5% at December 31, 2000.

         In December 2000, Woodlands Development sold its remaining notes
receivable to a financial institution for $5,560,000. During 2000, Woodlands
Development sold $27,200,000 of its utility district receivables to a financial
institution under a factoring agreement. There was no gain or loss recognized.

(3) REAL ESTATE

         The following is a summary of real estate at December 31, 2000 and 1999
(in thousands):

<Table>
<Caption>
                                             2000             1999
                                          ---------        ---------
<S>                                       <C>              <C>
Land ..............................       $ 320,110        $ 344,140
Commercial properties .............          68,811           27,285
Equity investments (Note 4) .......           8,406            1,682
Other assets ......................             453            3,579
                                          ---------        ---------
                                            397,780          376,686
Accumulated depreciation ..........          (1,840)          (1,023)
                                          ---------        ---------
                                          $ 395,940        $ 375,663
                                          =========        =========
</Table>


                                      F-88
<PAGE>

         LAND. The principal land development is The Woodlands, a mixed-use,
master-planned community located north of Houston, Texas. Residential land is
divided into seven villages in various stages of development. Each village has
or is planned to contain a variety of housing, neighborhood retail centers,
schools, parks and other amenities. Woodlands Development controls the
development of the residential communities and produces finished lots for sale
to qualified builders. Housing is constructed in a wide choice of pricing and
product styles.

         Commercial land is divided into distinct centers that serve or are
planned to serve as locations for office buildings, retail and entertainment
facilities, industrial and warehouse facilities, research and technology
facilities, and college and training facilities. Woodlands Development produces
finished sites for third parties or its own building development activities.

COMMERCIAL PROPERTIES. Commercial properties owned by Woodlands Development are
leased to third-party tenants. At December 31, 2000, the net book value of
assets under operating leases totaled $55,304,000. Other commercial properties
are under development at December 31, 2000. Lease terms range from five to nine
years with an average term of six years. Leases are accounted for under the
operating method. Minimum future lease revenues from operating leases exclude
contingent rentals that may be received. Tenant rents include rent for
noncancelable operating leases. For the years ending December 31, 2000, 1999 and
1998, tenant rents totaled $2,589,000, $1,938,000 and $1,470,000 and are
included in other revenues. Contingent rents include pass-throughs of
incremental operating costs. For the years ending December 31, 2000, 1999 and
1998, contingent rents totaled $63,000, $144,000 and $155,000. Minimum future
lease revenues for the five years subsequent to December 31, 2000 are
$5,785,000; $5,805,000; $5,934,000; $6,083,000; and $6,113,000.

(4) EQUITY INVESTMENTS

         During 2000, Woodlands Development's principal partnership and
corporation interests included the following:

<Table>
<Caption>

                                                                        Ownership           Nature of Operations
                                                                        ---------           --------------------
<S>                                                                     <C>          <C>
Sterling Ridge Retail 2000 (completed December 2000)..............         50%       Retail property in The Woodlands
Stewart Title of Montgomery County, Inc. .........................         50%       Title company
</Table>

         Woodlands Development's net investment in these entities is included in
the real estate caption on the balance sheets and its share of these entities'
pretax earnings is included in other revenues on the statements of earnings. A
summary of the net investment as of December 31, 2000 and the share of pre-tax
earnings for the year then ended follows (in thousands):

 <Table>
 <Caption>
                                                                  Equity in Pre-Tax
                                                  Net Investment       Earnings
                                                  --------------  -----------------
<S>                                               <C>             <C>
Sterling Ridge Retail 2000 ....................       $6,953            $   --
Stewart Title of Montgomery County, Inc. ......        1,368               555
Other .........................................           85              (130)
                                                      ------            ------
                                                      $8,406            $  425
                                                      ======            ======
</Table>

         In September 1999, Woodlands Development completed a sale of its 49%
interest in Mitchell Mortgage Company, LLC for $5,398,000 and recognized as
other revenue a $4,239,000 gain on the sale.


                                      F-89
<PAGE>

         Summarized financial statement information for partnerships and a
corporation in which Woodlands Development has an ownership interest at December
31, 2000 and for the year then ended follows (in thousands):

<Table>
<S>                                                                     <C>
Assets ..........................................................       $19,308
Debt payable to third parties
   Woodlands Development's proportionate share (nonrecourse) ....         1,837
   Other parties' proportionate share ...........................         1,836
Accounts payable and deferred credits ...........................         1,275
Owners' equity ..................................................        14,360

Revenues ........................................................       $ 4,938
Operating earnings ..............................................         1,912
Pre-tax earnings ................................................         1,597
Woodlands Development's proportionate share
      of pre-tax earnings .......................................           425
</Table>

(5) DEBT

         A summary of Woodlands Development's outstanding debt at December 31,
2000 and 1999 follows (in thousands):

<Table>
<Caption>
                                                 2000           1999
                                               --------       --------
<S>                                            <C>            <C>
Bank credit agreement ..................       $217,000       $237,000
Subsidiary's credit agreement ..........         31,727             --
Mortgages payable, at an average
interest rate of 8.4% ..................          6,629          3,285
                                               --------       --------
                                               $255,356       $240,285
                                               ========       ========
</Table>

         BANK CREDIT AGREEMENT. In November 1999, Woodlands Development and
Woodlands Commercial replaced their existing bank credit agreement and
construction loan agreement with a new facility, consisting of a $300,000,000
term loan and a $100,000,000 revolving loan. The transaction resulted in an
extraordinary charge of $883,000 for Woodlands Development. The charge consisted
of the write-off of previously deferred financing costs. The new bank credit
agreement has a three-year term expiring in November 2002 with two one-year
extension options. The interest rate, based on the London Interbank Offered Rate
plus a margin, is approximately 9.8% at December 31, 2000. Interest is paid
monthly. Commitment fees, based on .25% of the unused commitment, total $18,000,
$9,000 and $52,000 for the years ended December 31, 2000, 1999 and 1998. The
credit agreement contains certain restrictions which, among other things,
require the maintenance of specified financial ratios, restrict indebtedness and
sale, lease or transfer of certain assets, and limit the right of Woodlands
Development to merge with other companies and make distributions to its
partners. At December 31, 2000, Woodlands Development was in compliance with its
debt covenants. Certain assets of Woodlands Development, including cash,
receivables, commercial properties and equity investments in joint ventures and
partnerships, secure the credit agreement. Mandatory debt maturities are
$18,000,000 in 2001 and $199,000,000 in 2002. Payments may be made by Woodlands
Development or Woodlands Commercial or both at their option. Beginning in 2001,
additional principal payments are required based on distributions to Crescent
and Morgan Stanley. Additional prepayments can also be made at the discretion of
Woodlands Development. Prepayments on the term loan are subject to a prepayment
penalty of up to 2%.

         Woodlands Development and Woodlands Commercial entered into an interest
rate cap agreement with a commercial bank to reduce the impact of increases in
interest rates on their bank credit agreement. The interest cap agreement
effectively limits their interest rate exposure on a notional amount to a
maximum LIBOR rate of 9%. The notional amount is $134,000,000 at December 31,
2000 and will reduce to $121,000,000 in December 2001. The interest cap
agreement matures at the same time as the bank credit agreement. Woodlands
Development is exposed


                                      F-90
<PAGE>

to credit loss in the event of nonperformance by the other party with respect to
the interest cap agreement. However, management does not anticipate
nonperformance by the other party.

         SUBSIDIARY'S CREDIT AGREEMENT. VTO Land and VTO Commercial entered into
a $67,500,000 credit agreement that has a three-year term expiring in October
2003 with two one-year extension options. The interest rate, based on the London
Interbank Offered Rate plus a margin, is approximately 8.8% at December 31,
2000. Interest is paid monthly. The credit agreement contains certain
restrictions which, among other things, require the maintenance of specified
financial ratios and restrict indebtedness and leasing. At December 31, 2000,
VTO Land was in compliance with its debt covenants. Certain assets of the VTO
Land and VTO Commercial secure the agreement. Debt maturities for the three
years subsequent to December 31, 2000 are $82,000, $490,000 and $31,155,000. VTO
Land, VTO Commercial, or both may make payments at their option.

         VTO Land and VTO Commercial entered into an interest rate cap agreement
with a commercial bank to reduce the impact of increases in interest rates on
their credit agreement. The interest cap agreement effectively limits their
interest rate exposure on a notional amount to a maximum LIBOR rate of 9%. The
notional amount is $33,750,000. The interest cap agreement matures at the same
time as the credit agreement. VTO Land is exposed to credit loss in the event of
nonperformance by the other party with respect to the interest cap agreement.
However, management does not anticipate nonperformance by the other party.

         MORTGAGES PAYABLE. The mortgages payable have debt maturities for the
five years subsequent to December 31, 2000 totaling $356,000; $530,000;
$577,000; $3,017,000; $2,007,000 and $142,000 thereafter. Mortgages payable are
secured by certain tracts of land.

(6) NOTES PAYABLE TO PARTNERS

         Woodlands Development has notes payable to its partners totaling
$25,000,000. The notes bear interest at 15%. Interest is payable beginning in
October 1998 and quarterly thereafter. All outstanding balances are due in 2007.
These notes are subordinate to the bank credit agreement and mortgages payable
described above.

(7) COMMITMENTS AND CONTINGENCIES

         CONTINGENT LIABILITIES. At December 31, 2000 and 1999, Woodlands
Development had contingent liabilities totaling approximately $11,000,000 and
$4,600,000, consisting of letters of credit and commitments to complete certain
improvements in The Woodlands. Under the terms of a land sales agreement,
Woodlands Development has committed to construct, or cause to be constructed,
certain improvements in The Woodlands and is contingently liable for up to
$3,100,000 in liquidating damages if the improvements are not complete by
certain dates.

         LEASES. Rental expense for operating leases for the years ended
December 31, 2000, 1999 and 1998 totaled $56,000, $19,000 and $14,000.

         LEGAL ACTIONS. The 221st Judicial District Court of Montgomery County,
Texas entered a judgment against Woodlands Development in October 1999 awarding
a total of $1,433,000 in damages to the plaintiffs. In addition to these
damages, the judgment also awards attorneys' fees to the plaintiff for
preparation, trial and subsequent appeals. The total present amount of the
judgment, including actual damages and attorneys' fees through the time of
trial, is approximately $1,468,000. The judgment awards postjudgment interest of
10% per annum. Woodlands Development appealed the ruling. Oral arguments have
been set by the Court of Appeals for February 2001.

         During 2000, Woodlands Development settled outstanding litigation,
related to flooding in the North Houston area in 1994, brought against it by
various homeowners in The Woodlands. No additional losses were incurred as a
result of this settlement.

         Woodlands Development is also a party to other claims and legal actions
arising in the ordinary course of their business and to recurring examinations
by the Internal Revenue Service and other regulatory agencies.

         Management believes, after consultation with outside counsel, that
adequate financial statement accruals have been provided for all known
litigation contingencies where losses are deemed probable. Since the ultimate
cost will


                                      F-91
<PAGE>

depend on the outcomes of the uncertainties discussed in this note, it is
possible, however, that additional future charges might be required that would
be significant to the operating results of a particular period. Based on the
status of the cases, Woodlands Development is unable to determine a range of
such possible additional losses, if any, that might be incurred in connection
with this litigation. Woodlands Development believes it is not probable that the
ultimate resolution of this litigation will have a material adverse effect on
its financial position.

         INCENTIVE PLAN. Woodlands Operating instituted an incentive
compensation plan for certain employees effective January 1, 1998. The plan is
unfunded and while certain payments are made currently, a portion of the payment
is deferred and paid only upon the occurrence of certain future events.
Woodlands Development will reimburse a portion of any incentive plan payments
made in the future.

(8) RELATED PARTY TRANSACTIONS

         Woodlands Operating provides services to Woodlands Development under
management and advisory services agreements. These agreements are automatically
renewed annually. Woodlands Development pays Woodlands Operating an advisory fee
equal to cost plus 3%. In addition, Woodlands Development reimburses Woodlands
Operating for all cost and expenses incurred on their behalf. For the years
ended December 31, 2000, 1999 and 1998, Woodlands Development recorded expenses
of $12,606,000, $10,597,000 and $11,050,000 for services provided by Woodlands
Operating.

         In July 1999, Woodlands Development purchased approximately 1,000 acres
of land in The Woodlands from Woodlands Commercial for $33,090,000, the then
current fair market value which approximated the carrying cost. The transaction
consisted of cash and a $26,000,000 note. The note bears interest at 8.5% and
matures in August 2009. Principal and interest payments are due quarterly and
additional principal payments are due when a portion of the land is conveyed to
a third party or built upon. The note is unsecured and subordinate to the bank
credit agreement described in Note 5.

(9) PARTNERS' EQUITY

         Crescent's ownership interest in Woodlands Development is The Woodlands
Land Company, Inc., which holds a 42.5% general partner interest. Morgan
Stanley's ownership interests are MS/TWC Joint Venture, which holds a 56.5%
limited partner interest, and MS/TWC, Inc., which holds a 1% general partner
interest.

         The partnership agreement provides, among other things, the following:

                (i) Woodlands Development is governed by an Executive Committee
composed of equal representation from their respective general partners.

                (ii) Net income and losses from operations are currently
allocated so that partners' capital accounts stand in the ratio of the
percentage interest listed above.

                (iii) Distributions are made to partners based on specified
payout percentages and include cumulative preferred returns to Morgan Stanley's
affiliates. The payout percentage to Morgan Stanley's affiliates is 57.5% until
the affiliates receive distributions on a combined basis with Woodlands
Commercial equal to their capital contributions and a 12% cumulative preferred
return compounded quarterly. Then, the payout percentage to Morgan Stanley's
affiliates is 50.5% until the affiliates receive distributions equal to their
capital contributions and an 18% cumulative preferred return compounded
quarterly. Thereafter, the payout percentage to Morgan Stanley's affiliates is
47.5%.

                (iv) Woodlands Development will continue to exist until December
31, 2040 unless terminated earlier due to specified events.

                (v) No additional partners may be admitted to Woodlands
Development unless specific conditions in the partnership agreements are met.
Partnership interests may be transferred to affiliates of Crescent or Morgan
Stanley. Crescent has the right of first refusal to buy the partnership
interests of the Morgan Stanley affiliates at the same


                                      F-92
<PAGE>

terms and conditions offered to a third party purchaser, or sell its affiliates'
interests to the same third party purchaser.

                (vi) Crescent and Morgan Stanley have the right to offer to
purchase the other partner's affiliates' partnership interests in the event of
failure to make specified capital contributions or a specified default by the
other. Specified defaults include bankruptcy, breach of partnership covenants,
transfer of partnership interests except as permitted by the partnership
agreements, and fraud or gross negligence.

(10) FAIR VALUE OF FINANCIAL INSTRUMENTS

         The carrying amounts and estimated fair values of Woodlands
Development's financial instruments as of December 31, 2000 follows (in
thousands):

<Table>
<Caption>
                                                              Carrying      Estimated Fair
                                                              Amounts           Values
                                                              --------      --------------
<S>                                                           <C>           <C>
Notes and contracts receivable.............................   $ 30,471         $ 30,471
Note payable to affiliated company.........................     15,880           15,880
Debt ......................................................    255,356          255,175
Notes payable to partners..................................     25,000           31,524
</Table>

         Fair values of notes and contracts receivable were estimated by
discounting future cash flows using interest rates at which similar loans
currently could be made for similar maturities to borrowers with comparable
credit ratings. Fair values of fixed-rate, long-term debt were based on current
interest rates offered to Woodlands Development for debt with similar remaining
maturities. For floating-rate debt obligations, carrying amounts and fair values
were assumed to be equal because of the nature of these obligations. The
carrying amounts of Woodlands Development's other financial instruments
approximate their fair values.

(11) CHANGE IN ACCOUNTING PRINCIPLE

         Effective January 1, 1998 Woodlands Development changed its method of
accounting for organization costs to conform to Statement of Position 98-5
"Reporting on the Costs of Start-Up Activities." In 1998, Woodlands Development
expensed previously capitalized costs that totaled $639,000.


                                      F-93
<PAGE>
           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                    CRESCENT OPERATING, INC. (PARENT COMPANY)

                            CONDENSED BALANCE SHEETS
                             (Amounts in thousands)

<Table>
<Caption>

                                                               December 31, 2001     December 31, 2000
                                                               -----------------     -----------------
<S>                                                            <C>                   <C>
                                                ASSETS

CURRENT ASSETS
  Cash and cash equivalents                                        $     383             $     760
  Accounts receivable                                                 10,606                   641
  Intercompany                                                        13,737                13,608
  Prepaid expenses and other current assets                               10                   601
                                                                   ---------             ---------
      Total current assets                                            24,736                15,610
                                                                   ---------             ---------

PROPERTY AND EQUIPMENT, NET                                               56                    66

INVESTMENTS                                                          (42,712)               43,959

OTHER ASSETS                                                          19,461                 5,548
                                                                   ---------             ---------

TOTAL ASSETS                                                       $   1,541             $  65,183
                                                                   =========             =========


                            LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
  Accounts payable and accrued expenses                            $   1,133             $   1,086
  Accounts payable and accrued expenses - CEI                          6,968                 6,849
  Current portion of long-term debt - CEI                             69,041                 8,578
  Current portion of long-term debt                                   16,997                16,033
                                                                   ---------             ---------
      Total current liabilities                                       94,139                32,546

LONG-TERM DEBT, NET OF CURRENT PORTION                                   790                56,170

                                                                   ---------             ---------
      Total liabilities                                               94,929                88,716
                                                                   ---------             ---------


SHAREHOLDERS' EQUITY (DEFICIT)
  Preferred stock, $.01 par value, 10,000 shares authorized,              --                    --
    no shares issued or outstanding
  Common stock, $.01 par value, 22,500 shares authorized,                115                   114
    11,443 and 11,415 shares issued, respectively
  Additional paid-in capital                                          17,781                17,754
  Deferred compensation on restricted shares                              --                  (177)
  Accumulated comprehensive income (loss)                             (1,436)               (9,509)
  Accumulated deficit                                               (105,542)              (27,409)
  Treasury Stock at cost, 1,103 shares                                (4,306)               (4,306)
                                                                   ---------             ---------
      Total shareholders' equity (deficit)                           (93,388)              (23,533)
                                                                   ---------             ---------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)               $   1,541             $  65,183
                                                                   =========             =========
</Table>

          See accompanying notes to the condensed financial statements.



                                      S-1
<PAGE>


           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                    CRESCENT OPERATING, INC. (PARENT COMPANY)

                       CONDENSED STATEMENTS OF OPERATIONS
                             (Amounts in thousands)

<Table>
<Caption>

                                                          For the               For the                For the
                                                        Year Ended            Year Ended             Year Ended
                                                     December 31, 2001     December 31, 2000      December 31, 1999
                                                     -----------------     -----------------      -----------------
<S>                                                  <C>                   <C>                    <C>
COSTS AND EXPENSES
  General and administrative expenses                   $  6,947               $  4,197               $  2,602
  Interest expense                                         9,070                  8,427                  8,429
  Interest income                                             46                   (416)                  (391)
  Other                                                       (3)                     2                     --
                                                        --------               --------               --------

     Total costs and expenses                             16,060                 12,210                 10,640

INVESTMENT INCOME                                             --                  2,667                  1,890

EQUITY IN (LOSS) EARNINGS OF UNCONSOLIDATED
  SUBSIDIARIES                                           (58,218)                 1,425                 (2,098)
                                                        --------               --------               --------

LOSS BEFORE INCOME TAXES,                                (74,278)                (8,118)               (10,848)
  MINORITY INTERESTS AND ACCOUNTING CHANGE

INCOME TAX BENEFIT                                        (5,654)                (4,428)                (8,153)
                                                        --------               --------               --------

LOSS BEFORE ACCOUNTING CHANGE                            (68,624)                (3,690)                (2,695)

CUMULATIVE EFFECT OF CHANGE
  IN ACCOUNTING PRINCIPLE                                 (9,509)                    --                     --
                                                        --------               --------               --------

NET LOSS                                                $(78,133)              $ (3,690)              $ (2,695)
                                                        ========               ========               ========
</Table>



          See accompanying notes to the condensed financial statements.


                                      S-2
<PAGE>



           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                    CRESCENT OPERATING, INC. (PARENT COMPANY)

                       CONDENSED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)

<Table>
<Caption>

                                                                             For the              For the            For the
                                                                           Year Ended           Year Ended         Year Ended
                                                                        December 31, 2001    December 31, 2000  December 31, 1999
                                                                        -----------------    -----------------  -----------------
<S>                                                                     <C>                  <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                  $(78,133)            $ (3,690)            $ (2,695)
  Adjustments to reconcile net loss
    to net cash provided by (used in) operating activities:
    Depreciation                                                                  27                   32                   22
    Amortization                                                                (103)                (103)                (155)
    Intercompany                                                                (129)              (6,538)              (1,942)
    Loss on sale of equipment                                                      2                    4                    2
    Gain on sale of investments                                                   --                 (722)              (1,963)
    Investment (income) loss                                                  60,631               (3,370)               2,171
    Impairment of assets                                                          --                   --                   --
    Change in accounting method                                                9,509                   --                   --
    Deferred compensation                                                        205                   60                   53
    Deferred taxes                                                            (5,355)               1,744               (6,909)
    Changes in assets and liabilities, net of effects of acquisitions:
      Accounts receivable                                                     (9,965)                (996)                (127)
      Prepaid expenses and current assets                                        591                 (511)                 634
      Other assets                                                            (2,703)                 101                  (27)
      Accounts payable and accrued expenses                                       47                1,240                 (315)
      Accounts payable and accrued expenses - CEI                                119                4,771                  480
                                                                            --------             --------             --------
        Net cash provided by (used in) operating activities                  (25,257)              (7,978)             (10,771)
                                                                            --------             --------             --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of business interests - net of cash acquired                        --                   --              (15,489)
  Purchases of property and equipment                                            (19)                 (36)                 (51)
  Proceeds from sale of property and equipment                                    --                4,060                   --
  Proceeds from sale of investments                                               --                   --               22,691
  Net distribution from investments                                           18,852                7,028                7,097
                                                                            --------             --------             --------
        Net cash provided by (used in) investing activities                   18,833               11,052               14,248
                                                                            --------             --------             --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds of long-term debt - CEI                                             7,842                1,675               37,628
  Payments of long-term debt - CEI                                                --                   --              (39,480)
  Payments of long-term debt                                                  (1,795)              (2,673)              (5,942)
  Other                                                                           --                   --                    7
                                                                            --------             --------             --------
        Net cash provided by (used in) financing activities                    6,047                 (998)              (7,787)
                                                                            --------             --------             --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                            (377)               2,075               (4,310)

CASH AND CASH EQUIVALENTS,
  BEGINNING OF PERIOD                                                            760               (1,316)               2,994
                                                                            --------             --------             --------
CASH AND CASH EQUIVALENTS,
  END OF PERIOD                                                             $    383             $    760             $ (1,316)
                                                                            ========             ========             ========
</Table>


          See accompanying notes to the condensed financial statements.



                                      S-3
<PAGE>

           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                    CRESCENT OPERATING, INC. (PARENT COMPANY)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS

1.       BASIS OF PRESENTATION

         Crescent Operating, Inc.'s (the "Company") investment in subsidiaries
         is stated at cost plus or minus equity in undistributed earnings
         (losses) of subsidiaries since the date of acquisition. The Company's
         share of net income (loss) of its unconsolidated subsidiaries is
         included in consolidated income (loss) using the equity method. The
         parent company-only financial statements should be read in conjunction
         with the Company's consolidated financial statements.



                                       S-4

<PAGE>


                                 EXHIBIT INDEX
<Table>
<Caption>

EXHIBIT
NUMBER            DESCRIPTION
-------           -----------
<S>               <C>
3.1               First Amended and Restated Certificate of Incorporation (filed
                  as Exhibit 3.3 to the Company's registration statement on Form
                  S-1 dated July 12, 1997 ("Form S-1") and incorporated by
                  reference herein)

3.2               First Amended and Restated Bylaws (filed as Exhibit 3.4 to
                  Form S-1 and incorporated by reference herein)

3.3               Amendment of Article V of First Amended and Restated Bylaws
                  (filed as Exhibit 3.3 to the Company's June 30, 1998 Form 10-Q
                  ("June 30, 1998 Form 10-Q") and incorporated by reference
                  herein)

3.4               Repeal of Amendment of Article V of First Amended and Restated
                  Bylaws (filed as Exhibit 3.4 to the Company's September 30,
                  1998 Form 10-Q ("September 30, 1998 Form 10-Q") and
                  incorporated by reference herein)

4.1               Specimen stock certificate (filed as Exhibit 4.1 to Form S-1
                  and incorporated by reference herein)

4.2               Preferred Share Purchase Rights Plan (filed as Exhibit 4.2 to
                  Form S-1 and incorporated by reference herein)

4.3               First Amendment to Preferred Share Purchase Rights Agreement
                  dated as of September 25, 1998, between Crescent Operating,
                  Inc. and Bank Boston, N.A., as Rights Agent (filed as Exhibit
                  4.3 to September 30, 1998 Form 10-Q and incorporated by
                  reference herein)

4.4               Second Amendment to Preferred Share Purchase Rights Agreement
                  dated as of March 4, 1999, between Crescent Operating, Inc.
                  and Bank Boston, N.A., as Rights Agent (filed as Exhibit 4.4
                  to March 31, 1999 Form 10-Q ("March 31, 1999 Form 10-Q") and
                  incorporated by reference herein)

10.1              Amended Stock Incentive Plan (filed as Exhibit 10.1 to Form
                  S-1 and incorporated by reference herein)

10.2              Intercompany Agreement between Crescent Operating, Inc. and
                  Crescent Real Estate Equities Limited Partnership (filed as
                  Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
                  for the Quarter Ended June 30, 1997 ("June 30, 1997 Form
                  10-Q") and incorporated by reference herein)

10.3              Amended and Restated Operating Agreement of Charter Behavioral
                  Health Systems, LLC (filed as Exhibit 10.3 to June 30, 1997
                  Form 10-Q and incorporated by reference herein)

10.5              Amended and Restated Credit and Security Agreement, dated as
                  of May 30, 1997, between Crescent Real Estate Equities Limited
                  Partnership and Crescent Operating, Inc., together with
                  related Note (filed as Exhibit 10.5 to the Company's September
                  30, 1997 Form 10-Q ("September 30, 1997 Form 10-Q") and
                  incorporated by reference herein)

10.6              Line of Credit and Security Agreement, dated as of May 21,
                  1997, between Crescent Real Estate Equities Limited
                  Partnership and Crescent Operating, Inc., together with
                  related Line of Credit Note (filed as Exhibit 10.6 to
                  September 30, 1997 Form 10-Q and incorporated by reference
                  herein)
</Table>



<PAGE>

<Table>
<S>               <C>
10.7              Acquisition Agreement, dated as of February 10, 1997, between
                  Crescent Real Estate Equities Limited Partnership and
                  Carter-Crowley Properties, Inc. (filed as Exhibit 10.7 to Form
                  S-1 and incorporated by reference herein)

10.10             Security Agreement dated September 22, 1997 between COI Hotel
                  Group, Inc., as debtor, and Crescent Real Estate Equities
                  Limited Partnership, as lender, together with related $1
                  million promissory note (filed as Exhibit 10.10 to September
                  30, 1997 Form 10-Q and incorporated by reference herein)

10.11             Security Agreement dated September 22, 1997 between COI Hotel
                  Group, Inc., as debtor, and Crescent Real Estate Equities
                  Limited Partnership, as lender, together with related $800,000
                  promissory note (filed as Exhibit 10.11 to September 30, 1997
                  Form 10-Q and incorporated by reference herein)

10.12             Amended and Restated Asset Management dated August 31, 1997,
                  to be effective July 31, 1997, between Wine Country Hotel, LLC
                  and The Varma Group, Inc. (filed as Exhibit 10.12 to September
                  30, 1997 Form 10-Q and incorporated by reference herein)

10.13             Amended and Restated Asset Management Agreement dated August
                  31, 1997, to be effective July 31, 1997, between RoseStar
                  Southwest, LLC and The Varma Group, Inc. (filed as Exhibit
                  10.13 to September 30, 1997 Form 10-Q and incorporated by
                  reference herein)

10.14             Amended and Restated Asset Management Agreement dated August
                  31, 1997, to be effective July 31, 1997, between RoseStar
                  Management LLC and The Varma Group, Inc. (filed as Exhibit
                  10.14 to September 30, 1997 Form 10-Q and incorporated by
                  reference herein)

10.15             Agreement for Financial Services dated July 1, 1997, between
                  Crescent Real Estate Equities Company and Petroleum Financial,
                  Inc. (filed as Exhibit 10.15 to September 30, 1997 Form 10-Q
                  and incorporated by reference herein)

10.16             Credit Agreement dated August 27, 1997, between Crescent
                  Operating, Inc. and NationsBank of Texas, N.A. together with
                  related $15.0 million promissory note (filed as Exhibit 10.16
                  to September 30, 1997 Form 10-Q and incorporated by reference
                  herein)

10.17             Support Agreement dated August 27, 1997, between Richard E.
                  Rainwater, John Goff and Gerald Haddock in favor of Crescent
                  Real Estate Equities Company and NationsBank of Texas, N.A.
                  (filed as Exhibit 10.17 to September 30, 1997 Form 10-Q and
                  incorporated by reference herein)

10.18             1997 Crescent Operating, Inc. Management Stock Incentive Plan
                  (filed as Exhibit 10.18 to the Company's Annual Report on Form
                  10-K for the year ended December 31, 1997 ("December 31, 1997
                  Form 10-K") and incorporated by reference herein)

10.19             Memorandum of Agreement executed November 16, 1997, among
                  Charter Behavioral Health Systems, LLC, Charter Behavioral
                  Health Systems, Inc. and Crescent Operating, Inc. (filed as
                  Exhibit 10.19 to December 31, 1997 Form 10-K and incorporated
                  by reference herein)

10.20             Purchase Agreement dated August 31, 1997, by and among
                  Crescent Operating, Inc., RoseStar Management LLC, Gerald W.
                  Haddock, John C. Goff and Sanjay Varma (filed as Exhibit 10.20
                  to December 31, 1997 Form 10-K and incorporated by reference
                  herein)

10.21             Stock Purchase Agreement dated August 31, 1997, by and among
                  Crescent Operating, Inc., Gerald W. Haddock, John C. Goff and
                  Sanjay Varma (filed as Exhibit 10.21 to December 31, 1997 Form
                  10-K and incorporated by reference herein)
</Table>



<PAGE>


<Table>

<S>               <C>
10.22             Amended and Restated Lease Agreement, dated June 30, 1995
                  between Crescent Real Estate Equities Limited Partnership and
                  RoseStar Management LLC, relating to the Denver Marriott City
                  Center (filed as Exhibit 10.17 to the Annual Report on Form
                  10-K of Crescent Real Estate Equities Company for the Fiscal
                  Year Ended December 31, 1995 (the "1995 CEI 10-K") and
                  incorporated by reference herein)

10.23             Lease Agreement, dated December 19, 1995 between Crescent Real
                  Estate Equities Limited Partnership and RoseStar Management
                  LLC, relating to the Hyatt Regency Albuquerque (filed as
                  Exhibit 10.16 to the 1995 CEI 10-K and incorporated by
                  reference herein)

10.24             Form of Amended and Restated Lease Agreement, dated January 1,
                  1996, among Crescent Real Estate Equities Limited Partnership,
                  Mogul Management, LLC and RoseStar Management LLC, relating to
                  the Hyatt Regency Beaver Creek (filed as Exhibit 10.12 to the
                  1995 CEI 10-K and incorporated by reference herein)

10.25             Lease Agreement, dated July 26, 1996, between Canyon Ranch,
                  Inc. and Canyon Ranch Leasing, L.L.C., assigned by Canyon
                  Ranch, Inc. to Crescent Real Estate Equities Limited
                  Partnership pursuant to the Assignment and Assumption
                  Agreement of Master Lease, dated July 26, 1996 (filed as
                  Exhibit 10.24 to the Quarterly Report on Form 10-Q/A of
                  Crescent Real Estate Equities Company for the Quarter Ended
                  June 30, 1997 (the "1997 CEI 10-Q") and incorporated by
                  reference herein)

10.26             Lease Agreement, dated November 18, 1996 between Crescent Real
                  Estate Equities Limited Partnership and Wine Country Hotel,
                  LLC (filed as Exhibit 10.25 to the Annual Report on Form 10-K
                  of Crescent Real Estate Equities Company for the Fiscal Year
                  Ended December 31, 1996 and incorporated by reference herein)

10.27             Lease Agreement, dated December 11, 1996, between Canyon
                  Ranch-Bellefontaine Associates, L.P. and Vintage Resorts,
                  L.L.C., as assigned by Canyon Ranch-Bellefontaine Associates,
                  L.P. to Crescent Real Estate Funding VI, L.P. pursuant to the
                  Assignment and Assumption Agreement of Master Lease, dated
                  December 11, 1996 (filed as Exhibit 10.26 to the 1997 CEI 10-Q
                  and incorporated by reference herein)

10.28             Master Lease Agreement, dated June 16, 1997, between Crescent
                  Real Estate Funding VII, L.P. and Charter Behavioral Health
                  Systems, LLC and its subsidiaries, relating to the Facilities
                  (filed as Exhibit 10.27 to the 1997 CEI 10-Q and incorporated
                  by reference herein)

10.29             Form of Indemnification Agreement (filed as Exhibit 10.29 to
                  December 31, 1997 Form 10-K and incorporated by reference
                  herein)

10.30             Purchase Agreement, dated as of September 29, 1997, between
                  Crescent Operating, Inc. and Crescent Real Estate Equities
                  Limited Partnership, relating to the purchase of Desert
                  Mountain Development Corporation (filed as Exhibit 10.30 to
                  December 31, 1997 Form 10-K and incorporated by reference
                  herein)

10.31             Lease Agreement dated December 19, 1997, between Crescent Real
                  Estate Equities Limited Partnership, as Lessor, and Wine
                  Country Hotel, as Lessee, for lease of Ventana Inn (filed as
                  Exhibit 10.31 to the Company's March 31, 1998 Form 10-Q
                  ("March 31, 1998 Form 10-Q") and incorporated by reference
                  herein)

10.32             Lease Agreement dated September 22, 1997, between Crescent
                  Real Estate Equities Limited Partnership, as Lessor, and COI
                  Hotel Group, Inc., as lessee, for lease of Four Seasons Hotel,
                  Houston (filed as Exhibit 10.32 to March 31, 1998 Form 10-Q
                  and incorporated by reference herein)
</Table>


<PAGE>

<Table>

<S>               <C>
10.33             Asset Purchase Agreement dated December 19, 1997, among
                  Crescent Operating, Inc., Preco Machinery Sales, Inc., and
                  certain individual Preco shareholders (filed as Exhibit 10.33
                  to March 31, 1998 Form 10-Q and incorporated by reference
                  herein)

10.34             Asset Purchase Agreement dated April 30, 1998, among Crescent
                  Operating, Inc., Central Texas Equipment Company, and certain
                  individual Central Texas shareholders (filed as Exhibit 10.34
                  to March 31, 1998 Form 10-Q and incorporated by reference
                  herein)

10.35             Credit Agreement dated August 29, 1997 between Crescent Real
                  Estate Equities Limited Partnership, as lender, and Desert
                  Mountain Properties Limited Partnership, as borrower, together
                  with related Senior Note, Junior Note and deed of trust (filed
                  as Exhibit 10.35 to March 31, 1998 Form 10-Q and incorporated
                  by reference herein)

10.36             Buy-Out Agreement dated April 24, 1998, between Crescent
                  Operating, Inc. and Crescent Real Estate Equities Limited
                  Partnership (filed as Exhibit 10.36 to March 31, 1998 Form
                  10-Q and incorporated by reference herein)

10.37             Stock Acquisition Agreement and Plan of Merger dated June 4,
                  1998, among Machinery, Inc., Oklahoma Machinery, Inc.,
                  Crescent Machinery Company, Crescent Operating, Inc. and
                  certain individual Machinery shareholders (filed as Exhibit
                  10.37 to June 30, 1998 Form 10-Q and incorporated by reference
                  herein)

10.38             Master Revolving Line of Credit Loan Agreement (Borrowing Base
                  and Warehouse) dated May 14, 1998, between Desert Mountain
                  Properties Limited Partnership and National Bank of Arizona
                  (filed as Exhibit 10.38 to June 30, 1998 Form 10-Q and
                  incorporated by reference herein)

10.39             1997 Management Stock Incentive Plan (filed as Exhibit 10.39
                  to June 30, 1998 Form 10-Q and incorporated by reference
                  herein)

10.40             Credit and Security Agreement, dated as of September 21, 1998,
                  between Crescent Real Estate Equities Limited Partnership and
                  Crescent Operating, Inc., together with related Note (filed as
                  Exhibit 10.40 to September 30, 1998 Form 10-Q and incorporated
                  by reference herein)

10.41             First Amendment to Amended and Restated Pledge Agreement,
                  dated as of September 21, 1998, between Crescent Real Estate
                  Equities Limited Partnership and Crescent Operating, Inc.
                  (filed as Exhibit 10.41 to September 30, 1998 Form 10-Q and
                  incorporated by reference herein)

10.42             First Amendment to Line of Credit and Security Agreement,
                  dated as of August 11, 1998, between Crescent Real Estate
                  Equities Limited Partnership and Crescent Operating, Inc.,
                  together with related Note (filed as Exhibit 10.42 to
                  September 30, 1998 Form 10-Q and incorporated by reference
                  herein)

10.43             First Amendment to Amended and Restated Credit and Security
                  Agreement, dated as of August 11, 1998, between Crescent Real
                  Estate Equities Limited Partnership and Crescent Operating,
                  Inc. (filed as Exhibit 10.43 to September 30, 1998 Form 10-Q
                  and incorporated by reference herein)

10.44             Second Amendment to Amended and Restated Credit and Security
                  Agreement, dated as of September 21, 1998, between Crescent
                  Real Estate Equities Limited Partnership and Crescent
                  Operating, Inc. (filed as Exhibit 10.44 to September 30, 1998
                  Form 10-Q and incorporated by reference herein)

10.45             Second Amendment to Line of Credit and Security Agreement,
                  dated as of September 21, 1998, between Crescent Real Estate
                  Equities Limited Partnership and Crescent Operating, Inc.
                  (filed as Exhibit 10.45 to September 30, 1998 Form 10-Q and
                  incorporated by reference herein)
</Table>


<PAGE>

<Table>

<S>               <C>
10.46             Agreement of Limited Partnership of COPI Colorado, L.P. (filed
                  as Exhibit 10.1 to that Schedule 13D Statement dated September
                  28, 1998, filed by COPI Colorado, L.P., Crescent Operating,
                  Inc., Gerald W. Haddock, John C. Goff and Harry H. Frampton,
                  III, and incorporated by reference herein)

10.47             Contribution Agreement effective as of September 11, 1998, by
                  and among Crescent Operating, Inc., Gerald W. Haddock, John C.
                  Goff and Harry H. Frampton, III (filed as Exhibit 10.2 to that
                  Schedule 13D Statement dated September 28, 1998, filed by COPI
                  Colorado, L.P., Crescent Operating, Inc., Gerald W. Haddock,
                  John C. Goff and Harry H. Frampton, III, and incorporated by
                  reference herein)

10.48             Agreement Regarding Schedules and Other Matters made as of
                  September 11, 1998, by and among Crescent Operating, Inc.,
                  Gerald W. Haddock, John C. Goff and Harry H. Frampton, III
                  (filed as Exhibit 10.3 to that Schedule 13D Statement dated
                  September 28, 1998, filed by COPI Colorado, L.P., Crescent
                  Operating Inc., Gerald W. Haddock, John C. Goff and Harry H.
                  Frampton, III, and incorporated by reference herein)

10.49             Stock Purchase Agreement dated as of August 7, 1998 by and
                  among Western Traction Company, The Carlston Family Trust,
                  Ronald D. Carlston and Crescent Operating, Inc. (filed as
                  Exhibit 10.49 to September 30, 1998 Form 10-Q and incorporated
                  by reference herein)


10.50             Stock Purchase Agreement dated as of July 31, 1998 by and
                  among Harvey Equipment Center, Inc., L and H Leasing Company,
                  William J. Harvey, Roy E. Harvey, Jr., Betty J. Harvey and
                  Crescent Operating, Inc. (filed as Exhibit 10.50 to September
                  30, 1998 Form 10-Q and incorporated by reference herein)

10.51             Credit Agreement dated as of July 28, 1998, between Crescent
                  Real Estate Equities Limited Partnership and CRL Investments,
                  Inc., together with the related Note (filed as Exhibit 10.51
                  to September 30, 1998 Form 10-Q and incorporated by reference
                  herein)

10.52             Security Agreement dated as of July 28, 1998, between Crescent
                  Real Estate Equities Limited Partnership and CRL Investments,
                  Inc. (filed as Exhibit 10.52 to September 30, 1998 Form 10-Q
                  and incorporated by reference herein)

10.53             First Amendment to Credit Agreement effective as of August 27,
                  1998, among Crescent Operating, Inc., NationsBank, N. A., and
                  the Support Parties identified therein (filed as Exhibit 10.53
                  to September 30, 1998 Form 10-Q and incorporated by reference
                  herein)

10.54             Lease Agreement dated as of October 13, 1998, between Crescent
                  Real Estate Equities Limited Partnership and Wine Country Golf
                  Club, Inc., relating to Sonoma Golf Club (filed as Exhibit
                  10.54 to September 30, 1998 Form 10-Q and incorporated by
                  reference herein)

10.55             First Amendment to Lease Agreement effective December 31,
                  1998, between Canyon Ranch Leasing, L.L.C., and Crescent Real
                  Estate Equities Limited Partnership, relating to Canyon Ranch
                  - Tucson (filed as Exhibit 10.55 to the Company's Annual
                  Report on Form 10-K for the year ended December 31, 1998
                  ("December 31, 1998 Form 10-K") and incorporated by reference
                  herein)

10.56             First Amendment to Lease Agreement effective April 1, 1996;
                  Second Amendment to Lease Agreement effective November 22,
                  1996; Third Amendment to Lease Agreement effective August 12,
                  1998; and Fourth Amendment to Lease Agreement effective
                  December 31, 1998 between RoseStar Southwest, LLC, and
                  Crescent Real Estate Funding II L.P., relating to Hyatt
                  Regency Albuquerque (filed as Exhibit 10.56 to December 31,
                  1998 Form 10-K and incorporated by reference herein)
</Table>

<PAGE>

<Table>

<S>               <C>
10.57             First Amendment to Lease Agreement effective December 31,
                  1998, between Wine Country Hotel, LLC, and Crescent Real
                  Estate Equities Limited Partnership, relating to Sonoma
                  Mission Inn & Spa (filed as Exhibit 10.57 to December 31, 1998
                  Form 10-K and incorporated by reference herein)

10.58             First Amendment to Amended and Restated Lease Agreement
                  effective December 31, 1998, between RoseStar Management, LLC,
                  and Crescent Real Estate Equities Limited Partnership,
                  relating to Marriott City Center, Denver (filed as Exhibit
                  10.58 to December 31, 1998 Form 10-K and incorporated by
                  reference herein)

10.59             First Amendment to Lease Agreement effective December 31,
                  1998, between Wine Country Hotel, LLC, and Crescent Real
                  Estate Equities Limited Partnership, relating to Ventana Inn
                  (filed as Exhibit 10.59 to December 31, 1998 Form 10-K and
                  incorporated by reference herein)

10.60             First Amendment to Amended and Restated Lease Agreement
                  effective April 1, 1996 and Second Amendment to Amended and
                  Restated Lease Agreement effective December 31, 1998, between
                  RoseStar Southwest, LLC, and Crescent Real Estate Funding II,
                  L.P., relating to Hyatt Regency Beaver Creek (filed as Exhibit
                  10.60 to December 31, 1998 Form 10-K and incorporated by
                  reference herein)

10.61             First Amendment to Lease Agreement effective December 31,
                  1998, between COI Hotel Group, Inc. and Crescent Real Estate
                  Equities Limited Partnership, relating to Four Seasons -
                  Houston (filed as Exhibit 10.61 to December 31, 1998 Form 10-K
                  and incorporated by reference herein)

10.62             First Amendment to Lease Agreement effective December 31,
                  1998, between Wine Country Hotel, LLC and Crescent Real Estate
                  Funding VI, L.P., relating to Canyon Ranch - Lenox (filed as
                  Exhibit 10.62 to March 31, 1999 Form 10-Q and incorporated by
                  reference herein)


10.63             Master Guaranty effective December 31, 1998, by Crescent
                  Operating, Inc. for the benefit of Crescent Real Estate
                  Equities Limited Partnership, Crescent Real Estate Funding II,
                  L.P., and Crescent Real Estate Funding VI, L.P., relating to
                  leases for Hyatt Regency Albuquerque, Hyatt Regency Beaver
                  Creek, Canyon Ranch-Lenox, Sonoma Mission Inn & Spa, Canyon
                  Ranch - Tucson, and Marriott City Center Denver (filed as
                  Exhibit 10.63 to December 31, 1998 Form 10-K and incorporated
                  by reference herein)

10.64             Guaranty of Lease effective December 19, 1997, by Crescent
                  Operating, Inc. for the benefit of Crescent Real Estate
                  Equities Limited Partnership, relating to Ventana Inn (filed
                  as Exhibit 10.64 to December 31, 1998 Form 10-K and
                  incorporated by reference herein)

10.65             Amended and Restated Guaranty of Lease effective December 31,
                  1998, by Crescent Operating, Inc. for the benefit of Crescent
                  Real Estate Equities Limited Partnership, relating to Four
                  Seasons Hotel - Houston (filed as Exhibit 10.65 to December
                  31, 1998 Form 10-K and incorporated by reference herein)

10.66             Amended and Restated Guaranty of Lease effective December 31,
                  1998, by Crescent Operating, Inc. for the benefit of Crescent
                  Real Estate Equities Limited Partnership, relating to Sonoma
                  Golf Club (filed as Exhibit 10.66 to December 31, 1998 Form
                  10-K and incorporated by reference herein)

10.67             Credit Agreement dated August 11, 1995, between Crescent
                  Development Management Corp., as borrower, and Crescent Real
                  Estate Equities Limited Partnership, as lender; First
                  Amendment to Credit Agreement dated as of April 15, 1997;
                  Second Amendment to Credit Agreement dated as of May 8, 1998;
                  and related Note and Security Agreement (filed as Exhibit
                  10.67 to December 31, 1998 Form 10-K and incorporated by
                  reference herein)
</Table>
<PAGE>

<Table>

<S>               <C>
10.68             Credit Agreement dated January 1, 1998, between Crescent
                  Development Management Corp., as borrower, and Crescent Real
                  Estate Equities Limited Partnership, as lender, and related
                  Note and Security Agreement (filed as Exhibit 10.68 to
                  December 31, 1998 Form 10-K and incorporated by reference
                  herein)

10.69             $3,100,000 Note dated February 29, 1996, made by Crescent
                  Development Management Corp. payable to Crescent Real Estate
                  Equities Limited Partnership (filed as Exhibit 10.69 to
                  December 31, 1998 Form 10-K and incorporated by reference
                  herein)

10.70             Credit Agreement dated January 1, 1999, between Crescent
                  Development Management Corp., as borrower, and Crescent Real
                  Estate Equities Limited Partnership, as lender, and related
                  Line of Credit Note and Security Agreement (filed as Exhibit
                  10.70 to March 31, 1999 Form 10-Q and incorporated by
                  reference herein)

10.71             Amended and Restated Credit Agreement dated January 1, 1999,
                  between Crescent Development Management Corp., as borrower,
                  and Crescent Real Estate Equities Limited Partnership, as
                  lender, and related Line of Credit Note and Amended and
                  Restated Security Agreement (filed as Exhibit 10.71 to March
                  31, 1999 Form 10-Q and incorporated by reference herein)

10.72             Purchase Agreement dated March 12, 1999, between Crescent
                  Operating, Inc. and Crescent Real Estate Equities Limited
                  Partnership, relating to sale of interests in Crescent CS
                  Holdings Corp., and Crescent CS Holdings II Corp., and related
                  Put Agreement of same date (filed as Exhibit 10.72 to March
                  31, 1999 Form 10-Q and incorporated by reference herein)

10.73             Second Amendment to Lease Agreement effective April 1, 1999,
                  between Wine Country Hotel, LLC, and Crescent Real Estate
                  Funding VI, L.P., relating to Canyon Ranch-Lenox (filed as
                  Exhibit 10.73 to March 31, 1999 Form 10-Q and incorporated by
                  reference herein)

10.74             Master Revolving Line of Credit Loan Agreement (Borrowing Base
                  and Warehouse) dated May 14, 1998, between Desert Mountain
                  Properties Limited Partnership, as borrower, and National Bank
                  of Arizona, as lender; Modification Agreement dated December
                  30, 1998; second Modification Agreement dated March 31, 1999;
                  and related Promissory Note (Borrowing Base), Promissory Note
                  (Warehouse), Pledge Agreement, Deed of Trust, and Amendment to
                  Deed of Trust (filed as Exhibit 10.74 to March 31, 1999 Form
                  10-Q and incorporated by reference herein)

10.75             Lease Agreement dated as of June 15, 1999, between Crescent
                  Real Estate Funding III, L.P. and COI Hotel Group, Inc.,
                  relating to the Renaissance Houston Hotel (filed as Exhibit
                  10.75 to June 30, 1999 Form 10-Q and incorporated by reference
                  herein)

10.76             Guaranty of Lease dated June 15, 1999, by Crescent Operating,
                  Inc. for the benefit of Crescent Real Estate Funding III,
                  L.P., relating to Renaissance Houston Hotel (filed as Exhibit
                  10.76 to June 30, 1999 Form 10-Q and incorporated by reference
                  herein)

10.77             Asset Management Agreement dated as of January 1, 1999,
                  between Crescent Real Estate Equities Limited Partnership and
                  COI Hotel Group, Inc., relating to the Omni Austin Hotel
                  (filed as Exhibit 10.77 to June 30, 1999 Form 10-Q and
                  incorporated by reference herein)

10.78             Agreement dated June 11, 1999, by and between Gerald W.
                  Haddock and Crescent Operating, Inc. and its subsidiaries and
                  affiliates (filed as Exhibit 10.78 to June 30, 1999 Form 10-Q
                  and incorporated by reference herein)
</Table>

<PAGE>

<Table>

<S>               <C>
10.79             Stock Purchase Agreement dated as of July 15, 1999, by and
                  among E. L. Lester & Company, Incorporated, E. L. Lester, Jr.,
                  Howard T. Tellepsen II, Karen Tellepsen, Tom Tellepsen II,
                  Linda Lester Griffen, Crescent Operating, Inc. and Crescent
                  Machinery Company (filed as Exhibit 10.79 to the Company's
                  September 30, 1999 Form 10-Q ("September 30, 1999 Form 10-Q")
                  and incorporated by reference herein)

10.80             Stock Purchase Agreement dated as of July 8, 1999, by and
                  among Solveson Crane Rental, Inc., Solveson Family Revocable
                  Trust, and Crescent Machinery Company (filed as Exhibit 10.80
                  to September 30, 1999 Form 10-Q and incorporated by reference
                  herein)

10.81             Second Amendment to Credit Agreement effective as of August
                  27, 1999, among Crescent Operating, Inc., Bank of America, N.
                  A. (formerly NationsBank, N. A.), and the Support Parties
                  identified therein (filed as Exhibit 10.81 to September 30,
                  1999 Form 10-Q and incorporated by reference herein)

10.82             First Amendment to 1997 Crescent Operating, Inc. Management
                  Stock Incentive Plan (filed as Exhibit 10.82 to the Company's
                  December 31, 1999 Form 10-K ("December 31, 1999 Form 10-K")
                  and incorporated by reference herein)

10.83             Form of Sales and Service Agreement between BLAW KNOX
                  Construction Equipment Corporation and certain of Crescent
                  Machinery Company and its subsidiaries (filed as Exhibit 10.83
                  to December 31, 1999 Form 10-K and incorporated by reference
                  herein)

10.84             Form of Heavy Equipment Distributor Agreement between
                  Compaction America, Inc. and certain of Crescent Machinery
                  Company and its subsidiaries (filed as Exhibit 10.84 to
                  December 31, 1999 Form 10-K and incorporated by reference
                  herein)

10.85             Form of Gradall Equipment Distributor Agreement between The
                  Gradall Company and certain of Crescent Machinery Company and
                  its subsidiaries (filed as Exhibit 10.85 to December 31, 1999
                  Form 10-K and incorporated by reference herein)

10.86             Form of Distributor Selling Agreement between Ingersoll-Rand
                  Company and certain of Crescent Machinery Company and its
                  subsidiaries (filed as Exhibit 10.86 to December 31, 1999 Form
                  10-K and incorporated by reference herein)

10.87             Form of JCB Dealership Agreement between JCB Inc. and certain
                  of Crescent Machinery Company and its subsidiaries (filed as
                  Exhibit 10.87 to December 31, 1999 Form 10-K and incorporated
                  by reference herein)

10.88             Form of Distributor Agreement between LBX Company, LLC, and
                  certain of Crescent Machinery Company and its subsidiaries
                  (filed as Exhibit 10.88 to December 31, 1999 Form 10-K and
                  incorporated by reference herein)

10.89             Form of Distributor Agreement between Liebherr Construction
                  Equipment Co. and certain of Crescent Machinery Company and
                  its subsidiaries (filed as Exhibit 10.89 to December 31, 1999
                  Form 10-K and incorporated by reference herein)

10.90             Form of Distributor Agreement between Link-Belt Construction
                  Equipment Company and certain of Crescent Machinery Company
                  and its subsidiaries (filed as Exhibit 10.90 to December 31,
                  1999 Form 10-K and incorporated by reference herein)

10.91             Form of Dealer Floor Plan Financing and Security Agreement
                  between General Electric Capital Corporation and certain of
                  Crescent Machinery Company and its subsidiaries (filed as
                  Exhibit 10.91 to December 31, 1999 Form 10-K and incorporated
                  by reference herein)
</Table>


<PAGE>

<Table>

<S>               <C>
10.92             Taxable REIT Subsidiary Election Agreement dated December 17,
                  1999, among Crescent Real Estate Equities Company, Crescent
                  Real Estate Equities Limited Partnership, Crescent Operating,
                  Inc. and Crescent Development Management Corp. (filed as
                  Exhibit 10.92 to December 31, 1999 Form 10-K and incorporated
                  by reference herein)

10.93             Taxable REIT Subsidiary Election Agreement dated December 17,
                  1999, among Crescent Real Estate Equities Company, Crescent
                  Real Estate Equities Limited Partnership, Crescent Operating,
                  Inc. and Crescent CS Holdings II Corp. (filed as Exhibit 10.93
                  to December 31, 1999 Form 10-K and incorporated by reference
                  herein)

10.94             Taxable REIT Subsidiary Election Agreement dated December 17,
                  1999, among Crescent Real Estate Equities Company, Crescent
                  Real Estate Equities Limited Partnership, Crescent Operating,
                  Inc. and Crescent CS Holdings Corp. (filed as Exhibit 10.94 to
                  December 31, 1999 Form 10-K and incorporated by reference
                  herein)

10.95             Taxable REIT Subsidiary Election Agreement dated December 17,
                  1999, among Crescent Real Estate Equities Company, Crescent
                  Real Estate Equities Limited Partnership, Crescent Operating,
                  Inc. and Desert Mountain Development Corp. (filed as Exhibit
                  10.95 to December 31, 1999 Form 10-K and incorporated by
                  reference herein)

10.96             Taxable REIT Subsidiary Election Agreement dated December 17,
                  1999, among Crescent Real Estate Equities Company, Crescent
                  Real Estate Equities Limited Partnership, Crescent Operating,
                  Inc. and The Woodlands Land Company, Inc. (filed as Exhibit
                  10.96 to December 31, 1999 Form 10-K and incorporated by
                  reference herein)

10.97             $19.5 Million Credit and Security Agreement affective as of
                  March 11, 1999, between Crescent Real Estate Equities Limited
                  Partnership and Crescent Operating, Inc. with related
                  Promissory Note (filed as Exhibit 10.97 to December 31, 1999
                  Form 10-K and incorporated by reference herein)

10.98             First Amendment to Credit and Security Agreement effective as
                  of March 11, 1999, between Crescent Real Estate Equities
                  Limited Partnership and Crescent Operating, Inc. (filed as
                  Exhibit 10.98 to December 31, 1999 Form 10-K and incorporated
                  by reference herein)

10.99             Third Amendment to Amended and Restated Credit and Security
                  Agreement effective as of March 11, 1999, between Crescent
                  Real Estate Equities Limited Partnership and Crescent
                  Operating, Inc. (filed as Exhibit 10.99 to December 31, 1999
                  Form 10-K and incorporated by reference herein)

10.100            Third Amendment to Line of Credit Credit and Security
                  Agreement effective as of March 11, 1999, between Crescent
                  Real Estate Equities Limited Partnership and Crescent
                  Operating, Inc. (filed as Exhibit 10.100 to December 31, 1999
                  Form 10-K and incorporated by reference herein)

10.101            Agreements for Wholesale Financing (with Addendum) between
                  Deutsche Financial Services Corporation and, respectively,
                  Western Traction Company, Machinery Inc., Solveson Crane
                  Rentals Inc., Harvey Equipment Center Inc., and Crescent
                  Machinery Company, with Guarantees (filed as Exhibit 10.101 to
                  December 31, 1999 Form 10-K and incorporated by reference
                  herein)

10.102            Master Security Agreements between Associates Commercial
                  Corporation and, respectively, Crescent Machinery Company and
                  Western Traction Company; Security Agreement between
                  Associates Commercial Corporation and Western Traction
                  Company; Addendum; and Continuing Guaranty by Crescent
                  Machinery Company (filed as Exhibit 10.102 to December 31,
                  1999 Form 10-K and incorporated by reference herein)
</Table>


<PAGE>

<Table>

<S>               <C>
10.103            First Amendment to Amended and Restated Credit Agreement dated
                  as of December 20, 1999, between Crescent Real Estate Equities
                  Limited Partnership and Crescent Development Management Corp.
                  with related Line of Credit Note and letter amendment to
                  related security agreement (filed as Exhibit 10.103 to
                  December 31, 1999 Form 10-K and incorporated by reference
                  herein)

10.104            $5,600,000 Promissory Note dated February 28, 2000, made by
                  East West Resorts, LLC payable to Crescent Real Estate
                  Equities Limited Partnership (filed as Exhibit 10.104 to the
                  Company's March 31, 2000 Form 10-Q ("March 31, 2000 Form
                  10-Q") and incorporated by reference herein)

10.105            Mutual Termination of Asset Management Agreement for Omni
                  Austin Hotel, Austin, Texas, effective January 31, 2000,
                  between Crescent Real Estate Equities Limited Partnership and
                  COI Hotel Group, Inc. (filed as Exhibit 10.105 to March 31,
                  2000 Form 10-Q and incorporated by reference herein)

10.106            Master Asset Management and Administrative Services Agreement
                  dated February 1, 2000, by and among Sonoma Management Corp.
                  I, Crescent Operating, Inc. and each of its subsidiaries
                  identified therein (filed as Exhibit 10.106 to March 31, 2000
                  Form 10-Q and incorporated by reference herein)

10.107            Management Agreement effective February 1, 2000, between
                  Sonoma Management Corp. I, as Manager, and Crescent Real
                  Estate Funding VIII, L.P., as Owner and assignor to the
                  Company, relating to Ventana Inn & Spa (filed as Exhibit
                  10.107 to March 31, 2000 Form 10-Q and incorporated by
                  reference herein)

10.108            Management Agreement effective February 1, 2000, between
                  Sonoma Management Corp. I, as Manager, and Crescent Real
                  Estate Funding VIII, L.P., as Owner and assignor to the
                  Company, relating to Sonoma Mission Inn Golf and Country Club
                  (filed as Exhibit 10.108 to March 31, 2000 Form 10-Q and
                  incorporated by reference herein)

10.109            Management Agreement effective February 1, 2000, between
                  Sonoma Management Corp. I, as Manager, and Crescent Real
                  Estate funding VIII, L.P., as Owner and assignor to the
                  Company, relating to Sonoma Mission Inn and Spa (filed as
                  Exhibit 10.109 to March 31, 2000 Form 10-Q and incorporated by
                  reference herein)

10.110            Termination of Lease Agreement for The Four Seasons Hotel,
                  Houston, effective November 3, 2000, between COI Hotel Group,
                  Inc. and Crescent Real Estate Funding IX, L.P. (filed as
                  Exhibit 10.110 to the Company's September 30, 2000 Form 10-Q
                  ("September 30, 2000 Form 10-Q") and incorporated by reference
                  herein)

10.111            First Amendment to Credit and Security agreement effective
                  February 1, 2000, between Crescent Realty Estate Equities
                  Limited Partnership and Crescent Operating, Inc. relating to
                  $19.5 Million Credit and Security Agreement effective March
                  11, 1999 (filed as Exhibit 10.111 to September 30, 2000 Form
                  10-Q and incorporated by reference herein)

10.112            Second Amendment to Credit and Security Agreement effective
                  February 1, 2000, between Crescent Real Estate Equities
                  Limited Partnership and Crescent Operating, Inc. relating to
                  $9 Million Credit and Security Agreement effective September
                  21, 1998 (filed as Exhibit 10.112 to September 30, 2000 Form
                  10-Q and incorporated by reference herein)

10.113            Fourth Amendment to Amended and Restated Credit and Security
                  Agreement effective February 1, 2000, between Crescent Real
                  Estate Equities Limited Partnership and Crescent Operating,
                  Inc. relating to Amended and Restated Credit and Security
                  Agreement effective May 21, 1997 (filed as Exhibit 10.113 to
                  September 30, 2000 Form 10-Q and incorporated by reference
                  herein)
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<S>               <C>
10.114            Fourth Amendment to Line of Credit Credit and Security
                  Agreement effective February 1, 2000, between Crescent Real
                  Estate Equities Limited Partnership and Crescent Operating,
                  Inc. relating to Line of Credit Credit and Security Agreement
                  effective May 21, 1997 (filed as Exhibit 10.114 to September
                  30, 2000 Form 10-Q and incorporated by reference herein)

10.115            Credit Agreement dated September 21, 2000, between Crescent
                  Development Management Corp., as borrower, and Crescent Real
                  Estate Equities Limited Partnership, as lender, and related
                  Line of Credit Note and Security Agreement (filed as Exhibit
                  10.115 to December 31, 2000 Form 10-K and incorporated by
                  reference herein)

10.116            Assignment of Interest in East West Resorts, LLC (CDMC to
                  COPI); Assignment of Interest in East West Resorts, LLC (COPI
                  to CDMC); and Assignment, Assumption and Consent Agreement
                  dated December 31, 2000, among Crescent Development Management
                  Corp., Crescent Development Management Corp. II, and Crescent
                  Real Estate Equities Limited Partnership (filed as Exhibit
                  10.116 to December 31, 2000 Form 10-K and incorporated by
                  reference herein)

10.117            Assignment of Membership Interest dated December 29, 2000
                  between Crescent Operating, Inc. and Rockwood Financial Group,
                  Inc.; Assignment of Membership Interest dated December 29,
                  2000 between COPI CBHS Holdings, L.P. and Rockwood Financial
                  Group, Inc.; and related Indemnification Agreement dated
                  December 29, 2000 among COPI CBHS Holdings, L.P., Crescent
                  Operating, Inc. and Rockwood Financial Group, Inc. (filed as
                  Exhibit 10.117 to December 31, 2000 Form 10-K and incorporated
                  by reference herein)

10.118            Severance Agreement dated February 5, 2001, between Richard P.
                  Knight and Crescent Operating, Inc. and Crescent Machinery
                  Company (filed as Exhibit 10.118 to March 31, 2001 Form 10-Q
                  and incorporated by reference herein)

10.119            Second Amendment to Credit and Security Agreement effective
                  January 31, 2001, between Crescent Real Estate Equities
                  Limited Partnership and Crescent Operating, Inc. relating to
                  $19.5 million Credit and Security Agreement effective March
                  11, 1999 (filed as Exhibit 10.119 to March 31, 2001 Form 10-Q
                  and incorporated by reference herein)

10.120            Third Amendment to Credit and Security Agreement effective
                  January 31, 2001, between Crescent Real Estate Equities
                  Limited Partnership and Crescent Operating, Inc. relating to
                  $9.0 million Credit and Security Agreement effective September
                  21, 1998 (filed as Exhibit 10.120 to March 31, 2001 Form 10-Q
                  and incorporated by reference herein)

10.121            Fifth Amendment to Line of Credit Credit and Security
                  Agreement effective January 31, 2001, between Crescent Real
                  Estate Equities Limited Partnership and Crescent Operating,
                  Inc. relating to Line of Credit Credit and Security Agreement
                  effective May 21, 1997 (filed as Exhibit 10.121 to March 31,
                  2001 Form 10-Q and incorporated by reference herein)

10.122            Fifth Amendment to Amended and Restated Credit and Security
                  Agreement effective January 31, 2001, between Crescent Real
                  Estate Equities Limited Partnership and Crescent Operating,
                  Inc. relating to Amended and Restated Credit and Security
                  Agreement effective May 21, 1997 (filed as Exhibit 10.122 to
                  March 31, 2001 Form 10-Q and incorporated by reference herein)

10.123            Third Amendment to Credit and Security Agreement effective
                  February 15, 2001, between Crescent Real Estate Equities
                  Limited Partnership and Crescent Operating, Inc. relating to
                  $19.5 million Credit and Security Agreement effective March
                  11, 1999 (filed as Exhibit 10.123 to March 31, 2001 Form 10-Q
                  and incorporated by reference herein)

10.124            Fourth Amendment to Credit and Security Agreement effective
                  February 15, 2001, between Crescent Real Estate Equities
                  Limited Partnership and Crescent Operating, Inc. relating to
                  $9.0 million Credit and Security Agreement effective September
                  21, 1998 (filed as Exhibit 10.124 to March 31, 2001 Form 10-Q
                  and incorporated by reference herein)

10.125            Sixth Amendment to Line of Credit Credit and Security
                  Agreement effective February 15, 2001, between Crescent Real
                  Estate Equities Limited Partnership and Crescent Operating,
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<S>               <C>
                  Inc. relating to Line of Credit Credit and Security Agreement
                  effective May 21, 1997 (filed as Exhibit 10.125 to March 31,
                  2001 Form 10-Q and incorporated by reference herein)

10.126            Sixth Amendment to Amended and Restated Credit and Security
                  Agreement effective February 15, 2001, between Crescent Real
                  Estate Equities Limited Partnership and Crescent Operating,
                  Inc. relating to Amended and Restated Credit and Security
                  Agreement effective May 21, 1997 (filed as Exhibit 10.126 to
                  March 31, 2001 Form 10-Q and incorporated by reference herein)

10.127            Fourth Amendment to Credit and Security Agreement effective
                  March 5, 2001, between Crescent Real Estate Equities Limited
                  Partnership and Crescent Operating, Inc. relating to $19.5
                  million Credit and Security Agreement effective March 11, 1999
                  (filed as Exhibit 10.127 to March 31, 2001 Form 10-Q and
                  incorporated by reference herein)

10.128            Fifth Amendment to Credit and Security Agreement effective
                  March 5, 2001, between Crescent Real Estate Equities Limited
                  Partnership and Crescent Operating, Inc. relating to $9.0
                  million Credit and Security Agreement effective September 21,
                  1998 (filed as Exhibit 10.128 to March 31, 2001 Form 10-Q and
                  incorporated by reference herein)

10.129            Seventh Amendment to Line of Credit Credit and Security
                  Agreement effective March 5, 2001, between Crescent Real
                  Estate Equities Limited Partnership and Crescent Operating,
                  Inc. relating to Line of Credit Credit and Security Agreement
                  effective May 21, 1997 (filed as Exhibit 10.129 to March 31,
                  2001 Form 10-Q and incorporated by reference herein)

10.130            Seventh Amendment to Amended and Restated Credit and Security
                  Agreement effective March 5, 2001, between Crescent Real
                  Estate Equities Limited Partnership and Crescent Operating,
                  Inc. relating to Amended and Restated Credit and Security
                  Agreement effective May 21, 1997 (filed as Exhibit 10.130 to
                  March 31, 2001 Form 10-Q and incorporated by reference herein)

10.131            Management Rights Agreement dated as of February 6, 2001, by
                  and among Crescent Operating, Inc., Crescent Machinery
                  Company, Crescent Machinery Company, LP, and SunTX Capital
                  Management Corp. (filed as Exhibit 10.131 to June 30, 2001
                  Form 10-Q and incorporated by reference herein)

10.132            Fifth Amendment to Credit and Security Agreement effective
                  June 28, 2001, between Crescent Real Estate Equities Limited
                  Partnership and Crescent Operating, Inc. relating to $19.5
                  million Credit and Security Agreement effective March 11, 1999
                  (filed herewith)

10.133            Sixth Amendment to Credit and Security Agreement effective
                  June 28, 2001, between Crescent Real Estate Equities Limited
                  Partnership and Crescent Operating, Inc. relating to $9.0
                  million Credit and Security Agreement effective September 21,
                  1998 (filed herewith)

10.134            Eighth Amendment to Line of Credit Credit and Security
                  Agreement effective June 28, 2001, between Crescent Real
                  Estate Equities Limited Partnership and Crescent Operating,
                  Inc. relating to Line of Credit Credit and Security Agreement
                  effective May 21, 1997 (filed herewith)

10.135            Eighth Amendment to Amended and Restated Credit and Security
                  Agreement effective June 28, 2001, between Crescent Real
                  Estate Equities Limited Partnership and Crescent Operating,
                  Inc. relating to Amended and Restated Credit and Security
                  Agreement effective May 21, 1997 (filed herewith)

10.136            Sixth Amendment to Credit and Security Agreement effective
                  October 31, 2001, between Crescent Real Estate Equities
                  Limited Partnership and Crescent Operating, Inc. relating to
                  $19.5 million Credit and Security Agreement effective March
                  11, 1999 (filed herewith)

10.137            Seventh Amendment to Credit and Security Agreement effective
                  October 31, 2001, between Crescent Real Estate Equities
                  Limited Partnership and Crescent Operating, Inc. relating to
                  $9.0 million Credit and Security Agreement effective September
                  21, 1998 (filed herewith)
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<S>               <C>
10.138            Ninth Amendment to Line of Credit Credit and Security
                  Agreement effective October 31, 2001, between Crescent Real
                  Estate Equities Limited Partnership and Crescent Operating,
                  Inc. relating to Line of Credit Credit and Security Agreement
                  effective May 21, 1997 (filed herewith)

10.139            Ninth Amendment to Amended and Restated Credit and Security
                  Agreement effective October 31, 2001, between Crescent Real
                  Estate Equities Limited Partnership and Crescent Operating,
                  Inc. relating to Amended and Restated Credit and Security
                  Agreement effective May 21, 1997 (filed herewith)

10.140            Agreement for the Purchase and Sale of Assets and Stock dated
                  June 28, 2001 by and among Crescent Real Estate Equities
                  Limited Partnership and Crescent Operating, Inc., Rosestar
                  Management LLC, Canyon Ranch Leasing, L.L.C., Wine Country
                  Hotel, LLC, Rosestar Southwest, LLC, COI Hotel Group, Inc. and
                  COPI Colorado, LP (filed as Annex A to Proxy Statement for
                  2001 Annual Meeting of Shareholders and incorporated by
                  reference herein)

10.141            Amended and Restated Securities Purchase Agreement, made and
                  entered into as of June 28, 2001, amended and restated as of
                  October 31, 2001 by and among Crescent Machinery Company,
                  L.P., Crescent Machinery Holdings, L.P., CMC GP, LLC, Crescent
                  Machinery Company, Crescent Operating, Inc., COPI Colorado,
                  LP, CRE Equipment Holdings, LLC, Crescent Real Estate Equities
                  Limited Partnership, and SunTX CMLP, Inc. (filed as Annex E to
                  Proxy Statement for 2001 Annual Meeting of Shareholders and
                  incorporated by reference herein)

10.142            Third Amendment to Credit Agreement effective as of August 27,
                  2001, among Crescent Operating, Inc., Bank of America, N.A.
                  (formerly NationsBank, N.A.), and the Support Parties
                  identified therein (filed herewith)

10.143            Fourth Amendment to Credit Agreement effective as of November
                  27, 2001, among Crescent Operating, Inc., Bank of America,
                  N.A. (formerly NationsBank, N.A.), and the Support Parties
                  identified therein, together with related $15.0 million
                  promissory note (filed herewith)

10.144            Fifth Amendment to Credit Agreement effective as of December
                  31, 2001, among Crescent Operating, Inc., Bank of America,
                  N.A. (formerly NationsBank, N.A.), and the Support Parties
                  identified therein, together with related $15.0 million
                  promissory note, modified and extended as of December 31, 2001
                  (filed herewith)

10.145            Assignment/Pledge (Security Agreement) effective as of
                  December 31, 2001 by Crescent Operating to Bank of America,
                  N.A. (formerly NationsBank, N.A.) (filed herewith)


21                List of Subsidiaries of Crescent Operating, Inc.

23.1              Consent of Ernst & Young LLP

23.2              Consent of Deloitte & Touche LLP

23.3              Consent of Arthur Andersen LLP - Denver

23.4              Consent of Arthur Andersen LLP - Houston

99                Letter to Securities and Exchange Commission
</Table>