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                                                                  EXHIBIT 10.106

         MASTER ASSET MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT

     THIS MASTER ASSET MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT
("Agreement") is made and entered into as of ______________, 2000, by and among
Sonoma Management Corp. I, a Delaware corporation ("SMC"), Crescent Operating,
Inc., a Delaware corporation ("COPI"), and each of the subsidiaries of COPI
identified in Schedule 1 hereto (the "Subsidiaries").

                                    RECITALS

     A.   RoseStar Management LLC, a Texas limited liability company
("RoseStar"), a subsidiary of COPI, and The Varma Group, Inc., a Texas
corporation ("TVG") entered into an Amended and Restated Asset Management
Agreement August 31, 1997 (the "RoseStar Asset Management Agreement") pursuant
to which TVG agreed to provide management services with respect to RoseStar's
assets, including its interest as the lessee of the Marriott City Center Hotel
in Denver, Colorado (the "Marriott Hotel") under a long-term lease agreement
(the "Marriott Lease") with the owner of that property. The principals of TVG
are Sanjay and Johanna Varma. The Marriott Hotel is operated by a hotel
management operator, Marriott, under a long-term property management agreement
(Marriott's property management agreement and each of the other property
management agreements specified in these recitals is a "Property Management
Agreement" and one or more are "Property Management Agreements"). (The hotel
management operator under the Marriott Lease and each of the other leases
specified in these recitals is an "Operator" and one or more are "Operators".)
Simultaneously herewith, RoseStar and TVG are executing and delivering that
Mutual Release and Termination Agreement in the form attached to this Agreement
as Exhibit D terminating the RoseStar Asset Management Agreement without
continuing obligations or liabilities on the part of either of them.

     B.   TVG and RoseStar's subsidiary, RoseStar Southwest, LLC ("RoseStar
Southwest"), entered into an Amended and Restated Asset Management Agreement
August 31, 1997 (the "Southwest Asset Management Agreement") pursuant to which
TVG agreed to provide asset management services with respect to RoseStar
Southwest's assets, including its interests as the lessee of the Hyatt Regency
Hotel in Albuquerque, New Mexico (the "Hyatt Albuquerque") and the Hyatt Regency
Beaver Creek in Avon, Colorado under long-term lease agreements with the
respective owners of those properties (the lease agreement for the Hyatt
Albuquerque is called the "Hyatt Albuquerque Lease"). The Hyatt Albuquerque is
operated by an Operator under a Property Management Agreement. The Hyatt Beaver
Creek is operated by an Operator under a Property Management Agreement.
Simultaneously herewith, RoseStar and TVG are executing and delivering that
Mutual Release and Termination Agreement in the form attached to this Agreement
as Exhibit D terminating the Southwest Asset Management Agreement without
continuing obligations or liabilities on the part of either of them.

     C.   TVG and RoseStar's subsidiary, Wine Country Hotel, LLC ("WCH"),
entered into an Amended and Restated Asset Management Agreement August 31, 1997
(the "WCH Asset Management Agreement"), pursuant to which TVG agreed to provide
management services with respect to WCH's interest as lessee of the Sonoma
Mission Inn and Spa in Sonoma, California under

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a long-term lease agreement with the owner of that property. Simultaneously
herewith, RoseStar and TVG are executing and delivering that Mutual Release and
Termination Agreement in the form attached to this Agreement as Exhibit D
terminating the WCH Asset Management Agreement without continuing obligations or
liabilities on the part of either of them.

     D.   COI Hotel Group, Inc., a Texas corporation ("COI Hotel") and a
subsidiary of COPI, is the lessee of Renaissance Hotel Houston (the
"Renaissance Hotel") and Four Seasons Hotel Houston (the "Four Seasons Hotel")
under long-term lease agreements (the "Renaissance Lease" and the "Four Seasons
Lease") with the respective owners of those properties. The Renaissance Hotel
and Four Season Hotel are operated by Operators under Property Management
Agreements.

     E.   Canyon Ranch Leasing, L. L. C., an Arizona limited liability company
("Canyon Ranch Leasing") and a subsidiary of COPI, is the lessee of Canyon Ranch
- Tucson ("CR Tucson") under a long-term lease agreement (the "CR Tucson Lease")
with the owner of that property. CR Tucson is operated by an Operator under a
Property Management Agreement.

     F.   WCH is the lessee of Canyon Ranch - Lenox ("CR Lenox") under a
long-term lease agreement (the "CR Lenox Lease") with the owner of that
property. CR Lenox is operated by an Operator under a Property Management
Agreement.

     G.   CRL Investments, Inc., a Texas corporation ("CRL Investments"), the
ownership of which is shared by COPI and Crescent Real Estate Equities Limited
Partnership ("CEI"), is a non-managing member of CR Las Vegas, LLC, a Nevada
limited liability company ("CR Las Vegas"), which is the lessee of the Venetian
Day Spa (the "Venetian Spa") under a long-term lease agreement (the "Venetian
Spa Lease") with the owner of the property in which the Venetian Spa is located.

     H.   COI Hotel is the asset manager at Omni-Austin Hotel ("Austin Omni")
under a long-term Asset Management Agreement with the owner of that property.
Simultaneously herewith, COI Hotel and the owner of Austin Omni are by mutual
agreement terminating that Asset Management Agreement on the condition that the
owner of Austin Omni enter into a new asset management agreement with SMC.

     I.   CDMC Palm Beach, Inc., a Delaware corporation ("CDMC") and a
subsidiary of COPI, is a minority, nonmanaging member of Manalapan Hotel
Partners, a Florida joint venture ("Manalapan Partners"), which is the owner of
the Ritz-Carlton Hotel in Palm Beach, Florida (the "Ritz-Carlton").The
Ritz-Carlton is operated by an Operator under a Property Management Agreement.

     J.   The Marriott Hotel, the Hyatt Albuquerque, the Renaissance Hotel, the
Four Seasons Hotel, CR Tucson, CR Lenox, the Venetian Spa and the Ritz-Carlton
are each a "Property" and one or more are "Properties". (Where the context
requires, the term "Property" shall also mean CRL Investment's interest in CR
Las Vegas and CDMC's interest in Manalapan Partners.) The Marriott Lease, the
Hyatt Albuquerque Lease, the Renaissance Lease, the Four Seasons Lease, the CR
Tucson Lease, the CR Lenox Lease and the Venetian Spa Lease are each a "Lease"
and one or more are "Leases."

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     K.   SMC and its principals would like to increase the number of Properties
to which they provide services and expand the scope of those services.

     L.   COPI and the Subsidiaries would like to assure that the Subsidiaries
have obtained from a satisfactory source the asset management and/or
administrative services necessary for their lease responsibilities at the
Properties where they are lessees and necessary to protect their interests at
the Ritz-Carlton; and would like to be released from the obligation and costs of
providing asset management services at a single Property, Austin Omni.

     Now therefore, for and in consideration of the premises and the mutual
covenants herein contained and subject to the following terms and conditions,
SMC, COPI and the Subsidiaries agree as follows:

                                    ARTICLE 1

                                     GENERAL

     1.1  Master Agreement. This Agreement sets forth the terms and conditions
upon which SMC shall provide Asset Management Services (as defined in Section
3.3 of this Agreement) or Administrative Services (as defined in Section 4.1 of
this Agreement) to one or more Subsidiaries with respect to one or more
Properties leased by those Subsidiaries. SMC shall become obligated to provide
Asset Management Services or Administrative Services (each, as applicable,
"Services") to a Subsidiary only if SMC and that Subsidiary enter into a
Subsidiary Asset Management Agreement or a Subsidiary Administrative Services
Agreement in substantially the form attached to this Agreement as Exhibits A and
B, respectively. Immediately following the execution and delivery of this
Agreement by the parties hereto:

          (a)  SMC and RoseStar agree to enter into a Subsidiary Asset
     Management Agreement with respect to the Marriott Hotel;

          (b)  SMC and RoseStar Southwest agree to enter into a Subsidiary Asset
     Management Agreement with respect to the Hyatt Albuquerque;

          (c)  SMC and COI Hotel agree to enter into a Subsidiary Asset
     Management Agreement with respect to the Renaissance Hotel and the Four
     Seasons Hotel;

          (d)  SMC and CDMC agree to enter into a Subsidiary Asset Management
     Agreement with respect to CDMC's interest in Manalapan Partners;

          (e)  SMC and CR Leasing agree to enter into a Subsidiary
     Administrative Services Agreement with respect to the CR Tucson;

          (f)  SMC and WCH agree to enter into a Subsidiary Administrative
     Services Agreement with respect to the CR Lenox; and

          (g)  SMC and the owner of Austin Omni shall enter a new asset
     management agreement on terms mutually agreeable to Sonoma and such owner.

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     Effective upon execution and delivery of a Subsidiary Asset Management
Agreement or Subsidiary Administrative Services Agreement (each a "Subsidiary
Agreement"), COPI's rights and obligations under this Agreement with respect to
the Property which is the subject of such Subsidiary Agreement shall be deemed
assigned to and assumed by the Subsidiary that is a party to such Subsidiary
Agreement and, subject to Section 1.7, COPI shall be deemed fully released from
all obligations to SMC under this Agreement with respect to such Property. SMC
acknowledges and agrees that, except as provided in Section 1.7, it shall have
no recourse against COPI with respect to a breach of any Subsidiary Agreement.

     1.2  Additional Subsidiary Agreements. Prior to the expiration or
termination of this Agreement, COPI at its discretion may offer to SMC the
opportunity to provide Asset Management Services or Administrative Services to
one or more other hospitality properties hereafter acquired (by purchase or
lease) by a Subsidiary or by another entity hereafter organized which is a
subsidiary of COPI, the terms and conditions of any such future agreement for
Asset Management Services or Administrative Services to be negotiated and agreed
upon by the parties at their discretion.

     1.3  Non-Exclusive Arrangement; Covenant of Noncompetition by SMC. Except
as provided in this Section 1.3, nothing herein shall be construed to prohibit
SMC or its affiliates from entering into, and COPI is aware that SMC and its
affiliates may enter into, property management agreements, asset management
agreements and administrative service agreements with owners of one or more
Properties and operators or lessees of other hotel or resort properties.
However, SMC agrees that, for so long as it is party to a Subsidiary Agreement,
it shall not enter into an asset management agreement or an administrative
service agreement for any hotel or resort property that is within the
"competitive set" (as identified from time to time by Smith Travel Research) of
properties for any of the Properties.

     1.4  Independent Contractor. In performing its obligations under a
Subsidiary Agreement, SMC shall be an independent contractor. Neither COPI nor
any Subsidiary nor SMC intends by this Agreement or any Subsidiary Agreement to
create a partnership, joint venture or trust or (except as provided elsewhere
herein) to make either party hereto the agent of the other party hereto or to
create any fiduciary relationship between a Subsidiary and SMC or between COPI
and SMC or to create any contractual relationship between COPI and SMC or
between any Subsidiary and SMC except as expressly created by this Agreement or
any Subsidiary Agreement. Except as strictly provided in this Agreement or a
Subsidiary Agreement, SMC shall not in any capacity become liable for any
obligations, liabilities, losses or debts of COPI or any Subsidiary.

     1.5  Representation by SMC. SMC represents and warrants to COPI and each
Subsidiary that by entering into and performing its obligations under this
Agreement and each Subsidiary Agreement, SMC is not violating and will not
violate any contractual, fiduciary or legal obligations or responsibilities to
which it is or is likely to become subject, nor is it subject to any
contractual, fiduciary or legal obligations or responsibilities which may
reasonably be expected to interfere with its ability to perform its obligations
under this Agreement or any Subsidiary Agreement.

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     1.6  Other Services. The parties contemplate that SMC may offer to provide
other services beyond Asset Management Services and Administrative Services to
COPI, one or more Subsidiaries, or the owners of the Properties. Such services
may include construction supervision and development management services.
Nothing in this Agreement shall apply to the rendition of any such other
services.

     1.7  COPI Guaranty.

          (a)  Except as provided otherwise in Section 1.7(b), COPI hereby
     irrevocably and unconditionally guarantees to SMC the full and timely
     payment of all amounts that may become due and payable to SMC pursuant to
     any Subsidiary Agreement.

          (b)  The guaranty set forth in Section 1.7(a) shall expire
     automatically and immediately upon the assignment by COPI of its rights
     under this Agreement in accordance with Section 8.2 if COPI's assignee
     becomes primarily obligated to SMC, either by assuming the Subsidiary
     Agreements or by giving SMC a guaranty like the guaranty set forth in
     Section 1.7(a).

                                    ARTICLE 2

                                      TERM

     SMC's duties and responsibilities with respect to a Property under each
Subsidiary Agreement shall begin on the date specified in such Subsidiary
Agreement as the "Commencement Date" and, except as otherwise provided herein,
with respect to such Property shall be coterminous with the term of the Lease of
such Property, as such term may be hereafter extended from time to time (the
"Management Period"). The Subsidiary Asset Management Agreement between SMC and
CDMC with respect to its investment in Manalapan Partners shall remain in effect
so long as CDMC remains a member of Manalapan Partners.

                                    ARTICLE 3

                     APPOINTMENT OF AND RESPONSIBILITIES OF
                       ASSET MANAGEMENT SERVICES PROVIDER

     If SMC enters into a Subsidiary Asset Management Agreement with a
Subsidiary, then:

     3.1  Appointment of SMC for Asset Management Services. Pursuant to the
Subsidiary Asset Management Agreement to which it is a party, such Subsidiary
shall appoint SMC as exclusive manager of the assets of such Subsidiary listed
in Schedule 1 to such Subsidiary Asset Management Agreement, including its
interests under the Lease or Leases to which it is a party, and in connection
therewith SMC shall, with respect to the Property covered by such Subsidiary
Asset Management Agreement, (i) perform, to direct the performance of, or to
supervise the performance of such Subsidiary's obligations under such Lease or
Leases, (ii) supervise the performance of the Operator (if there is one) of the
Property or Properties, (iii) promote, exercise, and protect the rights of such
Subsidiary under the Lease or Leases to which it is a party and, if applicable,
its contract with the

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Operator, (iv) on behalf of such Subsidiary deal with the Property owner, the
Operator (if there is one) and other third parties, (v) perform the services
listed in Schedule 2 to this Agreement, and (vi) in general to oversee,
preserve, protect, supervise, maintain, promote and utilize such Subsidiary's
assets associated with or relating to the Property or Properties which are the
subject of the Subsidiary Asset Management Agreement. In carrying out its
duties, SMC (provided SMC shall have been provided by such Subsidiary the
funding required of it under such Subsidiary Asset Management Agreement) shall
endeavor to assure that each Property is operated in an efficient and
businesslike manner consistent with the standard, status and character of such
Property as a first class hotel or resort property, that revenues and net income
from operation of such Property are maximized, and, subject to Section 3.5, to
do and perform, or cause to be done and performed, all other activities
customary and usual in connection with the management of such Property.

     3.2  Authority and Power. Each Subsidiary authorizes SMC, subject to
Section 3.5, to exercise such powers with respect to the Lease with respect to
which SMC is to provide Asset Management Services, the Property Management
Agreement (if any) and the interests and assets of such Subsidiary as may be
necessary for the performance of SMC's obligations under the terms of the
Subsidiary Asset Management Agreement and SMC accepts such appointment under the
terms and conditions set forth herein. Except as expressly limited in Section
3.5, SMC shall have plenary right and authority to commit or otherwise obligate
such Subsidiary in all matters pertaining to such Lease or such Management
Agreement.

     3.3  Management of Property Assets Generally. Subject to Section 3.5, SMC,
on behalf of such Subsidiary, shall implement, or cause to be implemented, the
decisions of such Subsidiary with respect to its Lease or Leases, its Property
Management Agreement (if applicable) and its Property or Properties; shall
direct the performance of such Subsidiary's obligations under such Lease or
Leases and such Management Agreement; and shall supervise the performance by the
Operator of its obligations under such Management Agreement; including, without
limitation: (a) formulating policies, strategies and tactics for carrying out
such Subsidiary's duties under its Lease or Leases; (b) reviewing and
supervising the performance by Operator of its contractual obligations to such
Subsidiary with respect to such Property or Properties; (c) assembling,
organizing and maintaining records of the operations and activities of the
Property or Properties; (d) maintaining permits and licenses required of such
Subsidiary and necessary for the leasing of the Property or Properties; and (e)
inspecting the Property or Properties to assure compliance by the Operator with
its Property Management Agreement. The services described in Sections 3.1, 3.3
and 3.4 are called "Asset Management Services".

     3.4  Management of Property Assets Specifically. Without limiting the
preceding and by way of illustration but not limitation, SMC shall, subject to
Section 3.5, in a prudent, businesslike, skillful, and expeditious manner:

          (a)  after consultation with such Subsidiary, obtain all licenses,
     permits, consents, and approvals ("Governmental Approvals") from any
     applicable governmental authorities and agencies necessary for such
     Subsidiary as lessee of the Property or Properties;

          (b)  after consultation with such Subsidiary, obtain all consents and
     approvals ("Private Approvals") from any applicable associations, persons
     and other parties holding

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     rights of consent and approval necessary for such Subsidiary as lessee of
     the Property or Properties;

          (c)  deliver to such Subsidiary an operating budget ("Operating
     Budget") and a capital budget ("Capital Budget" and, jointly with the
     Operating Budget, the "Operating and Capital Budgets") for the Property or
     Properties pursuant to Section 3.9;

          (d)  prepare and submit to such Subsidiary upon its request (but not
     more frequently than quarterly) written progress reports in form acceptable
     to such Subsidiary and reflecting significant developments affecting or
     relating to the Property or Properties, all for the periods requested by
     such Subsidiary, and prepare and submit to such Subsidiary monthly
     comparisons between budgeted and actual operations;

          (e)  consult with such Subsidiary on all matters requiring Approval of
     such Subsidiary under or pursuant to Section 3.5 or elsewhere in this
     Agreement or the Subsidiary Asset Management Agreement;

          (f)  permit such Subsidiary to inspect and audit records of SMC
     pertaining to the Property or Properties as reasonably necessary and
     consult with SMC on matters pertaining to the Property or Properties;

          (g)  coordinate and, where necessary, assist such Subsidiary at its
     request in obtaining or recovering payment for all credits, reimbursables
     or other funds payable to such Subsidiary in connection with the Lease or
     Leases;

          (h)  advise such Subsidiary with respect to and with such Subsidiary's
     Approval implement, any challenge to the tax rates or assessments on or
     pertaining to the Property or Properties;

          (i)  comply with the applicable Lease and the applicable Property
     Management Agreement (if any), including without limitation taking or
     causing Operator to take all actions in management of the Property or
     Properties as are required to be taken and refraining from taking any
     action that would cause such Subsidiary to breach or be in default of the
     Lease or Property Management Agreement;

          (j)  advise such Subsidiary with respect to all proposed amendments to
     the Lease and Property Management Agreement and, as requested or directed
     by such Subsidiary, provide such Subsidiary all other assistance with
     respect to the review, analysis, modeling, drafting, preparation and
     negotiation of Lease amendments and Property Management Agreement
     amendments; in all such actions, SMC shall act as such Subsidiary's agent
     and representative to the extent of authority granted by such Subsidiary;
     and

          (k)  other than operational services provided under and budgeted for a
     Property Management Agreement, all other services for the Properties of any
     kind whatsoever, including without limitation the services listed in
     Schedule 2 to this Agreement; provided, however, that such Subsidiary's
     Approval shall be required for any services that either are not

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     listed in Schedule 2 or involve costs and expenses of more than $50,000 in
     the aggregate during any fiscal year.

     3.5  Approval of Subsidiary Required. SMC shall not have authority or
exercise power to take any of the following actions without first obtaining such
Subsidiary's written approval or consent ("Approval"; an action shall be
"Approved" if Approval has been granted), which may be given or withheld in such
Subsidiary's sole discretion and judgement: (a) apply for, modify or renew a
Governmental Approval and Private Approval, if such Subsidiary beforehand shall
have requested SMC to discuss with it the propriety or advisability thereof, (b)
enter into any agreement or transaction which may become a lien against the
applicable Property, a personal obligation of any owner of such Subsidiary, or
an obligation of such Subsidiary involving more than $100,000, (c) sue, defend,
settle or compromise any claim by or against any third party, including but not
limited to governmental or taxing authorities, (d) incur any capital expenditure
or series of related capital expenditures in excess of, per Property, the sum of
the furniture, fixture and equipment ("FF&E") account for that Property plus
$50,000 (unless such expenditures have been previously specifically Approved in
a Capital Budget) for any fiscal year, (e) any changes, modifications or
alterations (other than immaterial changes) in the FF&E of the applicable
Property or the FF&E account for that Property, but only if such modification or
alteration would cause or result in a rental adjustment under the applicable
Lease, (f) any change of, or agreement to change, the association of the
applicable Property with an Operator or with its current "flag" or hotel chain
affiliation, (g) incur in any fiscal year any other expense, expenditure, cost
or obligation involving more than $50,000, unless such matter has previously
been Approved in an Operating or Capital Budget or otherwise Approved. or (h)
take any other action for which Approval is elsewhere in this Agreement or the
Subsidiary Asset Management Agreement required, without first obtaining such
Approval (including without limitation Approval of Operating and Capital Budgets
pursuant to Section 3.9). Notwithstanding the preceding, such Subsidiary's
Approval shall be deemed to have been given as to any action for which SMC shall
have requested Approval in writing if such Subsidiary shall have neither given
nor denied Approval within 20 days after its actual receipt of such written
request.

     3.6  For the Subsidiary's Account; Exceptions. The services of SMC in
performing its duties and providing services pursuant to the Subsidiary Asset
Management Agreement shall be for the account of such Subsidiary. Except for
costs and obligations otherwise provided herein to be paid or borne by SMC, such
Subsidiary agrees to be responsible for all costs, expenses, and disbursements
incurred by SMC under the terms of this Agreement and the Subsidiary Asset
Management Agreement in providing Asset Management Services thereunder and such
Subsidiary agrees to provide all funding reasonably necessary for Manager to
perform its Asset Management Services under the Subsidiary Asset Management
Agreement; but without such Subsidiary's consent, SMC will not incur any
expenses or make any expenditure except as required or permitted in this
Agreement or the Subsidiary Asset Management Agreement. SMC shall be responsible
for and shall pay when due all of its internal costs and expenses (for example,
salaries, wages, fees and benefits of employees, advisors and all other labor
costs; travel expenses; and all general, administrative and operating expenses
of SMC) and all direct expenses, without reimbursement from COPI or any
Subsidiary; but each Property shall provide lodging and meals to visiting SMC
personnel at no charge to SMC. Whenever SMC in good faith believes that
emergency circumstances exist that require immediate actions to preserve such
Subsidiary's assets or to protect such Subsidiary's rights under the applicable
Lease or its contract (if applicable) with the Operator, then SMC shall take
such

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actions and incur such reasonably necessary expenses and expenditures for the
account of such Subsidiary, without undue delay, as SMC deems necessary under
the circumstances; but SMC shall furnish such Subsidiary a complete reporting of
such actions and expenses as promptly as practicable.

     3.7  Standards. In the performance of its obligations under the Subsidiary
Asset Management Agreement, SMC shall exercise a high degree of skill,
expertise, judgment and prudence. SMC shall also act in the best interest of
such Subsidiary with respect to the proper protection of and accounting for the
Property or Properties.

     3.8  Financial Reports and Records.

     (a)  SMC shall keep proper and suitable books and records for the Property
or Properties which are the subject of the Subsidiary Asset Management Agreement
as reasonably required to protect such Subsidiary's assets from theft, error or
fraudulent activity.

     (b)  SMC shall provide reports with respect to the Property or Properties
as set forth in Exhibit C and such other reports as such Subsidiary may from
time to time request.

     (c)  All financial statements and reports with respect to a Property will
be prepared in accordance with accounting principles established by such
Subsidiary and consistent with the requirements of the Lease to which such
Property is subject; if such Subsidiary does not specify accounting principles
to be followed by SMC, then SMC shall keep books and records in accordance with
the Uniform System of Accounts for Hotels as approved by the American Hotel
Association.

     (d)  Such Subsidiary or its representatives may, at any time, conduct
examinations of the books and records maintained for such Subsidiary by SMC.
Such Subsidiary also may perform any and all additional audit tests relating to
SMC's activities with respect to this Agreement or the Subsidiary Asset
Management Agreement at any appropriate place. Any and all such audits shall be
at the sole expense of such Subsidiary subject, however, to such Subsidiary's
indemnification rights. All books and records shall be preserved throughout the
Management Period, upon termination of this Agreement shall be promptly
delivered to such Subsidiary, and shall at all times remain the exclusive
property of such Subsidiary.

     3.9  Budgets. SMC shall for each calendar year direct, review, negotiate
and (subject to the last sentence of this Section 3.9), approve the Operating
and Capital Budgets prepared by the Operator (or, if there is no Operator with
respect to the Property, SMC shall prepare the Operating and Capital Budgets on
customary terms consistent with the terms upon which Operating and Capital
Budgets are prepared by other Operators) and submit to such Subsidiary a report
thereon together with SMC's recommendations thereon. In connection with each
Capital Budget, SMC shall prepare a three-year plan, evaluate ROI projects,
direct long-term funds build-up, manage the Capital Budget process and work in
general toward maximizing asset improvement. The proposed Operating and Capital
Budgets for each Property shall be presented to such Subsidiary (a) as required
by the terms of the Property Management Agreement or Agreements, if applicable,
or (b) if (a) is inapplicable, as reasonably requested by such Subsidiary;
however, if the Budgets do not project a greater House Profit for that Property
than the House Profit for that Property for the immediately preceding fiscal
year, then the proposed Budgets shall be presented to such Subsidiary for its
Approval. "House

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Profit" of a Property shall mean the gross operating income of that Property,
calculated as the net operating income of that Property adjusted upward by
adding back the following: fixed expenses and adjustments: FF&E expenditures;
management fees to Operator; property, income and other taxes; insurance
expenses; and other charges generally qualifying as "fixed charges."

     3.10 Intentionally Deleted.

     3.11 Collection of Income. SMC shall use diligent efforts to collect all
income and payments due to such Subsidiary from operations of the Property or
Properties.

     3.12 Compliance with Laws. SMC shall not in the performance of its services
hereunder violate any federal, state, municipal or other governmental law,
ordinance, rule or regulation. SMC shall immediately notify such Subsidiary of
any known violation of any federal, state, municipal or other governmental law,
ordinance, rule or regulation due to the structure, condition or operation of
the Property or Properties or the activities therein. SMC shall obtain and
maintain all permits and licenses required for such Subsidiary's lease and/or
operation of the Property or Properties. SMC shall not in performance of its
services hereunder knowingly violate, and shall comply in all material respects
with the terms of, such Subsidiary's Lease or Leases, Property Management
Agreement, mortgages, deeds of trust or other security instruments binding on
such Subsidiary or affecting the Property or Properties. In the event of a
conflict between the terms of any such document and the terms of this Agreement,
SMC shall not take any action except to notify such Subsidiary and await such
Subsidiary's instructions. SMC shall not be required to make any payment on its
own behalf or incur any liability in order to comply with the terms or
conditions of any such instruments.

     3.13 Notification of Litigation. If SMC shall be apprised of any claim,
demand, suit or other legal proceeding made or instituted against such
Subsidiary on account of any matter connected with the Property or Properties,
SMC shall give such Subsidiary all information in its possession in respect
thereof, and shall assist and cooperate with such Subsidiary in all reasonable
respects in the defense of any such suit or other legal proceeding.

     3.14 Confidentiality. SMC acknowledges and agrees that all information
about any Subsidiary or the Property or Properties provided to it is and will
continue to be the exclusive property of such Subsidiary and agrees to keep all
such information (other than information which is publicly known other than as a
result of SMC's disclosure in violation of this Agreement) in strictest
confidence except that limited disclosure may be made with the prior express
consent of such Subsidiary, or as SMC determines in good faith is necessary to
enable it to perform its obligations under this Agreement or the Subsidiary
Asset Management Agreement, or as required by law or judicial or regulatory
process. The provisions of this Section 3.14 shall survive termination of this
Agreement or any Subsidiary Asset Management Agreement.

     3.15 Notice of Breaches and Defaults. SMC shall notify such Subsidiary
immediately upon becoming aware of a breach or default by SMC under the
Subsidiary Asset Management Agreement or the occurrence of an event which, with
or without notice or the lapse of time or both, would entitle such Subsidiary to
terminate such Subsidiary Asset Management Agreement for cause.

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     3.16 Personal Performance Requirement. This Agreement and the Subsidiary
Asset Management Agreement are based on the special skill and ability of Sanjay
and Johanna Varma, as principals of SMC, and the devotion by them of sufficient
time to cause SMC to perform its obligations thereunder in a timely manner.
Therefore, Sanjay Varma covenants to such Subsidiary that he shall at all times
during the Management Period own in the aggregate a majority of the outstanding
stock of SMC and serve as the most senior executive officer and a member of the
board of directors of SMC, and Sanjay Varma shall devote the substantial
majority of his professional time and efforts to SMC's business.

                                    ARTICLE 4

                     APPOINTMENT OF AND RESPONSIBILITIES OF
                        ADMINISTRATIVE SERVICES PROVIDER

     If SMC is appointed to provide administrative services under a Subsidiary
Administrative Services Agreement with a Subsidiary other than CDMC, then:

     4.1  Appointment of SMC for Administrative Services. Pursuant to the
Subsidiary Administrative Services Agreement to which it is a party, such
Subsidiary shall appoint SMC as exclusive provider of Administrative Services
for the assets and operations of such Subsidiary listed in Schedule 1 to such
Subsidiary Administrative Services Agreement, including its interests under the
lease or Leases to which it is a party, and in connection therewith SMC shall,
with respect to the Property covered by such Subsidiary Administrative Services
Agreement, perform the services listed in Schedule 3 to this Agreement The
services described in this Section 4.1 are called "Administrative Services."

     4.2  Standards. In the performance of its obligations under the Subsidiary
Administrative Services Agreement, SMC shall exercise a high degree of skill,
expertise, judgment and prudence. SMC shall also act in the best interest of
such Subsidiary with respect to the proper protection of and accounting for the
Property or Properties.

     4.3  Notification of Litigation. If SMC shall be apprised of any claim,
demand, suit or other legal proceeding made or instituted against such
Subsidiary on account of any matter connected with the Property or Properties,
SMC shall give such Subsidiary all information in its possession in respect
thereof, and shall assist and cooperate with such Subsidiary in all reasonable
respects in the defense of any such suit or other legal proceeding.

     4.4  Confidentiality. SMC acknowledges and agrees that all information
about any Subsidiary or the Property or Properties provided to it is and will
continue to be the exclusive property of such Subsidiary and agrees to keep all
such information (other than information which is publicly known other than as a
result of SMC's disclosure in violation of this Agreement) in strictest
confidence except that limited disclosure may be made with the prior express
consent of such Subsidiary, or as SMC determines in good faith is necessary to
enable it to perform its obligations under this Agreement or the Subsidiary
Administrative Services Agreement, or as required by law or judicial or
regulatory process. The provisions of this Section 4.4 shall survive termination
of this Agreement or any Subsidiary Asset Management Agreement.

                                       11
<PAGE>   12

                                    ARTICLE 5

                               INSURANCE COVERAGE

     SMC shall procure and maintain at all times during the Management Period
workmen's compensation insurance coverage, in reasonable amounts, for the
benefit of SMC. Each Subsidiary shall add SMC to its general liability insurance
policy or policies as an additional insured at all times during the Management
Period.

                                    ARTICLE 6

                         COMPENSATION AND REIMBURSEMENTS

     6.1  Compensation for Asset Management Services.

     (a)  Except as specifically provided elsewhere herein, SMC shall receive as
consideration and remuneration for all its services under a Subsidiary Asset
Management Agreement an amount equal to the sum of the Base Management Fee and
its allocable portion of the Incentive Management Fee.

     (b)  The "Base Management Fee" shall be an annualized fee equal to
eighty-five basis points (0.85%) (or, in the case of the Ritz Carlton, one
quarter of that amount, or 22.5 basis points) of the Gross Revenues of each
Property for which SMC provides asset management services under such Subsidiary
Asset Management Agreement. "Gross Revenues of each Property"shall mean all
items of revenue and income derived from operation of a Property as identified
or specified in the Property Management Agreement for such Property. The Base
Management Fee with respect to any Property will be payable in advance (each a
"Base Management Fee Monthly Installment"), not later than the 20th day of the
immediately preceding month, based upon the Gross Revenues projected in the
Operating Budget for such Property for such Property for the month to which such
Base Management Fee relates. Any Base Management Fee Monthly Installment not
paid when due shall bear simple interest at 18% per annum from and after the due
date until paid; additionally, for any Base Management Fee Monthly Installment
not paid by the first day of the month to which it relates, the Subsidiary
responsible therefor shall become obligated to immediately pay SMC a late charge
equal to ten percent of the amount of such Base Management Fee Monthly
Installment (exclusive of interest accrued thereon). Within 45 days following
the end of each quarter in each fiscal year ended during the Management Period
(and within 45 days following the end of the Management Period), SMC and the
Subsidiary party to the relevant Subsidiary Asset Management Agreement shall
calculate the value of eighty-five basis points (0.85%) of the Gross Revenues
for the quarter then ended of each such Property (the "Final Gross Revenue
Calculation"), and, (i) to the extent that the aggregate amount of the Base
Management Fee Monthly Installments received by SMC with respect to that quarter
exceed the Final Gross Revenue Calculation, then SMC shall within ten days
following the date of such calculation redeliver to such Subsidiary cash in the
amount of such excess, and (ii) to the extent that the Final Gross Revenue
Calculation exceeds the aggregate amount of the Base Management Fee Monthly
Installments received by SMC with respect to that quarter, then such

                                       12
<PAGE>   13

Subsidiary shall within ten days following the date of such calculation pay to
such Subsidiary cash in the amount of such excess.

     (c)  The "Incentive Management Fee" shall be, for each full fiscal year, an
amount equal to Fifty Percent (50%) of the amount, if any, by which COPI
Hospitality Net Income for such fiscal year exceeds COPI Hospitality Budgeted
Income for such fiscal year for the Asset Managed Properties as a group;
provided, however, that in the event of the occurrence of a partial fiscal year
with respect to any Asset Managed Property, then the individual months' budgeted
and actual results (determined in the same manner as full year results) of that
Asset Managed Property will be used in calculating the Incentive Management Fee
for the Asset Managed Properties, as a group.

     (d)  The Incentive Management Fee for each fiscal year shall be payable in
arrears within 90 days following the last day of such fiscal year. For any
portion of the Management Period not constituting a fiscal year the Incentive
Management Fee shall be calculated and payable within 60 days following the end
of such period.

     (e)  The following definitions shall apply with respect to this Article 6:

          (i)  "Asset Managed Properties" shall mean all Properties for which
     SMC provides asset management services under Subsidiary Asset Management
     Agreements.

          (ii) "COPI Hospitality Budgeted Net Income" shall mean that portion of
     the Net Income projected in the Operating Budgets of all the Asset Managed
     Properties that, if realized, would be distributable to COPI; provided,
     however, that in the event of the occurrence of a partial fiscal year with
     respect to any Asset Managed Property, then the individual months' budgeted
     and actual results (determined in the same manner as full year results) of
     that Asset Managed Property will be used in calculating the Incentive
     Management Fee for the Asset Managed Properties, as a group.

          (iii) A "fiscal year" shall mean a 12-month period beginning January 1
     and ending December 31; however, a "partial fiscal year" shall mean, with
     respect to any Asset Managed Property, a period beginning January 1 and
     ending on the date such Asset Managed Property is no longer the subject of
     a Subsidiary Agreement with a Subsidiary because (A) such Asset Managed
     Property is sold, exchanged or otherwise disposed of by the owner of such
     Asset Managed Property and the person acquiring such Asset Managed Property
     does not elect to assume the obligations of the Subsidiary under that
     Subsidiary Agreement or (B) the Lease of such Asset Managed Property is
     reconveyed or surrendered to the lessor.

          (iv) "COPI Hospitality Net Income" shall mean that portion of the Net
     Income derived from all Asset Managed Properties that is distributed to, or
     distributable to, COPI; provided, that no general or administrative
     expenses of COPI shall be taken into account in determining COPI
     Hospitality Net Income.

     6.2  Administrative Services Compensation. In consideration of this
Agreement and in particular the agreements of COPI to allow SMC to provide
compensated asset management services to certain Subsidiaries as herein
contemplated, SMC shall perform its services under each Subsidiary

                                       13
<PAGE>   14

Administrative Services Agreement for no additional consideration; provided,
however, that if in the discretion of COPI or a Subsidiary, a monetary
consideration should be paid for the Administrative Services to a Subsidiary,
then such Subsidiary may pay SMC a nominal monetary amount, as determined by
that Subsidiary, and SMC agrees that such additional remuneration shall be
acceptable and binding upon it.

                                    ARTICLE 7

                                   TERMINATION

     7.1  Termination by a Subsidiary for Cause.

     (a)  A Subsidiary shall have the right to immediately terminate its
Subsidiary Agreement, without recourse by SMC except as provided in Section
7.5(b), in the event SMC commits any act (i) which is a breach of a material
provision of this Agreement or its Subsidiary Agreement or (ii) which
constitutes an act of gross negligence, willful or wanton misconduct relating to
or pertaining to the Property subject to such Subsidiary Agreement or (iii)
which is in material violation of any mortgage, deed of trust, or other security
instrument, property management agreement, equipment lease, insurance contract,
or other material contract or agreement affecting the Property which is the
subject of such Subsidiary Agreement, and which is not cured within 20 days
after written demand by such Subsidiary to SMC (provided, that such Subsidiary
shall not be required to give SMC an opportunity to cure if in such Subsidiary's
good faith judgment its rights or interests are likely to be materially
prejudiced by delay).

     (b)  A Subsidiary shall have the right to terminate its Subsidiary
Agreement upon at least 90 days notice, without recourse by SMC except as
provided in Section 7.5(b), in the event that:

          (i)  SMC shall apply for or consent to the appointment of a receiver,
     trustee, or liquidator of SMC or of all or a substantial part of its
     assets, file a voluntary petition in bankruptcy, or admit in writing its
     inability to pay its debts as they come due, make a general assignment for
     the benefit of creditors, file a petition or an answer seeking
     reorganization or arrangement with creditors or take advantage of any
     insolvency law, or file an answer admitting the material allegations of a
     petition filed against SMC in any bankruptcy, reorganization, or insolvency
     proceeding, or of an order, judgment, or on the application of a creditor,
     a decree shall be entered by any court of competent jurisdiction
     adjudicating SMC bankrupt or insolvent or approving a petition seeking
     reorganization of SMC or appointing a receiver, trustee, or liquidator of
     SMC or of all or a substantial part of its assets, and such order, judgment
     or decree shall continue unstayed and in effect for any period of 90
     consecutive days;

          (ii) Another Subsidiary shall have terminated its Subsidiary Agreement
     for cause; or

          (iii) The Properties, taken as a whole, shall have failed to at least
     meet the COPI Hospitality Budgeted House Profit for the Properties, taken
     as a whole, for any three consecutive fiscal years (as defined in Section
     6.1).

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<PAGE>   15

     (c)  In the event that Sanjay Varma dies, becomes permanently disabled or
incapacitated (and an individual shall be deemed "permanently disabled or
incapacitated" if he is unable to complete his duties for 60 days in any
consecutive 90 day period), or ceases to engage personally in performing SMC's
obligations under the Subsidiary Agreement, a Subsidiary shall have the right to
terminate its Subsidiary Agreement immediately following the completion of a
12-month review period, without recourse by SMC except as provided in Section
7.5(b), provided that such Subsidiary shall have given notice of such
termination at least 90 days prior to the completion of such review period.

     7.2  Termination in Event of Sale of Property or Surrender of Lease. In
addition, a Subsidiary Agreement shall terminate (a) if any Property which is
the subject of such Subsidiary Agreement is sold, exchanged or otherwise
disposed of by the owner of such Property and the person acquiring such Property
does not elect to assume the obligations of such Subsidiary under such
Subsidiary Agreement or (b) if any Lease of a Property which is the subject of
such Subsidiary Agreement shall have been reconveyed or surrendered to the
lessor. The date of termination of the Subsidiary Agreement shall be deemed to
be the date as of which the relevant Property is sold, exchanged or otherwise
disposed of or the date as of which the Lease of the relevant Property is
reconveyed or surrendered to the lessor (the "Effective Termination Date"); and
such Subsidiary shall give SMC notice of the occurrence of such event and of the
Effective Termination Date. In either event, then such Subsidiary shall pay SMC
a termination fee (the "Termination Fee"). The Termination Fee due SMC shall be
payable in a single lump sum cash payment by such Subsidiary within three months
following the Effective Termination Date. The Termination Fee due SMC shall be
equal to the Base Management Fee plus the Incentive Management calculated for
the twelve month period ended the last day of the calendar month immediately
preceding the calendar month of the Effective Termination Date.

     7.3  Termination by SMC.

     (a)  SMC shall have the right to immediately terminate a Subsidiary
Agreement, without recourse by the Subsidiary that is a party thereto except as
provided in Section 7.5(b), in the event such Subsidiary commits any act (i)
which is a breach of a material provision of its Subsidiary Agreement or (ii)
which constitutes an act of gross negligence, willful or wanton misconduct
relating to or pertaining to the Property subject to the Subsidiary Agreement or
(iii) which is in material violation of any mortgage, deed of trust, or other
security instrument, equipment lease, property management agreement, insurance
contract, or other material contract or agreement affecting the Property which
is the subject of such Subsidiary Agreement, and which is not cured within 20
days after written demand by SMC to such Subsidiary (provided, that SMC shall
not be required to give such Subsidiary an opportunity to cure if in SMC's good
faith judgment its rights or interests are likely to be materially prejudiced by
delay).

     (b)  SMC shall have the right to terminate a Subsidiary Agreement upon at
least 90 days notice, without recourse by such Subsidiary except as provided in
Section 7.5(b), in the event such Subsidiary shall apply for or consent to the
appointment of a receiver, trustee, or liquidator of such Subsidiary or of all
or a substantial part of its assets, file a voluntary petition in bankruptcy, or
admit in writing its inability to pay its debts as they come due, make a general
assignment for the benefit of creditors, file a petition or an answer seeking
reorganization or arrangement with creditors or take advantage of any insolvency
law, or file an answer admitting the material allegations of a petition filed

                                       15
<PAGE>   16

against such Subsidiary in any bankruptcy, reorganization, or insolvency
proceeding, or of an order, judgment, or on the application of a creditor, a
decree shall be entered by any court of competent jurisdiction adjudicating such
Subsidiary bankrupt or insolvent or approving a petition seeking reorganization
of such Subsidiary or appointing a receiver, trustee, or liquidator of such
Subsidiary or of all or a substantial part of its assets, and such order,
judgment or decree shall continue unstayed and in effect for any period of 90
consecutive days.

     (c)  SMC shall have the right to terminate a Subsidiary Agreement
immediately, without recourse by such Subsidiary except as provided in Section
7.5(b), in the event that SMC shall not have been paid the compensation due to
it pursuant to Article 6 hereof, SMC thereafter shall have made written demand
upon such Subsidiary to pay such compensation, and SMC shall not have received
such compensation within 20 days after such written demand shall have been
given; provided, that SMC shall have given notice to both such Subsidiary and
COPI of such non-payment no later than 60 days after such due date.

     7.4  Intentionally Deleted.

     7.5  Effect of Termination.

     (a)  Upon the termination of a Subsidiary Agreement, the obligation of the
Subsidiary party thereto to pay SMC compensation thereunder shall cease upon the
date of termination or resignation (the "Termination Date"), and except as
provided herein, the parties shall have no further rights or obligations to the
other.

     (b)  Notwithstanding the foregoing, the termination of this Agreement shall
not affect (i) the rights of a Subsidiary or SMC with respect to any damages at
law or in equity either may have suffered as a result of any breach of their
Subsidiary Agreement by the other party hereto, (ii) the rights of a Subsidiary
or SMC with respect to liability or claims accrued (including but not limited to
reimbursement rights), or arising out of events occurring, prior to the
Termination Date of their Subsidiary Agreement, (iii) the indemnification or
exoneration rights of SMC set forth in Sections 9.5 and 9.6, (iv) the
confidentiality obligations of SMC under Section 3.12 and 4.2, (v) the
obligations of SMC under Section 7.6, and (vi) the provisions of this Section
7.5 and of Section 7.2. The provisions of this Section 7.5 and of Sections 7.3,
7.6, 3.13, 9.5 and 9.6 shall survive termination of this Agreement.

     (c)  No party to this Agreement or to any Subsidiary Agreement shall be
liable to any other party hereto or thereto for consequential or punitive
damages arising as a result of a breach of this Agreement or any Subsidiary
Agreement.

     7.6  Final Accounting. Upon termination of a Subsidiary Agreement for any
reason, SMC shall not take or destroy any books, records, contracts, receipts
for deposits, unpaid bills, and other papers, documents (including all related
computer programs) or properties and operating and maintenance information which
relate to a Property, Lease or a Property Management Agreement or any personal
property or equipment of a Property. SMC shall convey to the applicable
Subsidiary all books and records (including all related computer programs)
pertaining to a Property, Lease or Property Management Agreement in its
possession or under its control and make a final accounting

                                       16
<PAGE>   17

as promptly as practicable but in no event later than 60 days following the
Termination Date. SMC shall cooperate with such Subsidiary and SMC's successor
to assign contracts, transfer management responsibilities, and otherwise to make
best efforts to assure continued asset management services without interruption;
without limiting the foregoing, SMC shall not take any actions which might
reasonably be expected to interfere with or damage the continued operations of a
Property or its reputation and shall not make any disparaging public remarks
about a Property, a Subsidiary, COPI, or SMC's successor. The provisions of this
Section 7.6 shall survive termination of this Agreement.

                                    ARTICLE 8

                                   ASSIGNMENT

     8.1  No Assignment by SMC. Each Subsidiary Agreement is a personal services
contract with respect to SMC and, therefor, SMC may not assign its rights and
obligations under a Subsidiary Agreement without the prior written consent of
the Subsidiary that is a party thereto, which consent may be given or withheld
in such Subsidiary's sole and absolute discretion.

     8.2  Assignment Permitted by Subsidiary; Assignment by COPI. A Subsidiary
may assign its rights or obligations under its Subsidiary Agreement, without the
prior written consent of SMC, to any assignee or successor of such Subsidiary
that succeeds to the Subsidiary's obligations as lessee or owner with respect to
the Property to which such Subsidiary's Subsidiary Agreement relates. The
assignment of a Subsidiary Agreement by a Subsidiary which is a party thereto
shall not be deemed to terminate such Subsidiary Agreement or to give SMC any
right to receive a Termination Fee. Effective automatically and immediately upon
the assignment by a Subsidiary of its obligations under its Subsidiary Agreement
as permitted by this Section 8.2, COPI's guaranty under Section 1.7 shall
immediately expire and terminate with respect to that Subsidiary Agreement;
provided, however, that if the sole asset and business of a Subsidiary's
assignee is the leasing or owning of the Property to which the assigned
Subsidiary Agreement relates and if such assignee is wholly-owned by another
entity as its parent entity, then such parent entity shall have given SMC a
guaranty like the guaranty set forth in Section 1.7(a). In addition, SMC agrees
that COPI may assign (or cause its Subsidiaries to assign) this Agreement (their
respective Subsidiary Agreements) to a subsidiary of CEI without the consent of
SMC; and in such event, all of the obligations of COPI (and such respective
Subsidiaries) shall cease and be extinguished.

     8.3  Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the parties hereto, their respective legal representatives
and permitted successors and permitted assigns.

                                    ARTICLE 9

                               GENERAL PROVISIONS

     9.1  Modification and Changes. This Agreement cannot be altered, amended,
or modified except by another agreement in writing signed by all the parties
hereto.

                                       17
<PAGE>   18

     9.2  Understandings and Agreements. This Agreement (including all Schedules
and Exhibits attached hereto, which are incorporated herein by reference),
together with the Subsidiary Agreements, constitutes all of the understandings
and agreements of whatsoever nature or kind existing between the parties with
respect to SMC's asset management services and administrative services to the
Subsidiaries in connection with the Properties.

     9.3  Waiver. No consent or waiver, express or implied, by any party to this
Agreement or any Subsidiary Agreement to or for any breach or default by any
other party to this Agreement or any Subsidiary Agreement in the performance by
such other party of its obligations under this Agreement or any Subsidiary
Agreement shall be deemed or construed to be a consent or waiver to or of any
other breach or default in the performance by such other party of the same or
any other obligations of such other party under this Agreement or any Subsidiary
Agreement. Failure on the part of any party to this Agreement or any Subsidiary
Agreement to complain of any act or failure to act of any other party to this
Agreement or any Subsidiary Agreement or to declare any other party in default,
regardless of how long such failure continues, shall not constitute a waiver by
such party of his or its rights thereunder.

     9.4  Headings. The Article and Section headings contained herein are for
convenience or reference only and are not intended to define, limit, or describe
the scope or intent of any provision of this Agreement.

     9.5  INDEMNIFICATION OF SMC. SUBJECT TO SECTION 9.5(G) AND (H), A
SUBSIDIARY SHALL INDEMNIFY AND HOLD HARMLESS SMC AS FOLLOWS:

          (A) IN ANY THREATENED, PENDING OR COMPLETED ACTION, SUIT OR
     PROCEEDING, WHETHER CIVIL, CRIMINAL, ADMINISTRATIVE, ARBITRATIVE OR
     INVESTIGATIVE, TO WHICH SMC WAS OR IS A PARTY OR IS THREATENED TO BE MADE A
     PARTY INVOLVING AN ALLEGED CAUSE OF ACTION ARISING FROM THE ACTIVITIES OF
     SMC AND WHICH ACTIVITIES WERE ON BEHALF OF SUCH SUBSIDIARY OR THE PROPERTY
     WHICH IS THE SUBJECT OF THE SUBSIDIARY AGREEMENT BETWEEN SUCH SUBSIDIARY
     AND SMC OR ANY APPEAL IN SUCH ACTION, SUIT OR PROCEEDING OR IN ANY INQUIRY
     OR INVESTIGATION THAT COULD LEAD TO SUCH AN ACTION, SUIT OR PROCEEDING,
     SUCH SUBSIDIARY SHALL (EXCEPT AS OTHERWISE PROVIDED IN SECTION 9.5(C)
     BELOW) INDEMNIFY SMC AGAINST ANY AND ALL LOSSES, CLAIMS, DEMANDS,
     LIABILITIES, COSTS AND EXPENSES, INCLUDING REASONABLE ATTORNEYS' FEES,
     ACCOUNTANT'S FEES, JUDGMENTS, PENALTIES, FINES AND AMOUNTS PAID IN
     SETTLEMENT, ACTUALLY AND REASONABLY INCURRED BY SMC IN CONNECTION WITH SUCH
     ACTION, SUIT OR PROCEEDING, (COLLECTIVELY "LOSSES") PROVIDED THAT (I) SMC
     ACTED IN GOOD FAITH, (II) SMC ACTED IN A MANNER IT REASONABLY BELIEVED TO
     BE IN THE BEST INTERESTS OF SUCH SUBSIDIARY, AND (III) SMC'S CONDUCT DOES
     NOT CONSTITUTE A BREACH OF A MATERIAL PROVISION OF THIS AGREEMENT OR THE
     SUBSIDIARY AGREEMENT BETWEEN SUCH SUBSIDIARY AND SMC OR AN ACT OF
     NEGLIGENCE OR WILLFUL OR WANTON MISCONDUCT OR A MATERIAL

                                       18
<PAGE>   19

     VIOLATION OF ANY MORTGAGE, DEED OF TRUST, OR OTHER SECURITY INSTRUMENT,
     EQUIPMENT LEASE, INSURANCE CONTRACT OR OTHER MATERIAL CONTRACT OR AGREEMENT
     AFFECTING THE PROPERTY. THE TERMINATION OF A PROCEEDING BY JUDGMENT, ORDER,
     SETTLEMENT, CONVICTION OR UPON A PLEA OF NOLO CONTENDERE, OR ITS
     EQUIVALENT, SHALL NOT, OF ITSELF, DETERMINE OR CREATE A PRESUMPTION THAT
     SMC DID NOT ACT IN GOOD FAITH AND IN A MANNER THAT IT REASONABLY BELIEVED
     TO BE IN THE BEST INTERESTS OF SUCH SUBSIDIARY, NOR SHALL ANY SUCH
     TERMINATION OF A PROCEEDING, OF ITSELF, DETERMINE OR CREATE A PRESUMPTION
     THAT SMC WAS NEGLIGENT OR WAS GUILTY OF WILLFUL OR WANTON MISCONDUCT OR A
     BREACH OF A MATERIAL PROVISION OF THIS AGREEMENT OR SUCH SUBSIDIARY
     AGREEMENT UNLESS A SPECIFIC FINDING TO SUCH EFFECT IS INCLUDED IN SUCH
     JUDGMENT, ORDER, SETTLEMENT, CONVICTION OR PLEA.

          (B) WITH RESPECT TO MATTERS AS TO WHICH SMC IS ENTITLED TO
     INDEMNIFICATION HEREUNDER, ALL REASONABLE EXPENSES (INCLUDING REASONABLE
     LEGAL FEES AND EXPENSES) INCURRED IN DEFENDING ANY PROCEEDING SHALL BE PAID
     BY SUCH SUBSIDIARY IN ADVANCE OF THE FINAL DISPOSITION OF SUCH PROCEEDING
     UPON RECEIPT OF AN UNDERTAKING BY OR ON BEHALF OF SMC TO REPAY SUCH AMOUNT
     IF IT SHALL ULTIMATELY BE DETERMINED, BY A COURT OF COMPETENT JURISDICTION
     OR OTHERWISE, THAT SMC IS NOT ENTITLED TO BE INDEMNIFIED BY SUCH SUBSIDIARY
     AS AUTHORIZED HEREUNDER.

          (C) ANY SUCH INDEMNIFICATION SHALL BE MADE ONLY OUT OF THE ASSETS OF
     SUCH SUBSIDIARY, AND IN NO EVENT MAY SMC SUBJECT THE OWNERS, SHAREHOLDERS,
     PARTNERS, MEMBERS, OFFICERS, DIRECTORS, EMPLOYEES, AFFILIATES OR AGENTS OF
     SUCH SUBSIDIARY TO PERSONAL LIABILITY BY REASON OF THESE INDEMNIFICATION
     PROVISIONS.

          (D) THE INDEMNIFICATION PROVIDED BY THIS SECTION 9.5 SHALL BE IN
     ADDITION TO ANY OTHER RIGHTS TO WHICH SMC MAY BE ENTITLED, IN ANY CAPACITY,
     UNDER ANY AGREEMENT, AS A MATTER OF LAW OR OTHERWISE AND SHALL INURE TO THE
     BENEFIT OF THE HEIRS, SUCCESSORS, ASSIGNS AND ADMINISTRATORS OF SMC.

          (E) SMC SHALL NOT BE DENIED INDEMNIFICATION IN WHOLE OR IN PART UNDER
     THIS SECTION 9.5 BECAUSE SMC HAD AN INTEREST IN THE TRANSACTION WITH
     RESPECT TO WHICH THE INDEMNIFICATION APPLIES IF THE TRANSACTION WAS
     OTHERWISE PERMITTED BY THE TERMS OF THIS AGREEMENT.

          (F) THE PROVISIONS OF THIS SECTION 9.5 SHALL SURVIVE ANY TERMINATION
     OF SUCH SUBSIDIARY AGREEMENT.

                                       19
<PAGE>   20

          (G) DESPITE THE FOREGOING, A SUBSIDIARY SHALL HAVE NO OBLIGATION TO
     INDEMNIFY SMC UNDER THIS SECTION 9.5 IF AND TO THE EXTENT THAT DAMAGES
     ARISE AS A RESULT OF OR RELATE TO SMC'S BAD FAITH, BREACH OF THIS AGREEMENT
     OR SUCH SUBSIDIARY AGREEMENT OR OUT OF SMC'S WILLFUL OR WANTON MISCONDUCT
     OR NEGLIGENCE.

          (H) DESPITE THE FOREGOING, A SUBSIDIARY SHALL HAVE NO OBLIGATION TO
     INDEMNIFY SMC UNDER THIS SECTION 9.5 WITH RESPECT TO ANY MATTER OF THE KIND
     DESCRIBED IN SECTION 9.7A.

     9.6  Exoneration of SMC. SMC shall not be liable for obligations,
liabilities, losses or debts of a Subsidiary or damages caused by or resulting
from actions or omissions of a Subsidiary, except if and to the extent of
obligations, liabilities, losses, debts or damages that arise as a result of or
relate to SMC's bad faith, breach of this Agreement or such Subsidiary Agreement
or out of SMC's willful or wanton misconduct or negligence. Furthermore, SMC
shall not be liable to a Subsidiary for mistakes in judgement, for actions or
inactions taken or omitted for a purpose which SMC in good faith reasonably
believed to be in the best interest of such Subsidiary, for losses due to
mistake, action or omission of any agent provided that he shall have been
selected and monitored by SMC in good faith, if the same do not result from or
involve negligence, willful or wanton misconduct, or breach of a material
provision of this Agreement or such Subsidiary Agreement. The provisions of this
Section 9.6 shall survive any termination of this Agreement or such Subsidiary
Agreement.

     9.7A INDEMNIFICATION OF COPI AND SUBSIDIARIES. SUBJECT TO SECTION 9.7A(G)
AND (H), SMC SHALL INDEMNIFY AND HOLD HARMLESS COPI AND EACH SUBSIDIARY AS
FOLLOWS:

          (A) IN ANY THREATENED, PENDING OR COMPLETED ACTION, SUIT OR
     PROCEEDING, WHETHER CIVIL, CRIMINAL, ADMINISTRATIVE, ARBITRATIVE OR
     INVESTIGATIVE, TO WHICH COPI OR A SUBSIDIARY WAS OR IS A PARTY OR IS
     THREATENED TO BE MADE A PARTY INVOLVING AN ALLEGED CAUSE OF ACTION ARISING
     FROM THE ACTIVITIES OF SMC OR ANY APPEAL IN SUCH ACTION, SUIT OR PROCEEDING
     OR IN ANY INQUIRY OR INVESTIGATION THAT COULD LEAD TO SUCH AN ACTION, SUIT
     OR PROCEEDING, SMC SHALL (EXCEPT AS OTHERWISE PROVIDED IN SECTION 9.7A(C)
     BELOW) INDEMNIFY COPI AND EACH SUBSIDIARY AGAINST ANY AND ALL LOSSES,
     CLAIMS, DEMANDS, LIABILITIES, COSTS AND EXPENSES, INCLUDING REASONABLE
     ATTORNEYS' FEES, ACCOUNTANT'S FEES, JUDGMENTS, PENALTIES, FINES AND AMOUNTS
     PAID IN SETTLEMENT, ACTUALLY AND REASONABLY INCURRED BY SMC IN CONNECTION
     WITH SUCH ACTION, SUIT OR PROCEEDING, (COLLECTIVELY "LOSSES") PROVIDED THAT
     SMC SHALL NOT BE OBLIGATED TO INDEMNIFY UNDER THIS SECTION 9.7A IF (I) SMC
     ACTED IN GOOD FAITH, (II) SMC ACTED IN A MANNER IT REASONABLY BELIEVED TO
     BE IN THE BEST INTERESTS OF SUCH SUBSIDIARY, AND (III) SMC'S CONDUCT DOES
     NOT CONSTITUTE A BREACH OF A MATERIAL PROVISION OF THIS AGREEMENT OR THE
     SUBSIDIARY

                                       20
<PAGE>   21

     AGREEMENT BETWEEN SUCH SUBSIDIARY AND SMC OR AN ACT OF GROSS NEGLIGENCE OR
     WILLFUL OR WANTON MISCONDUCT OR A MATERIAL VIOLATION OF ANY MORTGAGE, DEED
     OF TRUST, OR OTHER SECURITY INSTRUMENT, EQUIPMENT LEASE, INSURANCE CONTRACT
     OR OTHER MATERIAL CONTRACT OR AGREEMENT AFFECTING THE PROPERTY.

          (B) WITH RESPECT TO MATTERS AS TO WHICH COPI OR A SUBSIDIARY IS
     ENTITLED TO INDEMNIFICATION HEREUNDER, ALL REASONABLE EXPENSES (INCLUDING
     REASONABLE LEGAL FEES AND EXPENSES) INCURRED IN DEFENDING ANY PROCEEDING
     SHALL BE PAID BY SMC IN ADVANCE OF THE FINAL DISPOSITION OF SUCH PROCEEDING
     UPON RECEIPT OF AN UNDERTAKING BY OR ON BEHALF OF COPI OR SUCH SUBSIDIARY
     TO REPAY SUCH AMOUNT IF IT SHALL ULTIMATELY BE DETERMINED, BY A COURT OF
     COMPETENT JURISDICTION OR OTHERWISE, THAT IT IS NOT ENTITLED TO BE
     INDEMNIFIED BY SMC AS AUTHORIZED HEREUNDER.

          (C) ANY SUCH INDEMNIFICATION SHALL BE MADE ONLY OUT OF THE ASSETS OF
     SMC, AND IN NO EVENT MAY COPI OR A SUBSIDIARY SUBJECT THE OWNERS,
     SHAREHOLDERS, PARTNERS, MEMBERS, OFFICERS, DIRECTORS, EMPLOYEES, AFFILIATES
     OR AGENTS OF SMC TO PERSONAL LIABILITY BY REASON OF THESE INDEMNIFICATION
     PROVISIONS.

          (D) THE INDEMNIFICATION PROVIDED BY THIS SECTION 9.7A SHALL BE IN
     ADDITION TO ANY OTHER RIGHTS TO WHICH COPI AND THE SUBSIDIARIES MAY BE
     ENTITLED, IN ANY CAPACITY, UNDER ANY AGREEMENT, AS A MATTER OF LAW OR
     OTHERWISE AND SHALL INURE TO THE BENEFIT OF THE HEIRS, SUCCESSORS, ASSIGNS
     AND ADMINISTRATORS OF COPI AND THE SUBSIDIARIES.

          (E) NEITHER COPI NOR A SUBSIDIARY SHALL BE DENIED INDEMNIFICATION IN
     WHOLE OR IN PART UNDER THIS SECTION 9.7A BECAUSE EITHER HAD AN INTEREST IN
     THE TRANSACTION WITH RESPECT TO WHICH THE INDEMNIFICATION APPLIES IF THE
     TRANSACTION WAS OTHERWISE PERMITTED BY THE TERMS OF THIS AGREEMENT.

          (F) THE PROVISIONS OF THIS SECTION 9.7A SHALL SURVIVE ANY TERMINATION
     OF SUCH SUBSIDIARY AGREEMENT.

          (G) DESPITE THE FOREGOING, SMC SHALL HAVE NO OBLIGATION TO INDEMNIFY
     COPI OR A SUBSIDIARY UNDER THIS SECTION 9.7A IF AND TO THE EXTENT THAT
     DAMAGES ARISE AS A RESULT OF OR RELATE TO BAD FAITH, BREACH OF THIS
     AGREEMENT OR SUCH SUBSIDIARY AGREEMENT, OR WILLFUL OR WANTON MISCONDUCT OR
     GROSS NEGLIGENCE ON THE PART OF THE PARTY SEEKING INDEMNIFICATION.

                                       21
<PAGE>   22

          (H) DESPITE THE FOREGOING, SMC SHALL HAVE NO OBLIGATION TO INDEMNIFY
     COPI OR A SUBSIDIARY UNDER THIS SECTION 9.7A WITH RESPECT TO ANY MATTER OF
     THE KIND DESCRIBED IN SECTION 9.5.

     9.7  Third Parties. None of the obligations hereunder of either party shall
run to or be enforceable by any party other than the other party to this
Agreement.

     9.8  Governing Law. THE VALIDITY, ENFORCEMENT, AND INTERPRETATION OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD
TO ITS CHOICE OF LAW PRINCIPLES.

     9.9  Severability. In case any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid, illegal, or unenforceable provision had never been
contained herein.

     9.10 Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original for all purposes and all of which when
taken together shall constitute a single counterpart instrument. Executed
signature pages to any counterpart instrument may be detached and affixed to a
single counterpart, which single counterpart with multiple executed signature
pages affixed thereto constitutes the original counterpart instrument. All of
these counterpart pages shall be read as though one and they shall have the same
force and effect as if all of the parties had executed a single signature page.

     9.11 Notice. Any notice or communication hereunder or in any agreement
entered into in connection with the transactions contemplated hereby must be in
writing and given by depositing the same in the United States first class mail,
addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person or
by facsimile transmission, or by sending the same by reputable overnight
courier. Such notice shall be deemed received on the date on which it is
hand-delivered or received by facsimile transmission, on the third business day
following the date on which it is so mailed, or on the business day next
following the date on which it is sent by overnight courier. For purposes of
notice, the addresses of the parties shall be:

      If to a Subsidiary: At the address and facsimile number
                          given for such Subsidiary in its Subsidiary Agreement

               With a
               Copy to:   Crescent Operating, Inc.
                          306 W. 7th Street, Suite 1000
                          Fort Worth, Texas 76102
                          Attention: Jeffrey L. Stevens, Chief Operating Officer
                          Facsimile: 817 339 2220

                                       22
<PAGE>   23

      If to SMC or
      the Varmas:         306 W. 7th Street, Suite 1025
                          Fort Worth, Texas 76102
                          Attention: Sanjay Varma
                          Facsimile: 817 317 0665

Any party may change its address for notice by written notice given to the other
parties in accordance with this section.

     9.12 Arbitration. Upon the demand of either party, whether made before or
after the institution of any judicial proceeding, any controversy or claim
whatsoever arising out of or relating to this Agreement or a Subsidiary
Agreement or the breach or alleged breach thereof, the performance or
nonperformance of any terms thereof, or the relationship between the parties
created by or arising out of this Agreement or a Subsidiary Agreement, shall be
settled by binding arbitration in Fort Worth, Texas, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, and
judgement upon the award rendered by the arbitrator or arbitrators may be
entered in any court having jurisdiction thereof.

                                       23
<PAGE>   24

     IN WITNESS WHEREOF, this Master Asset Management and Administrative
Services Agreement is executed as of the date first above written.

                                     SMC:

                                     SONOMA MANAGEMENT CORP. I

                                     By:
                                        ----------------------------------------
           Printed Name and Title:
                                        ----------------------------------------

                                     COPI:

                                     CRESCENT OPERATING, INC.

                                     By:
                                        ----------------------------------------
           Printed Name and Title:
                                        ----------------------------------------

                                     SUBSIDIARIES:

                                     [See Attached Signature Page for Execution]

                                     FOR PURPOSES OF SECTION 3.16 ONLY:

                                     --------------------------------
                                     SANJAY VARMA

                                     --------------------------------
                                     JOHANNA VARMA

<PAGE>   25

                                SIGNATURE PAGE TO
                 MASTER ASSET MANAGEMENT AND SERVICES AGREEMENT

                                COI HOTEL GROUP, INC.

                                     By:
                                         ---------------------------------------
                                           Jeffrey L. Stevens, Chairman

                                CRL INVESTMENTS, INC.

                                     By:
                                         ---------------------------------------
                                           Jeffrey L. Stevens, President

                                ROSESTAR MANAGEMENT LLC

                                     By:
                                         ---------------------------------------
                                           Jeffrey L. Stevens, Manager

                                ROSESTAR SOUTHWEST, LLC
                                     By: RSSW Corp, its manager

                                     By:
                                         ---------------------------------------
                                           Jeffrey L. Stevens, President

                                CANYON RANCH LEASING, L. L. C.
                                     By: RoseStar Management, LLC

                                     By:
                                         ---------------------------------------
                                           Jeffrey L. Stevens, Manager

                                WINE COUNTRY HOTEL, LLC

                                     By:
                                         ---------------------------------------
                                           Jeffrey L. Stevens, Manager

                                CDMC PALM BEACH, INC.

                                     By:
                                         ---------------------------------------
                                     Jeffrey L. Stevens, Chief Executive Officer

<PAGE>   26

                                   SCHEDULE 1
        to Master Asset Management and Administrative Services Agreement

                                  Subsidiaries

RoseStar Management LLC

RoseStar Southwest, LLC

COI Hotel Group, Inc.

Canyon Ranch Leasing, L. L. C.

Wine Country Hotel, LLC

CDMC Palm Beach, Inc.

CRL Investments, Inc.

                                       26
<PAGE>   27

                                   SCHEDULE 2
        to Master Asset Management and Administrative Services Agreement

               Services included within Asset Management Services

     With respect to the applicable Property of each Subsidiary:

     (a)  review, negotiate and approve the marketing plan presented by the
Operator;

     (b)  visit with Property General Manager or Controller to analyze and
critique the monthly profit and loss, and other financial, statements, and
communicate with the Operator (if any) with a view to improving performance and
review, negotiate and approve of the Operating Budget to maximize revenues and
profits;

     (c)  prepare a quarterly update of operations, capital spending, other
business initiatives and forecasts, and prepare quarterly financial projections
for the current fiscal year, and prepare and present a monthly detailed property
analysis and financial performance update;

     (d)  review cash flow management through detail review of balance sheet and
cash flow projections every month;

     (e)  ensure proper insurance coverage, including business interruption
insurance;

     (f)  visit the Property quarterly and there perform a total Property
walk-through, update evaluation of all capital projects, repair and maintenance,
review the marketing plan, and review financial statements;

     (g)  review all Property operations, including without limitation the
following: (i) resort, (ii) spa, (iii) room (including revenue enhancement),
(iv) food and beverage, (v) merchandise, (vi) golf and country club, (vii)
maintenance and technical services, (viii) information services and (ix)
telecommunications;

     (h)  maintain a three-year capital plan;

     (i)  approve the Operator's capital expenditure plan, including quarterly
review and evaluation of all projects that generate new and incremental profit
sources for Subsidiary and Owner;

     (j)  ensure that Property is maintained by Operator in good physical
condition, approving capital and FF&E expenditures to achieve that purpose;

     (k)  monitor financial performance of Property through review of monthly
forecasts, updating of monthly forecasts, and review of actual performance;

     (l)  visit quarterly with corporate staff of each "flag" under which one or
more Properties are operated for a detailed review of financial and operational
matters, overhead costs, corporate support, manpower and capital operating
status;

                                       27
<PAGE>   28

     (m)  work in general toward maximizing profits.

                                       28
<PAGE>   29

                                   SCHEDULE 3
        to Master Asset Management and Administrative Services Agreement

                Services included within Administrative Services

     With respect to the applicable Property of each Subsidiary:

     (a)  deliver to Subsidiary a marketing plan;

     (b)  deliver to Subsidiary the Operating and Capital Budget; review with
Subsidiary and provide advice;

     (c)  deliver to Subsidiary monthly profit and loss statements,
incorporating revenue and profit results into monthly financial report for all
Properties;

     (d)  provide Subsidiary with a monthly update and status report of the
Capital Budget expenditures for the year to date;

     (e)  file insurance certificates;

     (f)  perform a total Property walk-through annually and provide Subsidiary
with written report of overall impressions; and

     (g)  act as Subsidiary's liaison on all communications with Property
General Manager and staff and with Operator on all matters pertaining to
operations, capital budgets and capital expenditures.

                                       29
<PAGE>   30

                                    EXHIBIT A
        to Master Asset Management and Administrative Services Agreement

                  Form of Subsidiary Asset Management Agreement

                      SUBSIDIARY ASSET MANAGEMENT AGREEMENT

     This Subsidiary Asset Management Agreement ("Subsidiary Agreement") is made
as of ________ between Sonoma Management Corp. I, a Delaware corporation
("SMC"), and _____________ ("Subsidiary").

     WHEREAS, SMC and Subsidiary are parties to that Master Asset Management and
Administrative Services Agreement dated __________ (the "Master Agreement") by
and among SMC, Crescent Operating, Inc. ("COPI"), Subsidiary, and other entities
which are subsidiaries of COPI (collectively, the "Other Subsidiaries"); and

     WHEREAS, SMC and Subsidiary are entering into this Subsidiary Agreement
pursuant to the terms of the Master Agreement;

     NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants herein contained and subject to the following terms and conditions,
SMC and the Subsidiary agree as follows:

     1.   All capitalized terms used herein but not herein defined shall have
the meanings ascribed to those terms in the Master Agreement. This Subsidiary
Agreement shall be governed by and interpreted in accordance with the terms of
the Master Agreement, which are incorporated herein by reference and made a part
hereof, except to the extent herein otherwise expressly provided. Without
limiting the foregoing, Subsidiary and SMC acknowledge that all of COPI's rights
and obligations under the Master Agreement with respect to the Property
identified in Schedule 1 hereto have been assigned to, and are assumed by,
Subsidiary.

     2.   The "Commencement Date" shall mean _______________.

     3.   Subsidiary hereby appoints SMC, from and after the Commencement Date
through the end of the Management Period, as exclusive manager of the assets of
Subsidiary listed in Schedule 1 hereto, which is incorporated herein by
reference. SMC accepts such appointment and agrees to provide Asset Management
Services to Subsidiary throughout the Management Period in accordance with the
terms of the Master Agreement. In consideration for its services hereunder
during the Management Period, SMC shall be entitled to receive a Base Management
Fee and Incentive Management Fee in accordance with the terms of the Master
Agreement.

                                       30
<PAGE>   31

     IN WITNESS WHEREOF, this Subsidiary Agreement is executed as of the date
first above written.

                                             SONOMA MANAGEMENT CORP. I

                                             By:
                                                 -------------------------------

                                             [Subsidiary]
                                             [Address and facsimile for notices]

                                             By:
                                                 -------------------------------

                                       31
<PAGE>   32

                                   SCHEDULE 1

                    to Subsidiary Asset Management Agreement

                                 Managed Assets

     [Example: RoseStar's interests as lessee under that Amended and Restated
Lease Agreement between Crescent Real Estate Equities Limited Partnership and
RoseStar Management, LLC, dated June 30, 1995.]

                                       32
<PAGE>   33

                                    EXHIBIT B
        to Master Asset Management and Administrative Services Agreement

              Form of Subsidiary Administrative Services Agreement

                  SUBSIDIARY ADMINISTRATIVE SERVICES AGREEMENT

     This Subsidiary Administrative Services Agreement ("Subsidiary Agreement")
is made as of ________ between Sonoma Management Corp. I, a Delaware corporation
("SMC"), and _____________ ("Subsidiary").

     WHEREAS, SMC and Subsidiary are parties to that Master Asset Management and
Administrative Services Agreement dated __________ (the "Master Agreement") by
and among SMC, Crescent Operating, Inc. ("COPI"), Subsidiary, and other entities
which are subsidiaries of COPI (collectively, the "Other Subsidiaries"); and

     WHEREAS, SMC and Subsidiary are entering into this Subsidiary Agreement
pursuant to the terms of the Master Agreement;

     NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants herein contained and subject to the following terms and conditions,
SMC and the Subsidiary agree as follows:

     1.   All capitalized terms used herein but not herein defined shall have
the meanings ascribed to those terms in the Master Agreement. This Subsidiary
Agreement shall be governed by and interpreted in accordance with the terms of
the Master Agreement, which are incorporated herein by reference and made a part
hereof, except to the extent herein otherwise expressly provided. Without
limiting the foregoing, Subsidiary and SMC acknowledge that all of COPI's rights
and obligations under the Master Agreement with respect to the Property
identified in Schedule 1 hereto have been assigned to, and are assumed by,
Subsidiary.

     2.   The "Commencement Date" shall mean _______________.

     3.   Subsidiary hereby appoints SMC, from and after the Commencement Date
through the end of the Management Period, as exclusive provider of
Administrative Services to Subsidiary with respect to the assets and operations
of Subsidiary listed in Schedule 1 hereto, which is incorporated herein by
reference. SMC accepts such appointment and agrees to provide Administrative
Services to Subsidiary throughout the Management Period in accordance with the
terms of the Master Agreement. In consideration for its services hereunder
during the Management Period, SMC may be entitled to receive a fee in accordance
with the terms of the Master Agreement.

                                       33
<PAGE>   34

     IN WITNESS WHEREOF, this Subsidiary Agreement is executed as of the date
first above written.

                                             SONOMA MANAGEMENT CORP. I

                                             By:
                                                 -------------------------------

                                             [Subsidiary]
                                             [Address and facsimile for notices]

                                             By:
                                                 -------------------------------

                                       34
<PAGE>   35

                                   SCHEDULE 1

                 to Subsidiary Administrative Services Agreement

          Assets and Operations of Subsidiary Covered by this Agreement

      [Example: CDMC Palm Beach's interest as member of Manalapan Partners]

                                       35
<PAGE>   36

                                    EXHIBIT C
        to Master Asset Management and Administrative Services Agreement

                                     Reports

SMC shall prepare and submit to each Subsidiary the following reports with
respect to the Property or Properties subject to a Subsidiary Agreement between
SMC and that Subsidiary:

     A.   Financial Statements as required by applicable Lease or Leases
     B.   Capital Projects progress reports
     C.   Comparisons of actual to projected operational results and budgets

                                       36
<PAGE>   37

                                    EXHIBIT D
        to Master Asset Management and Administrative Services Agreement

                    MUTUAL RELEASE AND TERMINATION AGREEMENT

                                [To be Attached]

                                       37<PAGE>   1
                                                                  EXHIBIT 10.107

                              MANAGEMENT AGREEMENT
                          (VENTANA INN & SPA - BIG SUR)

                                 by and between

                            SONOMA MANAGEMENT CORP. I

                                 (as "MANAGER")

                                       and

                     CRESCENT REAL ESTATE FUNDING VIII, L.P.

                                  (as "OWNER")

<PAGE>   2

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
ARTICLE I
<S>                                                                          <C>
         MANAGEMENT OF THE RESORT.............................................1
         1.01     Management Responsibilities.................................1
         1.02     Corporate Services..........................................6
         1.03     Employees...................................................6
         1.04     Owner's Right to Inspect....................................6
         1.05     Owner's Right to Reserve Rooms and Facilities; Owner's
                    Perquisites...............................................6

ARTICLE II

         TERM.................................................................7
         2.01     Term........................................................7
         2.02     Performance Termination.....................................7
         2.03     Termination Rights for Cessation of Involvement by Varma....9

ARTICLE III

         COMPENSATION OF MANAGER..............................................9
         3.01     Management Fees.............................................9
         3.02     Operating Profit...........................................10

ARTICLE IV

         ACCOUNTING MATTERS..................................................10
         4.01     Accounting, Distributions and Annual Reconciliation........10
         4.02     Books and Records..........................................12
         4.03     Accounts, Expenditures.....................................12
         4.04     Business Plan..............................................13
         4.05     Working Capital............................................15
         4.06     Fixed Asset Supplies.......................................15

ARTICLE V

         REPAIRS, MAINTENANCE AND REPLACEMENTS...............................15
         5.01     Repairs and Maintenance Costs Which Are Expensed...........15
         5.02     FF&E Reserve...............................................16
         5.03     Capital Expenditures.......................................18
         5.04     Ownership of Replacements..................................18
</TABLE>

                                        i
<PAGE>   3

<TABLE>
<CAPTION>
ARTICLE VI
<S>                                                                         <C>
         INSURANCE, DAMAGE AND CONDEMNATION..................................19
         6.01     Insurance..................................................19
         6.02     Damage and Repair..........................................22
         6.03     Condemnation...............................................23

ARTICLE VII

         TAXES...............................................................24
         7.01     Real Estate and Personal Property Taxes....................24

ARTICLE VIII

         OWNERSHIP OF THE RESORT.............................................25
         8.01     Ownership of the Resort....................................25
         8.02     Mortgages..................................................26
         8.03     Subordination Agreement....................................26
         8.04     No Covenants, Conditions or Restrictions...................27
         8.05     Liens; Credit..............................................27
         8.06     Amendments Requested by Mortgagee..........................28

ARTICLE IX

         DEFAULTS............................................................28
         9.01     Events of Default..........................................28
         9.02     Remedies...................................................29
         9.03     Additional Remedies........................................30

ARTICLE X

         ASSIGNMENT AND SALE.................................................30
         10.01    Assignment.................................................30
         10.02    Sale of the Resort.........................................31
         10.03    Termination on Sale of Resort..............................31

ARTICLE XI

         MISCELLANEOUS.......................................................32
         11.01     Right to Make Agreement...................................32
         11.02     Consents and Cooperation..................................32
         11.03     Relationship..............................................32
         11.04     Applicable Law............................................33
</TABLE>

                                       ii
<PAGE>   4

<TABLE>
<S>                                                                         <C>
         11.05    Recordation................................................33
         11.06    Headings...................................................33
         11.07    Notices....................................................33
         11.08    Environmental Matters......................................34
         11.09    Confidentiality............................................36
         11.10    Projections................................................37
         11.11    Actions to be Taken Upon Termination.......................38
         11.12    Trademarks, Trade Names and Intellectual Property..........39
         11.13    Trade Area Restriction.....................................41
         11.14    Waiver.....................................................41
         11.15    Partial Invalidity.........................................41
         11.16    Survival...................................................41
         11.17    Affiliates and Third Party Vendors.........................42
         11.18    Estoppel Certificates......................................42
         11.19    Luxury Spa Resort Standards................................42
         11.20    Arbitration................................................43
         11.21    Entire Agreement...........................................44
         11.22    Multiple Counterparts......................................44
         11.23    Guaranty...................................................44

ARTICLE XII

         DEFINITION OF TERMS.................................................44
         12.01  Definition of Terms..........................................44

EXHIBIT A

         LEGAL DESCRIPTION OF THE SITE

EXHIBIT B

         MEMORANDUM OF MANAGEMENT AGREEMENT
</TABLE>

                                       iii
<PAGE>   5

                              MANAGEMENT AGREEMENT

         This Management Agreement ("Agreement") is executed on February ____,
2000 to be effective February 1, 2000 ("Effective Date"), by CRESCENT REAL
ESTATE FUNDING VIII, L.P. ("Owner"), a Delaware limited partnership, with a
mailing address at 777 Main Street, Suite 2100, Fort Worth, TX 76102, and SONOMA
MANAGEMENT CORP. I ("Manager"), a Delaware corporation, with a mailing address
at 306 W. 7th Street, Fort Worth, Texas 76102.

                                R E C I T A L S :

         A. Owner is the owner of fee title to the real property (the "Site")
described on Exhibit A attached to this Agreement and incorporated herein. The
Site is improved with the Hotel (collectively, the "Resort Improvements"). The
Site and the Resort Improvements, in addition to certain other rights,
improvements, and personal property as more particularly described in the
definition of "Resort" in Section 12.01 hereof, are collectively referred to as
the "Resort".

         B. All capitalized terms used in this Agreement shall have the meaning
set forth in Article XII hereof or otherwise defined herein.

         C. Owner desires to engage Manager to manage and operate the Resort and
Manager desires to accept such engagement upon the terms and conditions set
forth in this Agreement.

         NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement and other good and valuable consideration, the receipt of which
is hereby acknowledged, Owner and Manager agree as follows:

                                    ARTICLE I

                            MANAGEMENT OF THE RESORT

         1.01 Management Responsibilities

         A. Beginning with the Effective Date, Manager shall, and Owner hereby
authorizes and engages Manager to, supervise, direct and control the management
and operation of the Resort in accordance with the terms and conditions of this
Agreement. Manager agrees to operate and manage the Resort for Owner in a
commercially reasonable, business-like, prudent and professional manner, as
agent of Owner, pursuant to the requirements of this Agreement, with the
then-current Business Plan approved by Owner, and with the objective of
maximizing the long-term value of the Resort subject to Luxury Spa Resort
Standards. Manager further agrees to consult regularly (at least quarterly or as
otherwise reasonably requested by Owner) with Owner regarding the management
policies in effect at the Resort. During the Term, the Resort shall be known as
the "Ventana Inn &

                                        1
<PAGE>   6
Spa - Big Sur", with such additional identification determined by Manager and
approved by Owner, which approval shall not be unreasonably withheld unless the
proposed identification conflicts with the Owner's other business names, styles
or identification, as may be necessary to provide local identification.

         B. Manager shall manage the Resort in accordance with Luxury Spa Resort
Standards and shall, subject to the terms of this Agreement (including Section
1.01.C hereof), perform each of the following functions (the costs and expenses
of which shall be Deductions) with respect to the Resort:

            1. Recruit, employ, train, supervise, direct and discharge the
employees at the Resort (or cause a SMC Affiliate to do so).

            2. Establish prices, rates and charges for services provided in the
Resort, including Guest Room rates and spa services rates.

            3. Establish and revise, as necessary, administrative policies and
procedures, including policies and procedures for the control of revenue and
expenditures, for the purchasing of supplies and services, for the control of
credit, and for the scheduling of maintenance, and verify that the foregoing
procedures are operating in a sound manner.

            4. Make payments on accounts payable and handle collections of
accounts receivable using diligence and best business practices.

            5. Arrange for and supervise public relations and advertising,
prepare marketing plans, and make available to the Resort the benefits of
various marketing and guest loyalty and recognition programs in use in the SMC
System as they may exist from time to time.

            6. Procure all Inventories and replacement Fixed Asset Supplies.

            7. Prepare and deliver interim accountings, Monthly Statements,
Quarterly Statements, annual accountings, Annual Operating Statements, Building
Estimates, FF&E Budgets, and such other information as is required by this
Agreement.

            8. Plan, execute and supervise repairs, maintenance, and FF&E
purchases at the Resort.

            9. Subject to the provisions of Article VI, provide, or cause to be
provided, risk management services relating to the types of insurance required
to be obtained or provided by Manager under this Agreement.

            10. Operate the Resort as a luxury spa resort and in accordance with
the Luxury Spa Resort Standards applicable to luxury spa resorts.

                                        2
<PAGE>   7

            11. Apply for, obtain and keep in full force and effect, either in
Manager's name or in Owner's name, as may be required by applicable law, any and
all licenses and permits to the extent same is within the control of Manager
(or, if same is not within the control of Manager, Manager shall use due
diligence and reasonable efforts to obtain and keep same in full force and
effect).

            12. Negotiate and enter into service contracts on Owner's behalf
which are necessary or desirable in the ordinary course of business in operating
the Resort, including, without limitation, contracts for provision of
electricity, gas, water, telephone and other utility services, cleaning
services, security services, vermin extermination, trash removal, elevator and
boiler maintenance, air conditioning maintenance, master television service,
laundry and dry cleaning, entertainment satellite systems and other services
which Manager deems advisable. All such service contracts shall be entered into
in Owner's name, and shall remain the responsibility of Owner upon the
expiration or earlier termination of this Agreement.

            13. Establish all credit policies, and enter into agreements with
credit card companies, in connection with the Resort.

            14. Subject to Section 1.01.C.7, institute and defend in the name of
Manager or Owner (or both), subject to reasonable approval by Owner, any and all
legal actions or proceedings.

            15. Establish, supervise and implement a sales and marketing program
for the Resort consistent with the sales and marketing plan approved by Owner as
part of the Business Plan for the then-current year.

            16. Plan, prepare, arrange and contract for all advertising,
publicity and promotional activities for the Resort, including advertising and
promotional activities in conjunction with other Resorts owned, operated or
franchised by Manager and SMC Affiliates, and all discount and complimentary
policies with respect to bona fide travel agents, tourist officials, and airline
representatives.

            17. Engage such persons, subject to reasonable prior approval by
Owner, for providing services of a specialist nature (such as legal counsel and
independent accountants) related to matters within Manager's responsibility
under this Agreement.

            18. Lease to third parties approved by Owner the food and beverage,
banquet and room service facilities.

            19. Do any and all other acts and things as Manager may reasonably
deem necessary and appropriate to carry out its responsibilities under the terms
of this Agreement.

         In connection with the performance of the foregoing functions, Manager
may purchase goods, supplies and services from itself or any SMC Affiliate, or
enter into any other transaction with an

                                        3
<PAGE>   8
Affiliate of Manager, so long as any such purchase, costs or proposed
transaction is on competitive market based terms available to Owner from
unaffiliated third parties for similar purchases or transactions.

         C. Limitations on Authority. Manager shall have no authority on behalf
of Owner to do any of the following without Owner's prior written approval in
each instance:

            1. Borrow money, guaranty the debts of any third person, or
mortgage, pledge, grant a security interest in or otherwise encumber all or any
part of the Resort;

            2. Enter into any lease for the use of any item of furnishings and
equipment or other property, except as provided for in the Business Plan;

            3. Enter into any agreement, lease, license or concession agreement
for office, retail, lobby or other space at the Resort, except as provided for
in the Business Plan;

            4. Incur any liabilities or obligations to third parties which are
unrelated to the performance of Manager's responsibilities under this Agreement;

            5. Except for an "Excluded Transaction" and subject to the
provisions of this Agreement regarding contracts with Affiliates of Manager,
Manager shall not, without the consent of Owner, enter into any contract or
other arrangement (or series of related contracts or arrangements) if the
expenditures thereunder would, or are reasonably anticipated to, exceed Fifty
Thousand Dollars ($50,000) in the aggregate, or if the term of such contract has
a term in excess of three (3) years. For purposes hereof, the term "Excluded
Transaction" shall mean (1) any contracts subject to competitive bidding in
which the lowest bid is accepted; and (2) contracts or expenditures required in
cases of emergency or casualty, which expenditures are required to protect life
and safety, or in order to comply with legal requirements, in an amount not to
exceed Fifty Thousand Dollars ($50,000) in any twelve-month period;

            6. Settle any casualty and insurance claims which involve, or which
are reasonably estimated to involve, amounts in excess of Two Hundred Fifty
Thousand Dollars ($250,000), and any condemnation awards regardless of amount;

            7. Institute or defend any legal or equitable proceedings with
respect to the Resort (including the selection of counsel) other than routine
collection Litigation involving ordinary day-to-day operations of the Resort
involving amounts in controversy of less than Twenty-Five Thousand Dollars
($25,000); provided, however, Manager shall inform Owner of the existence of,
and keep Manager updated as to the status of, Litigation involving the Resort
involving amounts in controversy in excess of Five Thousand Dollars ($5,000).

            8. Employ any professional firm (other than legal counsel and
accountants) for more than Fifty Thousand Dollars ($50,000) in the aggregate
except as set forth in the Business Plan,

                                        4
<PAGE>   9

or enter into any arrangement for the employment of any attorney or accountant
(other than legal counsel retained to collect accounts receivable of less than
Fifty Thousand Dollars ($50,000);

            9. Prosecute or settle any tax claims or appeals;

            10. Manager shall not provide complimentary rooms or services to any
guests, employees or other persons except for which the business purpose for the
benefit of the Resort is properly documented, and in any event, the value of
such complimentary services shall not exceed the amount allocated in the
approved Business Plan for such complimentary services;

            11. Acquire on behalf of Owner any land or any interest therein;

            12. Acquire any capital assets of the Resort or any interest
therein;

            13. Consent to any condemnation or participate in any condemnation
proceeding relating to the Resort, the Site or any portion thereof;

            14. Sell, transfer or otherwise dispose of all or any portion of the
Resort except for dispositions of furnishings and equipment to the extent
expressly permitted herein, or expressly provided for in the Business Plan;

            15. Perform any alterations to the Resort or any portion thereof
except to the extent Manager's performance of any such alteration shall be
expressly provided for in the Business Plan;

            16. Enter into new programs and services offered to the Resort by
Manager or an SMC Affiliate that were not included in the Business Plan approved
by Owner, such approval not to be unreasonably withheld. If Owner does not
approve the service or program, the matter will be determined by arbitration
pursuant to Section 11.20; or

            17. Take any other action which, under the terms of this Agreement,
is prohibited or requires the approval of Owner.

         D. Manager will comply with and abide by all applicable Legal
Requirements (except for certain Legal Requirements which are Owner's
responsibility under Section 5.03 hereof) pertaining to its operation of the
Resort. Owner will comply with and abide by all applicable Legal Requirements
pertaining to the Resort Improvements or to Owner's ownership interest in the
Resort (including, without limitation, Owner's obligations under Sections 5.03).
Either Owner or Manager shall have the right, but not the obligation, in its
reasonable discretion, to contest or oppose, by appropriate proceedings, any
such Legal Requirements. The reasonable expenses of any such contest of a Legal
Requirement shall be paid from Gross Revenues as Deductions; provided, however,
with respect Manager, such Legal Requirements must arise as a result of
Manager's obligations hereunder (and not as a result of managing properties
generally).

                                        5
<PAGE>   10

         1.02 Corporate Services

         Commencing with the Effective Date and thereafter during the Term of
this Agreement, Manager shall cause to be furnished to the Resort certain
services (collectively referred to herein as "Corporate Services") that are
furnished generally on a central, regional or other group basis to other
properties in the SMC System and which benefit such properties; provided,
however, that the Corporate Services expense for the existing Corporate Services
shall not exceed the annual total set forth in Business Plan for the subject
Fiscal Year, approved by Owner in accordance with Section 4.04. Reservation
costs will be charged at reasonable out-of-pocket cost to Manager. The charges
for Corporate Services shall be allocated on a reasonable basis among all
properties managed by Manager and receiving such services.

         1.03 Employees

         All personnel employed at the Resort shall, at all times from and after
the Effective Date, be the employees of Manager or an SMC Affiliate. Manager
shall have absolute discretion with respect to all personnel employed at the
Resort, including, without limitation, decisions regarding hiring, promoting,
transferring, compensating, supervising, terminating, directing and training all
employees at the Resort, and, generally, establishing and maintaining all
policies relating to employment. Notwithstanding the foregoing, in the event the
Resort is leased by Owner, as lessor, to Sonoma Spa Resorts, L.P. or an
Affiliate thereof, or to an Affiliate of Owner, as lessee, or if Owner has not
leased the Resort, then Manager shall not hire any proposed candidate for the
position of General Manager of the Resort without the Owner's approval, which
approval may not be unreasonably withheld. In the event that a General Manager
is to be appointed (under circumstances requiring Owner's approval as set forth
in the preceding sentence) and Owner has rejected one suitably qualified and
experienced candidate proposed by Manager in Manager's reasonable judgment for
the position, Owner shall have no further approval rights with respect to any
candidate proposed by Manager for such position at such time, and Manager may in
its sole discretion hire a candidate for such position. The foregoing provisions
with respect to Owner's right to approve a General Manager shall apply in each
instance that specific position at the Resort is filled. Manager shall be
permitted to provide free accommodations and amenities to its employees and
representatives living at or visiting the Resort in connection with its
management or operation. No person shall otherwise be given gratuitous
accommodations or services without prior joint approval of Owner and Manager,
except in accordance with usual practices of the resort and travel industry.
Manager shall use its reasonable efforts to implement employment practices with
the goal of achieving continuity of management and reduction of personnel
turnover.

         1.04 Owner's Right to Inspect

         Owner and its agents shall have access to the Resort at any and all
reasonable times for the purpose of inspection or showing the Resort to
prospective purchasers, tenants or Mortgagees.

         1.05 Owner's Right to Reserve Rooms and Facilities; Owner's Perquisites

                                        6
<PAGE>   11

                  A. Notwithstanding Manager's responsibility to set room rates
and occupancy policies for the Resort, Owner shall have the right to reserve
Guest Rooms or other facilities of the Resort (including spa, banquet,
reception, catering and other services) upon a space available basis at the
prevailing preferred corporate rate then charged by the Resort upon reasonable
notice to Manager.

                  B. In addition to the foregoing, Manager shall grant to Owner
and to individuals designated by Owner preferred rates and other perquisites at
the Resort that are at least as favorable as the rates and perquisites made
available by Manager to owners of other hotel and/or resort properties managed
by Manager or any other SMC Affiliate (which rates and perquisites shall be at
least as favorable as is typical in the industry with other first-class resort
managers, such as "Marriott" and "Hyatt").

                                   ARTICLE II

                                      TERM

         2.01 Term

         The "Term" of this Agreement shall consist of and include the "Initial
Term" and any "Renewal Term(s)". The "Initial Term" shall begin on the Effective
Date and shall continue until the expiration of the twentieth (20th) full Fiscal
Year from the Effective Date. Unless Manager is in Default hereunder, the Term
may thereafter be renewed by Manager, at its option (on the same terms and
conditions contained in this Agreement), for each of two (2) successive periods
of ten (10) Fiscal Years each (each such period a "Renewal Term"); provided,
however, Manager's option to renew shall be conditioned upon achievement of an
Owner ROI (determined solely by reference to Operating Profit [i.e., exclusive
of any "cure" payment]) of at least ten percent (10%) per annum for the two (2)
Fiscal Years immediately preceding the final Fiscal Year of the then existing
Term. For purposes of Section this 2.01, in the event Owner ROI is less than ten
percent (10%) per annum for either of the two (2) Fiscal Years immediately
preceding the final Fiscal Year of the then existing Term as a result of Force
Majeure or a major renovation of the Resort, then such Fiscal Year shall be
disregarded as one of the two (2) Fiscal Years immediately preceding the final
Fiscal Year of such Term. (For example: in Fiscals Year 17 and 19 Owner ROI is
11% for each year, in Fiscal Year 18 Owner ROI is 7% and Fiscal Year 20 is the
final Fiscal Year of the then existing Term; however, Owner ROI in Fiscal Year
18 was less than 10% as a result of a Force Majeure that occurred during Fiscal
Year 18, and such year is, thus, disregarded. As a result, Fiscal Years 18 and
19 are not two preceding Fiscal Years that would prohibit Manager from renewing
this Agreement; the two Fiscal Years considered in determining satisfaction of
the renewal condition of this Section 2.01, in this example, would be Fiscal
Years 17 and 19. Because Owner ROI exceeded 10% during Fiscal Years 17 and 19,
Manager would be entitled to renew this Agreement.)

         2.02 Performance Termination

                                       7
<PAGE>   12

         A. Subject to the provisions of Section 2.02.B. below, in the event (A)
the Owner ROI is less than the applicable Performance Thresholds with respect to
any two (2) consecutive Fiscal Years (determined without regard to any "cure"
payments, if any, made by Manager for such Fiscal Years pursuant to Section
2.02.B), and (B) the failure to meet the Performance Thresholds for two (2)
consecutive years as described in clause (A) is for reason(s) other than Force
Majeure or a major renovation of the Resort, then (i) Owner shall have the
option to terminate this Agreement and (ii) such option to terminate shall
thereafter continue (subject to the provisions of Section 2.02.D.) with respect
to any Fiscal Year in which the applicable Performance Threshold is not met. For
purposes of Section 2.02, in the event Owner ROI is less than the applicable
Performance Threshold with respect to any Fiscal Year as a result of Force
Majeure or a major renovation of the Resort, then such Fiscal Year shall be
disregarded in determining whether Owner ROI is less than the Performance
Threshold for two (2) consecutive Fiscal Years. (For example: in Fiscal Years 1,
2 and 3 the applicable Performance Threshold for Owner ROI is not met; however,
the Performance Threshold was not met in Fiscal Year 2 as a result of a major
renovation of the Resort conducted during Fiscal Year 2, and such year is, thus,
disregarded. As a result, Fiscal Years 1 and 2 are not two consecutive Fiscal
Years satisfying the precondition of Section 2.02.A; however, Fiscal Years 1 and
3 do constitute two consecutive Fiscal Years satisfying such precondition.)

         B. If a condition giving Owner the right to terminate this Agreement
pursuant to this Section 2.02 has occurred (a "Deficit"), Manager shall have the
right to "cure" the Deficit (thus, eliminating Owner's right to terminate under
Section 2.02A for such Fiscal Year) by paying to Owner (on or before the
thirtieth [30th] day following delivery of the Annual Operating Statement) an
amount equal to the difference between (i) the Operating Profit actually
distributed to Owner during the Fiscal Year in question and (ii) the Operating
Profit that would have been required to be distributed to Owner during the
Fiscal Year in question to achieve the applicable Performance Threshold for such
Fiscal Year (the "Deficiency"). Nothing herein contained shall be deemed to
obligate Manager to "cure" any Deficit. Amounts paid by Manager to "cure" a
Deficit shall be paid directly to Owner and shall not be considered part of the
Gross Receipts of the Resort.

         C. If Manager either fails to "cure" as above provided or has no
further right to cure, then Owner shall have the right to terminate this
Agreement effective upon not less than sixty (60) days written notice, which
notice shall be delivered to Manager within ninety (90) days after the
expiration of Manager's right to cure the Deficit. Upon the effective date of
such termination, all of the rights and obligations of the parties hereto shall
terminate (except to the extent of any survival pursuant to the terms of this
Agreement) without further act or notice of either of the parties, on the date
specified in a written notice from Owner to Manager, which date shall in no
event be sooner than the date on which there has been payment in full of any
other amounts due and owing to Manager hereunder (such payment to be made in
accordance with Section 3.01) or later than six (6) months thereafter.

         D. Owner's ongoing right to terminate this Agreement set forth in
Section 2.02.A. shall cease after any Fiscal Year during which the applicable
Performance Threshold is satisfied as a result

                                        8
<PAGE>   13

of the Operating Profit distributed to Owner (not as a result of "cure" by
Manager). Thereafter, Owner's right to terminate this Agreement set forth in
Section 2.02.A. shall again be available to Owner upon re-satisfaction of the
conditions relating thereto (i.e., a Fiscal Year in which the applicable
Performance Threshold is met through Operating Profit eliminates Owner's right
to terminate under Section 2.02 until there is again a period of 2 consecutive
Fiscal Years for which the applicable Performance Thresholds are not met without
"cure" payments).

         2.03 Termination Rights for Cessation of Involvement by Varma.

         A. Owner shall have the option to terminate this Agreement (and such
option to terminate shall thereafter continue for one (1) year after the event
giving rise to Owner's termination option under this Section 2.03.A.) in the
event Sanjay Varma ("Varma"), during the first three (3) years following the
Effective Date, either (i) commits an event of default under that certain
Exclusivity Agreement dated as of even date herewith between, among others,
Varma and Owner, or (ii) ceases (for a reason other than Varma's death,
permanent disability or incapacitation (as described in Section 2.03.B)) to be
the controlling shareholder of Manager or its parent corporation.

         B. In the event either of the following occurs during the first three
(3) years following the Effective Date: Varma (i) dies, becomes permanently
disabled or incapacitated (and he shall be deemed "permanently disabled or
incapacitated" if he is unable to complete his duties for sixty (60) days in any
consecutive ninety (90) day period), or (ii) ceases to engage personally in
performing Manager's obligations under this Agreement, then Owner shall have the
right to terminate this Agreement immediately following the completion of a six
(6) month review period, without recourse by Manager, provided that Owner shall
have given notice of such termination at least sixty (60) days prior to the
completion of such review period.

         C. In the event either of the following occurs after the first three
(3) years but prior to the end of seven (7) years following the Effective Date:
Varma (i) dies, becomes permanently disabled or incapacitated (as described in
Section 2.03.B), or (ii) ceases to engage personally in performing Manager's
obligations under this Agreement, then Owner shall have the right to terminate
this Agreement immediately following the completion of a twelve (12) month
review period, without recourse by Manager, provided that Owner shall have given
notice of such termination at least ninety (90) days prior to the completion of
such review period.

                                   ARTICLE III

                             COMPENSATION OF MANAGER

         3.01 Management Fees

         Manager shall be paid the sum of the following as its management fees:

                                        9
<PAGE>   14

         A. The Base Management Fee, which shall be retained by Manager from
Gross Revenues;

         B. The Short-Term Incentive Fee, which shall be retained by Manager
from Operating Profit in accordance with Sections 3.02 and 4.01.

         3.02 Operating Profit

         A. Operating Profit shall be distributed to Owner and to Manager in the
following order of priority:

            1. an amount equal to Owner's Priority shall be paid to Owner;

            2. if Manager is entitled to same, the Short-Term Incentive Fee
               shall be paid to Manager; and

            3. any remaining balance of Operating Profit shall be paid to Owner.

         B. To the extent of available Operating Profit with respect to each
Calendar Quarter, Manager shall distribute (within twenty (20) days after the
end of each Calendar Quarter) a prorated portion of the Owner's Priority to
Owner each such Calendar Quarter, and shall be entitled to retain a prorated
portion of the Short-Term Incentive Fee for each such Calendar Quarter based on
its good faith estimate of the Short-Term Incentive Fee for the full Fiscal
Year.

         C. All distributions to Owner shall be made concurrently with the
delivery of Manager's Quarterly Statement.

                                   ARTICLE IV

                               ACCOUNTING MATTERS

         4.01 Accounting, Distributions and Annual Reconciliation

         A. Within twenty (20) days after the close of each calendar month,
Manager shall deliver to Owner an interim accounting profit and loss statement
showing Gross Revenues, Deductions, Operating Profit, and applications and
distributions thereof for the preceding calendar month and on a year-to-date
cumulative basis, and within thirty (30) days after the close of each calendar
month, Manager shall deliver to Owner a balance sheet for the Resort as of the
end of the preceding month (collectively, the "Monthly Statement"). Within
twenty (20) days after the close of each Calendar Quarter, Manager shall deliver
to Owner an interim quarterly accounting profit and Loss statement showing Gross
Revenues, Deductions, Operating Profit, and applications and distributions
thereof

                                       10
<PAGE>   15

for the preceding Calendar Quarter and on a year-to-date cumulative basis for
such Fiscal Year, and within thirty (30) days after the close of each Calendar
Quarter, Manager shall deliver to Owner a balance sheet for the Resort as of the
end of the preceding Calendar Quarter (collectively, the "Quarterly Statement").
The Monthly Statements and Quarterly Statements shall be certified by the
controller of the Resort. Manager shall transfer to Owner, with each Quarterly
Statement, any interim amounts due Owner, subject to Working Capital needs, and
shall retain any interim amounts due Manager. With each Monthly Statement and
Quarterly Statement, Manager shall provide to Owner Manager's most current
estimate of Gross Revenues for the remaining months in the Fiscal Year. With the
Quarterly Statement, Manager shall provide to Owner Manager's variance report,
segmentation analysis, group activity report and competition survey for each
period, together with a period status report regarding uncompleted capital
projects and such other information as reasonably requested by Owner.

         B. Within one hundred twenty (120) days after the end of each Fiscal
Year, Manager shall deliver to Owner annual operating statements for business of
the Resort, a balance sheet as of the end of such year, and related statements
of income and retained earnings and changes in financial position for the Resort
for such Fiscal Year audited by an independent certified public accounting firm
selected by Owner. The reasonable and customary costs of such audit shall be
included as a Deduction.

         C. Calculations and payments of the Short-Term Incentive Fee, the Base
Management Fee, and distributions of Operating Profit made with respect to each
Calendar Quarter within a Fiscal Year shall be accounted for cumulatively.
Within sixty (60) days after the end of each Fiscal Year, Manager shall deliver
to Owner a statement (the "Annual Operating Statement") in reasonable detail
summarizing the operations of the Resort for the immediately preceding Fiscal
Year and a certificate of Manager's chief accounting officer certifying that, to
the best of his or her knowledge, such Annual Operating Statement is true and
correct. Without limiting the foregoing, the Annual Operating Statement shall
provide detail with respect to Gross Revenues attributable to Beverage Sales,
Food Sales, Room Revenues and Other Income. The parties shall, within five (5)
business days after Owner's receipt of such Annual Operating Statement, make any
adjustments, by cash payment, in the amounts paid or retained for such Fiscal
Year as are needed because of the final figures set forth in such Annual
Operating Statement. Such Annual Operating Statement shall be controlling over
the preceding Monthly or Quarterly Statements. No adjustments shall be made for
any Operating Loss in any preceding Fiscal Year.

         D. To the extent there is a Working Capital deficiency for any Calendar
Quarter, Manager shall advise Owner not less than thirty (30) days in advance of
the additional funds to be provided by Owner. If Owner does not so fund such
Working Capital deficit within the thirty (30) day time period, Manager shall
have the right (without affecting Manager's other remedies under this Agreement)
to withdraw an amount equal to such deficit from future distributions of funds
otherwise due to Owner.

         E. As between Owner and Manager in connection with this Agreement,
neither Owner nor Manager shall assume any liabilities which accrued (or would
stem solely from events which

                                       11
<PAGE>   16
occurred) prior to the Effective Date. Owner shall indemnify, defend, and hold
Manager harmless from and against all claims, Litigation and damages arising
from the acts or omissions of any Person performing management functions on
behalf of Owner at or for the Resort prior to the Effective Date ("Prior
Manager"); provided, however, Manager shall not be entitled to the rights and
benefits of this sentence in the event both (i) such claims, Litigation or
damages arise from the acts or omissions of Varma, individually or in a
representative capacity for a Prior Manager, and (ii) Owner is not entitled to
indemnification with respect to, or payment of, such claims, Litigation or
damages from such Prior Manager.

         4.02 Books and Records

         Books of control and account pertaining to operations at the Resort
shall be kept on the accrual basis and in all material respects in accordance
with the Uniform System of Accounts. All such books and records are the property
of and shall be available to Owner and its representatives at reasonable times
for examination and shall be maintained at the Resort or such other location
reasonably determined by Owner. Twice a year upon thirty (30) days prior written
notice to Manager, Owner may audit by a duly licensed independent certified
public accounting firm, examine or review the Annual Operating Statement and/or
the books, records and operations of Manager at the Resort and/or any
subtenants, concessionaires, licensees, and/or assignees relating to the Resort
as set forth in this Agreement. Owner shall complete such audit within ninety
(90) days after commencement thereof. The cost of such audit shall be a
Deduction from Gross Revenues. If Owner does not make such an audit or fails to
notify Manger in writing that Owner disputes all or some portion of the
respective Annual Operating Statement on or before ninety (90) days after
receipt by Owner of such Annual Operating Statement, then such Annual Operating
Statement shall be deemed to be conclusively accepted by Owner as being correct,
and Owner shall have no right thereafter, except in the event of fraud by
Manager, to question or examine the same. If such audit discloses that Gross
Revenues, gross operating expenses, or any other matter which is the subject of
the audit as previously reported for the period audited were inaccurate, Manager
or Owner, as the case may be, shall immediately pay to the other party any sums
disclosed by such audit as being due and owing, plus interest thereon (at the
Prime Rate plus one percent (1%) per annum). Further, if such inaccuracy was in
excess of five percent (5%) of the item so being audited, as disclosed by such
audit, Manager shall immediately pay to Owner the cost of such audit (and such
audit cost shall not be a Deduction). Any dispute concerning the correctness of
an audit shall be settled by arbitration in accordance with Section 11.20.

         4.03 Accounts, Expenditures

         A. Manager will deposit all funds derived from operation of the Resort
in bank accounts (the "Operating Accounts") in a bank or banks, identified and
selected by Owner, subject to Manager's reasonable approval. Withdrawals from
said Operating Accounts shall be made solely by representatives of Manager whose
signatures have been authorized. Reasonable petty cash funds shall be maintained
at the Resort.

                                       12
<PAGE>   17

         B. All payments made by Manager hereunder shall be made from the
Operating Accounts or petty cash funds. Manager shall not be required to make
any advance or payment with respect to the Resort except out of such funds, and
Manager shall not be obligated to incur any liability or obligation with respect
to the Resort. In any event, if any such liability or obligation is incurred by
Manager with respect to the Resort, Manager shall have the option to deduct such
amounts from Owner's share of Operating Profit if Owner has not fully reimbursed
Manager for said amounts within ten (10) days after Owner's receipt of notice
from Manager that said amounts are due.

         C. Debts and liabilities incurred by Manager as a result of its
operation and management of the Resort pursuant to the terms hereof, whether
asserted before or after Termination, will be paid by Owner to the extent funds
are not available for that purpose from Gross Revenues. The provisions of this
Section 4.03.C shall survive Termination.

         4.04 Business Plan

         A. Manager shall deliver to Owner for its review and written approval,
at least forty-five (45) days prior to the beginning of each Fiscal Year, a
preliminary draft of a business plan ("Business Plan") showing the following:

            1. Manager's reasonable estimate (on a monthly basis) of Gross
Revenues, Deductions, departmental profits and Operating Profits, FF&E Reserve
for the upcoming Fiscal Year, itemized by line item, in a reasonable manner
consistent with the Uniform System of Accounts (once approved by Owner, the
"Operating Budget") together with the assumptions (in narrative form) utilized
in preparing the Operating Budget;

            2. A budget of Manager's recommended renewals, revisions,
rebuilding, replacements, substitutions or improvements to the Resort for the
Fiscal Year which are of a capital nature under the Uniform System of Accounts
(once approved by Owner, "Capital Budget");

            3. A description of the general marketing strategy which Manager
intends to implement during the Fiscal Year to optimize both short and long-term
profitability of the Resort;

            4. Manager's estimate of any amounts Owner will be requested to
provide as Working Capital or to fund expenditures contemplated by the Capital
Budget during the Fiscal Year;

            5. A description of the status of any negotiations relating to a
collective bargaining agreement, if any, affecting Resort employees;

            6. A description of the current legal status of pending or
threatened suits, actions, proceedings, inquiries, or investigations concerning
the Resort;

            7. An organization chart which details a management staffing plan
for the upcoming Fiscal Year;

                                       13
<PAGE>   18

            8. To the extent not included above, a detailed estimate of all
reimbursable costs.

         B. Owner shall have forty-five (45) days after the date on which it
receives the proposed Business Plan to review, approve, disapprove or change the
entries appearing in the proposed Business Plan (other than the proposed Capital
Budget, which is addressed below). If Owner shall disapprove the proposed
Business Plan or any portion thereof, Owner shall specify with particularity the
reasons for its disapproval and Manager shall, after consultation with Owner,
submit to Owner a new proposed Business Plan or appropriate portion thereof
within fifteen (15) days after the date of Owner's disapproval. Any further
disagreement as to the Business Plan shall be determined pursuant to arbitration
in accordance with Section 11.20. The foregoing procedure shall be followed
until the proposed Business Plan is fully approved by Owner. Until such time as
the new proposed Operating Budget is approved by Owner, the portion approved, if
any, shall become effective and the Operating Budget for the previous Fiscal
Year, if available, with such changes as Owner may designate, shall remain in
effect with respect to the portion of the proposed Operating Budget disapproved
by Owner. In conjunction with the preparation and approval of the Business Plan,
Owner and Manager shall cooperate to establish an approved Business Plan that is
appropriate for the required standard of operations of the Resort and for the
Resort's level of occupancy and consistent with the primary and overriding
objective of maximizing the present value of Owner's cash flow from the Resort.

         C. Manager shall use its best efforts to limit the costs and expenses
incurred by or on behalf of Owner to those included within the approved
Operating and Capital Budgets. Manager shall provide Owner with a report with
respect to each Calendar Quarter of each Fiscal year summarizing year-to-date
performance and providing a forecast for the remainder of the Fiscal Year.
Manager may submit for Owner's approval a proposed revision of the Operating or
Capital Budget for any Fiscal Year if Manager determines during the course of
such Fiscal Year that any changes are in the best interests of the Resort
operations and, upon Owner's approval thereof, the revised Operating or Capital
Budget shall be substituted for the applicable prior budget for the current
Fiscal Year.

         D. Manager shall notify Owner whenever, during the course of a Fiscal
Year, Manager anticipates or becomes aware that the actual costs and expenses
shall exceed an amount equal to 1.05 times the budgeted amounts of costs and
expenses with respect to each departmental expense category, each undistributed
expense category, or any separate project identified in the approved Capital
Budget, and shall provide Owner, in each instance, with a written explanation of
the reasons therefor.

         E. Representatives of Manager, including without limitation appropriate
corporate executives, shall meet with representatives of Owner on a quarterly
basis to review the results of operations for the prior period and forecasts of
operations for the Resort.

         F. Manager shall diligently operate the Resort in accordance with the
Business Plan. It is understood, however, that the Business Plan is an estimate
only and that unforeseen circumstances such as the costs of labor, material,
services and supplies, casualty, operation of law, or economic and

                                       14
<PAGE>   19
market conditions, may make adherence to the Business Plan impracticable, and
Manager shall be entitled to depart therefrom due to causes of the foregoing
nature.

         4.05 Working Capital

         A. Owner shall, from time to time during the Term, promptly, but no
later than sixty (60) days after written request by Manager, advance any
additional funds, over and above those required pursuant to this Agreement,
necessary to maintain Working Capital at levels determined by Manager to be
reasonably necessary to satisfy the needs of the Resort as its operation may
from time to time require. Funds permanently advanced to establish or maintain
adequate Working Capital will be included in Owner's Investment and Owner's
Priority computation. If Owner does not so fund additional Working Capital
within the said sixty (60) day time period, Manager shall have the right
(without affecting Manager's other remedies under this Agreement) to (i)
withdraw an amount equal to the funds requested by Manager for additional
Working Capital from future distributions of funds otherwise due to Owner or
(ii) Manager may terminate this Agreement upon ninety (90) days prior written
notice, provided that such notice is given within ninety (90) days after
delivery of Manager's written request for additional funds. Upon Termination,
Manager shall, except as otherwise provided in this Agreement, return the
outstanding balance of the Working Capital to Owner.

         B. Manager shall cooperate with Owner and Hotel Lessee in determining
the balance of Working Capital upon the termination of the Hotel Lease.

         4.06 Fixed Asset Supplies

         It is anticipated that funding of initial Fixed Asset Supplies for the
Resort shall be included in the initial Working Capital funded in accordance
with Section 4.05. Owner shall, within thirty (30) days after request by
Manager, provide funds from Gross Revenues that are necessary to increase the
level of Fixed Asset Supplies to levels determined by Manager, in its good faith
judgment, to be necessary to satisfy the needs of the Resort as its operation
may, from time to time, require. Fixed Asset Supplies shall remain the property
of Owner throughout the term of the Agreement and upon Termination (except for
those Fixed Asset Supplies which are purchased by Manager pursuant to Section
11.11.E).

                                    ARTICLE V

                      REPAIRS, MAINTENANCE AND REPLACEMENTS

         5.01 Repairs and Maintenance Costs Which Are Expensed

         Manager shall maintain the Resort as a first-class luxury resort in
good repair and condition, and shall make or cause to be made such routine
maintenance, repairs and minor alterations as it determines are necessary for
such purposes and as may be necessary to maintain and execute

                                       15
<PAGE>   20
preventative maintenance schedules on all equipment used at the Resort. The
phrase "routine maintenance, repairs, and minor alterations" as used in this
Section 5.01 shall include only those which are normally expensed under
generally accepted accounting principles. The cost of such maintenance, repairs
and alterations shall be paid from Gross Revenues (and not from the FF&E
Reserve) and shall be treated as a Deduction in determining Operating Profit.
Manager shall provide Owner with an annual audit of Resort machinery, electrical
equipment and life safety equipment supervised by a senior engineer and shall
oversee the implementation of any action plans resulting thereof.

         5.02 FF&E Reserve

         A. Manager shall establish a book reserve account (the "FF&E Reserve")
that will reflect additions (plus accrued interest based upon rates earned by
other operating accounts maintained by the Resort) each Calendar Quarter, to
cover the cost of:

            1. replacements, renewals and additions to the FF&E at the Resort;
and

            2. Special Capital Expenditures.

         B. With each Quarterly Statement, Manager shall also submit to Owner a
detailed request for funds to cover the cost of replacements, renewals and
additions to the Resort FF&E and Special Capital Expenditures in accordance with
the FF&E Budget. Subject to the further provisions of this Agreement, Owner
shall provide such funds from the FF&E Reserve within thirty (30) days after
Manager's request.

         C. During the Term, the FF&E Reserve will reflect an addition of an
amount equal to (i) three and one-half percent (3.5%) of Gross Revenues
attributable to the Resort for each Calendar Quarter. All amounts accounted for
in the FF&E Reserve pursuant to this Section 5.02.C shall be a Deduction from
Gross Revenues.

         D. Manager shall prepare an annual budget estimate (the "FF&E Budget@)
of the expenditures necessary for (1) replacements, renewals and additions to
the FF&E of the Resort, and (2) Special Capital Expenditures, during the ensuing
Fiscal Year and the four (4) succeeding Fiscal Years, including anticipated
major Capital Expenditures in these four (4) years, and shall deliver the FF&E
Budget to Owner for its review and written approval, at the same time as Manager
submits the preliminary business plan described in Section 4.04.A. Owner agrees
that it will approve all items necessary to maintain the Resort in accordance
with Luxury Spa Resort Standards and as required by law and, in the event of any
disapproval, Owner shall specify each item disapproved and the reasons therefore
in writing to Manager within thirty (30) days after receipt of the FF&E Budget.
The FF&E Budget shall also indicate the estimated time schedule for making such
replacements, renewals, and additions.

                                       16
<PAGE>   21

         E. Manager shall (endeavoring in good faith to comply with the
applicable FF&E Budget) from time to time make such (1) replacements, renewals
and additions to the FF&E of the Resort, and (2) Special Capital Expenditures,
as Manager deems necessary, up to the balance in the FF&E Reserve. No
expenditures will be made in excess of said balance without the prior written
approval of Owner. At the end of each Fiscal Year, any amounts remaining in the
FF&E Reserve shall be carried forward to the next Fiscal Year. Proceeds from the
sale of FF&E no longer necessary to the operation of the Resort shall be added
to the FF&E Reserve. The FF&E Reserve will be kept on the books of Owner.
Proceeds from the disposition of FF&E shall reduce the required transfers to the
FF&E Reserve set forth in subsection B above, but shall not be included in Gross
Revenues.

         F. As the Resort ages, the percentage of Gross Revenues which is set
forth in Section 5.02.C may not be sufficient to keep the FF&E Reserve at the
levels necessary to make the replacements, renewals, and additions to the FF&E
of the Resort, or to make the Special Capital Expenditures, which are required
to maintain the Resort in accordance with the Luxury Spa Resort Standards. If
Manager reasonably believes (and so notifies Owner) that the funding of the FF&E
Reserve (with respect to the following Fiscal Year or any subsequent Fiscal
Year) will not be adequate to maintain the Resort in accordance with Luxury Spa
Resort Standards, Manager shall so notify Owner in writing ("Notice for
Additional FF&E Reserve"). The Notice for Additional FF&E Reserve shall set
forth, by specific categories, the amount and use of the additional funds
required for the FF&E Reserve as reasonably determined by Manager in good faith.
In the event Owner disagrees with the amount or use of funds proposed by Manager
in the Notice for Additional FF&E Reserve, Manager and Owner shall negotiate in
good faith, for a period not to exceed thirty (30) days, to reach a mutually
acceptable resolution (the agreed upon amounts and/or uses being referred to as
the "Agreed Upon FF&E Increase"). Thereafter, Owner shall elect one or the other
of the following two (2) alternatives:

            1. to agree in writing to increase the annual percentage in Section
5.02.C to provide the Agreed Upon FF&E Increase; or

            2. to make a lump sum contribution to the FF&E Reserve in the amount
of the Agreed Upon FF&E Increase.

            The failure of the parties to agree upon an Agreed Upon FF&E
Increase or the failure or refusal by Owner either to agree in writing to
Section 5.02.F.1 above, or to provide the funds required in accordance with
Section 5.02.F.2 above, within sixty (60) days after expiration of the foregoing
thirty (30) day negotiation period shall result in Termination of the
Performance Hurdles (hereafter defined), but shall not be an Event of Default by
either party. Upon "Termination of the Performance Hurdles" (i) the provisions
of Section 2.02 (and references in this Agreement to such section) shall be
null, void and of no further effect, and (ii) Manager's option to renew the Term
of this Agreement as set forth in Section 2.01 shall no longer be conditioned
upon achievement of an Owner ROI of at least ten percent (10%) per annum for the
two (2) Fiscal Years immediately preceding the final Fiscal Year of the then
existing Term.

                                       17
<PAGE>   22

         5.03 Capital Expenditures

         A. Manager shall prepare an annual estimate (the "Building Estimate")
of all Capital Expenditures. Manager shall submit the Building Estimate to Owner
for its approval at the same time as Manager submits the preliminary business
plan described in Section 4.04.A. Manager shall not make any Capital
Expenditures without the prior written approval of Owner, unless specifically
permitted herein.

         B. Notwithstanding the provisions of Section 5.03.A, Manager shall be
authorized to take appropriate remedial action (including making any necessary
Capital Expenditures) without receiving Owner's prior consent in the following
circumstances: (i) if there is an emergency threatening the Resort, its guests,
invitees or employees; or (ii) if the continuation of the given condition would
subject Manager and/or Owner to civil or criminal liability, and if Owner has
either failed to remedy the situation or has failed to take appropriate legal
action to stay the effectiveness of any applicable Legal Requirement, provided,
that Manager may not take any such action without first notifying Owner (or, in
the case of an emergency, using its best efforts to notify Owner). Manager shall
cooperate with Owner in the pursuit of any such action and shall have the right
to participate therein. Owner shall, upon written request by Manager, promptly
reimburse all expenditures made by Manager pursuant to this Section 5.03.B.

         C. The cost of all Capital Expenditures (including the expenses
incurred by either Owner or Manager in connection with any civil or criminal
proceeding described above) shall be borne solely by Owner, and shall not be
paid from Gross Revenues nor from the FF&E Reserve.

         D. Owner shall not unreasonably withhold its approval with respect to
Capital Expenditures as are: (i) required, in Manager's reasonable judgment, to
keep the Resort in a first-class, competitive, efficient and economical
operating condition in accordance with Luxury Spa Resort Standards; or (ii)
required by reason of any Legal Requirement, or otherwise required for the
continued safe and orderly operation of the Resort. It shall be an Event of
Default by Owner (and Manager shall be entitled to exercise any of the remedies
described in Article IX hereof) if Owner either (a) unreasonably withholds its
approval of any Capital Expenditure described in the preceding sentence, or (b)
fails to provide funding for any such Capital Expenditure, which was previously
approved by Owner, within sixty (60) days after the submission to Owner of the
Building Estimate requesting such Capital Expenditure.

         5.04 Ownership of Replacements

         All repairs, alterations, improvements, renewals or replacements made
pursuant to Article V, and all amounts kept in the FF&E Reserve, shall, except
as otherwise provided in this Agreement, be the property of Owner.

                                       18
<PAGE>   23

                                   ARTICLE VI

                       INSURANCE, DAMAGE AND CONDEMNATION

         6.01 Insurance

         A. Manager shall, commencing with the Effective Date and thereafter
during the Term of the Agreement, procure and maintain, with insurance companies
that have an A.M. Best Insurance Guide Rating of not less than A-VIII, a minimum
of the following insurance:

            1. Property insurance on the Resort Improvements and contents
against loss or damage by fire, lightning and all other risks (including
earthquake and flood in reasonable amounts if and as determined by Owner and
Manager) covered by a "Special Form" (formerly "All Risk") policy, and an agreed
amount endorsement (or its equivalent), all in an amount not less than one
hundred percent (100%) (less excavation and foundation costs) of the replacement
cost thereof;

            2. Boiler and machinery insurance against loss or damage (direct and
indirect) to boilers, pressure vessels, air conditioning systems, machinery and
electrical equipment to the extent applicable to the Resort;

            3. Business income (formerly "business interruption") insurance on a
"Special Form" policy and written on an actual loss sustained basis, covering
loss of profits and necessary continuing expenses, for not less than twelve (12)
months, for interruptions caused by any occurrence covered by the insurance
referred to in Sections 6.01.A.1 and 2 of a type and in amounts as are generally
established by Manager at similar Resorts it owns, leases or manages;

            4. Commercial general liability insurance, on an occurrence basis,
covering against claims for bodily injury, including death, personal and
advertising injury or property damage occurring on, in, or about the Resort,
including liquor law or "dram shop" liability (if liquor or alcoholic beverages
are served on the managed property), with a combined single limit for each
occurrence of not less than One Million Dollars ($1,000,000) and Two Million
Dollars ($2,000,000) in the aggregate;

            5. Business automobile liability insurance to cover all owned, hired
and nonowned automobiles owned or operated by Manager providing a minimum
combined single limit of One Million Dollars ($1,000,000);

            6. Garagekeepers legal liability insurance to cover both
comprehensive and collision-type losses with a limit of liability of Two Million
Dollars ($2,000,000) for any one occurrence;

            7. Workers' compensation as may be required under applicable laws
covering all of Manager's employees at the Resort, and employer's liability
insurance in an amount of at least $500,000 per occurrence;

                                       19
<PAGE>   24

            8. Umbrella liability insurance in excess of the liability coverage
set forth above in Sections 6.01.A.4, A.5 and A.7 (employers liability only)
with limits no less than One Hundred Million Dollars ($100,000,000);

            9. Fidelity bonds or a blanket commercial crime policy with
reasonable limits to be determined by Manager, covering its employees in job
classifications normally bonded in other similar Resorts it leases or manages
under the name of Manager or any of its Affiliates in the United States or as
otherwise required by law to the extent Manager and Owner mutually agree it is
necessary for the Resort, which fidelity bonds or blanket commercial crime
policy shall be endorsed to include safe deposit box legal liability and
innkeeper's legal liability; and

            10. Such other insurance in amounts as reasonably requested by Owner
after consultation with Manager for protection against claims, liabilities and
losses arising out of or connected with the operation of the Resort.

         B. All insurance described in Section 6.01.A may be obtained by Manager
by endorsement or equivalent means under its blanket insurance policies,
provided that such blanket policies substantially fulfill the requirements
specified in this Agreement.

         C. The policies of insurance required under Sections 6.01.A.1 and A.2
shall be carried in the name of Owner, all other policies required hereunder
shall be carried in the name of Manager. The policies required under Sections
6.01.A. 3, 4, 5, 6, 8 and 9 shall include the owner of the Resort and any lessee
of the Resort as an additional insured and include a waiver of subrogation in
favor of the Owner. Upon notice by the Owner, Manager shall also have the
policies required under Sections 6.01.A.1, 2, and 3 include any Mortgagee as an
additional insured. Any property losses thereunder shall be payable to the
respective parties as their interests may appear.

         D. Manager shall deliver to Owner certificates of insurance with
respect to all policies so procured and, in the case of insurance policies about
to expire, shall deliver certificates with respect to the renewal thereof. All
certificates of insurance provided for under this Section 6.01 shall, to the
extent obtainable, state that the insurance shall not be canceled or materially
changed without at least thirty (30) days' prior written notice to the
certificate holder. Each insurer mentioned in this Section 6.01 shall agree, by
endorsement to the policy or policies issued to it, or by independent instrument
furnished to Crescent Real Estate Funding VIII, L.P., that it will provide
Crescent Real Estate Funding VIII, L.P. thirty (30) days written notice before
the policy or policies in question shall be materially altered, allowed to
expire or canceled.

         E. Insurance premiums and any other costs or expenses with respect to
the insurance required under Section 6.01.A., including any Insurance Retention
(as defined below), shall be paid from Gross Revenues as Deductions. Such
premiums and costs, if applicable, shall be allocated on an equitable basis to
the properties participating under Manager's blanket insurance. Any reserves,
losses, costs or expenses which are uninsured shall be treated as a cost of
insurance and shall be Deductions. Upon termination of this Agreement, a reserve
in an amount acceptable to Manager and

                                       20
<PAGE>   25

Owner (as determined, in the absence of mutual agreement, by arbitration
pursuant to Section 11.20) shall be established from Gross Revenues to cover the
amount of any Insurance Retention and all other costs which will eventually have
to be paid by either Owner or Manager with respect to pending or contingent
claims, including those which arise after termination for causes arising during
the Term of the Agreement. If Gross Revenues are insufficient to meet the
requirements of such reserve, Owner shall deliver to Manager, within ten (10)
days after receipt of Manager's written request therefor, the sums necessary to
establish such reserve; and if Owner fails to timely deliver such sums to
Manager, Manager shall have the right (without affecting Manager's other
remedies under this Agreement) to withdraw the amount of such expenses from the
Operating Accounts, the Working Capital funds or any other funds of Owner held
by or under the control of Manager. For purposes of this Section 6.01.E,
"Insurance Retention" shall mean the amount of any loss or reserve under
Manager's blanket insurance which is allocated to the Resort, not to exceed the
higher of (A) the maximum per occurrence limit established for similar Resorts
participating in such programs, or (B) the insurance policy deductible on any
loss which may fall within high hazard classifications as mandated by the
insurer (e.g., earthquake, flood, windstorm on coastal properties, etc.). If the
Resort is not a participant under Manager's blanket insurance, "Insurance
Retention" shall mean the amount of any loss or reserve allocated to the Resort,
not to exceed the insurance policy deductible.

         F. Owner may, at its option, by written notice to Manager which shall
be delivered no later than ninety (90) days prior to the inception of the
insurance policies required in Sections 6.01.A.1 and 2, procure and maintain the
insurance specified in Section, 6.01.A.1 and 2, subject to the following terms
and conditions:

            1. All such policies of insurance shall be carried in the name of
Owner, with Manager as an additional insured. Any property losses thereunder
shall be payable to the respective parties as their interests may appear. The
documentation with respect to each secured loan shall contain provisions to the
effect that proceeds of the insurance policies required to be carried under
Sections 6.01.A.1 and 2 shall be available for repair and restoration of the
Resort, to the extent required pursuant to Section 6.01.C. However, any holder
of such secured loan shall be entitled to impose reasonable conditions on the
disbursement of insurance proceeds for the repair and/or restoration of the
Resort, including a demonstration by Owner and/or Manager that the amount of
such proceeds (together with other funds Owner agrees to make available) is
sufficient for such purpose.

            2. Owner shall deliver to Manager certificates of insurance with
respect to all policies so procured and, in the case of insurance policies about
to expire, shall deliver certificates with respect to the renewal thereof.

            3. All such certificates of insurance shall, to the extent
obtainable, state that the insurance shall not be canceled or materially changed
without at least thirty (30) days' prior written notice to the certificate
holder.

                                       21
<PAGE>   26

            4. To the extent the premiums for such insurance coverage shall
exceed the premiums for such insurance under Manager's policies, such excess
shall not be treated as a Deduction.

            5. Should the Resort meet the insurability criteria of Manager and
Owner nevertheless exercises its right to obtain the insurance described in this
Section 6.01.F, Owner acknowledges that Manager is under no obligation to
thereafter include the Resort in its blanket insurance program (with respect to
the coverage described in Sections 6.01.A.1, 2 and 3) for the balance of the
Term of this Agreement. However, upon a Sale of the Resort, a successor Owner
shall have the right, notwithstanding the fact that the previous Owner may have
obtained insurance in accordance with this Section 6.01.F, to have the Resort
included in Manager's blanket insurance program (provided that the Resort, as of
that point in time, satisfies the applicable criteria for admission to such
program, as established by the program's insurance carriers) by making a written
request to Manager for such inclusion not later than thirty (30) days after the
date on which such party becomes the Owner.

            6. All insurance procured by Owner hereunder shall be obtained from
reputable insurance companies authorized to issue insurance in the State of
California and reasonably acceptable to Manager.

         G. Increase in Limits. If Owner at any time deems the limits of the
personal injury or property damage under the comprehensive public liability
insurance then carried to be either excessive or insufficient, Manager and Owner
shall endeavor in good faith to agree on the proper and reasonable limits for
such insurance to be carried and such insurance shall thereafter be carried with
the limits thus agreed on until further change pursuant to the provisions of
this Section.

         6.02 Damage and Repair

         A. If, during the Term, the Resort is damaged by a Minor Casualty,
Manager shall, with commercially reasonable diligence, proceed to process the
claim with the applicable insurance carriers, including settling such claim, and
to make the necessary arrangements with appropriate contractors and suppliers to
repair and/or replace the damaged portion of the Resort. Owner's consent shall
not be needed for Manager to perform any of the foregoing, all of which shall be
performed in accordance with Manager's reasonable judgment. Owner agrees to sign
promptly any documents which are reasonably necessary to process and/or adjust
the claim with the insurance carriers, as well as any contracts with such
contractors and/or suppliers.

         B. If, during the Term, the Resort suffers a Total Casualty, this
Agreement shall be terminable at the option of either party upon ninety (90)
days' written notice to the other party. Such notice must be sent within thirty
(30) days after the date of the Total Casualty. In the event that (i) insurance
proceeds actually received by Owner are sufficient to replace and/or rebuild the
Resort, and (ii) Owner so elects to terminate this Agreement (notwithstanding
receipt of insurance proceeds sufficient to replace and/or rebuild the Resort),
then Owner will pay to Manager the Termination Fee,

                                       22
<PAGE>   27
such payment to be made on or before the ninetieth (90th) day after the date on
which Owner notifies Manager of its election to terminate this Agreement.

         C. If, during the Term, the Resort is damaged by fire, casualty or
other cause to a greater extent than a Minor Casualty, but not to the extent of
a Total Casualty, or if the Resort suffers a Total Casualty but neither party
elects to terminate under Section 6.02.B, Owner shall, at its cost and expense
and with all reasonable diligence, repair and/or replace the damaged portion of
the Resort to the same condition as existed previously. Manager shall have the
right to discontinue operating the Resort to the extent it deems necessary to
comply with applicable Legal Requirements or as necessary for the safe and
orderly operation of the Resort. To the extent available, proceeds from the
insurance described in Section 6.01 of this Agreement shall be applied to such
repairs and/or replacements. If Owner does not elect to terminate this Agreement
under Section 6.02.B and fails to promptly commence the repairing and/or
replacement of the Resort so that it shall be substantially the same as it was
prior to such damage or destruction, such failure shall be an Event of Default
by Owner.

         6.03 Condemnation

         A. In the event all or substantially all of the Resort shall be taken
in any eminent domain, condemnation, compulsory acquisition, or similar
proceeding by any competent authority for any public or quasi-public use or
purpose, or in the event a portion of the Resort shall be so taken, but the
result is that it is unreasonable to continue to operate the Resort in
accordance with the standards required by this Agreement, this Agreement shall
terminate. Owner and Manager shall each have the right to initiate such
proceedings as they deem advisable to recover any compensation to which they may
be entitled.

         B. In the event a portion of the Resort shall be taken by the events
described in Section 6.03.A, or the entire Resort is affected but on a temporary
basis, and the result is not to make it unreasonable to continue to operate the
Resort, this Agreement shall not terminate. However, so much of any award for
any such partial taking or condemnation as shall be necessary to render the
Resort equivalent to its condition prior to such event shall be used for such
purpose; and Manager shall have the right to discontinue operating the Resort to
the extent it deems necessary for the safe and orderly operation of the Resort.

                                       23
<PAGE>   28

                                   ARTICLE VII

                                      TAXES

         7.01 Real Estate and Personal Property Taxes

         A. Except as specifically set forth in subsection B below, all real
estate and personal property taxes, levies, assessments and similar charges on
or relating to the Resort ("Impositions") during the Term shall be paid by
Manager from Gross Revenues, before any fine, penalty, or interest is added
thereto or lien placed upon the Resort or upon the Agreement, unless payment
thereof is in good faith being contested and enforcement thereof is stayed. Any
such payments shall be Deductions in determining Operating Profit. Owner shall,
within ten (10) business days after receipt, furnish Manager with copies of
official tax bills and assessments which it may receive with respect to the
Resort. Either Owner or Manager (in which case Owner agrees to sign the required
applications and otherwise cooperate with Manager in expediting the matter) may
initiate proceedings to contest any negotiations or proceedings with respect to
any Imposition, and all reasonable costs of any such contest shall be paid from
Gross Revenues and shall be a Deduction in determining Operating Profit. Manager
shall, as part of its contest or negotiation of any Imposition, be entitled, on
Owner's behalf, to waive any applicable statute of limitations in order to avoid
paying the Imposition during the pendency of any proceedings or negotiations
with applicable authorities.

         B. The word "Impositions" as used in this Agreement shall not include
the following, all of which shall be paid solely by Owner, not from Gross
Revenues nor from the FF&E Reserve:

            1. Any franchise, corporate, estate, inheritance, succession,
capital levy or transfer tax imposed on Owner, or any income tax imposed on any
income of Owner (including distributions to Owner pursuant to Article III
hereof, but not including any property taxes which are assessed on the basis of
income or revenues generated by the Resort);

            2. Special assessments (regardless of when due or whether they are
paid as a lump sum or in installments over time) imposed because of facilities
which are constructed by or on behalf of the assessing jurisdiction (for
example, roads, sidewalks, sewers, culverts, etc.) which directly benefit the
Resort (regardless of whether or not they also benefit other buildings), which
assessments shall be treated as capital costs of construction and not as
Deductions;

            3. "Impact Fees" (regardless of when due or whether they are paid as
a lump sum or in installments over time) which are required of Owner as a
condition to the issuance of site plan approval, zoning variances or building
permits, which impact fees shall be treated as capital costs of construction and
not as Deductions; or

            4. "Tax-increment financing" or similar financing whereby the
municipality or other taxing authority has assisted in financing the
construction of the Resort by temporarily reducing or abating normal Impositions
in return for substantially higher levels of Impositions at later dates.

                                       24
<PAGE>   29

                                  ARTICLE VIII

                             OWNERSHIP OF THE RESORT

         8.01 Ownership of the Resort

         A. During the Term and any Renewals, Owner hereby covenants that it
holds good and marketable fee title to the Site and that it will have, keep, and
maintain good and marketable fee title to the Resort free and clear of any and
all liens, encumbrances or other charges (or in the event of a lease of the
Resort, the lessee holds a valid leasehold interest in the Site) except as
follows:

            1. Easements or other encumbrances (other than those described in
subsections 2 and 3 hereof) that do not materially and adversely affect the
operation of the Resort by Manager and that are not prohibited pursuant to
Section 8.04 of this Agreement;

            2. Liens on encumbrances related to equipment used in the operation
of the Resort;

            3. Mortgages;

            4. Liens for taxes, assessments, levies or other public charges not
yet due or due but not yet payable or due and payable but payment is in good
faith being contested; or

            5. The Hotel Lease.

         B. Owner shall pay and discharge, on or before the due date, any and
all payments due under any Mortgage that Owner has entered into with respect to
the Resort. Owner shall indemnify, defend, and hold Manager harmless from and
against all claims, Litigation and damages arising from the failure to make any
such payments as and when required; and this obligation of Owner shall survive
Termination. Manager shall have no responsibility for payment of debt service
due with respect to the Resort, from Gross Revenues or otherwise, and such
responsibility shall be solely that of Owner.

         C. Owner covenants that, so long as Manager is not in Default under
this Agreement, Manager shall quietly hold, occupy and enjoy the Resort
throughout the Term hereof free from hindrance, ejection or molestation by Owner
or other party claiming under, through or by right of Owner. Owner agrees to pay
and discharge any payments and charges and, at its expense, to prosecute all
appropriate actions, judicial or otherwise, necessary to assure such free and
quiet occupation.

         D. Manager and Owner agree that during the Term, Owner may lease the
Resort to any Person on terms and conditions acceptable to Owner in its sole and
absolute discretion. Manager,

                                       25
<PAGE>   30

Owner and Hotel Lessee acknowledge that the Resort is currently leased by Owner
to Hotel Lessee pursuant to the Hotel Lease, and Hotel Lessee executes this
Agreement to evidence its agreement that, until such time as all of Owner's
obligations under this Agreement have been satisfied in full, the Hotel Lease
and all terms and provisions thereof shall be subject to and unconditionally
subordinate in all respects to this Agreement (including without limitation the
respective obligations and liabilities, and the respective rights, privileges,
and powers, of Owner and Manager under this Agreement and any renewals,
extensions, modifications or assignments hereof). During the term of the Hotel
Lease, but not thereafter, Owner hereby assigns to Hotel Lessee (an Affiliate of
Crescent Operating, Inc.) all of Owner's interest in this Agreement, and all of
Owner's rights, benefits, and privileges under this Agreement shall be vested in
Hotel Lessee throughout the term of the Hotel Lease and upon termination of the
Hotel Lease, for whatever reason, shall automatically revert to Owner without
the necessity of any action on the part of the Owner hereunder.

         8.02 Mortgages

         Owner shall be permitted to encumber the Resort and/or the Site with
any Mortgage.

         8.03 Subordination Agreement.

         A. At Owner's request, Manager shall execute an instrument
("Subordination Agreement") reasonable satisfactory to Manager and any
Mortgagee, which shall be recordable in the jurisdiction where the Resort is
located pursuant to which:

            1. This Agreement and any extensions, renewal, replacements or
modifications there, and all right and interest of Manager in and to the Resort,
shall be subject and subordinate to such Mortgage; and

            2. Manager shall be obligated to each of the Subsequent Owners (as
defined below) to perform all of the terms and conditions of this Agreement for
the balance of the remaining Term hereof, with the same force and effect as if
such Subsequent Owner were the Owner.

Notwithstanding the foregoing, Manager shall not be obligated to execute a
Subordination Agreement with respect to any Mortgage for which the loan-to-value
ratio, as determined by the lender under such Mortgage, exceeds seventy percent
(70%).

         B. Owner shall use commercially reasonable efforts to obtain in the
Subordination Agreement the terms of this Section 8.03.B. In the event that
there is a Foreclosure of such Mortgage (or a deed in lieu of Foreclosure), or
other exercise by such Mortgagee (or its successor) of its remedies in the event
of default, in connection with which title or possession of the Resort is
transferred to the Mortgagee (or its designee) or to a purchaser at Foreclosure
or to a subsequent purchaser from the Mortgagee (or from its designee) (all of
the foregoing shall collectively be referred to as "Subsequent Owners"), Manager
shall not be disturbed in its rights under this Agreement so long as Manager is
not in Default hereunder.

                                       26
<PAGE>   31

         C. Notwithstanding the subordination of this Agreement which is
described in Section 8.03.A (or any subsequent subordination to any other
Mortgage), if, in connection with the exercise by any Mortgagee of its remedies
under any Mortgage, there is a material adverse impact upon the operation of the
Resort by Manager in accordance with the Luxury Spa Resort Standards (such as,
for example, the imposition of material restrictions upon expenditures from the
FF&E Reserve by Manager, where such restrictions are not set forth in this
Agreement), the foregoing shall be deemed to be an Event of Default by Owner
entitling Manager to all of the remedies set forth in Article IX.

         8.04 No Covenants, Conditions or Restrictions

         A. Owner covenants that, from and after the Effective Date and during
the Term of this Agreement, Owner shall not (unless Manager has given its prior
written consent thereto) create or cause or suffer to be caused any covenants,
conditions or restrictions, including reciprocal easement agreements or
cost-sharing arrangements (collectively referred to as "CC&Rs") affecting the
Site or the Resort (i) which would prohibit or substantially limit Manager from
operating the Resort in accordance with the Luxury Spa Resort Standards,
including related amenities proposed for the Resort; (ii) which would legally
entitle the Resort facilities (for example, parking spaces) to be used by
persons other than guests, invitees or employees of the Resort; (iii) other than
leases entered into by Owner, which would allow the Resort facilities to be used
for specified charges or rates which have not been approved by Manager; or (iv)
which would subject the Resort to exclusive arrangements regarding food and
beverage operation or retail merchandise.

         B. Unless otherwise agreed by both Owner and Manager, all financial
obligations imposed on Owner or on the Resort pursuant to any CC&Rs shall be
paid by Owner from its own funds, and not from Gross Revenues or from the FF&E
Reserve. Manager's consent to any such CC&Rs shall be conditioned (among other
things) on satisfactory evidence that: (i) the CC&R in question provides a
reasonable and cost-effective benefit to the operation of the Resort; (ii) the
costs incurred (including administrative expenses) pursuant to such CC&R will be
both reasonable and allocated to the Resort on a reasonable basis; and (iii) no
capital expenditures incurred pursuant to said CC&R will be paid as a Deduction
(but rather, such capital expenditures will be paid separately by Owner).

         8.05 Liens; Credit

         Manager and Owner shall use commercially reasonable efforts to prevent
any liens from being filed against the Resort which arise from any maintenance,
repairs, alterations, improvements, renewals or replacements in or to the
Resort, other than the lease or financing of equipment for use at the Resort.
They shall cooperate fully in obtaining the release of any such liens, and the
cost thereof, if the lien was not occasioned by the fault of either party, shall
be treated the same as the cost of the matter to which it relates. If the lien
arises as a result of the fault of either party, then the party at fault shall
bear the cost of obtaining the lien release. In no event shall either party
borrow money in the name of or pledge the credit of the other.

                                       27
<PAGE>   32

         8.06 Amendments Requested by Mortgagee

         A. If requested by any Mortgagee or prospective Mortgagee, Manager
agrees to execute and deliver any amendment of this Agreement that is reasonably
required by such Mortgagee or prospective Mortgagee, provided that Manager shall
be under no obligation to amend this Agreement if the result of such amendment
would be: (i) to reduce, defer or delay the amount of any payment to be made to
Manager hereunder; (ii) to materially and adversely increase Manager's
obligations or affect Manager's rights under this Agreement; (iii) to change the
Term of this Agreement; (iv) to cause the Resort to be operated other than
pursuant to the Luxury Spa Resort Standards and other provisions hereof; or (v)
to amend Section 5.02 or Section 5.03. Any such amendment shall be in effect
only for the period of time in which such Mortgage is outstanding.

         B. Notwithstanding the provisions of Section 8.06.A, if a Mortgagee or
prospective Mortgagee requests that Manager enter into an amendment of this
Agreement which would impose additional duties (for example, an increase in the
reporting requirements or in the record-keeping requirements, or adding the
obligation to prepare parallel accounting statements using a different fiscal
year) on Manager, or would otherwise adversely affect Manager's rights under
this Agreement, but not to the degree of materiality which would be prohibited
under Section 8.06.A, and with respect to which Manager believes, in its good
faith judgment, that it can be adequately compensated, Manager hereby agrees
that it will execute and deliver such requested amendment of this Agreement,
provided that Owner compensates Manager for the additional burden imposed by
such amendment that relate directly to the Resort. It is understood that the
word "burden," as used in the preceding sentence, shall encompass not only
additional work to be performed by Manager, but also the adverse effect on the
Short-Term Incentive Fee which would be caused by requiring increased services
to be provided to the Resort by third parties and by paying from Gross Revenues
any other expenses incurred by Manager in meeting such additional obligations.
Any dispute as to the additional compensation to which Manager is entitled
pursuant to this Section 8.06.B. shall be resolved by arbitration pursuant to
Section 11.20.

                                   ARTICLE IX

                                    DEFAULTS

9.01     Events of Default

         Each of the following shall constitute a "Default" under this
Agreement.

         A. The filing of a voluntary petition in bankruptcy or insolvency or a
petition for reorganization under any bankruptcy law by either party, or the
admission by either party that it is unable to pay its debts as they become due.
Upon the occurrence of any Default by either party (referred to as the
"defaulting party") as described under this subsection A, said Default shall be
deemed an "Event of Default" under this Agreement.

                                       28
<PAGE>   33

         B. The consent to an involuntary petition in bankruptcy or the failure
to vacate, within ninety (90) days from the date of entry thereof, any order
approving an involuntary petition by either party. Upon the occurrence of any
Default by either party as described under this subsection B, said Default shall
be deemed an "Event of Default" under this Agreement.

         C. The entering of an order, judgment or decree by any court of
competent jurisdiction, on the application of a creditor, adjudicating either
party as bankrupt or insolvent or approving a petition seeking reorganization or
appointing a receiver, trustee, or liquidator of all or a substantial part of
such party's assets, and such order, judgment or decree's continuing unstayed
and in effect for an aggregate of sixty (60) days (whether or not consecutive).
Upon the occurrence of any Default by either party as described under this
subsection C, said Default shall be deemed an "Event of Default" under this
Agreement.

         D. The failure of either party to make any payment required to be made
in accordance with the terms of this Agreement, as of the due date as specified
in this Agreement. Upon the occurrence of any Default by either party as
described under this subsection D, said Default shall be deemed an "Event of
Default" under this Agreement if the defaulting party fails to cure such Default
within ten (10) days after receipt of written notice from the non-defaulting
party demanding such cure.

         E. The failure of either party to perform, keep or fulfill any of the
other covenants, undertakings, obligations or conditions set forth in this
Agreement, and the continuance of such default for a period of thirty (30) days
after the defaulting party's receipt of written notice from the non-defaulting
party of said failure. Upon the occurrence of any Default by either party as
described under this subsection E, said Default shall be deemed an "Event of
Default" under this Agreement if the defaulting party fails to cure the Default
within thirty (30) days after receipt of written notice from the non-defaulting
party demanding such cure, or, if the Default is such that it cannot reasonably
be cured within said thirty (30) day period of time, if the defaulting party
fails to commence the cure of such Default within said thirty (30) day period of
time or thereafter fails to diligently pursue such efforts to completion.

         9.02 Remedies

         Upon the occurrence of an Event of Default, the non-defaulting party
shall have the right to pursue any one or more of the following courses of
action: (1) if the Event of Default has a material adverse impact on the
non-defaulting party, to terminate this Agreement by written notice to the
defaulting party, which termination shall be effective as of the effective date
which is set forth in said notice, provided that said effective date shall be at
least thirty (30) days after the date of said notice and further provided that
either party may extend the foregoing period of thirty (30) days to seventy-
five (75) days (or such longer period of time as may be necessary under Legal
Requirements pertaining to termination of employment); (2) to institute
forthwith any and all proceedings permitted by law or equity including, without
limitation, actions for specific performance and/or damages; and/or (3) to avail
itself of the remedies described in Section 9.03.

                                       29
<PAGE>   34

         9.03 Additional Remedies

         A. Upon the occurrence of a Default by either party under the
provisions of Section 9.01.D, the amount owed to the non-defaulting party shall
accrue interest, at an annual rate equal to the Prime Rate plus three (3)
percentage points, from and after the date on which the Default occurred.

         B. Upon the occurrence of a Default by Owner under the provisions of
Section 9.01.D, Manager shall have the right (without affecting Manager's other
remedies under this Agreement) to withdraw the amount (plus accrued interest as
described in 9.03.A above) owed to Manager by Owner from distributions otherwise
payable to Owner pursuant to Sections 3.02 and 4.01 of this Agreement.

         C. Manager and/or any Affiliate shall be entitled, in case of any
breach of the covenants of Sections 11.11.E, F, or G or of Section 11.12 by
Owner or others claiming through it, to injunctive relief and to any other right
or remedy available at law.

         D. Except as provided, the remedies granted under Sections 9.02 and
9.03 shall not be in substitution for, but shall be in addition, to, any and all
rights and remedies available to the non- defaulting party (including, without
limitation, injunctive relief and damages) by reason of applicable provisions of
law or equity and shall survive Termination.

                                    ARTICLE X

                               ASSIGNMENT AND SALE

         10.01 Assignment

         A. Manager shall not assign or transfer its interest in this Agreement
without the prior written consent of Owner; provided, however, that Manager
shall have the right, without Owner's consent, to lease shops or grant
concessions at the Resort so long as the terms of any such leases or concessions
do not exceed the Term of this Agreement, subject to Owner's right to consent as
set forth in Section 1.02 and elsewhere in this Agreement.

         B. Owner shall not assign or transfer its interest in this Agreement
without the prior written consent of Manager; provided, however, that Owner
shall have the right, without such consent, to (1) assign its interest in this
Agreement to Crescent Operating, Inc., Crescent Real Estate Equities Limited
Partnership, Crescent Real Estate Equities, Ltd., Sonoma Spa Resorts, L.P. or
any of their Affiliates or any successors of the foregoing, (2) conditionally
assign this Agreement as security for a Mortgage of the Resort in accordance
with this Agreement, and (3) assign its interest in this Agreement in connection
with a Sale of the Resort.

                                       30
<PAGE>   35

         C. In the event either party consents to an assignment of this
Agreement by the other, no further assignment shall be made without the express
consent in writing of such party, unless such assignment may otherwise be made
without such consent pursuant to the terms of this Agreement. An assignment by
Manager of its interest in this Agreement shall not relieve Manager from its
obligations under this Agreement, and shall inure to the benefit of, and be
binding upon, its successors, heirs, legal representatives, or assigns. In the
event Owner assigns this Agreement in accordance with the terms hereof and
thereby causes its assignee to assume all of Owner's obligations hereunder,
Owner shall thereby be released from the obligations of Owner under this
Agreement to the extent such obligations accrue on or after the effective date
of the assumption by Owner's assignee.

         10.02 Sale of the Resort

         A. At any time during the Term, Owner shall be entitle to sell, assign,
transfer or otherwise dispose of the Resort subject to the further provisions of
this Agreement.

         B. Unless this Agreement is terminated in accordance with Section
10.03, no Sale of the Resort shall reduce or otherwise affect: (i) the current
level of Working Capital; (ii) the outstanding balance deposited in the FF&E
Reserve; or (iii) the outstanding balance in any of the Operating Accounts
maintained by Manager pursuant to this Agreement. If, in connection with any
Sale of the Resort, the selling Owner intends to withdraw, for its own use, any
of the cash deposits described in the preceding sentence, the selling Owner must
obtain the contractual obligation of the buying Owner to replenish those
deposits (in the identical amounts) simultaneously with such withdrawal. The
selling Owner is hereby contractually obligated to Manager to ensure that such
replenishment in fact occurs. The obligations described in this Section 10.02.B
shall survive such Sale of the Resort.

         C. The terms and provisions of this Agreement shall be binding upon all
successors to Owner's interest in the Site and/or the Resort. Each selling Owner
shall be obligated to Manager to obtain from each buying Owner an assumption of
this Agreement. The foregoing obligation of the selling Owner shall survive any
Sale of the Resort.

         10.03 Termination on Sale of Resort

         Owner shall have the right to terminate this Agreement upon the Sale of
the Resort if the Resort is sold in a bonafide arms length transaction to a
non-related entity (where no shareholder or partner of Owner holds any ownership
interest in such new entity, other than ownership of a non- controlling
interest) and Owner is not in default under the terms of this Agreement by
notice given pursuant to Section 11.07. Such Termination shall be effective in
accordance with the following: Owner shall notify Manager of its election to
terminate this Agreement pursuant to the provisions of this Section 10.03 by
delivery of a written notice ("Sale Termination Notice") setting forth Owner's
intention to terminate this Agreement and the anticipated date on which this
Agreement shall terminate, which notice shall be delivered at least ninety (90)
days prior to the projected termination date. Notwithstanding the foregoing, in
the event the Sale Termination Notice is delivered to

                                       31
<PAGE>   36

Manager less than twelve (12) months prior to the projected termination date,
Owner shall be obligated to pay Manager the Base Management Fee for twelve (12)
months following the Sale Termination Notice (without regard to a prior
termination of this Agreement pursuant to this Section 10.03). In the event
Owner is obligated under this Section 10.03 to pay Manager the Base Management
Fee for any period following the termination of this Agreement pursuant to this
Section 10.03, the amount of such Base Management Fee shall be the amount of the
Base Management Fee paid by Owner to Manager for the corresponding period in the
immediately preceding Fiscal Year. Owner may, not less than thirty (30) days
prior to the projected termination date of this Agreement as set forth in a Sale
Termination Notice, withdraw such Sale Termination Notice (in which case, this
Agreement shall continue in full force and effect as if such Sale Termination
Notice had not been previously delivered to Manager).

                                   ARTICLE XI

                                  MISCELLANEOUS

         11.01 Right to Make Agreement

         Each party warrants, with respect to itself, that neither the execution
of the Agreement nor the finalization of the transactions contemplated hereby
shall violate any provision of law or judgment, writ, injunction, order or
decree of any court or governmental authority having jurisdiction over it;
result in or constitute a breach or default under any indenture, contract, other
commitment or restriction to which it is a party or by which it is bound; or
require any consent, vote or approval which has not been taken, or at the time
of the transaction involved shall not have been given or taken. Each party
covenants that it has and will continue to have throughout the Term of the
Agreement and any extensions thereof, the full right to enter into the Agreement
and perform its obligations hereunder.

         11.02 Consents and Cooperation

         Wherever in the Agreement the consent or approval of Owner or Manager
is required, such consent or approval shall be in writing and shall be executed
by a duly authorized officer or agent of the party granting such consent or
approval. Additionally, Owner agrees to cooperate with Manager by executing such
leases, subleases, licenses, concessions, equipment leases, service contracts
and other agreements negotiated in good faith by Manager and pertaining to the
Resort that are consistent with the terms of this Agreement and, in Manager's
reasonable judgment, should be made in the name of the Owner of the Resort.

         11.03 Relationship

         Neither this Agreement nor any agreements, instruments, documents, or
transactions contemplated hereby shall in any respect be interpreted, deemed or
construed as making Manager a

                                       32
<PAGE>   37

partner or joint venturer with Owner. Owner and Manager agree that neither party
will make any contrary assertion, claim or counterclaim in any action, suit,
arbitration or other legal proceedings involving Owner and Manager.

         11.04 Applicable Law

         The Agreement shall be construed under and shall be governed by the
laws of the state of Texas.

         11.05 Recordation

         The terms and provisions of the Agreement shall run with the parcel of
land designated as the Site, and with Owner's interest therein, and shall be
binding upon all successors to such interest. Simultaneously with the execution
of this Agreement, the parties shall execute a recordable "Memorandum of
Management Agreement," in the form which is attached hereto as Exhibit B. The
Memorandum shall be recorded or registered promptly following the Effective Date
in the jurisdiction in which the Resort is located. The Memorandum shall not be
a lien against Owner's interest in the Site. Any cost of such recordation shall
be reimbursed from Gross Revenues and treated as a Deduction. Upon termination
of this Agreement, Owner and Manager shall execute a written notice of such
termination in recordable form.

         11.06 Headings

         Headings of articles and sections are inserted only for convenience and
are in no way to be construed as a limitation on the scope of the particular
articles or sections to which they refer.

         11.07 Notices

         Notices, statements and other communications to be given under the
terms of the Agreement shall be in writing and delivered by hand against receipt
or sent by certified or registered mail, postage prepaid, return receipt
requested or by nationally utilized overnight delivery service, addressed to the
parties as follows:

<TABLE>
<S>                               <C>
         To Owner:                Crescent Real Estate Funding VIII, L.P.
                                  777 Main Street, Suite 2100
                                  Fort Worth, TX 76102
                                  Attn:  Senior Vice President and Chief
                                   Investment Officer
                                  Facsimile: (817) 321-2000

         and                      Crescent Real Estate Funding VIII, L.P.
                                  777 Main Street, Suite 2100
                                  Fort Worth, TX   76102
                                  Attn:  Legal Department
                                  Facsimile:  (817) 321-2000
</TABLE>

                                       33
<PAGE>   38

         with copy to:            Brown McCarroll & Oaks Hartline, LLP
                                  300 Crescent Court, Suite 1400
                                  Dallas, Texas 75201
                                  Attn: Robert W. Dupuy
                                  Facsimile: (214) 999-6170

         To Manager:              Sonoma Management Corp. I
                                  c/o Sonoma Holdings I, LLP
                                  306 W. 7th Street, Suite 1025
                                  Fort Worth, TX 76102
                                  Attn: Sanjay Varma
                                  Facsimile: 817/317-0665

         with copy to:            Gray, Harris & Robinson
                                  201 East Pine Street, Suite 1200
                                  Orlando, Florida 32801
                                  Attn: Byrd F. Marshall
                                  Facsimile: (407) 244-5690

or at such other address as is from time to time designated by the party
receiving the notice. Any such notice that is mailed in accordance herewith
shall be deemed received when delivery is received or refused, as the case may
be. Additionally, notices may be given by telephone facsimile transmission,
provided that an original copy of said transmission shall be delivered to the
addressee by nationally utilized overnight delivery service by no later than the
second business day following such transmission. Telephone facsimiles shall be
deemed delivered on the date of such transmission.

         11.08 Environmental Matters

         A. At all times during the term of this Agreement, Manager shall fully
comply with Environmental Laws applicable to the Resort and its operations.
Manager shall at all times use diligent efforts to determine if any Hazardous
Material is being used, released, disposed or discharged at or from the Resort,
including, without limitation, the engagement of professional environmental
engineers to perform such environmental studies or tests as may be approved by
Owner. If any Hazardous Material is discovered at the Resort, Manager shall not
disturb, release or dispose of (or permit to be disturbed, released or disposed
of) any such Hazardous Material except in strict compliance with a remediation
and/or removal program approved by Owner. Additionally, without the prior
consent of Owner, which may be withheld in its sole and absolute discretion,
Manager shall not permit on the Resort (a) any dry cleaning operations, (b) any
activity requiring a permit under any Environmental Laws, even if the permit has
been or can be obtained, (c) any activity generating any Hazardous Materials as
waste or using Hazardous Materials, other than (i) kitchen grease traps, (ii)
pool and spa chemicals, fertilizers and pesticides in reasonable quantities
relative to the needs of the

                                       34
<PAGE>   39

Resort which are properly stored, handled and disposed of, and (iii) other
Hazardous Materials in small quantities that are typically used in the
operations of the Resort.

         B. Manager and Owner each agrees to give the other prompt written
notice of (1) all Environmental Liabilities; (2) all pending, threatened or
anticipated proceedings, and all notices, demands, requests or investigations,
relating to any Environmental Liability or relating to the issuance, revocation
or change in any Environmental Authorization required for operation of the
Resort; (3) all Releases at, on, in, under or in any way affecting the Resort,
or any Release known by Owner or Manager, as the case may be, at, on, in or
under any property adjacent to the Resort; and (4) all facts, events or
conditions that could reasonably lead to the occurrence of any of the above-
referenced matters. Manager and Owner each agrees to defend, indemnify and save
harmless the other and its Affiliates from and against any and all Environmental
Liabilities to the extent that the same were caused by the intentionally
wrongful or grossly negligent acts or omissions of Manager or Owner, as the case
may be, or any of their employees at the Resort.

         C. For the purposes of this Section 11.08, the following terms shall
have the meanings set forth below:

         "Environmental Authority" shall mean any department, agency or other
body or component of any government that exercises any form of jurisdiction or
authority under any Environmental Law.

         "Environmental Laws" shall mean all applicable federal, state, local
and foreign laws and regulations relating to pollution of the environment
(including without limitation, ambient air, surface water, ground water, land
surface or subsurface strata), including without limitation laws and regulations
relating to emissions, discharges, Releases or threatened Releases of Hazardous
Materials or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials.

         "Environmental Liabilities" shall mean any and all actual or potential
obligations to pay the amount of any judgment or settlement, the cost of
complying with any settlement, judgment or order for injunctive or other
equitable relief, the cost of compliance or corrective action in response to any
notice, demand or request from an Environmental Authority, the amount of any
civil penalty or criminal fine, any court costs and reasonable amounts for
attorney's fees, fees for witnesses and experts, and costs of investigation and
preparation for defense of any claim or any proceeding, regardless of whether
such proceeding is threatened, pending or completed, that may be or have been
asserted against or imposed upon Owner, Manager, any predecessor in interest,
the Resort or any property used therein and arising out of:

                  (a) the failure to comply at any time with any Environmental
Law applicable to the Resort;

                  (b) the presence of any Hazardous Materials on, in, under, at
or in any way affecting the Resort;

                                       35
<PAGE>   40

                  (c) a Release or threatened Release of any Hazardous Materials
on, in, at, under or in any way affecting the Resort;

                  (d) the identification of Manager, Owner or any predecessor in
interest as a potentially responsible party under any Environmental Law;

                  (e) the presence at any time of any above-ground and/or
underground storage tanks, as defined in any applicable Environmental Law on,
in, at or under the Resort or any adjacent site or Resort; or

                  (f) any and all claims for injury or damage to persons or
property arising out of exposure to Hazardous Materials originating or located
at the Resort, or resulting from operation thereof or any adjoining property.

         "Hazardous Materials" shall mean all chemicals, pollutants,
contaminants, wastes and toxic substances, including without limitation:

                  (a) Solid or hazardous waste, hazardous substances, toxic
substances and insecticides, fungicides, or rodenticides, as defined in any
Environmental Law;

                  (b) Gasoline or any other petroleum product or byproduct,
polychlorinated biphenyls, asbestos and urea formaldehyde;

                  (c) Asbestos or asbestos containing materials;

                  (d) Urea formaldehyde foam insulation; and

                  (e) Radon gas.

         "Release" shall mean a "Release" as defined in any Environmental Law,
unless such Release has been properly authorized and permitted in writing by all
applicable Environmental Authorities or is allowed by such Environmental Law
without authorizations or permits.

         11.09 Confidentiality

         A. The parties hereto agree that the matters set forth in this
Agreement and all statements, reports, projections, and other information
relating to the operation of the Resort are strictly confidential and each party
will make every effort to ensure that the information is not disclosed to any
outside person or entities (including the press) without the prior written
consent of the other party, which consent shall not be unreasonably withheld or
delayed, except as may, in the disclosing party's reasonable evaluation, be
required by law (including, without limitation, laws and regulations regarding
publicly-traded securities) and as may be reasonably necessary to obtain
licenses, permits, and other public approvals necessary for the refurbishment or
operation of the

                                       36
<PAGE>   41

Resort, or in connection with Owner's financing of the Resort, a Sale of the
Resort, or a sale of a controlling interest in Owner or Manager.

         B. The provisions of this Section 11.09B shall not be operative unless
and until Owner ceases to own a direct or indirect interest in Manager (whether
through Sonoma Corporation or otherwise). No reference to Manager or to any
Affiliate of Manager will be made in any prospectus, private placement
memorandum, offering circular or offering documentation related thereto
(collectively referred to as the "Prospectus"), issued by Owner or by one of
Owner's Affiliates or by one or more Mortgagees, which is designed to interest
potential investors in debt or equity securities related to the Resort, unless
Manager has not less than three (3) days prior to its intended use, received and
approved a copy of all such references; provided, however, the foregoing shall
not apply with respect to any report, filing or disclosure of any type or nature
required to be made by Owner or any Affiliate of Owner in order to comply with
applicable laws and regulations (including without limitation securities laws
and regulations applicable to Owner or any Affiliate of Owner). Manager shall
not unreasonably withhold or delay its consent to Owner's use of such
references. Manager's failure to respond within such three (3) day period shall
be deemed approval of its use. However, regardless of whether Manager does or
does not so receive a copy of all such references, neither Manager nor any
Affiliate will be deemed a sponsor of the offering described in the Prospectus,
nor will it have any responsibility for the Prospectus. Owner shall indemnify,
defend and hold Manager harmless from and against all loss, costs, liability and
damage (including attorneys' fees and expenses, and the cost of Litigation)
arising out of any Prospectus or the offering described therein; and this
obligation of Owner shall survive Termination of this Agreement.

         C. No reference to Owner or to any Affiliate of Owner will be made in
any Prospectus issued by Manager or by one of Manager's Affiliates, which is
designed to interest potential investors in debt or equity securities of
Manager, unless Owner has, not less than three (3) days prior to its intended
use, received and approved a copy of all such references. Owner shall not
unreasonably withhold or delay its consent to Manager's use of such references.
Owner's failure to respond within such three (3) day period shall be deemed
approval of its use. However, regardless of whether Owner does or does not so
receive a copy of all such references, neither Owner nor any Affiliate of Owner
shall be deemed a sponsor of the offering described in the Prospectus, nor will
it have any responsibility for the Prospectus, and the Prospectus will so state.
Unless Owner agrees in advance, the Prospectus will not include any Trade Names,
Trademarks or proprietary marks of Owner or Owner's Affiliates. Manager shall
indemnify, defend and hold Owner harmless from and against all loss, costs,
liability and damage (including attorneys' fees and expenses, and the cost of
Litigation), arising out of any Prospectus or the offering described therein;
and this obligation of Manager shall survive Termination of this Agreement.

         11.10 Projections

         Owner acknowledges that any written or oral projections, proforma, or
other similar information that has been (prior to execution of this Agreement)
or will (during the Term of this Agreement) be provided by Manager (or any
Affiliate thereof) to Owner is for information purposes

                                       37
<PAGE>   42

only, and that Manager and any such Affiliate do not guarantee that the Resort
will achieve the results set forth in any such projections, proforma, or other
similar information. Any such projections, proforma, or other similar
information are based on assumptions and estimates. Unanticipated events may
occur subsequent to the date of preparation of such projections, proforma, and
other similar information. Therefore, the actual results achieved by the Resort
are likely to vary from the estimates contained in any such projections,
proforma, or other similar information and such variations might be material.

         11.11 Actions to be Taken Upon Termination

         Upon a Termination of this Agreement, the following shall be
applicable:

         A. Manager shall, within ninety (90) days after Termination of this
Agreement, prepare and deliver to Owner a final accounting statement and
supporting documentation with respect to the Resort, as more particularly
described in Section 4.01 hereof, along with a statement of any sums due from
Owner or Manager pursuant hereto, dated as of the date of Termination. Within
thirty (30) days of the receipt by Owner, Owner will review and confirm such
final accounting statement and the parties will make whatever cash adjustments
are necessary pursuant to such final statement. The cost of preparing such final
accounting statement shall be a Deduction, unless the Termination occurs as a
result of a Default by either party, in which case the defaulting party shall
pay such cost. Manager and Owner acknowledge that there may be certain
adjustments for which the information will not be available at the time of the
final accounting and the parties agree to readjust such amounts and make the
necessary cash adjustments when such information becomes available; provided,
however, that all accounts shall be deemed final as of the first (1st)
anniversary of the effective date of Termination.

         B. Manager shall immediately release and transfer to Owner any of
Owner's funds which are held or controlled by Manager with respect to the Resort
with the exception of funds to be held in escrow pursuant to Sections 6.01.E and
11.11.H and otherwise in accordance herewith.

         C. Manager shall deliver to Owner all books and records respecting the
Resort (including those from prior years), which are the property of Owner,
whether such records are prepared by Manager or at the direction or request of
Manager or any Affiliate of Manager.

         D. Manager shall (to the extent permitted by law) assign to Owner or to
the new manager all operating licenses and permits for the Resort which have
been issued in Manager's name (including liquor and restaurant licenses, if
any); provided that if Manager has expended any of its own funds in the
acquisition of any of such licenses or permits, Owner shall reimburse Manager
therefor if it has not done so already.

         E. Owner shall have the right to operate the improvements on the Site
with or without modifying the architectural design of same, notwithstanding the
fact that such design or certain features thereof may be proprietary to Manager
and/or protected by trade marks or service marks held by Manager or an
Affiliate, provided that such use shall be confined to the Site.

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<PAGE>   43

         F. If this Agreement is terminated for any reason other than (i) a
Default by Manager or by Owner, (ii) termination pursuant to Section 2.02, 2.03
or Section 10.03, (iii) termination by Manager pursuant to Section 6.02, (iv) if
insurance proceeds actually received by Owner are insufficient to replace and/or
rebuild the Resort following a Total Casualty, the termination by Owner pursuant
to Section 6.02, or (v) natural expiration of the Term, then Owner shall, within
ten (10) days after Manager's request therefor, pay to Manager, as Manager's
sole remedy, as compensation for Manager's lost revenue and expenses and not as
a penalty, an amount (the "Termination Fee") equal to the product of (i) the
amount of the Base Management Fee during the immediately preceding twelve (12)
months, multiplied by (ii) one (1) minus ("X" divided by 365), with "X" being
the number of days between and including the date Owner delivers notice of
termination to Manager through the effective date of such termination.

         G. In the event that sufficient notice pursuant to the WARN Act cannot
be given, Owner shall cause the entity which shall succeed Manager as the
operator of the Resort to hire a sufficient number of the employees at the
Resort to avoid the occurrence, in connection with such Termination, of a
"closing" under the WARN Act.

         H. Various other actions shall be taken, as described in this
Agreement, including, but not limited to, the actions described in Sections 4.05
and 6.01.E.

         I. Manager shall peacefully vacate and surrender the Resort to Owner.

         The provisions of this Section 11.11 shall survive Termination.

         11.12 Trademarks, Trade Names and Intellectual Property

         A. Owner grants to Manager a non-exclusive license to use during the
Term and only in connection with the operation of the Resort all Ventana Inn
Trademarks (hereafter defined), including any statutory and common law rights
related thereto. Manager agrees that the quality of the services furnished in
connection with Manager's use of the Ventana Inn Trademarks shall be of a first
class nature. When using the Ventana Inn Trademarks, Manager shall comply with
all applicable laws pertaining to servicemarks, trademarks or tradenames,
including marking requirements. Owner shall have the right, at all reasonable
times, to inspect the premises of Manager and all goods, literature, brochures,
signs, advertising materials and other items used by Manager bearing the Ventana
Inn Trademarks, to determine compliance of use of the Ventana Inn Trademarks as
provided for herein. Manager acknowledges Owner's right, title and interest in
and to the Ventana Inn Trademarks and any registrations that have issued or may
issue thereon, and Manager agrees that it will not at any time do or cause to be
done any act or thing contesting or in any way impairing or tending to impair
any part of such right, title and interest. In connection with the use of the
Ventana Inn Trademarks, Manager shall not in any manner represent that it has
any ownership in the Ventana Inn Trademarks or registrations thereof, and
Manager acknowledges that any use of the Ventana Inn Trademarks, including all
goodwill associated therewith, shall inure solely to the benefit of Owner. Upon
the expiration or earlier termination of this Agreement, Manager will cease and
desist from all use of the

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<PAGE>   44

Ventana Inn Trademarks in any way, and it will deliver to Owner, or its duly
authorized representatives, all items upon which the Ventana Inn Trademarks
appear. Manager will not at any time adopt or use without Owner's prior written
consent, any word, logo or mark which is likely to be similar to or confusing
with the Ventana Inn Trademarks. The term "Ventana Inn Trademarks" shall
include, without limitation, all Trademarks and Trade Names used in conjunction
with the Resort, including but not limited to restaurant names, lounge names,
etc., whether or not the marks contain the "Ventana Inn & Spa" name. The right
to use or authorize others to use Ventana Inn Trademarks belongs exclusively to
Owner and/or lessees under the Hotel Lease, whether or not the same are
registered and regardless of the source of the same. The provisions of this
Section 11.12 shall survive Termination.

         B. All Intellectual Property shall at all times be proprietary to
Owner, and shall be the exclusive property of Owner. During the Term of this
Agreement, Manager shall take all reasonable steps to ensure that the
Intellectual Property remains confidential and is not disclosed to anyone other
than Manager's employees at the Resort.

         C. Owner shall be entitled, in case of any breach by Manager of any of
the covenants of this Section 11.12, to injunctive relief and to any other right
or remedy available at law. Section 11.12 shall survive Termination.

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<PAGE>   45

         11.13 Trade Area Restriction

         A. Neither Manager nor any of its Affiliates shall manage or operate
any resort, hotel or golf facility within a twenty (20) mile radius of the
Resort during the period from the Effective Date through the seventh (7th)
anniversary after the Effective Date ("Restricted Period"). In the event Manager
violates such trade area restriction during the Restricted Period, Owner may, as
a one (1) time right, terminate this Agreement within one hundred eighty (180)
days after the opening of the facility within this restricted trade area and
Manager will pay Owner a one (1) time fee of Two Hundred Fifty Thousand Dollars
($250,000). Owner and Manger agree that the Owner's damages resulting from
Manager's violation of the trade area restriction of this Section 11.13 would be
difficult, if not impossible, to determine and the foregoing fee is a fair
estimate of those damages which has been agreed to in an effort to cause the
amount of said damages to be certain.

         B. Neither Manager nor any of its Affiliates shall manage or operate
any resort, hotel or golf facility within a two (2) mile radius of the Resort
during the Initial Term or any Renewal Terms.

         11.14 Waiver

         The failure of either party to insist upon a strict performance of any
of the terms or provisions of the Agreement, or to exercise any option, right or
remedy contained in this Agreement, shall not be construed as a waiver or as a
relinquishment for the future of such term, provision, option, right or remedy,
but the same shall continue and remain in full force and effect. No waiver by
either party of any term or provision hereof shall be deemed to have been made
unless expressed in writing and signed by such party.

         11.15 Partial Invalidity

         If any portion of the Agreement shall be declared invalid by order,
decree or judgment of a court, the Agreement shall be construed as if such
portion had not been so inserted except when such construction would operate as
an undue hardship on Manager or Owner or constitute a substantial deviation from
the general intent and purpose of said parties as reflected in the Agreement.

         11.16 Survival

         Except as otherwise specifically provided in this Agreement, the rights
and obligations of the parties herein shall not survive any Termination of this
Agreement. Any obligation of Owner to pay a Termination Fee shall survive
Termination of this Agreement.

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<PAGE>   46

         11.17 Affiliates and Third Party Vendors

         Subject to the terms and limitations contained in this Agreement,
Manager shall be entitled to contract with one or more of its Affiliates and to
enter into agreements with various non-Affiliate vendors to provide goods and/or
services to the Resort; provided that the prices and/or fees paid to any such
Affiliate are competitive with the prices and/or fees which may be charged by
reputable and qualified parties for similar goods and/or services. In
determining, pursuant to the foregoing, whether such prices and/or fees are
competitive, the goods and/or services which are being purchased shall be
grouped in reasonable categories, rather than being compared item by item. The
prices and/or fees paid may include overhead and the allowance of a reasonable
return to Manager and its Affiliates. Additionally, Manager acknowledges and
agrees that, with respect to any such purchases or services, Manager and its
Affiliates shall credit to Owner any allowances, credits, rebates, commissions
and discounts.

         11.18 Estoppel Certificates

         Each party to this Agreement shall at any time and from time to time,
upon not less than thirty (30) days' prior notice from the other party, execute,
acknowledge and deliver to such other party, or to any third party specified by
such other party, a statement in writing: (a) certifying that this Agreement is
unmodified and in full force and effect (or if there have been modifications,
that the same, as modified, is in full force and effect and stating the
modifications); (b) stating whether or not to the best knowledge of the
certifying party (i) there is a continuing Default or Event of Default by the
non-certifying party in the performance or observance of any covenant, agreement
or condition contained in this Agreement, or (ii) there shall have occurred any
event which, with the giving of notice or passage of time or both, would become
a Default or Event of Default, and, if so, specifying each such Default or Event
of Default or occurrence of which the certifying party may have knowledge; and
(c) stating such other information as the non-certifying party may reasonably
request. Such statement shall be binding upon the certifying party and may be
relied upon by the non-certifying party and/or such third party specified by the
non-certifying party as aforesaid. In addition, upon written request after a
Termination, each party agrees to execute and deliver to the non-certifying
party and to any such third party a statement certifying that this Agreement has
been terminated.

         11.19 Luxury Spa Resort Standards

         In the event of either (i) a Legal Requirement, including an order,
judgment or directive by a court or administrative body which is issued in
connection with any Litigation involving Owner, or (ii) any action taken by a
Mortgagee in connection with a Foreclosure, which in either case restricts or
prevents Manager, in a material and adverse manner, from operating the Resort in
accordance with Luxury Spa Resort Standards (including without limitation, any
restrictions on expenditures by Manager from the Operating Accounts or from the
FF&E Reserve, other than restrictions which are set forth in this Agreement),
Manager shall be entitled, at its option, to terminate this Agreement upon sixty
(60) days' written notice to Owner. The foregoing shall not reduce or otherwise
affect the rights of the parties under either Article IX or Section 11.11.I.

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<PAGE>   47

         11.20 Arbitration.

         Any dispute between the parties the subject matter of which is subject
to arbitration hereunder shall be, at the written request of either Manager or
Owner (the "Arbitration Request"), determined by arbitration to be conducted in
the Tarrant County, Texas, and in accordance with the terms of this Section
11.20.

            (a) If either Manager or Owner requests arbitration in accordance
with the terms of this Section 11.20 (as to a matter subject to arbitration
hereunder), both parties shall use their diligent good faith efforts to agree
upon and appoint, within thirty (30) days after the delivery of the Arbitration
Request (the "Outside Agreement Date"), a neutral arbitrator who is a member in
good standing of the International Society of Hospitality Consultants ("ISHC")
or, in the case of any dispute regarding financial statements, a person with
special expertise in accounting matters. The selected neutral arbitrator shall
decide the disputed matter in accordance with the terms and provisions of this
Agreement, provided, that if the terms and provisions of this Agreement are not
determinative then the terms and conditions of this Agreement shall be
interpreted and supplemented by the customs and practices of the industry for
Resorts generally comparable to the Resort. Any decision reached by said
arbitrator shall be final and binding upon Owner and Manager.

            (b) If Owner and Manager are unable to agree upon an arbitrator who
is a member of ISHC prior to the expiration of the Outside Agreement Date, the
disputed matter shall be determined by arbitration, in accordance with the
United States Arbitration Act (Title 9, U.S. Code) and under the Commercial
Rules (the "Commercial Rules") of the American Arbitration Association ("AAA")
where the arbitrator is selected in accordance with AAA Commercial Rules from
ISHC members or other persons with at least ten (10) years experience in the
hospitality industry, with particular emphasis on Resorts generally comparable
to the Resort and who are not, at the time of the arbitration, employed by a
competing Resort Manager.

            (c) The arbitrator shall resolve all claims and defenses or other
matters in dispute in accordance with this Agreement and applicable law,
including without limitation thereto, all statutes of limitation; provided, that
the arbitrator's authority shall be limited to accepting the proposal, position
or resolution proposed by the parties, and the arbitrator shall have no
authority to fashion any remedy not submitted by the parties. Any controversy
concerning whether an issue is arbitrable shall be determined by the
arbitrator(s). Judgment upon the arbitration award may be entered in any court
having jurisdiction. The institution and maintenance of an action for judicial
relief or pursuit of provisional or ancillary remedies shall not constitute a
waiver of the right of any party, including the plaintiff, to submit the
controversy or claim to arbitration if any other party contests such action for
judicial relief.

            (d) Wherever reference is made herein to selection of an arbitrator,
it shall be deemed to mean the selection of three arbitrators whenever either
party so requests within ten (10) days after the delivery of the Arbitration
Request. Each such arbitrator shall be selected in

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<PAGE>   48

accordance with and have the qualifications set forth in this Section 11.20. If
three arbitrators are chosen, all decisions of the board of arbitrators shall be
made by a majority of the arbitrators.

         11.21 Entire Agreement

         The Agreement, together with any other writings signed by the parties
expressly stated to be supplemental hereto and together with any instruments to
be executed and delivered pursuant to the Agreement, constitutes the entire
agreement between the parties and supersedes and replaces all prior agreements
and understandings and writings, and may be changed only by a writing signed by
the parties hereto.

         11.22 Multiple Counterparts

         This Agreement may be executed in counterparts, all of which taken
together shall constitute one document.

         11.23 Guaranty. Sonoma Corporation, a Delaware corporation, shall
execute a guarantee in favor of Owner of all obligations of Manager hereunder.

                                   ARTICLE XII

                               DEFINITION OF TERMS

         12.01 Definition of Terms

         The following terms when used in the Agreement and the Addendum
attached hereto shall have the meanings indicated:

         "AAA" shall have the meaning set forth in Section 11.20.

         "Affiliate" shall mean, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For purposes of this definition, the term "control" (including
the terms "controlling", "controlled by" and "under common control with") of a
Person means the possession, directly or indirectly, of the power: (i) to vote
more than fifty percent (50%) of the voting stock of such Person; or (ii) to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting stock, by contract or otherwise.

         "Agreed Upon FF&E Increase" shall have the meaning set forth in Section
5.02.F.

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<PAGE>   49

         "Agreement" shall mean this Management Agreement between Owner and
Manager, including the exhibits attached hereto.

         "Annual Operating Statement" shall have the meaning set forth in
Section 4.01.C.

         "Arbitration Request" shall have the meaning set forth in Section
11.20.

         "Available Cash Flow" shall mean an amount, with respect to each Fiscal
Year or portion thereof during the Term of this Agreement, equal to the excess,
if any, of the Operating Profit over the Owner's Priority.

         "Base Management Fee" shall mean an amount payable to Manager as a
Deduction from Gross Revenues equal to two percent (2%) of Gross Revenues for
each Fiscal Year or portion thereof.

         "Beverage Sales" shall mean Gross Revenues from the sale of (i) wine,
beer, liquor or other alcoholic beverages, whether sold in a bar or lounge,
delivered to or available in a Guest Room, sold at meetings or banquets or at
any other location at the Resort and (ii) nonalcoholic beverages sold in a bar
or lounge. Such Gross Revenues constituting Beverage Sales shall include sales
by Owner or its lessee and its permitted subtenants, licensees and
concessionaires. Such revenue shall be determined in a manner consistent with
the most current Uniform System of Accounts and shall not include the following:

                  (i) Any gratuity or service charge added to a customer's bill
or statement in lieu of a gratuity which is paid directly to an employee;

                  (ii) Credits, rebates or refunds; and

                  (iii) Sales taxes or taxes of any other kind imposed on the
sale of alcoholic or other beverages.

         "Building Estimate" shall have the meaning ascribed to it in Section
5.03.

         "Business Plan" shall have the meaning set forth in Section 4.04.

         "Calendar Quarter" shall mean each of the first (1st), second (2nd),
third (3rd) and fourth (4th) quarters of each calendar year.

         "Capital Budget" shall have the meaning set forth in Section 4.04.A.2.

         "Capital Expenditure(s)" shall mean the expenses necessary for
non-routine, major repairs, alterations, improvements, renewals, replacements,
and additions to the Resort including, without limitation, to the structure, the
roof, the exterior facade and all of the mechanical, electrical, heating,

                                       45
<PAGE>   50

ventilating, air conditioning, plumbing or vertical transportation elements of
the Resort building, together with all other expenditures which are classified
as "capital expenditures" under generally- accepted accounting principles and
the Uniform System of Accounts.

         "Case Goods" shall mean furniture and furnishings used in the Resort,
including, without limitation: chairs, beds, chests, headboards, desks, lamps,
tables, television sets, mirrors, pictures, wall decorations and similar items.

         "CC&Rs" shall have the meaning ascribed to it in Section 8.04.

         "Commercial Rules" shall have the meaning set forth in Section 11.20.

         "Corporate Services" shall have the meaning set forth in Section 1.02.

         "Deductions" shall mean the following expenses incurred by Manager in
operating the Resort:

                  1. the cost of sales, including, without limitation,
compensation, fringe benefits, payroll taxes, ERISA-related liabilities,
pension-fund withdrawal liabilities, and other costs related to employees of
Manager (or one of its Affiliates) who are working exclusively for the benefit
of the Resort (regardless of whether such employees are located at the Resort or
elsewhere); provided that the foregoing costs shall not include the salary and
other employee costs of Manager's corporate executive staff;

                  2. departmental expenses incurred at departments within the
Resort; administrative and general expenses; the cost of marketing incurred by
the Resort; advertising and business promotion incurred by the Resort; heat,
light, and power; computer line charges; and routine repairs, maintenance and
minor alterations treated as Deductions under Section 5.01;

                  3. the cost of Inventories and Fixed Asset Supplies consumed
in the operation of the Resort;

                  4. a reasonable reserve for uncollectible accounts receivable
as determined by Manager;

                  5. all costs and fees of independent professionals or other
third parties who are retained by Manager to perform services required or
permitted hereunder;

                  6. all costs and fees of technical consultants, professionals
and operational experts who are retained or employed by Manager and its
Affiliates for specialized services in connection with matters directly
involving the Resort (including, without limitation, quality assurance
inspectors, personnel providing architectural, technical or procurement services
for the Resort, tax consultants, and personnel providing legal services and the
cost of attendance by employees of the Resort at training and manpower
development programs designated by Manager;

                                       46
<PAGE>   51

                  7. the Base Management Fee;

                  8. insurance costs and expenses as provided in Sections 6.01;

                  9. taxes, if any, payable by or assessed against Manager
related to this Agreement or to Manager's operation of the Resort (exclusive of
Manager's income taxes or franchise taxes);

                  10. all Impositions;

                  11. the amount of FF&E Reserve required to be transferred to
Owner pursuant to Section 5.02;

                  12. the Resort's share of costs and expenses (allocated on a
basis mutually acceptable to Owner and Manager) incurred in connection with
sales, advertising, promotion and marketing programs, including guest loyalty
and recognition programs, where such expenses are not deducted as departmental
expenses under paragraph 2 above or as Corporate Services pursuant to paragraph
13 below;

                  13. the Resort's share, if any, of the charges for Corporate
Services (determined in accordance with Section 1.02);

                  14. all costs and expenses of compliance by Manager with
applicable Legal Requirements pertaining to the operation of the Resort;

                  15. the cost and expenses incurred in connection with the
audit of the Annual Operating Statement pursuant to Section 4.02; and

                  16. such other costs and expenses incurred by Manager (either
at the Resort or elsewhere) as are specifically provided for elsewhere in this
Agreement or are otherwise reasonably necessary for the proper and efficient
operation of the Resort.

         The term "Deductions" shall not include: (a) debt service payments
pursuant to any Mortgage on the Resort; (b) payments pursuant to equipment
leases or other forms of financing obtained for the FF&E located in or connected
with the Resort, unless Manager has previously given its written consent to such
equipment lease and/or financing; (c) rental payments pursuant to any ground
lease of the Site; or (d) depreciation on the Resort or any of its contents. All
of the foregoing items listed in this paragraph shall be paid by Owner from its
own funds.

         "Default" shall have the meaning ascribed to it in Section 9.01.

         "Deficiency" shall have the meaning set forth in Section 2.02.B.

         "Deficit" shall have the meaning set forth in Section 2.02.B.

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<PAGE>   52

         "Effective Date" shall have the meaning ascribed to it in the Preamble.

         "Environmental Authority" shall have the meaning ascribed to it in
Section 11.08.

         "Environmental Laws" shall have the meaning ascribed to it in Section
11.08.

         "Environmental Liabilities" shall have the meaning ascribed to it in
Section 11.08.

         "Event of Default" shall have the meaning ascribed to it in Section
9.01.

         "Excluded Transaction" shall have the meaning ascribed to it in Section
1.01.C.5.

         "FF&E" shall mean furniture, furnishings, fixtures, Soft Goods, Case
Goods, signage, audio- visual equipment, kitchen appliances, vehicles, carpeting
and equipment, including front desk and back-of-the house computer equipment,
but shall not include Fixed Asset Supplies or Software.

         "FF&E Budget" shall have the meaning ascribed to it in Section 5.02.D.

         "FF&E Reserve" shall have the meaning ascribed to it in Section 5.02.A.

         "Fiscal Year" shall mean the calendar year.

         "Fixed Asset Supplies" shall mean items included within "Property and
Equipment" under the Uniform System of Accounts including, but not limited to,
linen, china, glassware, tableware, uniforms, and similar items, whether used in
connection with public space or Guest Rooms.

         "Food Sales" shall mean (i) Gross Revenues from the sale of food and
non-alcoholic beverages that are prepared at the Resort and sold or delivered on
or off the Resort by Owner, its lessee and its permitted subtenants, licensees,
or concessionaires whether for cash or for credit, including in respect of Guest
Rooms, banquet rooms, meeting rooms and other similar rooms, and (ii) Gross
Revenues from the rental of banquet, meeting and other similar rooms. Such Gross
Revenues constituting Food Sales shall include sales by Owner or its lessee and
its permitted subtenants, licensees and concessionaires. Such revenue shall be
determined in a manner consistent with the Uniform System of Accounts and shall
not include the following:

                  (i) Vending machine sales;

                  (ii) Any gratuities or service charges added to a customer's
bill or statement in lieu of a gratuity which is paid directly to an employee;

                  (iii) Non-alcoholic beverages sold from a bar or lounge;

                  (iv) Credits, rebates or refunds; and

                                       48
<PAGE>   53

                  (v) Sales taxes or taxes of any other kind imposed on the sale
of food or nonalcoholic beverages.

         "Force Majeure" shall mean the following events, but only to the extent
the same cannot be overcome with diligence and commercially reasonable expense
by the party claiming the existence of a Force Majeure:

                  (a) War, invasion, rebellion, revolution, insurrection, riots,
or civil war;

                  (b) Acts of government in its sovereign capacity;

                  (c) Earthquakes, hurricanes, tidal waves, or any operation of
the forces of nature as reasonable foresight and ability on the part of the
affected party could not reasonably provide against;

                  (d) Unavailability of supply of construction materials;

                  (e) Strikes, lockouts, or other significant employee
disturbances not caused by Manager's acts; and

                  (f) Events beyond the reasonable control of the party claiming
the existence of a Force Majeure, other than a shortage of funds, and such that
reasonable foresight and ability on the part of the affected party could not
reasonably provide against.

         "Foreclosure" shall mean any exercise of the remedies available to a
Mortgagee, upon a default under the Mortgage held by such Mortgagee, which
results in a transfer of title to or possession of the Resort. The term
"Foreclosure" shall include, without limitation, any one or more of the
following events, if they occur in connection with a default under a Mortgage:
(i) a transfer by judicial foreclosure; (ii) a transfer by deed in lieu of
foreclosure; (iii) the appointment by a court of a receiver to assume possession
of the Resort; or (iv) any similar judicial or non-judicial exercise of the
remedies held by the Mortgagee.

         "GDP Deflator" shall mean the "Gross Domestic Product Implicit Price
Deflator" issued from time to time by the United States Bureau of Economic
Analysis of the Department of Commerce, or if the aforesaid GDP Deflator is not
at such time so prepared and published, any comparable index selected by Owner
and reasonably satisfactory to Manager (a "Substitute Index") then prepared and
published by an agency of the government of the United States, appropriately
adjusted for changes in the manner in which such index is prepared and/or year
upon which such index is based. Any dispute regarding the selection of the
Substitute Index or the adjustments to be made thereto shall be settled by
arbitration in accordance with Section 11.20. Except as otherwise expressly
stated herein, whenever a number or amount is required to be "adjusted by the
GDP Deflator", or similar terminology, such adjustment shall be equal to the
percentage increase or decrease in the GDP Deflator which is issued for the
month in which such adjustment is to be made (or, if the GDP

                                       49
<PAGE>   54

Deflator for such month is not yet publicly available, the GDP Deflator for the
most recent month for which the GDP Deflator is publicly available) as compared
to the GDP Deflator which was issued for the month in which the Effective Date
occurred.

         "Gross Revenues" shall mean all revenues and receipts of every kind
derived from operating the Resort and all departments and parts thereof,
including, but not limited to: income (from both cash and credit transactions)
from rental of Guest Rooms, telephone charges, stores, offices, exhibit or sales
space of every kind; license, lease and concession fees and rentals (not
including gross receipts of licensees, lessees and concessionaires); income from
vending machines; income from parking; health club membership fees; fees from
personal and sports services; food and beverage sales; wholesale and retail
sales of merchandise; service charges; and proceeds, if any, from business
interruption or other loss of income insurance; provided, however, that Gross
Revenues shall not include the following: gratuities to employees of the Resort;
federal, state or municipal excise, sales or use taxes or any other taxes
collected directly from patrons or guests or included as part of the sales price
of any goods or services; rental payments pursuant to any ground lease of the
Site; proceeds from the sale of FF&E; interest received or accrued with respect
to the funds in the FF&E Reserve or the other operating accounts of the Resort;
any refunds, rebates, discounts and credits of a similar nature, given, paid or
returned in the course of obtaining Gross Revenues or components thereof;
insurance proceeds (other than proceeds from business interruption or other loss
of income insurance); condemnation proceeds (other than for a temporary taking);
or any proceeds from any Sale of the Resort or from the refinancing of any debt
encumbering the Resort. In determining Gross Revenues, amounts shall be
allocated to Beverage Sales, Food Sales, Room Revenues and Other Income and
shall be reported by such categories on Monthly Statements, Quarterly
Statements, Annual Operating Statements and any other statement or report
required hereunder that includes Gross Revenues. The reporting of Gross Revenues
by Manager to Owner shall also include further detail and breakdown as Owner may
reasonably require.

         "Guest Profile Data" shall mean personal guest profiles and information
regarding guest preferences.

         "Guest Room" shall mean a separately-keyed lodging unit in the Resort.

         "Hazardous Materials" shall have the meaning ascribed to it in Section
11.08.

         "Hotel" shall mean the hotel complex known as the Ventana Inn & Spa -
Big Sur located on the Site and including a building or buildings containing
approximately Guest Rooms, a lobby, restaurants, meeting rooms, administrative
offices, parking and other amenities and related facilities.

         "Hotel Lease" shall mean that certain Lease Agreement dated as of
December 19, 1997, as amended, between Owner and Wine Country Hotel, LLC.

         "Hotel Lessee" shall mean Wine Country Hotel, LLC.

                                       50
<PAGE>   55

         "Impositions" shall have the meaning set forth in Section 7.01.

         "Initial Term" shall have the meaning set forth in Section 2.01.

         "Insurance Retention" shall have the meaning ascribed to it in Section
6.01.E.

         "Intellectual Property" shall mean: (i) all Software; (ii) all manuals,
brochures and directives issued by Manager to its employees at the Resort
regarding the procedures and techniques to be used in operating the Resort; and
(iii) customer lists and Guest Profile Data.

         "Inventories" shall mean "Inventories" as defined in the Uniform System
of Accounts, such as, but not limited to, provisions in storerooms,
refrigerators, pantries and kitchens; beverages in wine cellars and bars; other
merchandise intended for sale; fuel; mechanical supplies; stationery; and other
expensed supplies and similar items.

         "Legal Requirement" shall mean any federal, state or local law, code,
rule, ordinance, regulation or order of any governmental authority or agency
having jurisdiction over the business or operation of the Resort or the matters
which are the subject of this Agreement, including, without limitation, the
following: (i) any building, zoning or use laws, ordinances, regulations or
orders; and (ii) Environmental Laws.

         "License Agreement" shall have the meaning ascribed to it in Section
11.12.

         "Litigation" shall mean: (i) any cause of action (including, without
limitation, bankruptcy or other debtor/creditor proceedings) commenced in a
federal, state or local court; or (ii) any claim brought before an
administrative agency or body (for example, without limitation, employment
discrimination claims).

         "Luxury Spa Resort Standards" shall mean either (or both, as the
context requires) of the following two (2) categories of standards: (i) the
operational standards (for example, services offered to guests, quality of food
and beverages, cleanliness, staffing and employee compensation and benefits,
Corporate Services (if applicable), frequent traveler programs and other similar
programs, etc.); and (ii) the physical standards (for example, quality of the
Resort Improvements, FF&E, and Fixed Asset Supplies, frequency of FF&E
replacements, etc.); each of such standards shall be the standard which is
generally prevailing or in the process of being implemented at first- class,
luxury resorts, including all services and facilities in connection therewith
that are customary and usual at such first-class, luxury resorts.

          "Manager" shall have the meaning ascribed to it in the Preamble hereto
or shall mean any successor or permitted assign, as applicable.

         "Minor Casualty" shall mean any fire or other casualty which results in
damage to the Resort and/or its contents, to the extent that the total cost (in
Manager's reasonable judgment) of repairing

                                       51
<PAGE>   56

and/or replacing the damaged portion of the Resort to the same condition as
existed previously does not exceed the dollar amount of Three Million and No/00
Dollars ($3,000,000.00), said dollar amount to be adjusted by the GDP Deflator.

         "Monthly Statement"  shall have the meaning set forth in Section 4.01.A

         "Mortgage" shall mean any mortgage, deed of trust, or security document
encumbering the Resort and/or the Site.

         "Mortgagee" shall mean the holder of any Mortgage.

         "Notice for Additional FF&E Reserve" shall have the meaning ascribed to
it in Section 5.02.F.

         "Operating Accounts" shall have the meaning set forth in Section
4.03.A.

         "Operating Budget" shall have the meaning ascribed to it in Section
4.04.A.1.

         "Operating Loss" shall mean a negative Operating Profit.

         "Operating Profit" shall mean, with respect to any given period of
time, the excess of Gross Revenues over Deductions (each calculated in
accordance with this Agreement and the Uniform System of Accounts).

         "Other Income" shall mean all revenues, receipts, and income of any
kind derived directly or indirectly from or in connection with the Resort and
included in Gross Revenues other than Room Revenues, Food Sales or Beverage
Sales.

         "Outside Agreement Date" shall have the meaning ascribed to it in
Section 11.20.

         "Owner" shall have the meaning ascribed to it in the Preamble or shall
mean any successor or permitted assign, as applicable.

         "Owner's Investment" shall mean an amount equal to (i) Thirty Million
One Hundred Thousand Dollars ($30,100,000.00), plus (ii) the amount of Capital
Expenditures made by Owner for the Resort in excess of FF&E Reserve, plus (iii)
funds permanently advanced to establish or maintain Working Capital pursuant to
Section 4.05, plus (iv) amounts funded pursuant to Section 5.02F. For purposes
of determining Owner's Priority, Owner ROI and Performance Threshold, Owner's
Investment for any Fiscal Year shall be the amount thereof as of December 31 of
said Fiscal Year.

         "Owner's Priority" shall mean an annual amount equal to twelve percent
(12%) of Owner's Investment.

                                       52
<PAGE>   57

         "Owner ROI" shall mean for any Fiscal Year, the Operating Profit
distributed to Owner pursuant to Section 3.02 divided by the Owner's Investment.

         "Performance Threshold" shall mean an annual Owner ROI equal to or in
excess of (i) eight percent (8%) of the Owner's Investment in the first (1st)
and second (2nd) full Fiscal Year of the Term, (ii) nine percent (9%) of the
Owner's Investment for the third (3rd) and fourth (4th) full Fiscal Year, and
(iii) ten percent (10%) of the Owner's Investment for each full Fiscal Year
thereafter.

         "Person" means an individual (and the heirs, executors, administrators,
or other legal representatives of an individual), a partnership, a corporation,
limited liability company, a government or any department or agency thereof, a
trustee, a trust and any unincorporated organization.

         "Prime Rate" shall mean the "base rate" of interest announced from time
to time by Bankers Trust Company, New York, New York.

         "Prior Manager" shall have the meaning ascribed to it in Section
4.01.E.

         "Prospectus" shall have the meaning set forth in Section 11.09 B.

         "Quarterly Statement" shall have the meaning set forth in Section
4.01.A.

         "Release" shall have the meaning ascribed to it in Section 11.08.

         "Resort" shall mean the Site and the Hotel together with the following:
(i) the Resort Improvements and all other improvements constructed or to be
constructed on the Site ; (ii) all FF&E, Fixed Asset Supplies and Inventories
installed or located on the Site or in the Resort Improvements; and (iii) all
easements or other appurtenant rights thereto.

         "Resort Improvements" shall have the meaning set forth in the Recitals.

         "Renewal Term" shall have the meaning ascribed to it in Section 2.01.

         "Restricted Period" shall have the meaning ascribed to it in Section
11.13.

         "Room Revenues" shall mean Gross Revenues from the rental of Guest
Rooms, whether to individuals, groups or transients, at the Resort, determined
in a manner consistent with the Uniform System of Accounts, excluding the
following:

                  (i) The amount of all credits, rebates or refunds to
customers, guests or patrons;

                  (ii) All sales taxes or any other taxes imposed on the rental
of such Guest Rooms; and

                                       53
<PAGE>   58

                  (iii) Any fees collected for amenities including, but not
limited to, telephone, laundry, movies or concessions.

         "Sale of the Resort" shall mean any sale, assignment, transfer or other
disposition, for value or otherwise, voluntary or involuntary, of the fee simple
title to the Site and/or the Resort. For purposes of this Agreement, a Sale of
the Resort shall also include any sale, assignment, transfer or other
disposition, for value or otherwise, voluntary or involuntary, in a single
transaction or a series of transactions, of the controlling interest in Owner.
The phrase "controlling interest", as used in the preceding sentence, shall mean
either: (x) the right to exercise, directly or indirectly, more than fifty
percent (50%) of the voting rights attributable to the shares of Owner (through
ownership of such shares or by contract); or (y) the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of Owner.

         "Sale Termination Notice" shall have the meaning ascribed to it in
Section 10.03.

         "Short-Term Incentive Fee" shall mean an amount payable to Manager that
is equal to twenty percent (20%) of Operating Profit distributed to Owner in
excess Operating Profit required to be distributed to Owner to achieve an Owner
ROI of twelve percent (12%) per annum in any Fiscal Year (i.e., there shall be
no Short-Term Incentive Fee in any year in which Owner ROI in less than twelve
percent (12%) per annum in any Fiscal Year or portion thereof).

         "Site" shall have the meaning ascribed to it in Section A of the
Recitals.

         "SMC Affiliate" shall mean any Person that directly or indirectly,
controls or is under common control with Manager. For purposes of this
definition, the term "control" shall have the meaning set forth in the
definition of "Affiliate" under this Section 12.01.

         "SMC System" shall mean all of the full-service resorts and hotels in
the United States which are operated by Manager (or an SMC Affiliate).

         "Soft Goods" shall mean all fabric, textile and flexible plastic
products (not including items which are classified as "Fixed Asset Supplies"
under the Uniform System of Accounts) which are used in furnishing the Resort,
including, without limitation: carpeting, drapes, bedspreads, wall and floor
coverings, mats, shower curtains and similar items.

         "Software" shall mean all computer software and accompanying
documentation (including all future upgrades, enhancements, additions,
substitutions and modifications thereof), other than computer software which is
commercially available, which are used by Manager in connection with the
property management system, the reservation system and all future electronic
systems developed or designated by Manager for use in the Resort.

         "Ventana Inn Trademarks" shall have the meaning ascribed in Section
11.12.

                                       54
<PAGE>   59

         "Special Capital Expenditures" shall mean certain routine, non-major
expenditures which are classified as "capital expenditures" under
generally-accepted accounting principles, but which will be funded from the FF&E
Reserve (pursuant to Section 5.02), rather than pursuant to the provisions of
Section 5.03. Special Capital Expenditures consist of the following types of
expenditures: exterior and interior repainting (other than routine "touch-up"
and repairs); resurfacing building walls and floors (other than routine
"touch-up" and repairs); resurfacing parking areas (other than routine
"touch-up" and repairs); replacing folding walls; and miscellaneous similar
expenditures, to the extent the same do not constitute ordinary repair and
maintenance.

         "Subordination Agreement" shall have the meaning ascribed to it in
Section 8.03.

         "Subsequent Owners" shall have the meaning ascribed to it in Section
8.03.

         "Term" shall have the meaning ascribed to it in Section 2.01.

         "Termination" shall mean the expiration or sooner cessation of this
Agreement.

         "Termination Fee" shall have the meaning set forth in Section 11.11.F.

         "Termination of Performance Hurdles" shall have the meaning ascribed to
it in Section 5.02.

         "Total Casualty" shall mean any fire or other casualty which results in
damage to the Resort and its contents to the extent that the total cost of
repairing and/or replacing the damaged portion of the Resort to the same
condition as existed previously would be thirty percent (30%) or more of the
then total replacement cost of the Resort.

         "Trade Names" shall mean any name, whether informal (such as a
fictitious name or d/b/a) or formal (such as the full legal name of a
corporation or partnership) which is used to identify an entity.

         "Trademark" shall mean any word, name, device, symbol, logo, design,
brand, servicemark, other distinctive feature or any combination of the
foregoing which is used to identify or symbolize a party's goods and/or services
and to distinguish them from the goods and/or services of others.

         "Uniform System of Accounts" shall mean the Uniform System of Accounts
for the Lodging Industry, Ninth Revised Edition, 1996, as published by the
American Resort & Motel Association, and any successor thereto.

         "Varma" shall have the meaning ascribed to it in Section 2.03.

         "Working Capital" shall mean funds that are used in the day-to-day
operation of the business of the Resort, including, without limitation, amounts
sufficient for the maintenance of change and petty cash funds, amounts deposited
in operating bank accounts, receivables, amounts deposited in

                                       55
<PAGE>   60

payroll accounts, prepaid expenses and funds required to maintain Inventories,
less accounts payable and accrued current liabilities.

         "WARN Act" shall mean the Worker Adjustment and Retraining Notification
Act, 29 U.S.C. 2101 et seq.

                         [SIGNATURES ON FOLLOWING PAGES]

                                       56
<PAGE>   61

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

                                      OWNER:

                                      CRESCENT REAL ESTATE FUNDING VIII, L.P.,
                                      a Delaware limited partnership

                                      By:  CRE Management VIII, LLC,
                                           a Delaware limited liability company,
                                           its general partner

                                           By:  Crescent Real Estate Equities,
                                                Ltd., a Delaware corporation,
                                                its manager

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

                                      MANAGER:

                                      SONOMA MANAGEMENT CORP. I,
                                      a Delaware corporation

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

                                       57
<PAGE>   62

                             JOINDER BY HOTEL LESSEE

         Wine Country Hotel, LLC, referred to in this Agreement as the "Hotel
Lessee," hereby executes this Agreement to evidence that Hotel Lessee hereby (i)
assumes and agrees to perform all of Owner's obligations under this Agreement
during the term of the Hotel Lease, and (ii) accepts the assignment by Owner to
Hotel Lessee of all of Owner's interest in this Agreement during the term of the
Hotel Lease.

                                                HOTEL LESSEE:

                                                WINE COUNTRY HOTEL, LLC,
                                                a Delaware limited liability
                                                company

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

                                       58
<PAGE>   63

                                    EXHIBIT A

                          LEGAL DESCRIPTION OF THE SITE

<PAGE>   64

                                    EXHIBIT B

                       MEMORANDUM OF MANAGEMENT AGREEMENT

         This Memorandum of Management Agreement (the "Memorandum") is made and
entered into as of this _____ day of ________________, _________ by and between
Crescent Real Estate Funding VIII, L.P., a Delaware limited partnership
("Owner"), with a mailing address at 777 Main Street, Suite 2100, Fort Worth,
Texas 76102 and Sonoma Management Corp. I, a Delaware corporation ("Manager"),
with a mailing address at c/o Sanjay Varma, 306 W. 7th St., Fort Worth, Texas
76102.

                               W I T N E S E T H :

         Owner and Manager have entered into that certain Management Agreement
effective as of , 2000 (herein, the "Management Agreement") with respect to the
operation of a Resort on the premises located in Monterey County, California as
more particularly described in Exhibit "A" attached hereto (the "Site").

         The Management Agreement is in effect. The term of the Management
Agreement expires on __________________. Subject to certain conditions, the term
may thereafter be renewed by Manager, for two (2) successive periods of ten (10)
Fiscal Years each.

         The Management Agreement contains terms and restrictions relating to
financing of the Resort. The Management Agreement also contains terms and
conditions relating to Owner's sale of the Resort or the Site.

         This Memorandum is not intended to alter or modify in any way the terms
and conditions of the Management Agreement. Terms not specifically defined in
this Memorandum are defined in the Management Agreement.

         IN WITNESS WHEREOF, Owner and Manager have caused this Memorandum to be
executed under seal by their duly authorized representatives as of the day first
above written, for the purpose of providing an instrument for recording giving
notice of the Management Agreement and certain of the terms and conditions
thereto.

<PAGE>   65

                                        OWNER:

                                        CRESCENT REAL ESTATE FUNDING VIII, L.P.,
                                        a Delaware limited partnership

                                        By:  CRE Management VIII, LLC,
                                             a Delaware limited liability
                                             company, its general partner

                                             By: Crescent Real Estate Equities,
                                                 Ltd., a Delaware corporation,
                                                 its manager

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

                                        MANAGER:

                                        SONOMA MANAGEMENT CORP. I,
                                        a Delaware corporation

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

<PAGE>   66

ACKNOWLEDGMENT

STATE OF ______________)
                       )      ss.
COUNTY OF _____________)

         On the ___ day of ___________, 2000, before me, the undersigned, a
Notary Public, in and for the State of ________, personally appeared
___________________________, who acknowledged himself to be the
____________________ of Crescent Real Estate Equities, Ltd., a Delaware
corporation, and the manager of CRE Management VIII, LLC, a Delaware limited
liability company, in its capacity as general partner of Crescent Real Estate
Funding VIII, L.P. and that he, as such officer, being authorized to do so,
executed the foregoing instrument for the purposes therein contained, and on
behalf of said corporation and limited partnership.

         In witness whereof, I hereunto set my hand and official seal.

------------------------------
Notary Public

My commission expires:

------------------------

ACKNOWLEDGMENT

STATE OF ______________)
                       )      ss.
COUNTY OF _____________)

         On the ___ day of ___________, 2000, before me, the undersigned, a
Notary Public, in and for the State of ________, personally appeared
___________________________, who acknowledged himself to be the
____________________ of Sonoma Management Corp. I, a Delaware corporation, and
that he, as such _______, being authorized to do so, executed the foregoing
instrument for the purposes therein contained, by signing the name of the
corporation by himself as _________.

         In witness whereof, I hereunto set my hand and official seal.

------------------------------
Notary Public
My commission expires:

------------------------

<PAGE>   67

                                 EXHIBIT "A" TO

                       MEMORANDUM OF MANAGEMENT AGREEMENT

                                Legal Description

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