Formation And Sale Agreement

EXHIBIT 10.3

EXECUTION VERSION


FORMATION AND SALE AGREEMENT

by and among


Duke Ventures, LLC,

Crescent Resources, LLC,


Morgan Stanley Real Estate Fund V U.S., L.P.,


Morgan Stanley Real Estate Fund V Special U.S., L.P.,


Morgan Stanley Real Estate Investors V U.S., L.P.,


MSP Real Estate Fund V, L.P.,


and

Morgan Stanley Strategic Investments, Inc.

Dated as of September 7, 2006

TABLE OF CONTENTS

PAGE
ARTICLE I DEFINITIONS 1

Section 1.1 Definitions 1 ARTICLE II CLOSING ACTIONS 7

Section 2.1 Closing 7

Section 2.2 Closing Actions 7

Section 2.3 Closing Deliveries 8

Section 2.4 Post-Closing Adjustment of Net Contribution/Distribution Amount 8 ARTICLE III REPRESENTATIONS AND WARRANTIES OF DUKE VENTURES 9

Section 3.1 Organization 9

Section 3.2 Authority 9

Section 3.3 No Conflicts 10

Section 3.4 Claims 10

Section 3.5 Brokers 10

Section 3.6 Ownership 10

Section 3.7 No Other Representation 10 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF CRESCENT 10

Section 4.1 Organization 10

Section 4.2 Authority 11

Section 4.3 No Conflicts 11

Section 4.4 Claims; Orders 11

Section 4.5 Brokers 11

Section 4.6 Capitalization 11

Section 4.7 Financial Statements 12

Section 4.8 Permits; Compliance with Laws 12

Section 4.9 Absence of Certain Changes 12

Section 4.10 Taxes 13

Section 4.11 Contracts 14

Section 4.12 Environmental Matters 16

Section 4.13 Insurance 16

Section 4.14 Intellectual Property 16 Section 4.15 Labor Matters 17

Section 4.16 Employee Benefits 17

Section 4.17 Real Property 18

Section 4.18 Personal Property 20

Section 4.19 Accounts Receivable 20

Section 4.20 Financing Districts 20

Section 4.21 Related Party Transactions 20

Section 4.22 Bankruptcy 20

Section 4.23 No Other Representation 20 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE MS MEMBERS 21

Section 5.1 Organization 21

Section 5.2 Authority 21

Section 5.3 No Conflicts 21

Section 5.4 Claims 21

Section 5.5 Brokers 21

Section 5.6 Acknowledgement 21

Section 5.7 No Registration 21

Section 5.8 No Other Representation 22


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ARTICLE VI COVENANTS 22

Section 6.1 Legacy Land 22

Section 6.2 Tax Matters 22

Section 6.3 Public Announcements 22

Section 6.4 Employee Benefits 22

Section 6.5 Environmental 22

Section 6.6 Insurance 22

Section 6.7 Leased Personal Property; Licensed Software 23

Section 6.8 Surety Bonds; Letters of Credit 24

Section 6.9 Reasonable Best Efforts; Further Assurances 25

Section 6.10 Sale of Additional Interests in Holdco 25

Section 6.11 Corporate Names 25 ARTICLE VII INDEMNIFICATION, LIMITATIONS OF LIABILITY, WAIVERS AND THIRD PARTY CLAIMS 26

Section 7.1 Indemnification 26

Section 7.2 Limitations of Liability 26

Section 7.3 Waiver of Other Representations 28

Section 7.4 Waiver of Remedies 29

Section 7.5 Procedure with Respect to Third Party Claims 29

ARTICLE VIII MISCELLANEOUS 30

Section 8.1 Notices 30

Section 8.2 Entire Agreement 31

Section 8.3 Expenses 31

Section 8.4 Disclosure 31

Section 8.5 Waiver 31

Section 8.6 Amendment 31

Section 8.7 No Third Party Beneficiary 31

Section 8.8 Assignment; Binding Effect 32

Section 8.9 Headings 32

Section 8.10 Invalid Provisions 32

Section 8.11 Counterparts; Facsimile 32

Section 8.12 Governing Law; Venue; and Jurisdiction; Waiver of Trial by Jury 32

Section 8.13 Attorneys' Fees 32

Section 8.14 MS Member Representative; Joint Liability 33

Exhibit A Amended and Restated Limited Liability Company Agreement of Crescent Holdings, LLC

Exhibit B Amended and Restated Articles of Organization of Crescent Resources, LLC

Exhibit C Amended and Restated Operating Agreement of Crescent Resources, LLC

Exhibit D Transition Services Agreement

Exhibit E Employee Matters Agreement

Exhibit F Certificate of Formation of Crescent Holdings, LLC

Exhibit G Purchase Price Calculation

Exhibit H Estimated Transaction Expenses of the Parties


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FORMATION AND SALE AGREEMENT


This FORMATION AND SALE AGREEMENT (this " Agreement" ) dated as of September 7, 2006 (the " Effective Date" ) is made and entered into by and among (i) Duke Ventures, LLC , a Nevada limited liability company (" Duke Ventures" ), (ii) Crescent Resources, LLC , a Georgia limited liability company (" Crescent" ), and (iii) Morgan Stanley Real Estate Fund V U.S., L.P. , a Delaware limited partnership (" MSREF" ), Morgan Stanley Real Estate Fund V Special U.S., L.P. , a Delaware limited partnership (" MSREF Special" ), Morgan Stanley Real Estate Investors V U.S., L.P. , a Delaware limited partnership (" MSREI" ), MSP Real Estate Fund V, L.P. , a Delaware limited partnership (" MSP" ), and Morgan Stanley Strategic Investments, Inc. , a Delaware corporation (" MSSI" and, together with MSREF, MSREF Special, MSREI, and MSP are collectively referred to herein as the " MS Members" ).


W I T N E S S E T H

WHEREAS, immediately prior to the consummation of the transactions contemplated hereby, Duke Ventures owns one hundred percent (100%) of the issued and outstanding membership interests of Crescent (the " Crescent Membership Interests" ); and WHEREAS, concurrently herewith (i) in accordance with the terms and conditions of this Agreement, Duke Ventures will contribute one hundred percent (100%) of the Crescent Membership Interests to Crescent Holdings, LLC, a newly formed Delaware limited liability company (" Holdco" ), in exchange for the issuance to Duke Ventures of ninety-eight percent (98%) of the issued and outstanding membership interests of Holdco (the " Holdco Membership Interests" ) and (ii) Crescent and Mr. Arthur W. Fields (" Mr. Fields" ) are entering into an employment agreement (the " Employment Agreement" ) providing for, among other things, the issuance to Mr. Fields of two percent (2%) of the Holdco Membership Interests; and WHEREAS, immediately following the transactions referred to above, Crescent will enter into a Credit Agreement dated as of the Effective Date, with Bank of America, N.A. and the other lenders named therein (collectively, the " Lender" ), pursuant to which Crescent is receiving $1,225,000,000 of proceeds (the " New Debt Financing" ), of which the net proceeds in the amount of $1,187,000,000 will be immediately distributed to Holdco, and Holdco will distribute the same solely to Duke Ventures; and

WHEREAS, in accordance with the terms and conditions of this Agreement, immediately following the distribution of the net proceeds of the New Debt Financing referred to above, the MS Members will collectively purchase from Duke Ventures fifty percent (50%) of the Holdco Membership Interests held by Duke Ventures (such Holdco Membership Interests being transferred in accordance herewith being forty-nine percent (49%) of the total outstanding Holdco Membership Interests and are referred to herein as the " Purchased Interests" ); and

WHEREAS, concurrently herewith, Duke Ventures, the MS Members and Mr. Fields are entering into an amended and restated limited liability company agreement of Holdco in the form attached hereto as Exhibit A (the " Operating Agreement" ); and

WHEREAS, following the consummation of the transactions contemplated by this Agreement and the execution of the Operating Agreement, the MS Members will collectively own forty-nine percent (49%) of the Holdco Membership Interests, Duke Ventures will own forty-nine percent (49%) of the Holdco Membership Interests and Mr. Fields will own two percent (2%) of the Holdco Membership Interests;

NOW THEREFORE, in consideration of the mutual agreements contained herein and for other good and valuable consideration described herein, the parties to this Agreement, intending to be legally bound hereby, agree as follows:


ARTICLE I

DEFINITIONS


Section 1.1 Definitions. As used in this Agreement, the following capitalized terms have the meanings set forth below:

" AAA" means the American Arbitration Association.

" Accounting Expert" has the meaning given to it in Section 2.4(b).

" Administer" and " Administration" shall mean the process of adjusting Third Party Insurance Claims, including the process of providing defense and indemnification if and to the extent any defense and indemnification is required under Section 6.6 below. " Advanced Amounts" has the meaning given to it in Section 4.6(d). " Affiliate" means any Person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the Person specified. For purposes of this definition, control of a Person means the power, direct or indirect, to direct or cause the direction of the management and policies of such Person whether through ownership of voting securities or ownership interests, by contract or otherwise, and specifically with respect to a corporation, partnership or limited liability company, also includes direct or indirect ownership of more than ten percent (10%) of the voting securities in such corporation or of the voting interest in a partnership or limited liability company.

" Agreement" has the meaning given to it in the introduction to this Agreement.

" ALTA" means the American Land Title Association, whose address is 1828 L St., N.W., Suite 705, Washington, D.C. 20036.

" ALTA Survey" means a survey made in accordance with the Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys, jointly established and adopted by ALTA and NSPS in 2005, and includes items 2, 3, 4, 6, 7(a), 8, 9, 10, 11(a), 16, 17 & 18 from Table A thereof. " Amended and Restated Articles of Organization" means those certain Amended and Restated Articles of Organization of Crescent, in the form attached hereto as Exhibit B, which are being filed with the Secretary of State of the State of Georgia concurrently herewith.

" Amended and Restated Operating Agreement" means that certain Amended and Restated Limited Liability Company Agreement of Crescent, in the form attached hereto as Exhibit C, which is being executed concurrently herewith. " Assets" of any Person means all assets and properties of every kind, nature, character and description (whether real, personal or mixed, whether tangible or intangible and wherever situated), including the goodwill related thereto, operated, owned or leased by such Person.

" Assignment Agreement" has the meaning given to it in Section 2.3(a)(vii).

" Association" has the meaning given to it in Section 4.17(j).

" Association Document" has the meaning given to it in Section 4.17(j) " Auditor' s Net Contribution/Distribution Amount Determination" has the meaning given to it in Section 2.4(b). " Automobile Policy" has the meaning given to in the definition of " Duke Occurrence-Based Insurance Policies." " Balance Sheet" has the meaning given to it in Section 4.7.

" Benefit Plans" has the meaning given to it in Section 4.16(a).

" Business" means, as to Crescent, the business of developing high quality commercial, residential and multifamily real estate projects, managing and acting as leasing agent for commercial buildings and properties and managing land holdings primarily in the southeastern and southwestern United States.

" Business Day" means a day other than Saturday, Sunday or any day on which banks located in the State of New York are authorized or obligated to close.

" Charter Documents" means, with respect to any Person, the articles of incorporation and by-laws, the limited partnership agreement, the partnership agreement or the limited liability company operating agreement and certificate of formation or articles of organization or such other organizational documents of such Person which establish the legal personality of such Person.

" Claim" means any demand, claim, action, investigation, legal proceeding (whether at law or in equity) or arbitration.

" Claiming Party" has the meaning given to it in Section 7.5(a).

" Closing" means the closing of the transactions contemplated by this Agreement, as provided for in Section 2.2. " Code" means the United States Internal Revenue Code of 1986, as amended. " Commercial Leases" has the meaning given to it in Section 4.17(i). " Confidentiality Agreement" means that certain Confidentiality Agreement, dated May 17, 2006, between Duke Parent and MSREF V U.S.- GP, L.L.C., on behalf of itself and MSREF, MSREI, MSREF Special, MSP, MSP Co-Investment Partnership V., L.P. and MSREF V Domestic Funding, L.P., as amended from time to time. " Contract" means any contract, lease, license, evidence of indebtedness, mortgage, indenture, purchase order, binding bid, letter of credit, security agreement or other legally binding arrangement, including any of the foregoing entered into with any Governmental Authority.

" Credit Support Instrument" has the meaning given to it in Section 4.11(b).

" Crescent" has the meaning given to it in the introduction to this Agreement.

" Crescent Consents" has the meaning given to it in Section 4.3. " Crescent Disclosure Letter" has the meaning given to it in the introduction to ARTICLE IV. " Crescent Membership Interests" has the meaning given to it in the Recitals to this Agreement. " Crescent Subsidiary" means any corporation, partnership, limited partnership, limited liability company, joint venture or other legal entity of which (i) Crescent or a Crescent Subsidiary is the general partner or manager or (ii) Crescent or any Crescent Subsidiary owns, directly or indirectly, fifty percent (50%) or more of the stock or other equity or partnership interests, it being understood that LandMar Group, LLC, Rough Hollow Development, Ltd., Las Ventanas Land Partners, Ltd., and JH West Land Ventures, Ltd. shall constitute Crescent Subsidiaries.

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" Developable Property" means, as to any parcel of Real Property, that portion of the land which is located outside of all of the following, to the extent delineated or reasonably susceptible of delineation from information in the possession of Crescent: (a) any lakes, streams, rivers or other bodies or courses of water; (b) any swamps or marshes; (c) the floodway or the 100-year flood plain as designated on recent flood zone maps produced by the Federal Emergency Management Agency; (d) any areas designated by the U.S. Environmental Protection Agency or other federal or state agency as areas where development is prohibited or restricted due to the presence of threatened or endangered wildlife; (e) currently designated mineral drill sites; (f) easement areas; (g) wetlands and/or waters that are regulated by federal and/or state agencies; and (h) any other areas upon which no development activities can occur for any reason.

" Duke Disclosure Letter" has the meaning given to it in the introduction to ARTICLE III.

" Duke Liability Insurance Policies" shall mean the policies of insurance maintained by Duke Parent or any Non-Crescent Affiliate prior to the Closing identified as Part I.E and Part I.F of Section 4.13(i) of the Crescent Disclosure Letter. " Duke Occurrence-Based Insurance Policies" shall mean the policies of insurance maintained by Duke Parent or any Non-Crescent Affiliate prior to the Closing identified as Part I.A, Part I.C and Part I.D of Section 4.13(i) of the Crescent Disclosure Letter (the " Automobile Policy" ) and Part II.A, II.B, II.C and II.E of Section 4.13(i) of the Crescent Disclosure Letter (the " Workers Compensation Policy" ).

" Duke Parent" means Duke Energy Corporation, a Delaware corporation.

" Duke Release Date" has the meaning given to it in Section 6.8(a). " Duke Ventures" has the meaning given to it in the introduction to this Agreement. " Effective Date" has the meaning given to it in the introduction to this Agreement. " Employee Matters Agreement" has the meaning given to it in Section 2.3(a)(iv). " Employment Agreement" has the meaning given to it in the Recitals to this Agreement. " Enterprise Value" means $2,075,000,000.

" Environmental Law" means the applicable Laws of any Governmental Authority having jurisdiction over the assets in question relating to the prevention of pollution, regulating discharge or emission of Hazardous Materials, remediation of contamination, protection of natural resources, or the preservation of environmental quality, each as amended on or prior to the Effective Date.

" Environmental Representations" has the meaning given to it in Section 7.2(a).

" Equity Value" has the meaning given to it in the definition of " Purchase Price."

" ERISA" has the meaning given to it in Section 4.16(a).

" ERISA Affiliate" has the meaning given to it in Section 4.16(b). " ERISA Representations" has the meaning given to it in Section 7.2(a). " ESA" has the meaning given to it in Section 6.5.

" Estimated Net Contribution/Distribution Amount" means $30,000,000, which Duke Ventures represents is a good faith estimate of the Net Contribution/Distribution Amount. " Expenses" means all reasonable out-of-pocket documented expenses (including Transfer Taxes and all fees and expenses of counsel, accountants, financing sources, experts and consultants to a Party hereto and its Affiliates and fees and expenses incurred in connection with obtaining title commitments, Title Policies, environmental reports and other reports and creating the electronic data room maintained by Crescent in connection with the transactions contemplated by this Agreement) incurred by a Party or on its behalf on or prior to the thirtieth (30th) day following the Effective Date in connection with or related to the transactions contemplated in this Agreement, including the authorization, preparation, negotiation, execution and performance of this Agreement, the Operating Agreement, the Amended and Restated Articles of Organization, the Amended and Restated Operating Agreement and the New Debt Financing, the formation of Holdco and the MS Members' due diligence review of Crescent, the Crescent Subsidiaries and their Assets and the other transactions contemplated in this Agreement, but in all events excluding fees and expenses of investment bankers or financial advisors.

" Final Net Contribution/Distribution Amount" has the meaning given to it in Section 2.4(c).

" Financial Statements" has the meaning given to it in Section 4.7.

" Financing District" has the meaning given to it in Section 4.20. " Flooding Easements" has the meaning given to it in the definition of " Permitted Lien." " GAAP" means generally accepted accounting principles in the United States, applied on a consistent basis. " Governmental Authority" means any applicable federal, state or local government, regulatory or administrative authority, or any court, agency, commission, tribunal, or judicial or arbitral body or self-regulated entity, whether domestic or foreign.


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" Hazardous Material" means each substance designated as a hazardous waste, hazardous substance, hazardous material, pollutant, contaminant or toxic substance under any Environmental Law, including, without limitation, any asbestos, polychlorinated biphenyls, urea formaldehyde foam insulation, and petroleum or any fraction of petroleum.

" Holdco" has the meaning given to it in the Recitals to this Agreement. " Holdco Membership Interests" has the meaning given to it in the Recitals to this Agreement. " Indemnified Party" has the meaning given to it in Section 7.1(a). " Indemnifying Party" has the meaning given to it in Section 7.1(a).

" Independent Accounting Firm" means and includes any of the following independent certified public accounting firms: PricewaterhouseCoopers, LLP, KPMG LLP, Deloitte & Touche LLP, Ernst & Young LLP and any combined entity including one or more of such firms; or any other certified public accounting firm approved by the Parties.

" Intellectual Property" means the following intellectual property rights, whether arising by statute or under common law: (a) copyrights, registrations and applications for registration thereof, (b) trademarks, service marks, trade names, slogans, domain names, logos, trade dress, and registrations and applications for registrations thereof, (c) patents, as well as any reissued and reexamined patents and extensions corresponding to the patents, and any patent applications, as well as any related continuation, continuation in part and divisional applications and patents issuing therefrom and (d) trade secrets and confidential information, including ideas, designs, concepts, compilations of information, methods, techniques, procedures, processes and other know-how, whether or not patentable.

" IRS" has the meaning given to it in Section 4.16(a).

" Knowledge" when used with respect to Duke Ventures means the actual knowledge of the individuals listed in Section 1.1(i) of the Duke Disclosure Letter; when used with respect to Crescent means the actual knowledge of the individuals listed in Section 1.1(i) of the Crescent Disclosure Letter; and when used with respect to the MS Members means the actual knowledge of the individuals listed in Section 1.1(i) of the MS Disclosure Letter.

" Lake Mary Environmental Condition" has the meaning given to it in Section 7.1(b).

" Lake Mary Site" has the meaning given to it in Section 7.1(b).

" Landmar Certificate" means the certificate signed by Edward E. Burr and LandMar Management, Inc. with respect to certain matters relating to Landmar Group, LLC.

" Laws" means all laws, rules, regulations, ordinances, court orders and other pronouncements having the effect of law of any Governmental Authority.

" Leased Personal Property" has the meaning given to it in Section 6.7(a).

" Legacy Land" means the Real Property listed as such in Section 1.1(ii) of the Crescent Disclosure Letter.

" Legacy Land Agreements" have the meaning given to it in Section 2.3(a)(v). " Lender" has the meaning given to it in the Recitals to this Agreement. " Letters" means, collectively, the Duke Disclosure Letter, the Crescent Disclosure Letter and the MS Disclosure Letter. " Licensed Software" has the meaning given to it in Section 6.7(b). " Lien" means any mortgage, pledge, deed of trust, assessment, security interest, charge, lien, option, warranty, purchase right, lease or other similar property interest or encumbrance.

" Loss" means any and all judgments, losses, liabilities, amounts paid in settlement, damages, fines, penalties, deficiencies, losses and expenses (including interest, court costs, reasonable fees of attorneys, accountants and other experts or other reasonable expenses of litigation or other proceedings or of any claim, default or assessment).

" Material Adverse Effect" means any circumstance, event, occurrence, change or effect that is, would be, or would reasonably be expected to be, individually or in the aggregate, materially adverse to the Business, Assets, condition (financial or otherwise) or results of operations of Crescent and the Crescent Subsidiaries, taken as a whole; provided , however , that none of the following shall in and of itself constitute, and no event, occurrence, change or effect resulting from or related to any of the following shall constitute, a Material Adverse Effect: (a) any change generally applicable to the industry or market in which Crescent operates or changes or effects that are consequences of war, terrorist activity or weather or meteorological events, (b) any change in general political, regulatory or economic conditions, including the financial and securities markets, (c) any change in any Laws (including Environmental Laws) of national or statewide effect, (d) any change in the financial condition or results of operation of Crescent caused by the transactions contemplated by this Agreement, (e) any actions to be taken pursuant to or in accordance with this Agreement and (f) the negotiation, execution, announcement or pendency of this Agreement and the transactions contemplated in this Agreement, except that the exclusions set forth in clauses (a), (b) and (c) shall only be effective if Crescent is not disproportionately impacted by such events when compared to other companies in


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the industries and markets in which Crescent operates; provided further that a Material Adverse Effect shall be deemed to include any (i) circumstance, event, occurrence, change or effect that is, would be, or would reasonably be expected to result in the cessation of lot sales at Palmetto Bluff for a period of twenty-four (24) months or longer or (ii) substantial damage, destruction, or loss (whether or not covered by insurance) to the Inn at Palmetto Bluff that would reasonably be expected to cause the Inn at Palmetto Bluff to be closed for a period of eighteen (18) months or longer. " Material Contracts" has the meaning given to it in Section 4.11(a). " Material Lease" has the meaning given to it in Section 4.11(a)(vii). " Material Properties" means each of the Projects listed on Section 1.1(iii) of the Crescent Disclosure Letter. " Mr. Fields" has the meaning given to it in the Recitals to this Agreement. " MS Disclosure Letter" has the meaning given to it in the introduction to ARTICLE V. " MS Members" has the meaning given to it in the introduction to this Agreement. " MSP" has the meaning given to it in the introduction to this Agreement. " MSREF" has the meaning given to it in the introduction to this Agreement. " MSREF Special" has the meaning given to it in the introduction to this Agreement. " MSREI" has the meaning given to it in the introduction to this Agreement. " MSSI" has the meaning given to it in the introduction to this Agreement. " Net Contribution/Distribution Amount" means an amount equal to (x) the sum of all capital contributions by Duke Ventures to the equity of Crescent from January 1, 2006 to and including the Effective Date, minus (y) all dividends or other distributions of capital of Crescent by Crescent to Duke Ventures from January 1, 2006 to and including the Effective Date (exclusive of the Net Debt Proceeds), it being understood that such amount may be a positive or a negative number.

" Net Contribution/Distribution Amount Determination" has the meaning given to it in Section 2.4(a).

" Net Contribution/Distribution Amount Dispute Notice" has the meaning given to it in Section 2.4(b).

" Net Contribution/Distribution Amount Review Period" has the meaning given to it in Section 2.4(b).

" Net Debt Proceeds" has the meaning given to it in the definition of " Purchase Price."

" New Credit Support Instruments" has the meaning given to it in Section 6.8(a).

" New Debt Financing" has the meaning given to it in the Recitals to this Agreement. " No Further Action Letter" has the meaning given to it in Section 7.2(o). " Non-Crescent Affiliate" means any Affiliate of Duke Ventures, except for Holdco, Crescent and the Crescent Subsidiaries. " NSPS" means the National Society of Professional Surveyors, Inc., whose address is 6 Montgomery Village Avenue, Suite 403, Gaithersburg, MD 20879.

" Occurrence" shall mean an accident or other event that gives rise to a Third Party Insurance Claim, and the term " Occurrence" shall be interpreted in accordance with and as construed under applicable law and Duke Liability Insurance Policies.

" Operating Agreement" ...