-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lpsm+6pHhKsc2BfSsXes2czcQkuua9pWMerZRegsdCJbGTRVXPZiucHg6fIDWwsi SCyxPvnTd4MPc7rTCXOYZw== 0000931763-01-000743.txt : 20010409 0000931763-01-000743.hdr.sgml : 20010409 ACCESSION NUMBER: 0000931763-01-000743 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OVERSEAS PARTNERS LTD CENTRAL INDEX KEY: 0000740125 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING & COURIER SERVICES (NO AIR) [4210] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-11538 FILM NUMBER: 1590999 BUSINESS ADDRESS: STREET 1: 8 PAR-LA-VILLE ROAD MINTFLOWER PLACE STREET 2: PO BOX 1581 CITY: HAMILTON 5 BERMUDA STATE: D0 BUSINESS PHONE: 4412950788 MAIL ADDRESS: STREET 1: PO BOX 1581 CITY: HAMILTON BERMUDA STATE: D0 10-K405 1 0001.txt FORM 10-K UNITED STATES FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000; OR ----------------- [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________ Commission File No. 0-11538 ------- OVERSEAS PARTNERS LTD. ---------------------- (Exact name of registrant as specified in its charter) Islands of Bermuda N/A ------------------------------- ----------------------------- (State or other jurisdiction of I.R.S Employer Identification No.) incorporation or organization) Mintflower Place, 8 Par-la-Ville Road, Hamilton, HM GX, Bermuda --------------------------------------------------------------- (Address of principal executive offices, including zip code) 441-295-0788 ------------ (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- ------------------- None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.10 per share ---------------------------------------------- (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X . NO ___. --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the Common Stock held by non-affiliates of the Registrant, based on a price per share of $17.00, the price per share as of February 28, 2001, at which the Registrant has rights of first refusal for the purchase of its shares offered for sale by shareowners, was $2,042,104,277. The number of shares of Registrant's Common Stock outstanding as of February 28, 2001 was 120,123,781. OVERSEAS PARTNERS LTD. INDEX 10-K PART I Item 1 Business............................................................................... 1 Item 2 Properties............................................................................. 17 Item 3 Legal Proceedings...................................................................... 17 Item 4 Submission of Matters to a Vote of Security Holders.................................... 17 PART II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters.................. 18 Item 6 Selected Financial Data................................................................ 22 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operation... 23 Item 7A Quantitative and Qualitative Disclosures About Market Risk............................. 32 Item 8 Financial Statements and Supplementary Data............................................ 37 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure... 37 PART III Item 10 Directors and Executive Officers of the Registrant..................................... 38 Item 11 Executive Compensation................................................................. 41 Item 12 Security Ownership of Certain Beneficial Owners and Management......................... 43 Item 13 Certain Relationships and Related Transactions......................................... 45 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K........................ 46
PART I ------ Item 1. Business - ------- -------- GENERAL - ------- Overseas Partners Ltd. ("OPL") is a specialty reinsurance company headquartered in Bermuda. Unless the context otherwise indicates, the term "Company" refers to one or more of OPL and its consolidated subsidiaries. The Company was organized as a corporation under the laws of Bermuda in 1983 as a subsidiary of United Parcel Service of America, Inc. ("UPS"). On December 31, 1983, the Company ceased to be a subsidiary of UPS when UPS paid a special dividend to its shareowners of one share of OPL Common Stock for each UPS share then outstanding to its shareowners of record as of November 18, 1983. The Company's Common Stock is currently owned by approximately 98,000 shareowners. OPL's primary business segment is reinsurance. OPL was originally formed to provide reinsurance against loss or damage to packages carried by UPS. This remained OPL's largest single reinsurance program until its cancellation effective October 1, 1999. The Company's wholly owned subsidiary, Overseas Partners Re Ltd. ("OPRe"), was incorporated in 1995 to diversify into additional lines of treaty business, including accident & health, automobile, financial, marine, property, space & aviation and workers' compensation. In December 1997, OPL acquired Parcel Insurance Plan, Inc. ("PIP"), an independent insurance agent that manages the general underwriting of excess value packages for shippers of small parcels. PIP serves commercial shippers across the United States from its St. Louis headquarters. The Fireman's Fund Insurance Company, one of the largest commercial insurers in the U.S., is the underwriter of PIP's policies. OPL established a wholly owned subsidiary, Overseas Partners Assurance Ltd. ("OPAL"), during 1998 to enhance and broaden its reinsurance relationships. OPAL provides rent-a-captive facilities to reinsurance clients, allowing them to participate in the underwriting and investment profits associated with their programs. In November 1999, the Company established another wholly owned subsidiary, Overseas Partners Cat Ltd. ("OPCat"), to further diversify the portfolio of reinsurance risk. OPCat has an underwriting services agreement with RenaissanceRe Holdings Ltd. to write worldwide property catastrophe reinsurance business. OPCat commenced writing business in 2000. In October 2000 OPL, through its wholly owned subsidiary Overseas Partners US Holding Company, completed the acquisition of Overseas Partners US Reinsurance Company ("OPUS Re") for $6 million plus its capital and surplus of $28.6 million. OPUS Re provides property & casualty reinsurance and it's principal operations are located in Philadelphia. Since the completion of the acquisition, OPL has made capital contributions to OPUS Re such that at December 31, 2000, OPUS Re had capital of approximately $282 million. OPL's other business segment is U.S. real estate ownership and management and leasing which is conducted through its wholly owned subsidiary, Overseas Partners Capital Corp. ("OPCC"). OPCC's subsidiaries own and manage the Company's real estate assets located in major centers such as Atlanta and Boston. 1 The following table provides financial highlights of OPL and its business segments. More information concerning identifiable segment assets, revenues and net income for the years ended 2000, 1999 and 1998 can be found in Note 10 of the Notes to the Consolidated Financial Statements included in "Item 8 - Financial Statements and Supplementary Data."
(in thousands) 2000 1999 1998 - ---------------------------------------------------------------------------------- Reinsurance: - ------------ Revenue $ 520,555 $1,115,426 $ 997,006 - ---------------------------------------------------------------------------------- Net reinsurance income $ (585,009) $ 229,742 $ 487,584 - ---------------------------------------------------------------------------------- Assets $3,278,838 $3,389,636 $2,860,571 - ---------------------------------------------------------------------------------- Real estate and leasing: - ------------------------ Revenue $ 361,927 $ 285,926 $ 268,083 - ---------------------------------------------------------------------------------- Operating income $ 64,885 $ 29,530 $ 27,633 - ---------------------------------------------------------------------------------- Assets $1,298,746 $1,525,646 $1,507,772 - ----------------------------------------------------------------------------------
REINSURANCE SEGMENT - ------------------- Reinsurance Overview - --------------------- Reinsurance is an arrangement in which a reinsurer agrees to indemnify a "primary" or "ceding" company against all or part of the risks assumed by the primary insurer under a policy or policies it has issued. Primary insurers purchase reinsurance for various reasons, including: . protection from catastrophes or multiple losses, . increased underwriting capacity, . ability to write larger individual risks, . withdrawal from certain markets or product lines, . reduced financial leverage, and . stability of operating results. Reinsurance, however, generally does not discharge the primary insurer from its liability to policyholders. There are generally two basic types of reinsurance arrangements: treaty and facultative reinsurance. In treaty reinsurance, the ceding company is obligated to cede and the reinsurer is obligated to assume a specified portion of a type or category of risks insured by the ceding company, while facultative reinsurance involves underwriting of individual risks. Both treaty and facultative reinsurance can be written on either a pro rata basis or an excess of loss basis. Pro rata or proportional reinsurance describes all forms of reinsurance in which the reinsurer shares in a proportional part of the original premiums and losses of the business ceded by the primary insurer. Excess or non-proportional reinsurance refers to reinsurance which indemnifies the primary company for that portion of the loss that exceeds an agreed-upon amount, known as the ceding company's retention or reinsurer's attachment point. Premiums payable by the ceding company to a reinsurer for excess of loss reinsurance are not directly proportional to the premiums that the ceding company receives because the reinsurer does not assume a proportionate risk. In contrast, premiums that the ceding company pays to the reinsurer for pro rata reinsurance are proportional to the premiums that the ceding company receives, consistent with the proportional sharing of risk. In addition, in pro rata reinsurance the reinsurer generally pays the ceding company a ceding commission. The ceding commission generally is based on the ceding company's cost of acquiring the business being reinsured (commissions, premium taxes, assessments and miscellaneous administrative expense) and also may include a profit factor for producing the business. 2 Reinsurers may also purchase reinsurance to cover their own risk exposure. Reinsurance of a reinsurer's business is called retrocession. Reinsurance companies cede risks under retrocessional agreements to other reinsurers, known as retrocessionaires, for reasons similar to those that cause primary insurers to purchase reinsurance. Reinsurance can be written through professional reinsurance brokers or directly with ceding companies. From a ceding company's perspective, both the broker market and the direct market have advantages and disadvantages. A ceding company's decision to select one market over the other will be influenced by its perception of such advantages and disadvantages relative to the reinsurance coverage being placed. Reinsurance Activities - ---------------------- OPL's reinsurance activity began with a shipper's risk program - the reinsuring of insured packages carried by subsidiaries of UPS. Customers of UPS insured their packages for amounts greater than $100 by paying excess value charges. Insured values were typically limited to a maximum of $25,000 per occurrence. Until October 1, 1999, OPL received premiums equal to the excess value charges received by primary insurers, less appropriate ceding commissions, brokerage and taxes. OPL reimbursed the primary insurers for the losses they paid on the package insurance. The shipper's risk reinsurance described above was historically OPL's largest source of revenue, generating $273.5 million and $371.8 million of premiums earned for 1999 and 1998, respectively. The program was cancelled effective October 1, 1999 as UPS decided to provide shipper's risk reinsurance for its customers through a UPS subsidiary. This followed an August 9, 1999 opinion issued in the United States Tax Court against UPS (United Parcel Service of America, Inc. v. Commissioner of Internal Revenue) concerning the taxation of premiums paid by shippers to UPS for the original insurance against risk of loss or damage to packages carried by them. Over the years, we diversified into a number of other lines of reinsurance business. These lines included in the past: property, aviation, workers' compensation, automobile and auto warranty, marine, accident & health and financial reinsurance programs. The following table provides an analysis of gross premiums written, both in the aggregate and as a percentage of total premiums, for each of the years ended December 31, 2000, 1999 and 1998:
(in thousands except for percentages) 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------- Gross reinsurance premiums written: - ----------------------------------- Accident & health $121,037 21% $ 83,456 10% $ 56,979 6% Workers' compensation 121,030 21% 158,157 19% 110,997 12% Property catastrophe 82,501 15% -- 0% -- 0% Property 66,276 12% 126,159 15% 146,749 16% Aviation 62,184 11% 52,732 6% 121,482 13% Finite risk 62,000 11% -- 0% -- 0% Marine 7,121 1% 44,537 5% 66,513 7% Automobile and auto warranty 2,458 1% 45,854 5% 39,278 4% Shipper's risk -- 0% 273,477 33% 371,768 41% Financial reinsurance and other 38,946 7% 60,651 7% 9,857 1% ============================================================================================================== $563,553 100% $845,023 100% $923,623 100% ==============================================================================================================
OPL, and its wholly owned subsidiaries, OPRe and OPCat underwrite such reinsurance on a treaty and facultative basis for insurance and reinsurance companies in the United States and selected international markets. In 2000, approximately 85% of gross premiums were written on a proportional basis. We receive underwriting submissions for new and renewal business from independent brokers and ceding reinsurance companies located in the United States and internationally, with brokers providing approximately 85% of the total. Our underwriting team builds relationships with key brokers and cedants by explaining its underwriting approach and demonstrating responsiveness to customer needs. 3 In 2000, we received business from approximately 27 brokers with one broker providing in excess of 10% of premiums. We are not obligated to accept any business from any particular broker, and brokers do not have the authority to bind the Company. The use of brokers enables the Company to operate with a relatively small number of employees and, together with the reduced cost of operating in favorable regulatory and tax environments, results in significantly lower administrative expenses relative to other companies in the industry. During 2000 we conducted a comprehensive review of our operations and decided to discontinue our marine, property, and financial lines, based on poor profitability and other considerations. For the same reasons, we also terminated a number of programs in our aviation and accident & health lines of business. We will now concentrate on a smaller number of specialty lines in which we can add value to our clients by building on our competitive advantages: our Bermuda domicile, strong capital, "A" (Excellent) financial strength rating from A.M. Best Company, and our technical approach to underwriting. Our underwriting incorporates a detailed technical analysis of risk and return characteristics through actuarial analysis and financial modeling and requires the involvement of underwriting, claims, actuarial, finance and legal professionals. All business written must meet strict, Board-approved, underwriting standards and minimum risk and return criteria. We do not separately evaluate each of the individual risks assumed under our treaties and are therefore largely dependent on the original risk underwriting decisions made by the ceding company. This dependence subjects the Company to the possibility that the ceding companies have not adequately evaluated the risks to be reinsured and, therefore, that the premiums ceded in connection therewith may not adequately compensate the Company for the risk assumed. To mitigate these risks, we try to focus on those ceding companies that effectively manage the underwriting process through proper analysis and pricing of underlying risks and whose underwriting guidelines and performance are compatible with our profitability objectives. We review treaties for compliance with our general underwriting standards and evaluate certain larger treaties in part based upon actuarial analyses conducted by the Company and/or independent consulting actuaries. The actuarial models used in such analyses are tailored in each case to the exposures and experience underlying the specific treaty and the loss experience for the risks covered by such treaties. When appropriate we conduct underwriting audits at the offices of ceding companies to ensure that the ceding companies operate within their guidelines. Underwriting audits focus on the quality of the underwriting staff, the selection and pricing of risks and the capability of monitoring price levels over time. We also perform claims audits, when appropriate, in order to evaluate the client's claims handling abilities and practices. For both treaty and facultative business, we also consider factors such as cash flows, return on risk capital invested, the establishment of long-term ceding company and broker relationships, new product or innovative offerings, market conditions, potential partnerships with market leaders and diversification. Our reinsurance contracts sometimes include sliding scale and profit commission features to motivate the ceding companies to maintain disciplined underwriting standards. Depending on the risk, we may also work with the ceding companies to purchase common account reinsurance protection to further reduce exposure to large individual claims or an accumulation of claims. We have also purchased several layers of excess of loss protection for the aviation and property books of business and entered into a quota share retrocession of our property catastrophe business. The aviation excess of loss protection provides coverage of $77.0 million in excess of $3.0 million for a single loss event. The property excess of loss protection covers our discontinued property lines of business and provides coverage of 41.5% of $100.0 million in excess of $33.0 million for a single loss event. Reinsurance premiums ceded by the Company totaled $62.9 million, $25.3 million and $14.6 million for the years ended December 31, 2000, 1999 and 1998, respectively. Of the reinsurance premiums ceded by the Company in 2000 $29.3 million was for the quota share retrocession of our property catastrophe business, $25.1 million was for the excess of loss protection and $8.5 million was for common account protection. All of the premiums ceded in 1999 and 1998 related to common account protection. 4 Ratings - ------- OPL and its reinsurance subsidiaries currently have a rating of "A" (Excellent) from A.M. Best Company, an independent insurance industry rating organization which rates companies on factors of concern to policyholders. A.M. Best Company states that the "A" (Excellent) rating is assigned to those companies which, in its opinion, have, on balance, achieved excellent financial strength, operating performance and market profile when compared to the standards established by A.M. Best Company and have demonstrated a strong ability to meet their ongoing obligations to policyholders. The "A" (Excellent) rating is the third highest of fifteen ratings assigned by A.M. Best, which range from "A++" (Superior) to "F" (In liquidation). On August 24, 2000 A.M. Best Company downgraded the Company from "A+" (Superior) to "A" (Excellent) as a result of the substantial shift in the profile of the Company, following the loss of the shipper's risk business and the second quarter reserve strengthening. An Excellent rating reflects the continued strength of the Company's balance sheet. The A.M. Best rating is based upon factors relevant to policyholders and brokers and is not directed toward the protection of investors. It is not a recommendation to buy, sell or hold securities. Claims - ------ While the reserving process is difficult and subjective for the ceding companies, the inherent uncertainties of estimating such reserves are even greater for the reinsurer, due primarily to the length of time between the date of an occurrence and the reporting of any attendant claims to the reinsurer, the diversity of development patterns among different types of reinsurance treaties or facultative contracts, the necessary reliance on the ceding companies for information regarding reported claims and differing reserving practices among ceding companies. The Company's gross liability for accrued losses and loss expenses, which provides for estimated future payments arising from current and prior reinsurance transactions, amounted to approximately $1,416.7 million and $972.2 million at December 31, 2000 and 1999, respectively. Losses recoverable from reinsurers totaled $42.6 million and $15.0 million as of December 31, 2000 and 1999, respectively. The increase in the liability of $444.5 million during 2000 was primarily due to reserve strengthening of $430 million in the second quarter of 2000. The reserve for accrued losses and loss expenses includes an estimate of outstanding losses and an estimate for losses incurred but not reported. Outstanding losses are estimated based on ceding company reports and other data considered relevant to the estimation process. The liability for losses incurred but not reported reflects management's best estimates based on the recommendations of an independent actuary using the past loss experience of the Company and industry data. The reserves as established by management are reviewed quarterly and adjustments are made in the period in which they become known. Although management believes this provision is adequate, based on all available information, there can be no assurance that actual losses will not differ significantly from the amounts provided. Inherent in the estimates of ultimate losses are expected trends in claim severity and frequency and other factors which could vary significantly as claims are settled. Changing government regulations, newly identified toxins, newly reported claims, new theories of liability, new contract interpretations and other factors could significantly affect future loss development. While the Company has recorded its current best estimate of its liabilities for unpaid losses and loss expenses, it is reasonably possible that these estimated liabilities may increase in the future and that the increase may be material to its results from operations, cash flows and financial position. 5 The "Analysis of Losses and Loss Expenses Development" shown below presents the subsequent development of the estimated year-end liability for unpaid losses and loss expenses, (net of reinsurance recoveries), at the end of each of the years in the ten year period ended December 31, 2000. The top line of the table shows the estimated liability for unpaid losses and loss expenses, (net of reinsurance recoveries), recorded at the balance sheet date for each of the indicated periods. This net liability represents the estimated amount of losses and loss expenses for claims arising from all prior years' policies and agreements that were unpaid at the balance sheet date. The upper portion of the table shows the re-estimated amount of the previously recorded net liability as of the end of each succeeding year. The estimate changes as more information becomes known about the frequency and severity of claims for individual years. The "Cumulative (Redundancy) Deficiency" line represents the aggregate change in the estimates over all prior years. The lower portion of the table presents the amounts paid as of subsequent periods on those claims for which reserves were carried as of each balance sheet date. Conditions and trends that have affected development of the liabilities in the past may not necessarily occur in the future. Accordingly, it may not be appropriate to extrapolate future redundancies or deficiencies based on the tables below. Analysis of Losses and Loss Expenses Development - ------------------------------------------------
Years ended December 31 As at December 31, 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 (In thousands U.S.$) Estimated liability for unpaid losses and loss expenses, net of reinsurance recoveries 249,616 260,397 254,151 250,325 219,311 214,207 265,166 338,425 461,891 957,161 1,374,123 Liability Re-estimated as of: 1 year later 249,616 260,397 254,511 250,609 224,149 216,581 278,328 332,893 588,585 1,261,420 2 years later 249,616 260,505 254,596 252,060 224,861 216,581 271,061 309,921 693,914 3 years later 249,616 260,505 254,596 252,060 224,861 211,404 245,962 322,253 4 years later 249,616 260,505 254,596 252,060 223,162 187,978 247,106 5 years later 249,616 260,505 254,596 252,060 201,409 187,978 6 years later 249,616 260,505 254,596 231,980 201,409 7 years later 249,616 260,505 236,189 231,980 8 years later 249,616 243,771 236,189 9 years later 234,555 243,771 10 years later 234,555 Cumulative (Redundancy)/Deficiency (15,061) (16,626) (17,962) (18,345) (17,902) (26,229) (18,060) (16,172) 232,023 304,259 -- Cumulative paid losses, net of reinsurance recoveries, as of: 1 year later 53,341 56,686 50,702 81,059 75,836 94,811 130,802 139,219 146,565 331,474 2 years later 126,055 157,236 134,451 164,156 135,631 133,078 177,156 213,046 439,589 3 years later 184,934 196,562 181,858 197,061 164,616 153,978 202,130 253,791 4 years later 206,975 219,478 205,840 212,526 179,612 166,011 218,924 5 years later 219,806 230,484 216,992 220,993 188,489 173,194 6 years later 226,607 234,574 226,515 225,483 193,323 7 years later 229,338 240,019 231,580 227,658 8 years later 233,559 241,624 233,180 9 years later 233,559 241,624 10 years later 233,559
Prior to 1996 the vast majority of the Company's reinsurance business was shipper's risk. The shipper's risk business was characterized by relatively predictable claim experience as a result of the maximum claim exposure being limited to $25,000 per occurrence. The shipper's risk was also short-tail business (i.e. claims would be notified and settled quickly). In 1996 the Company started to diversify into other lines of business that were less predictable and generally 6 had a longer-tail than the shipper's risk business. The diversification came at a time of intense competition in the reinsurance industry resulting in industry pricing that has proven inadequate for the exposures being reinsured. The proliferation of large industry loss events in the last three years has also compounded the effects of inadequate pricing. Prior to 1999 the Company had not experienced any significant adverse loss development. However, in the third and fourth quarters of 1999 the Company recorded reserve strengthening adjustments of $223 million relating primarily to two programs written in 1998. The reserve strengthening adjustments in the second quarter of 2000 related primarily to accident & health, aviation, multi- line, marine and property programs written during 1997 to 1999. This reserve strengthening reflects significant additional claims reported to the Company in the second quarter and our assessment of prevailing conditions in the reinsurance market. Additional information on these matters is included in "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations." Reconciliation of Unpaid Losses and Loss Expenses - ------------------------------------------------- The following table presents an analysis of paid and unpaid losses and loss expenses and a reconciliation of beginning and ending unpaid losses and loss expenses for the years indicated:
(In thousands U.S.$) 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------- Gross balance as of January 1, $ 972,201 $ 468,326 $ 338,879 Less reinsurance recoverable (15,040) (6,435) (454) - --------------------------------------------------------------------------------------------------------------- Net balance as of January 1, 957,161 461,891 338,425 - --------------------------------------------------------------------------------------------------------------- Incurred related to: Current year 651,027 632,537 409,860 Prior years 304,259 126,694 (5,532) - --------------------------------------------------------------------------------------------------------------- Total incurred 955,286 759,231 404,328 - --------------------------------------------------------------------------------------------------------------- Paid related to: Current year (199,820) (110,366) (134,613) Prior years (331,474) (146,565) (139,219) - --------------------------------------------------------------------------------------------------------------- Total paid (531,294) (256,931) (273,832) - --------------------------------------------------------------------------------------------------------------- Amortization of life and annuity reserve - net (7,030) (7,030) (7,030) - --------------------------------------------------------------------------------------------------------------- Net balance as of December 31, 1,374,123 957,161 461,891 Plus reinsurance recoverable 42,610 15,040 6,435 - --------------------------------------------------------------------------------------------------------------- Gross balance as of December 31, $1,416,733 $ 972,201 $ 468,326 - ---------------------------------------------------------------------------------------------------------------
As a result of the change in estimates of insured events in prior years, the provision for losses and loss expenses increased by $304.3 and $126.7 million in 2000 and 1999, respectively. The increase in 2000 related primarily to accident & health, aviation, multi-line, marine and property programs written during 1997 to 1999. The increase reflected significant additional claims reported to the Company during the year and management's assessment of prevailing conditions in the reinsurance market, including industry announcements that indicated deterioration in loss estimates for 1999 storms and other large industry events. The increase in 1999 was primarily due to higher than anticipated losses on two programs in the marine and workers' compensation lines of business. Investments - ----------- The Company maintains cash and trading and available-for-sale portfolios of highly liquid investments to support its reserves for accrued losses and loss expenses and unearned premiums as well as its capital requirements. OPL's reinsurance programs are expected to provide a significant amount of investment income due to the time lag between receiving premiums and paying claims. Our investment policies are designed to achieve enhanced returns measured over conventional medium to long-term market cycle periods. Due to volatility in worldwide bond and equity markets there may be periods in which the Company records an investment loss. The net investment (loss) income, including realized and unrealized gains (losses) from the trading portfolios, constituted $(71.1) million, $302.1 million and $244.0 million of the Company's revenues for the years ending December 31, 2000, 1999 and 1998, respectively. 7 The reinsurance segment's investments include global bonds, U.S. equities (primarily issuers in the S&P 500 Index), emerging market equities and investments in multi-manager funds. The fair value of such cash and investments was approximately $2.5 billion at December 31, 2000. The Company's investment objective for the trading and available-for-sale portfolios is to maximize long-term investment income while ensuring that the level of short-term fluctuations in value is within our risk tolerances. Risk and return objectives are incorporated into an asset allocation model that develops an optimal portfolio of specific asset classes that provides for diversification, enhanced returns and lower overall portfolio volatility. The asset allocation for the trading and available-for-sale portfolios as of December 31, 2000, 1999 and 1998 was as follows:
Asset Class 2000 1999 1998 - ----------------------------------------------------------------- Cash 17% 15% 5% U.S. Equities 33% 39% 43% Emerging market equities 7% 9% 10% Global fixed income securities 23% 20% 24% Multi-manager funds 20% 17% 18% - ----------------------------------------------------------------- 100% 100% 100% =================================================================
The reinsurance segment's investment portfolio lost 4.0% for the year ended December 31, 2000 and returned, 13.2% and 12.2% for the years ended December 31, 1999 and 1998, respectively. Most of the Company's reinsurance agreements call for reinsurance premiums and settlements to be paid in United States dollars. In addition, our investments are primarily made in United States dollar denominated securities. OPL and its reinsurance subsidiaries are exempt from Bermuda's currency exchange controls. Our assets are located and our operations are conducted in countries in which, in management's opinion, the risks of expropriation are not substantial. Information concerning the Company's investment portfolio, including a discussion of the significant market risk associated with the portfolio, can be found in "Item 7A - Quantitative and Qualitative Disclosures About Market Risk." Competition - ----------- The international property and casualty reinsurance market is highly competitive, and we compete with many reinsurance companies, none of which dominates the industry. Until very recently, premium rates on certain reinsurance lines of business have been declining as a result of intense competition and the oversupply of available capital. Competition with respect to the types of reinsurance business in which the Company is engaged is based on many factors, including: . the perceived overall financial strength of the reinsurer, . claims-paying ability rating by a recognized rating agency, . underwriting expertise, . the jurisdictions where the reinsurer is licensed or otherwise authorized, . premiums charged, . other terms and conditions of the reinsurance offered, . services offered, . speed of claims payment, and . reputation and experience in lines written. The Company competes with numerous reinsurance companies, subsidiaries or affiliates of established worldwide insurance companies and reinsurance departments of certain primary insurance companies for business in the United States and international reinsurance markets. Some of these competitors have greater financial resources than OPL, 8 have been operating longer than OPL and have established long-term and continuing business relationships throughout the industry, which can be a significant competitive advantage. Since 1987, the industry has experienced increased global competition. During this period, primary insurers have retained an increasing portion of their business, which, together with rate pressure at the primary insurance level and ample reinsurance capacity, precluded reinsurance rate improvement and resulted in generally low rates of premium growth, if any. In the early 1990s, several well-capitalized Bermuda-based companies entered the reinsurance industry, and added significant capacity, particularly in the catastrophe reinsurance market, and rendered future rate improvement uncertain. In addition, Lloyd's of London relaxed its requirement that syndicate members have unlimited liability for losses and allowed limited liability corporate investors to join syndicates, thereby increasing the reinsurance capacity at Lloyd's. In 1996, Lloyd's implemented its reconstruction and renewal plan in an attempt to separate past losses from the current market participants and to provide a more secure market going forward. These and other factors, have resulted in increasingly competitive market conditions and have influenced the continuing pressure on insurance and reinsurance rates and the expansion of contract terms in the current marketplace. In the last few years over-capacity and significant price competition have continued to characterize the property and casualty insurance and reinsurance industry. Excess capital and limited opportunities for organic growth in traditional markets have continued to generate merger and acquisition activity as companies attempt to maintain or improve market share and performance. Recent studies have indicated that the industry is still significantly over- capitalized at the end of 2000. A recent trend in the property catastrophe reinsurance industry has been for capital market participants to produce alternative products to compete with the existing catastrophe reinsurance markets. Capital markets participants have structured reinsurance agreements using catastrophe bonds, swaps and other types of derivative instruments to compete with traditional reinsurance. Innovative and sophisticated ways to handle increasingly complex risks continue to emerge and may affect the demand for the Company's products. In the future, the Company may face additional competition from other well- capitalized companies or from market participants that may devote more of their capital to the reinsurance business as well as from the capital markets' entry into insurance and reinsurance investment products. The Company believes that the insurance and reinsurance industries, including reinsurance brokers, will undergo further consolidation and that reinsurers will need significant size and financial strength to compete effectively. Regulation - ---------- Reinsurance companies are generally regulated by the jurisdictions in which they operate: Bermuda - ------- OPL, OPRe, OPAL and OPCat conduct their reinsurance business from their principal offices in Bermuda and are subject to regulation under Bermuda law, which, among other things requires them to register and comply with certain requirements as to capitalization. For purposes of Bermuda insurance law and regulation, each of these reinsurance entities are considered to be engaged in general business; OPL is also considered to be engaged in long-term business. The minimum paid up share capital to be maintained by OPL under Bermuda insurance law and regulations is $370,000, while the other reinsurance companies each require $120,000. 9 In addition, these Bermuda reinsurance companies are individually required to maintain a minimum solvency margin at least equal to the greater of: (i) $1.0 million or (ii) the aggregate of $1.2 million and 15% of the amount by which net premium income from general business exceeds $6 million; or (iii) 15% of the aggregate of accrued losses and loss expense provisions and other general business insurance reserves. The minimum solvency margin surplus for OPL, OPRe, OPAL and OPCat is approximately $18 million, $184 million, $1 million and $8 million, respectively. As of December 31, 2000, OPL, OPRe, OPAL and OPCat had approximately $1.7 billion, $873 million, $27 million and $468 million respectively, of statutory capital and surplus in excess of these requirements. Regulatory approval is required to reduce total statutory capital, as set out in the previous year's statutory financial statements, by more than 15%. Our Bermuda based reinsurance companies must prepare an annual statutory financial return and statutory financial statements in accordance with the requirements of the Bermuda Insurance Act of 1978, amendments thereto and related Regulations, and an annual audit is also required. Each company must also appoint a loss reserve specialist to review and report on its loss reserves on an annual basis. Bermuda insurance law and regulations do not limit the categories of assets in which an insurance company may invest. However, certain categories of assets, such as unquoted equities, investments in and advances to affiliates, real estate and collateral loans, are not "relevant assets" for purposes of complying with the minimum liquidity ratio with respect reinsurance entities' general business activities. The exclusion of these types of assets from the definition of relevant assets does not materially affect our ability to satisfy the minimum liquidity ratio. OPL, OPRe, OPAL and OPCat met these requirements for the years ended December 31, 2000, 1999 and 1998. Our Bermuda based reinsurance companies are not admitted or authorized to conduct business in any jurisdictions except Bermuda. They do not maintain an office or solicit, advertise, settle claims or conduct other insurance activities in any jurisdictions other than Bermuda and therefore are not subject to the insurance regulatory requirements of jurisdictions other than Bermuda. However, the statutory standards adopted by the jurisdictions that regulate the companies to which OPL, OPRe, OPAL and OPCat provide life, property and casualty and other reinsurance affect each of these reinsurance entities indirectly. OPL, OPRe, OPAL and OPCat record all transactions on their statutory accounts in a manner that complies with statutory accounting principles required by the Bermuda Insurance Act of 1978. From time to time, there have been congressional and other initiatives in the United States regarding the supervision and regulation of the insurance industry, including proposals to supervise and regulate foreign reinsurers, such as the Company. While none of these proposals have been adopted to date on either the federal or state level, there can be no assurance that federal or state legislation will not be enacted subjecting OPL, OPRe, OPAL and OPCat to supervision and regulation in the United States, which could have a material adverse effect on the Company. In addition, no assurance can be given that if OPL, OPRe, OPAL and OPCat were to become subject to any laws of the United States or any state thereof or of any other country at any time in the future, they would be compliant with such laws. 10 United States - ------------- OPUS Re is subject to regulation under the insurance laws and regulations of all the jurisdictions where it is licensed or authorized to write reinsurance including Delaware, where it is domiciled. OPUS Re is licensed or otherwise authorized to write reinsurance in all 50 states, the District of Columbia and Puerto Rico. Insurance laws and regulations vary from state to state, but in general grant broad powers to supervisory agencies and officials to examine all insurance and reinsurance companies authorized to do business in their state, enforce rules, and exercise discretion (and impose fines and penalties for violations of regulatory requirements) touching almost every significant aspect of the conduct of the insurance business. As a general rule, most insurance law and regulation focuses on the conduct of an insurance company's relationship with the policyholder and permit a ceding insurer and a reinsurer to negotiate, without material regulatory involvement, the terms and conditions of and rates charged under almost all reinsurance contracts with unaffiliated parties except for the criteria for statutory accounting statement credit for the reinsurance provided by a reinsurer to an insurer domiciled in a given state. Thus, in general, state insurance laws and regulations are primarily designed for the protection of solvency and policyholders (insureds) rather than for the benefit of ceding insurers or investors. Nevertheless, state regulatory authorities do monitor compliance with, and periodically conduct examinations with respect to, state mandated standards of solvency, licensing requirements, investment limitations, restrictions on the net amount of risk that may be retained, deposits of securities for the benefit of insureds, methods of accounting, and reserves for unearned premium, losses and other purposes. While insurers and reinsurers are principally regulated by the states, most insurance and reinsurance companies remain obligated to comply with applicable federal laws such as ERISA, the Financial Modernization Act (Gramm-Leach-Bliley), applicable federal securities laws, and the federal anti-trust laws to the extent not preempted by the McCarran-Ferguson Act. Insurance Holding Company laws and regulations require insurers/reinsurers that are subsidiaries of holding companies to register and file with their state domiciliary regulatory authorities certain reports including the information concerning their capital structure, ownership, financial condition and general business operations. Additionally, these laws and regulations require that all transactions with affiliates meet certain standards including that the terms be fair and reasonable, that prior approval be obtained for certain types of transactions between affiliates, and that prior approval be obtained for the declaration and payment of certain kinds of dividends. These Insurance Holding Company laws and regulations also require prior approval of any change in control of the insurer/reinsurer. In most states, including Delaware, "control" is presumed to exist if 10% or more of the voting securities of the insurer/reinsurer are owned or controlled by a party though the actual existence of control may be established or rebutted where the ownership of voting securities is greater or lesser than that amount. REAL ESTATE AND LEASING SEGMENT - ------------------------------- An important aspect of the Company's previous strategy has been the ownership of income-producing real estate and leasing assets through subsidiaries of OPCC. Prior to 2000, OPCC owned a portfolio of Class A properties in three key U.S. markets: Atlanta, Boston and Chicago. The portfolio consisted of four large office complexes, one office/retail mixed-use development and a large convention hotel. In addition, OPCC owns two properties and other assets that are leased to major companies. In August 2000, OPCC sold two properties, 333 West Wacker Drive in Chicago and One Buckhead Plaza in Atlanta. In the first quarter of 2001, OPCC also sold Madison Plaza in Chicago. We intend to take advantage of other sale opportunities in the real estate market when and as circumstances permit. The proceeds from the sale of properties will be re-deployed into our reinsurance segment. An OPCC subsidiary, Overseas Capital Co. ("OCC") owns all of the limited partnership interests, and all stock of the corporate general partner of KMS II Realty Limited Partnership, a Delaware Limited Partnership ("KMS II"). KMS II owns a 1.5 million square foot regional distribution facility in Manteno, Illinois, which it leases to KMart Corporation. The initial term of the KMart lease expires in 2020 and yearly lease payments are approximately $4.2 million. After the initial term, KMart has the option to extend the lease for ten consecutive terms of five years each. KMart has the option to purchase the KMart facility at the end of the initial term of the lease for a price equal to the fair market value of the KMart facility on that date. 11 Until July 8, 1998, OCC leased five Boeing 757 air package freighters to UPS. The aircraft were sold pursuant to the terms of a purchase option granted to UPS in a May 31, 1990 Aircraft Lease Agreement between the parties. Proceeds from the sale were approximately $202 million, yielding a gain on sale before income taxes of approximately $12 million. There was a fixed component and a variable component to the rent received on the aircraft lease based on the extent to which UPS has utilized the assets. The fixed and variable components of the aircraft lease for 1998 were $9.9 million and $2.5 million respectively. OCC leases its Ramapo Ridge Facility ("the Facility") to United Parcel Service General Services Co. ("GSC"), a subsidiary of UPS, for data processing and telecommunications operations. The Facility is located on approximately 39 acres of land in Mahwah, New Jersey and consists of an office building, computer center, a central service structure and a parking garage with an area of approximately 435,000 square feet. The initial term of the lease expires in 2019. UPS has an option to purchase the Facility, but not the land, at its discretion. OCC is responsible, at its own cost and expense, for the maintenance of the grounds on which the Facility is located and of the walls, roof and structural components of all buildings comprising the facility. GSC is responsible for all other maintenance at the Facility. OCC is responsible, at its own expense, for maintaining insurance on the Facility and certain types of liability insurance. Rent on the Facility has a fixed component and a variable component, based on the extent to which UPS utilizes it. The fixed and variable components of the Facility lease for 2000, 1999 and 1998 are set forth below. For further information regarding the fixed component of rent see Note 7 of the Notes to the Consolidated Financial Statements included in "Item 8 - Financial Statements and Supplementary Data." Lease revenue: - --------------
(in millions) 2000 1999 1998 - -------------------------------------------------------- Fixed component $ 7.3 $ 7.3 $ 7.3 Variable component 11.2 10.6 7.4 - -------------------------------------------------------- $18.5 $17.9 $14.7 - --------------------------------------------------------
The variable component of lease revenues for the Facility increased between 1998 and 1999. This was due to a toll adjustment during 1998 in accordance with the terms of the lease. For further information concerning the lease of the aircraft and the facility see "Item 13 - Certain Relationships and Related Transactions." The acquisition of the aircraft and the Facility were financed by two series of privately placed, fixed rate, non-callable bonds issued by OPL Funding Corp. ("OPL Funding"), incorporated in Delaware a special purpose subsidiary of OCC. One series ("Series A Bonds"), in the principal amount of $171.6 million, is due in 2012; the other ("Series B Bonds"), in the principal amount of $73.4 million, is due in 2019. Overseas Partners Credit, Inc. ("Overseas Credit"), a special purpose subsidiary of OPL incorporated in the Cayman Islands, has guaranteed the principal of these bonds. United States zero-coupon treasury notes owned by it and pledged as security to the Trustee for the bondholders secure Overseas Credit's obligations. On or prior to the scheduled maturity date of each series of bonds, the zero coupon treasury notes will mature in amounts equal to or exceeding the principal amount of the bonds in that series. OPL Funding invested $186.6 million of the proceeds from the sale of the aircraft into United States zero-coupon treasury notes and corporate bonds as substitute collateral for the interest obligations associated with the Series A Bonds. The right to receive fixed minimum rentals on the Facility is used to collateralize and service the debt interest on the Series B bonds. Through a subsidiary, OCC also owns the Marriott Copley Place Hotel in Boston, Massachusetts, purchased in December 1993. This is a 38-story, full service, luxury convention hotel with 1,139 rooms and over 60,000 square feet of meeting and convention space. In 1996, the existing indebtedness on the hotel was refinanced with a 10-year, non-recourse loan in a principal amount of $110.0 million from Metropolitan Life Insurance Company, the principal amount of which was approximately $100.7 million as of December 31, 2000. 12 In August 1996, an OPCC subsidiary acquired the Atlanta Financial Center, a three-tower office complex also located in Atlanta's Buckhead community with 885,889 square feet of rentable office space and a nine-level parking structure. The complex was 96% leased as of December 31, 2000 to a variety of tenants. Indebtedness with respect to this property is a $79.9 million, 10-year, non- recourse loan with The Mutual Life Insurance Company of New York, the principal amount of which was approximately $76.5 million as of December 31, 2000. In December 1996, an OPCC subsidiary purchased a two-thirds partnership interest in a regional retail and office complex, Copley Place, located in the Back Bay area of Boston. The four, seven-story towers have 369,152 rentable square feet of retail space, 846,358 rentable square feet of office space and two parking garages. As of December 31, 2000 occupancy rates on the retail and office spaces were 99% and 97%, respectively. The property was acquired with a non-recourse mortgage indebtedness to Aetna Casualty and Surety Company in the amount of $210 million as of December 31, 1996, including accrued but not deferred interest. The property was refinanced in 1997 with a $195.0 million, 10-year, non-recourse loan from Metropolitan Life Insurance Company, the principal amount of which was approximately $188.4 million as of December 31, 2000. In August 2000 OCC sold One Buckhead Plaza, a 20-story office and specialty retail tower located in Buckhead, Atlanta, Georgia, originally acquired in November 1995. Net sales proceeds were $47.1 million which resulted in a pre-tax gain on sale of $24.3 million. The purchaser of the property assumed the associated debt totaling $32.2 million. In August 2000 a subsidiary of OPCC sold 333 West Wacker Drive situated in Chicago's West Loop and originally acquired in December 1996. Net sales proceeds were $76.1 million which resulted in a pre-tax gain on sale of $25.2 million. The purchaser of the property assumed the associated debt totaling $62.2 million. In February 2001 a subsidiary of OPCC sold Madison Plaza. This property was originally purchased in July 1998 and is located in the West Loop of Chicago's downtown business district. This 45-story Class A office building was 88.9% leased as of December 31, 2000. During 2000 an asset impairment charge was recorded of $37.3 million for Madison Plaza to bring the net book value down to the expected sales value. The net cash proceeds received for the sale of the property were $30.5 million. The purchaser of the property assumed the associated debt totaling $122.3 million. OPCC has its own real estate property management subsidiary, Overseas Management, Inc. ("OMI"). With its own employees and third-party service providers, OMI provides on-site management and leasing to all of OPCC's office and retail properties. In addition to the real estate and leasing properties OPCC holds an investment position in a real estate investment trust. Information concerning identifiable real estate and leasing assets, revenues and net operating income for the years ended 2000, 1999 and 1998 can be found in Notes 7 and 10 of the Notes to the Consolidated Financial Statements included in "Item 8 - Financial Statements and Supplementary Data." Competition - ----------- The commercial real estate industry offers a variety of investment opportunities, each with unique characteristics of type, location, risk and reward. OPCC is currently marketing its existing properties in an environment where most real estate markets have matured. Prospective buyers of properties are much more conservative for reasons which would include limited capital, increased investment return expectations, a perception of a softening economy and increases in supply from new construction and bankruptcies of Internet related companies. Responses to OPCC's marketing of properties have been affected by the slowing in buyer interest and it is reasonable to assume that this trend may continue in the near term. This could result in protracted negotiations and ultimately reduced pricing. One positive for OPCC is that markets typically value "trophy" quality products and virtually all of the remaining properties in the portfolio are positioned as such in their respective markets. This mitigates some pricing risk in that investors appreciate quality properties that are leased to credit-strong tenants. OPCC will not pursue the acquisition of commercial real estate business in the future. 13 TAXATION - -------- Under current Bermuda law, OPL and its Bermuda domiciled insurance subsidiaries ("Bermuda insurance subsidiaries") are not obligated to pay any tax in Bermuda based upon income or capital gains. Pursuant to the income tax treaty between the U.S. and Bermuda, a Bermuda insurance company would be subject to U.S. income tax and U.S. branch profits tax on its income which is attributable to a U.S. permanent establishment. Under current law, U.S. income tax would be imposed at a 35% rate, and the U.S. branch profits tax would be imposed at a 30% rate. Based on the operations of OPL and its Bermuda insurance subsidiaries, OPL believes that neither it nor its Bermuda insurance subsidiaries have a U.S. permanent establishment. Moreover, OPL and its Bermuda insurance subsidiaries intend to conduct their activities so that they will not do business in the U.S. through a permanent establishment. However, as there are no definitive standards provided by the Code, regulations or court decisions concerning what activities constitute a permanent establishment in the U.S., and as the determination is essentially factual in nature, there can be no assurance that the IRS will not contend successfully that either OPL or one or more of the Bermuda insurance subsidiaries has income which is attributable to a U.S. permanent establishment. On December 22, 1998, the IRS issued a Notice of Deficiency with respect to OPL's 1988 through 1990 taxable years in which it asserted that OPL is subject to U.S. taxation in the aggregate amount of approximately $170 million, plus additions to tax and interest, for those years. On March 19, 1999, OPL filed a petition in the U.S. Tax Court contesting the asserted deficiencies in tax and additions to tax in the Notice. On May 18, 1999, the IRS filed its Answer to the Company's Petition. The IRS has also asserted that OPL is subject to U.S. taxation for its 1991 through 1994 taxable years and has proposed an aggregate assessment of $319 million of tax, plus additions to tax and interest, for those years. OPL has filed a Protest against the proposed assessment with the Appellate Division of the IRS with respect to the years 1991 through 1994. The IRS has not proposed an assessment for years subsequent to 1994. However, the IRS may take similar positions for subsequent years pending resolution of the years currently in dispute. OPL believes that it has no tax liability, that it is not subject to U.S. taxation, and that there is substantial authority for its position. It is vigorously contesting the Notice of Deficiency for 1988 through 1990 and will vigorously contest the proposed assessments for 1991 through 1994 and any future assessments. OPL has a number of subsidiaries that are incorporated in the U.S., including OPCC and OPUS Re. Those U.S. companies are subject to U.S. income taxes. Various provisions of the Internal Revenue Code of 1986 (the "Code") provide rules designed to approximate current taxation at the shareowner level with respect to certain kinds of undistributed earnings of foreign corporations owned in whole or part by U.S. residents. Among such provisions are those concerned with "passive foreign investment companies" ("PFICs"), and those concerned with "controlled foreign corporations". If one or more of these provisions were to apply, some or all of the U.S. shareowners of OPL would be liable for federal income taxes with respect to certain of the earnings of OPL, whether or not an amount equal to such earnings was distributed to such shareowners as a dividend. Sections 1291 through 1298 of the Code contain special rules applicable to U.S. shareowners of foreign corporations that are PFICs. In general, a foreign corporation will be a PFIC if 75% or more of its gross income constitutes "passive income" or 50% or more of its assets produce passive income. In general, if a foreign corporation were to be characterized as a PFIC, a U.S. shareowner of the foreign corporation would be subject to a special tax and an interest charge on the amount of an "excess distribution" with respect to the foreign corporation's stock or on the amount of any gain recognized on the disposition of such stock. In addition, certain otherwise tax-free transactions by a U.S. shareowner involving the foreign corporations' stock would be subject to tax, and any gain recognized generally would be recharacterized as ordinary income. In general, a distribution a shareowner receives from a PFIC is an "excess distribution" if the amount of the distribution is more than 125% of the average of the distributions (other than certain excess distributions) with respect to the stock during the three preceding taxable years (or shorter period during which the taxpayer held the stock). 14 The special tax and interest charge generally are designed to capture the value of the deferral in the payment of taxes that are deemed due under the PFIC rules during the period that the U.S. shareowner owned the stock. The special tax is computed by assuming that the excess distribution (or gain in the case of a sale) with respect to the stock was subject to tax in equal portions throughout the U.S. shareowner's period of stock ownership at the highest marginal tax rate, rather than at the time the distribution is received (or gain is recognized). The interest charge is computed using the applicable rate imposed on underpayment of U.S. federal income tax for such period. For PFIC purposes, "passive income" generally includes interest, dividends, annuities and other investment income. The PFIC rules contain an exception from the "passive income" definition for income "derived in the active conduct of an insurance business by a corporation which is predominantly engaged in an insurance business . . . " (the "Insurance Company Exception"). This exception does not apply to income attributable to reserves and capital to the extent such reserves and capital exceed the reasonable needs of an insurance business. In general, if a U.S. shareowner owns stock in a foreign corporation during any taxable year in which such corporation is a PFIC, that stock will be treated as stock in a PFIC for the year in which the corporation is a PFIC and for all subsequent years, even if the corporation is not a PFIC in one or more of those later years. Stock acquired in a foreign corporation that is not a PFIC in the year the stock is acquired should not be treated as stock in a PFIC simply because the corporation issuing the stock was a PFIC in prior years. During the second quarter of 2000, OPL was advised by the IRS of the existence of an internal IRS memorandum that concludes that the shipper's risk reinsurance premiums, which OPL received in years before 2000, were not income of OPL and that the associated investment income was not "active income" for purposes of the PFIC rules. The IRS memorandum is expressly not binding on IRS auditing agents. However, based upon certain assumptions and conclusions therein, the IRS could seek to impose the PFIC rules against OPL's U.S. shareowners who owned OPL stock in one or more past years. It is not known at this time whether the IRS will attempt to do so. If OPL were found to be a PFIC in any year, those U.S. shareowners who held OPL shares in that year would suffer adverse tax consequences under the rules described above with respect to certain dispositions of, and distributions on, the shares. In general, gain realized on the disposition of the shares would not be eligible for capital gain treatment, and such gain as well as certain distributions on the shares would be subject to substantially increased tax costs. In addition, under the PFIC regime, gain generally must be recognized from transactions that otherwise would be entitled to nonrecognition treatment. Under section 951(a) of the Code, each "U.S. 10% shareowner" (as defined below) who owns shares of a controlled foreign corporation ("CFC") (as defined below) at the end of the year must include in its gross income for U.S. federal income tax purposes its pro rata share of the CFC's "subpart F income" earned during the year, even if that income is not distributed. In addition, the U.S. 10% shareowners of a CFC may be deemed to have received taxable distributions to the extent the CFC increases the amount of its earnings that are invested in certain types of U.S. property. "Subpart F income" includes, among other things, (1) "foreign personal holding company income," such as interest, dividends, and other types of passive investment income and (2) "insurance income," which is defined to include any income (including underwriting and investment income) that is attributable to the issuing (or reinsuring) of any insurance or annuity contract and which (subject to certain modifications) would be taxed under the insurance company provisions of the Code if such income were the income of a domestic insurance company absent an applicable exception ("Subpart F Insurance Income"). Under section 951(b) of the Code, any U.S. person who owns 10% or more of the total combined voting power of all classes of stock of a foreign corporation will be considered to be a "U.S. 10% shareowner." In general, a foreign corporation is treated as a CFC only if its U.S. 10% shareowners collectively own more than 50% of the total combined voting power or total value of the corporation's stock on any day. However, for purposes only of taking into account Subpart F Insurance Income, a foreign corporation will be treated as a CFC if (1) more than 25% of the total combined voting power or total value of its stock is owned by U.S. 10% shareowners, and (2) the gross amount of premiums or other consideration in respect of Subpart F Insurance Income exceeds 75% of the gross amount of all premiums or other consideration in respect of all risks. No U.S. shareowner of OPL should be taxed under the general subpart F rules as long as the shareowner does not purchase more than 10% of OPL's stock. 15 A different definition of "controlled foreign corporation" is applicable in the case of a foreign corporation which earns related person insurance income ("RPII"). RPII is defined in section 953(c)(2) of the Code as any "insurance income" attributable to policies of insurance or reinsurance with respect to which the person (directly or indirectly) insured is a "RPII Shareholder" (as defined below) of the foreign corporation or a "related person" to such a shareowner. For purposes only of taking into account RPII, a foreign corporation will be treated as a CFC if its "RPII Shareholders" collectively own, directly, indirectly through foreign entities, or by attribution, 25% or more of the total combined voting power or value of the foreign corporation's shares on any day during the taxable year. The term "RPII Shareholder" includes all U.S. persons who own, directly or indirectly through foreign entities, any amount of the stock of the foreign corporation. Generally, the term "related person" for purposes of the RPII rules means someone who controls or is controlled by the RPII Shareholder or someone who is controlled by the same person or persons which control the RPII Shareholder. The RPII rules do not apply if (i) less than 20% of the voting power and less than 20% of the value of the shares of the foreign corporation are owned, directly or indirectly, by U.S. persons insured or reinsured by the foreign corporation or persons related to such insureds or reinsureds or (ii) the RPII of the foreign corporation, determined on a gross basis, is less than 20% of the corporation's gross income for such taxable year. OPL currently falls within both of these exceptions, and it expects to continue to fall within at least one of these exceptions. Section 1248 of the Code provides that if a U.S. person owns 10% or more of the voting shares of a corporation that is a CFC, any gain from the sale or exchange of the shares may be treated as ordinary income to the extent of the CFC's earnings and profits during the period that the shareowner held the shares (with certain adjustments). Section 953(c)(7) of the Code generally provides that Code section 1248 also will apply to the sale or exchange of any shares in a foreign corporation by any U.S. person who is treated as a U.S. shareowner of the foreign corporation under the RPII rules if the foreign corporation would be taxed as an insurance company if it were a domestic corporation. A U.S. person would be treated as a U.S. shareowner under the RPII rules only for purposes of taking into account RPII. Therefore, OPL believes that any potential application of section 1248 of the Code should be limited to a shareowner's proportionate share of any RPII. Under OPL's current business plan, any RPII OPL earns should be de minimis. It should be noted that Congress has historically sought to broaden the taxation of foreign enterprises owned by U.S. residents, and future legislation could affect the U.S. federal tax treatment of OPL and its shareowners. The U.S. imposes an excise tax at the rate of 1% of gross premiums paid to foreign reinsurance companies for reinsurance covering risks located in the U.S. Reinsurance premiums paid to OPL and its Bermuda reinsurance subsidiaries by U.S. insurers are subject to this excise tax. EMPLOYEES - --------- OPL, directly and through its subsidiaries, has 132 employees, 53 in Bermuda, 47 in Philadelphia, 9 in Atlanta, 20 in St. Louis and 3 in its OMI offices. The Company purchases administrative and other services from a number of suppliers both in the United States and Bermuda. The individuals who provide these outsourced services are not included as employees. See "Item 10 - Directors and Executive Officers of the Registrant". 16 Item 2. Properties - ------- ---------- The Company conducts its business from leased office premises in Bermuda, Philadelphia, Atlanta and St. Louis. These facilities are generally in good condition and are adequate for the requirements of the Company. For a description of the properties held by the Company for its real estate and leasing activities, see "Item 1 - Business - Real Estate and Leasing Segment". Item 3. Legal Proceedings - ------- ----------------- OPL was subject to a tax audit by the IRS for the years 1984 through 1994. Information regarding the tax audit is included in Note 4 of the Notes to Consolidated Financial Statements of "Item 8 - Financial Statements and Supplementary Data". See also "Item 1 - Business - Taxation" for a description of the outcome of past IRS assessments and proposed IRS assessments against the Company. On November 19, 1999 and January 27, 2000, OPL was named as a defendant in two class action lawsuits, filed on behalf of customers of UPS, in Montgomery County, Ohio Court and Butler County, Ohio Court, respectively. The lawsuits allege, amongst other things, that UPS told its customers that they were purchasing insurance for coverage of loss or damage to goods shipped by UPS. The lawsuits further allege that UPS wrongfully enriched itself with the monies paid by its customers to purchase such insurance. The allegations in the lawsuits are drawn from a recent opinion by the United States Tax Court, currently on appeal to the United States Court of Appeals for the Eleventh Circuit, that found that the insurance program, as offered through UPS, several domestic insurance companies, and their related reinsurance agreement with OPL, was not adequate for UPS to avoid liability for federal income tax. The November 19, 1999 and January 27, 2000 actions were removed to federal court and thereafter transferred to the United States District Court for the Southern District of New York and consolidated in a multi-district litigation for pretrial discovery purposes with other actions asserting claims against UPS. Plaintiffs subsequently amended those claims against all defendants to join a RICO claim as well. On August 7, 2000, the Company and its wholly owned subsidiary, OPCC, were added as defendants in a third class action lawsuit, also consolidated in the multi-district litigation, which alleges violations of United States antitrust laws, and state unfair trade practice and consumer protection laws. The Company believes that it has meritorious defenses to all three actions and intends to defend them vigorously. The Company has filed motions to dismiss all of the actions on a number of grounds, including that the antitrust claim fails to state a claim upon which relief can be granted, and that the remaining claims are preempted by federal law. There can be no assurance, however, that an adverse determination of the lawsuits would not have a material effect on the Company. Item 4. Submission of Matters to a Vote of Security Holders - ------- --------------------------------------------------- No matters were submitted to a vote of security holders during the quarter ended December 31, 2000. 17 PART II ------- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters - ------- --------------------------------------------------------------------- Summary of OPL Stock - ---------------------- We are currently authorized to issue 900,000,000 shares of our Common Stock of par value $0.10 per share, of which 127,500,000 shares were issued and 120,123,781 outstanding as of February 28, 2001. We are also authorized to issue 200,000,000 shares of preference stock of par value $.10 per share. At present no shares of preference stock have been issued or are outstanding, nor are there any plans to issue any shares of preference stock in the foreseeable future. Our Common Stock is not listed on a securities exchange and is not traded in the organized over-the-counter markets. Prior to July 21, 1999, units of our Common Stock had been bundled with shares of UPS Common Stock and sold and provided as stock compensation awards to UPS employees under the UPS Managers' Incentive and UPS Stock Purchase Plans ("the UPS Plans"). On July 21, 1999, we suspended the sale of our Common Stock under these Plans following the announcement by UPS of an initial public offering. There were approximately 98,000 record holders of our Common Stock as of February 28, 2001. Voting Rights - ------------- Each share of our Common Stock is entitled to one vote in the election of directors and on other matters, except that any Substantial Stockholder, as defined in our Bye-Laws, is entitled to only one one-hundredth of a vote with respect to each vote which is in excess of 10 percent of our outstanding voting stock. The term Substantial Stockholder is defined to mean any shareowner or shareowners acting as a group, other than UPS or any employee benefit plan of ours or UPS or our subsidiaries, who is the beneficial owner of more than 10 percent of the voting power of our outstanding shares entitled to vote generally in the election of directors. There are no limitations imposed by foreign law, or by our Memorandum of Association and Bye-Laws, or by any agreement or other instrument to which we are a party or to which we are subject, on the right of shareowners, solely by reason of their citizenship or domicile, to vote our Common Stock. Upon liquidation, our shareowners are entitled to share on a pro rata basis in our assets legally available for distribution to shareowners. Transferability of Common Stock - Our Right of First Refusal - ------------------------------------------------------------ Our Bye-Laws provide that no outstanding shares of our voting stock, including shares of our Common Stock, may be transferred, except by bona fide gift or inheritance, unless the shares shall have first been offered, by written notice, for sale to us at the lower of their fair value or the price at which they are to be offered to the proposed transferee and on the same terms upon which they are to be offered to the proposed transferee. Notices of proposed transfers must be sent to our Treasurer, must set forth the number of shares proposed to be sold, the proposed price per share, the name and address of the proposed transferee and the terms of the proposed sale and must contain a statement by the proposed transferee that the information contained in the notice is true and correct. We have the option, within 30 days after receipt of the notice, to purchase all or a portion of the offered shares. If we fail to exercise or waive the option, the shareowner may, within a period of 20 days thereafter, sell to the proposed transferee all, but not part, of the shares that were previously offered to us and not purchased by us pursuant to our option, for the price and on the terms described in the notice. All transferees of shares hold their shares subject to the same restrictions. Shares previously offered to us but not transferred within the 20-day period remain subject to the initial restrictions. Under our Bye-Laws, we have the right to purchase shares of our Common Stock that may be issued as stock dividends, or in stock splits, recapitalizations or reorganizations similar to the rights that we have to purchase the shares on which the dividend, split, recapitalization or reorganization shares were issued. We also have the right to purchase our Common Stock in a number of other circumstances under our Bye-Laws. Shares of our Common Stock may be pledged, but they may not be transferred upon foreclosure unless they have first been offered to us in the manner described above. 18 In addition, any shareowner who is our "affiliate" for purposes of the Securities Act of 1933, could effect a public resale of their shares to a purchaser other than us only upon delivery of an effective prospectus applicable to the resale as permitted by applicable securities laws or upon other compliance with applicable securities laws. We have historically exercised our right of first refusal and held such purchased shares in treasury, pending future distributions as incentive awards to current employees of UPS and OPL. However, as discussed further below, the Board decided to impose a temporary limit on the number of shares the Company is willing to purchase from any shareowner who seeks to sell such shares subsequent to November 23, 1999. Our Purchase Rights - Recall - ---------------------------- We have the right under our Bye-laws to purchase (or "recall") shares of our Common Stock from shareowners following their retirement, death or other termination of employment with UPS, OPL, or any of their respective subsidiaries. We may exercise this right to recall all or a portion of the shares of a former employee at any time within a period of three years or thirteen years following the holder's termination of employment. The purchase price will be the fair value of the shares at the time of purchase. The Company has historically exercised this right of recall each year and held such purchased shares in treasury, pending future distributions as incentive awards to current employees of UPS and OPL. However as discussed further below, the Board decided to defer the recall of our shares that was previously scheduled to take place in January 2000 and January 2001. Our Willingness to Purchase and Recall Shares - ----------------------------------------------- Prior to July 21, 1999, units of our Common Stock had been bundled with shares of UPS Common Stock and had been sold and provided as stock compensation awards to UPS employees under the UPS Plans. Previously, we purchased shares from those shareowners wishing to sell (under our Right of First Refusal) and recalled shares from those shareowners who had ceased to be employees of UPS and OPL. We held such shares as treasury pending distribution as future awards under the UPS Plans. On July 21, 1999, we suspended the sale of our Common Stock under the UPS Plans following the announcement by UPS of its initial public offering. This suspension reduced the amount of our Common Stock that we required for our treasury. As such, on October 12, 1999 the Board of Directors decided to defer the recall of our shares that was previously scheduled to take place in January 2000 and January 2001. This deferral does not affect our rights to recall those and other shares in subsequent years. On November 23, 1999 the Board announced that it would limit the number of shares of our Common Stock that we were willing to purchase from any shareowners seeking to sell such shares between November 23, 1999 and November 1, 2000. During such period, we were willing to purchase up to 10% of the shares of our Common Stock held by any shareowner as of November 23, 1999. On November 1, 2000 the Board announced that it would similarly limit the number of shares that we would be willing to purchase from any shareowners seeking to sell such shares between November 1, 2000 and December 31, 2001. Accordingly, during such period, we will be willing to purchase up to 10% of the shares of our Common Stock held by any shareowner as of November 1, 2000. This means that if a shareowner of record as of November 1, 2000 subsequently transfers shares to another party, then the Company will not purchase any of these shares from the transferee since the transferee will not have been a shareowner of record as of November 1, 2000. Between November 23, 1999 and November 1, 2000 the Company purchased 2.92 million shares from 3,020 shareowners for a total cost of $55.9 million. Between November 1, 2000 and February 28, 2001 the Company purchased 1.60 million shares from 2,991 shareowners for a total cost of $27.1 million. In the aggregate we are willing to purchase approximately $180 million worth of our shares during the period from March 1, 2001 to December 31, 2001. Although no determination has been made, the Board expects that the 10% limitation on share purchases by the Company will continue for years subsequent to 2001 on an annual basis. However, because of our need to maintain 19 a strong and stable capital base, we could, at any time, revise our policy on share purchases from shareowners and impose further limitations on the number of shares of our Common Stock that we will purchase from any shareowner seeking to sell shares. As a result, there can be no assurance of the continuation of our willingness to purchase shares from shareowners who wish to sell shares. Dividend Policy - --------------- The declaration and payment of dividends is at the discretion of the Board of Directors and depends on many factors, including our earnings, financial condition, business needs, capital and surplus requirements of our operating subsidiaries and legal and regulatory considerations. The ability of our reinsurance subsidiaries to pay dividends to us and our ability to pay dividends to our shareowners are subject to the maintenance of minimum solvency and liquidity margins as required by Bermuda insurance law. It is the intent of our Board to consider the payment of a dividend semi- annually in an amount to be determined on the basis of our earnings, financial condition and capital needs. We declared and paid two cash dividends each in the amount of $0.60 per share in 2000 and one cash dividend of $1.20 per share in 1999. On February 22, 2001 the Board declared a semi-annual dividend of $0.45 per share for shareowners of record at the close of business on that day. To preserve our capital we must review and amend our current dividend policy. We have historically paid a dividend that yields approximately 5% to 6% of the value of our shares. This dividend policy was predicated on the highly profitable and predictable cash flow characteristics of the shipper's risk program. Following the programs cancellation, it is important that future dividends reflect the new circumstances of the company, including, but not limited to, current profitability, availability of cash resources, capital needs and rating agency requirements. Dividends paid by us on shares of our Common Stock to persons residing in the United States will be subject to United States federal income taxes to the same extent that the dividends would be taxable if paid by a domestic corporation, but without the dividend received deduction available to corporations. Similar treatment is likely to be accorded under applicable state law. There are no applicable tax treaties or Bermuda laws, decrees or regulations that would adversely affect our payment or remittance of dividends, require withholding for tax purposes or restrict the export or import of capital. Determination of Fair Value - --------------------------- We currently purchase shares from our shareowners at their fair value as determined by the Board of Directors. The current fair value of $17.00 per share was determined by our Board of Directors at their meeting on February 21 and 22, 2001. Prior to November 23, 1999 we purchased, recalled and issued shares at book value as determined by our annual audited consolidated balance sheet. 20 In determining the fair value, the Board considers a variety of factors, including past and current earnings and cash flow, the present value of discounted projected future earnings and cash flow, the stock price, earnings and book value of comparable companies, industry considerations, liquidity, debt-to-equity ratios and industry multiples as well as opinions furnished from time to time by investment counselors acting as independent appraisers. In its determination of the price to be paid for our stock, the Board has not followed any predetermined formula. It has considered a number of formulas commonly used in the evaluation of securities of closely held and publicly held companies, but its decisions have been based primarily on the judgment of the Board as to our long-range prospects rather than what the Board considers to be short-range trends relating to our company or to the values of comparable companies. The Board does consider factors generally affecting the market prices of publicly traded securities within the reinsurance market, and prolonged changes in those prices could have an effect on the prices offered by us. One factor in determining the price at which securities trade in the organized securities markets is that of supply and demand. When demand is high in relation to the shares that investors seek to sell, prices tend to increase, while prices tend to decrease when demand is low in relation to shares being sold. Our Board of Directors does not give significant weight to supply-demand considerations in determining the price to be paid by us for our shares. The Board will evaluate the fair value on a semi-annual basis, with evaluations occurring in February and August of each year. The following table reflects the price at which we have purchased shares of Common Stock since January 8, 1998: Date Price ----------------------------------------------------------- January 8, 1998 to January 7, 1999 (Book Value) $17.00 January 8, 1999 to November 22, 1999 (Book Value) $19.84 November 23, 1999 to August 9, 2000 (Fair Value) $21.50 August 10, 2000 to present (Fair Value) $17.00 Custody Arrangements for Certificates of OPL Common Stock - --------------------------------------------------------- Each shareowner may elect to have First Union National Bank hold his or her certificates as custodian without cost to the shareowner. First Union's Employee Shareholder Service Department is located in Philadelphia, Pennsylvania and can be contacted at the following address: First Union National Bank Employee Shareholder Services Corporate Trust Department P.O. Box 41784 123 South Broad Street Philadelphia, PA 19101-1784 (www.firstunion.com\ess\) - ------------------------- Phone: (215) 985-8569 Toll Free: (888) 663-8325 If a shareowner elects to have First Union hold the shares of Common Stock in custody, First Union will have the shares registered in its name and will sell or otherwise dispose of the shares only upon the shareowner's instruction and in conformity with our Bye-Laws. Dividends and other distributions on Common Stock held in custody will be promptly remitted by First Union to the shareowner. Shareowners will receive periodic statements of the number of shares held by First Union for their account and of dividends paid on those shares. Notice of any regular or special meeting of our shareowners will be forwarded to shareowners by First Union, which will vote the shares as directed by the shareowner or, on request, furnish the shareowner with a proxy thus permitting the shareowner to vote the number of shares of Common Stock held for him or her at the meeting. 21 Item 6. Selected Financial Data - ------- ----------------------- The following selected financial information should be read in conjunction with OPL's consolidated financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" which follow this section. Reference is also made to "Item 1-Business-Real Estate and Leasing Segment" for a discussion of the purchases, sales and financing of real estate and leasing assets. All currency amounts herein are expressed in U.S. dollars. Five-Year Selected Financial Data (In thousands U.S.$, except per share amounts)
Income Statement Data: - --------------------- Years Ended December 31, 2000 1999 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------- Revenue: Gross reinsurance premiums written $ 563,553 $ 845,023 $ 923,623 $ 720,535 $561,386 - ----------------------------------------------------------------------------------------------------------------- Reinsurance premiums earned 586,016 807,709 746,918 639,071 531,088 Reinsurance commission income 5,621 5,574 6,090 495 - Real estate and leasing 273,822 273,136 255,075 248,580 150,741 Gain on disposal of assets 49,496 - 11,795 - - Investment (loss) income (32,473) 314,933 245,211 247,431 165,981 - ----------------------------------------------------------------------------------------------------------------- Total revenue 882,482 1,401,352 1,265,089 1,135,577 847,810 - ----------------------------------------------------------------------------------------------------------------- Net (loss) income (557,916) 232,795 488,297 477,115 401,225 - ----------------------------------------------------------------------------------------------------------------- Basic and diluted net (loss) income per share (4.53) 1.85 3.87 3.64 2.97 - ----------------------------------------------------------------------------------------------------------------- Cash dividends per share 1.20 1.20 1.04 0.90 0.72
Balance Sheet Data: - ------------------ December 31, 2000 1999 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------- Cash and investments $2,866,743 $2,942,913 $2,609,444 $2,176,893 $1,873,028 - ----------------------------------------------------------------------------------------------------------------- Assets: Reinsurance $3,278,838 $3,389,636 $2,860,571 $2,249,045 $1,769,144 Real estate and leasing $1,298,746 $1,525,646 $1,507,772 $1,418,624 $1,423,027 - ----------------------------------------------------------------------------------------------------------------- Total assets $4,577,584 $4,915,282 $4,368,343 $3,667,669 $3,192,171 - ----------------------------------------------------------------------------------------------------------------- Short-term debt $ 135,000 $ - $ - $ - $ - - ----------------------------------------------------------------------------------------------------------------- Long-term debt $ 761,943 $ 866,144 $ 875,684 $ 758,416 $ 713,790 - ----------------------------------------------------------------------------------------------------------------- Members' equity $1,778,005 $2,547,383 $2,524,669 $2,227,162 $1,922,797 - ----------------------------------------------------------------------------------------------------------------- Net book value per share $ 14.70 $ 20.48 $ 19.84 $ 17.00 $ 14.24
22 Item 7. Management's Discussion and Analysis of - ------- --------------------------------------- Financial Condition and Results of Operations --------------------------------------------- RESULTS OF OPERATIONS - --------------------- 2000 Compared to 1999 - ---------------------
(In thousands U.S.$) 2000 1999 - ----------------------------------------------------------------------- Gross premiums written $ 563,553 $ 845,023 Premiums ceded (62,868) (25,340) - ----------------------------------------------------------------------- Net premiums written 500,685 819,683 Change in unearned premiums 85,331 (11,974) - ----------------------------------------------------------------------- Premiums earned 586,016 807,709 Commission income 5,621 5,574 - ----------------------------------------------------------------------- 591,637 813,283 - ----------------------------------------------------------------------- Losses and loss expenses (955,286) (759,231) Commissions and taxes (145,341) (120,256) - ----------------------------------------------------------------------- (1,100,627) (879,487) - ----------------------------------------------------------------------- Underwriting loss (508,990) (66,204) - ----------------------------------------------------------------------- Investment (loss) income: U.S. equities (69,731) 196,488 Emerging markets (71,535) 116,983 Fixed income 29,048 (55,843) Multi-manager funds 22,492 31,863 Other 18,645 12,652 Expenses (4,938) (6,197) - ----------------------------------------------------------------------- Investment (loss) income (76,019) 295,946 - ----------------------------------------------------------------------- - ----------------------------------------------------------------------- Reinsurance (loss) income $ (585,009) $ 229,742 - -----------------------------------------------------------------------
The Company was originally formed to provide shipper's risk reinsurance covering customer packages shipped by UPS. The program was cancelled effective October 1, 1999, following an adverse tax opinion issued against UPS earlier that year. This had historically been our largest reinsurance program, generating up to $380 million and $240 million of annual premium revenue and net underwriting income, respectively. The shipper's risk program was significant to the Company, not only because of the magnitude of the underwriting income, but also because its unique characteristics influenced our prior strategic and operational decision-making. Our long-term investment philosophy, our underwriting risk tolerance and our real estate diversification were all closely related to management's perceptions of the profitability, stability and liquidity of the shipper's risk program. Following the cancellation, management, in conjunction with independent consultants, performed a thorough assessment of our business operations, product lines and opportunities for future growth. As part of our second quarter review process we, and our independent actuaries, also completed a further evaluation of our reserve for accrued losses and loss expenses. In addition to the loss of the shipper's risk program our results for the year ended December 31, 2000 reflect the results of our operational review, including: . a charge to earnings totaling $460 million during the second quarter of 2000, representing reserve strengthening and the write-off of irrecoverable deferred acquisition costs, . the discontinuation of our property (non-catastrophe) and marine lines of business in the first quarter of 2000, and . the cancellation of ten programs in the accident & health, aviation, marine and multi-line lines of business, also during the first quarter of 2000. 23 The reserve strengthening related primarily to accident & health, aviation, multi-line, marine and property programs written during 1997 to 1999. The charge to earnings included $30.4 million of irrecoverable deferred acquisition costs for estimated premium deficiencies on the unexpired portion of policies in force. The reserve strengthening reflected significant additional claims reported to the Company in the second quarter and our assessment of prevailing conditions in the reinsurance market, including industry announcements that indicated deterioration in loss estimates for 1999 storms and other large industry events. As a result of the above, our reinsurance segment experienced an underwriting loss of $509.0 million for the year ended December 31, 2000 compared to a loss of $66.2 million in 1999. The 1999 results included reserve strengthening adjustments of $223 million. Gross reinsurance premiums written decreased by $281.5 million for the year ended December 31, 2000 compared with the prior year, primarily due to the loss of the shipper's risk reinsurance business and the non-renewal of a number of programs in the accident & health, aviation, marine and multi-line lines of business, as discussed earlier. The shipper's risk business had generated $273.5 million of premiums written in 1999, prior to its cancellation effective October 1, 1999. The non-renewal of the accident & health, aviation, marine and multi-line programs contributed $182.3 million to the decrease in premiums written during the year ended December 31, 2000 when compared to the prior year. We also cancelled a number of existing property programs with premiums written of $70.5 million to avoid an aggregation of exposure with the new property catastrophe risks written for the first time in 2000. We started to write property catastrophe business as we believe that the risk-return characteristics will be more favorable, over the long-term, than from prior property programs. This new property catastrophe business generated premiums written of $82.5 million for the year ended December 31, 2000. We wrote 21 new programs with premiums of $180.3 million during the year ended December 31, 2000 compared with 17 new programs yielding premiums of $129.3 million in 1999. Six of the programs written in 1999, with premiums of $54.2 million, were not renewed in 2000. Accident & health, finite risk and aviation were the largest contributors to the increase in new business. Revisions to original premium estimates reduced premiums written by $38.2 million for the year ended December 31, 2000 compared to a reduction of $9.4 million for the year ended December 31, 1999. Renewals accounted for $336.6 million of premiums written during the year ended December 31, 2000 compared with $450.6 million during the year ended December 31, 1999. Premiums ceded increased to $62.9 million for the year ended December 31, 2000, compared to $25.3 million for the prior year. This follows our purchase of several layers of excess of loss protection for the aviation book of business. The reinsurance protection provides coverage of $77.0 million in excess of $3.0 million for a single loss event. In addition we purchased additional common account protection on our new accident & health programs and entered into a quota share retrocession of our property catastrophe business. Premiums earned decreased by $221.7 million for the year ended December 31, 2000 compared with the prior year, primarily as a result of the loss of the shipper's risk reinsurance and the factors discussed above. Despite the decrease in premiums earned for the year ended December 31, 2000, commissions and taxes increased to $145.3 million from $120.3 million during the same period last year. The increase relates primarily to the expensing of $30.4 million of deferred acquisition costs that are not expected to be recoverable as a result of anticipated underwriting losses arising from unexpired policies. Our combined ratio, which is the ratio of the sum of losses, loss expenses, commissions, taxes and other underwriting expenses to earned premiums increased to 194.6% for the year ended December 31, 2000 from 108.9% for 1999. Net underwriting loss for the year ended December 31, 2000 was $509.0 million compared to $66.2 million for 1999. This increase in underwriting loss of $442.8 million and increase in the combined ratio was principally due to two factors: . a charge to earnings totaling $460 million during the second quarter, representing reserve strengthening and the write-off of irrecoverable deferred acquisition costs, as discussed earlier, compared with reserve strengthening adjustments of $223 million in the third and fourth quarters of 1999, and 24 . the cancellation of the shipper's risk program which contributed underwriting income in 1999 of $213.5 million. The Company provided retrocessional reinsurance to a reinsurer that has commenced an arbitration to rescind its own reinsurance contract with the primary carrier, principally on the grounds that the primary carrier did not fully disclose the risks to be covered by the reinsurance contract. That contract is expected to be unprofitable. Thus, if the reinsurer succeeds in the arbitration it will be relieved of any obligation to pay losses under its contract and therefore would not cede to the Company any share of those losses. The arbitration is at an early stage and will likely take many months to resolve. As such, it is too early to determine whether the arbitration decision is likely to be in the reinsurer's favor and therefore benefit OPL as its retrocessionaire. The Company continues to reserve for losses and loss expenses without regard to any possibility that the reinsurer's contract will be rescinded. Our investment policies are designed to achieve enhanced returns to shareowners, measured over conventional medium to long-term market cycle periods. Amid continued volatility in worldwide bond and equity markets, net investment losses related to our reinsurance segment for the year ended December 31, 2000 were $76.0 million, compared to gains of $295.9 million for 1999. Net investment income includes both realized and unrealized gains and losses on investments. Our U.S. S&P 500 based equity portfolio, which closely tracks the index, decreased by 9.2% for the year ended December 31, 2000 generating losses of $69.7 million as compared to gains of $196.5 million in 1999. Our emerging markets equity portfolio lost 29.2% for the year ended December 31, 2000, or $71.5 million, as compared to a gain of $117.0 million in 1999. Our global bond portfolio earned 5.1% or $29.0 million for the year compared to a loss of $55.8 million in 1999, primarily due to a late year strengthening of the euro. Our U.S. strategic income portfolio, which is a combination of fixed income strategies, returned $22.5 million or 4.3% for the year compared to $31.9 million in 1999. Cash and cash equivalents earn 3 month CD rates which approximated 6.7% for 2000. 25 Real Estate and Leasing - -----------------------
(In thousands U.S.$) 2000 1999 - ------------------------------------------------------------------------ REVENUE: Office buildings $144,615 $150,218 Hotel 107,055 101,208 Leasing 22,152 21,710 Gain on sale of office buildings 49,496 -- - ------------------------------------------------------------------------ 323,318 273,136 - ------------------------------------------------------------------------ EXPENSES: Operating expenses 150,680 145,388 Interest expense 69,563 71,533 Depreciation and impairment expense 72,931 36,446 Minority interest in earnings 3,867 3,029 - ------------------------------------------------------------------------ 297,041 256,396 - ------------------------------------------------------------------------ Operating income 26,277 16,740 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ Investment income: Real estate investment trust certificates 17,598 (5,342) Other 21,010 18,132 - ------------------------------------------------------------------------ Investment income 38,608 12,790 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ Real estate and leasing income $ 64,885 $ 29,530 - ------------------------------------------------------------------------
Office building revenue decreased by 3.7% for the year ended December 31, 2000 from $150.2 million for 1999. The decrease of $5.6 million was primarily due to reductions in revenue following the sales of 333 West Wacker Drive and One Buckhead Plaza in August 2000, offset in part by increased revenue at Copley Place. Hotel revenue increased $5.8 million due to an increase in room and occupancy rates over 1999. Leasing revenue has increased from $21.7 million in the year ended December 31, 1999 to $22.2 million in the year ended December 31, 2000 primarily due to a $0.6 million increase in variable toll lease revenue of the Ramapo Ridge data processing facility as a result of an inflationary increase in rates and an increased volume of accounts processed. In August 2000 we sold two of our office buildings. The net cash proceeds received were $123.2 million. The purchasers of both properties assumed the associated debt totaling $94.5 million. For 333 West Wacker Drive we received net proceeds of $76.1 million and for One Buckhead Plaza we received $47.1 million. This resulted in pre-tax gains on sale of $25.2 million and $24.3 million, respectively. We continue to review our strategic positioning in the real estate market and intend to take advantage of other sale opportunities when and as circumstances permit. The proceeds from the sale of properties will be re-deployed into our reinsurance segment. Operating expenses have increased by $5.3 million primarily due to increases at the hotel and additional real estate taxes at Copley Place, offset by reductions in operating expenses following the sales of 333 West Wacker Drive and One Buckhead Plaza. The increase in operating expenses at the hotel is primarily due to higher cost of sales as a result of increased revenues and annual wage increases. Depreciation expense for the year ended December 31, 2000 increased to $72.9 million from $36.4 million in 1999. The increase is primarily due to a $37.3 million asset impairment charge recorded in order to reduce the net book value of Madison Plaza to its estimated net realizable value, as this property is held for sale. As discussed below, Madison Plaza was sold in the first quarter of 2001. Investment income for the year ended December 31, 2000 increased to $38.6 million from $12.8 million in 1999. The increase is primarily as a result of a significant increase in the value of the real estate investment trusts. Real estate and leasing income for the year ended December 31, 2000 increased by $35.4 million over 1999 primarily due to gains on the sales of 333 West Wacker Drive and One Buckhead Plaza and increased investment income, offset in part by the asset impairment charge recorded for Madison Plaza. 26 Net Income - ----------
(In thousands U.S.$) 2000 1999 ------------------------------------------------------------------------------------------------- NET (LOSS) INCOME BEFORE TAXES Reinsurance $(585,009) $229,742 Real estate and leasing 64,885 29,530 Other operating expenses (17,695) (15,345) ------------------------------------------------------------------------------------------------- Consolidated net (loss) income before taxes (537,819) 243,927 Income taxes (20,097) (11,132) - -------------------------------------------------------------------------------------------------- Net (loss) income $(557,916) $232,795 - --------------------------------------------------------------------------------------------------
For the year ended December 31, 2000, we experienced a net loss of $557.9 million compared to net income of $232.8 million in 1999. This decrease was primarily attributable to the comparatively poorer performance of the investment markets, the second quarter reserve strengthening and the loss of the shipper's risk program. Net income from shipper's risk for the year ended December 31, 2000 and 1999 was $nil and $213.5 million, respectively. Other operating expenses include goodwill, legal expenses and other corporate overheads. The tax charge increased significantly from 1999 due to the tax on the gains on sales of the office buildings. Net loss per share for the year ended December 31, 2000 was $4.53, compared to net income per share of $1.85 for 1999. 1999 Compared to 1998 - --------------------- Reinsurance - ------------
(In thousands U.S.$) 1999 1998 ------------------------------------------------------------------------------- Gross premiums written $ 845,023 $ 923,623 Premiums ceded (25,340) (14,628) ------------------------------------------------------------------------------- Net premiums written 819,683 908,995 Change in unearned premiums (11,974) (162,077) ------------------------------------------------------------------------------- Premiums earned 807,709 746,918 Commission income 5,574 6,090 ------------------------------------------------------------------------------- 813,283 753,008 ------------------------------------------------------------------------------- Losses and loss expenses (759,231) (404,328) Commissions and taxes (120,256) (100,332) ------------------------------------------------------------------------------- (879,487) (504,660) ------------------------------------------------------------------------------- Underwriting (loss) income (66,204) 248,348 ------------------------------------------------------------------------------- U.S. equities 196,488 209,172 Emerging markets 116,983 (57,127) Fixed income (55,843) 83,561 Multi-manager funds 31,863 6,495 Other 12,652 1,897 Expenses (6,197) (4,762) ------------------------------------------------------------------------------- Investment income 295,946 239,236 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Reinsurance income $229,742 $487,584 -------------------------------------------------------------------------------
Gross reinsurance premiums written decreased by $78.6 million for the year ended December 31, 1999 from $923.6 million for 1998. Premiums from 17 new programs totaled $129.3 million with the largest contributors being multi-line and property programs with $36.3 million and $51.2 million, respectively. Premiums from renewed programs increased by $116.8 million. These increases were offset by the cancellation of the shipper's risk program and programs that were not renewed which decreased premiums written by a total of $315.5 million. Premiums from the shipper's risk program decreased by $98.3 million to $273.5 million compared to $371.8 million in the prior year. The majority of this decrease was as a result of the shipper's risk cancellation and the Company declining to renew several accident & health, aviation and property programs, as they did not meet the Company's return requirements. 27 Reinsurance premiums earned increased by $60.8 million for the year ended December 31, 1999 as a result of the growth in volume of business written in the second half of 1998 and during 1999. Net underwriting income decreased by $314.6 million for the year ended December 31, 1999. While our premiums earned increased by 8.1%, the overall combined ratio also increased from 67.6% to 108.9%. These changes are due to several factors, including: . adverse development of $126.7 million in the third and fourth quarters of 1999 relating primarily to two programs written in 1998, plus a further $96.3 million of underwriting losses on premiums earned on these programs subsequent to 1998. . cancellation of the shipper's risk program, effective October 1, 1999. This program contributed $213.5 million and $241.8 million to underwriting income for the years ended December 31, 1999 and December 31, 1998, respectively. . a change in the mix of business. Specifically, the new programs have lower margins than the traditional shipper's risk business, which accounted for 33.9% of the premiums earned in 1999 compared to 49.8% of the premiums earned in 1998. . lower margins across most lines of business as a result of continued competitive pressures on premium rates. Net investment income relating to our reinsurance segment for the year ended December 31, 1999 was $295.9 million compared to $239.2 million for the year ended December 31, 1998. This reflects a total return on our portfolio of 13.2% compared to 12.2% in 1998. Despite rising interest rates, our S&P 500 based equity portfolio returned 21.9% for the year ended December 31, 1999, generating $196.5 million as compared to $209.2 million in 1998. Our emerging markets equity portfolio returned 62.5% for the year ended December 31, 1999, generating $117.0 million as compared to a loss of $57.1 million in 1998. The global bond portfolio lost 9.5% for the year ended December 31, 1999, or $55.9 million, as compared to a gain of $83.6 million in 1998. Our strategic income multi-manager fund, which is a combination of U.S. income strategies, returned 7.8% for the year ended December 31, 1999, generating $31.9 million compared to $6.5 million in 1998. 28 Real Estate and Leasing - -----------------------
(In thousands U.S.$) 1999 1998 - ------------------------------------------------------------------------- REVENUE: Office buildings $150,218 $130,209 Hotel 101,208 93,886 Leasing 21,710 30,980 Gain on sale of aircraft -- 11,795 - ------------------------------------------------------------------------- 273,136 266,870 - ------------------------------------------------------------------------- EXPENSES: Operating expenses 145,388 136,604 Interest expense 71,533 65,632 Depreciation expense 36,446 35,392 Minority interest in earnings 3,029 2,822 - ------------------------------------------------------------------------- 256,396 240,450 - ------------------------------------------------------------------------- Operating income 16,740 26,420 - ------------------------------------------------------------------------- Investment income: Real estate investment trust certificates (5,342) (12,641) Other 18,132 13,854 - ------------------------------------------------------------------------- Investment income 12,790 1,213 - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- Real estate and leasing income $ 29,530 $ 27,633 - -------------------------------------------------------------------------
Office building revenue increased by 15.4% for the year ended December 31, 1999 from $130.2 million for 1998. This increase of $20.0 million was primarily due to the July 1998 purchase of Madison Plaza, a 45-story Class A office building located in Chicago's Central Business District. Hotel revenue increased $7.3 million due to an increase in room rates and occupancy rates over 1998. Leasing revenue has decreased from $31.0 million in 1998 to $21.7 million in 1999 due to the sale of five Boeing 757 aircraft to UPS in July 1998. Operating expenses increased by $8.8 million for the year ended December 31, 1999 due to the purchase of Madison Plaza and an increase in operating costs at the hotel and Copley Place. Interest expense increased by $5.9 million from 1998 due to the purchase of Madison Plaza. Interest expense includes the expense associated with the Series A bonds that were used to finance the original acquisition of the aircraft. The proceeds from the sale of the aircraft were invested in zero coupon U.S. treasury notes and corporate bonds to provide collateral for the future interest obligations. Other investment income increased due to amortization on the zero coupon U.S. treasury notes and corporate bonds held as substitute collateral for the interest obligation on the Series A bonds. Real estate and leasing income for the year ended December 31, 1999 increased by $1.9 million over 1998, as a result of increased investment income and improvements in the profitability of the hotel and Copley Place. This was offset by the gain on sale of Boeing 757 aircraft in 1998 that yielded an $11.8 million gain in that year. 29 Net Income - ----------
(In thousands U.S.$) 1999 1998 - --------------------------------------------------------------------- NET INCOME BEFORE TAXES Reinsurance $229,742 $487,584 Real estate and leasing 29,530 27,633 Other operating expenses (15,345) (16,011) - ---------------------------------------------------------------------- Consolidated net income before taxes 243,927 499,206 Income taxes (11,132) (10,909) - ---------------------------------------------------------------------- Net income $232,795 $488,297 - ----------------------------------------------------------------------
Net income for the year ended December 31, 1999 decreased by $255.5 million from 1998 due to the decrease in underwriting income from $248.3 million to a loss of $66.2 million. This was due to the loss of the shipper's risk program, adverse development on programs written in 1998 and continued competitive pressures on premium rates. This was partially offset by an increase in investment income. Net income per share was $1.85, a $2.02 per share decrease from 1998 as a result of the aforementioned factors. Liquidity and Capital Resources - ------------------------------- Our cash and cash equivalents increased by $64.8 million during the year ended December 31, 2000 compared to an increase of $279.5 million in 1999. Operating activities generated $90.9 million, investing activities generated $64.6 million and financing activities used $90.6 million compared to generating $497.3 million, $5.8 million and using $223.5 million, respectively, in 1999. Reinsurance operations used $56.3 million for the year ended December 31, 2000 compared to an inflow of $231.0 million in 1999. This was largely due to the loss of the positive cash flow from the shipper's risk program and an increase in loss payments on accident & health, marine and multi-line programs. Real estate operations generated $38.1 million for the year ended December 31, 2000 compared to $42.7 million in 1999. We received $70.4 million of interest and dividends, purchased $942.7 million of traded investments and sold $1,005.1 million of investments in our trading portfolio compared to $59.6 million, $905.7 million and $1,085.1 million, respectively, in 1999. We also purchased $86.3 million of investments that are available-for-sale and sold $49.9 million of investments in our available-for- sale portfolio in 2000. Our real estate investing activities produced net cash inflow of $123.2 million following the sale of two office buildings, 333 West Wacker Drive and One Buckhead Plaza. The purchasers of both properties assumed the associated existing debt of $94.5 million. We intend to take advantage of other sale opportunities in the real estate market when and as circumstances permit. The proceeds from the sale of properties will be re-deployed into our reinsurance segment. As of December 31, 2000 the Company has $135 million of short-term debt that was obtained by OPCC which used the proceeds to provide temporary working capital. Proceeds from the sale of Madison Plaza in the first quarter of 2001, which amounted to $30.5 million, were used to repay this loan. It is anticipated that this loan will be completely repaid with the proceeds from the sale of Atlanta Financial Center. This debt is unsecured but is subject to various covenants. The most significant of these covenants is that the consolidated members' equity of the Company must be at least $1.7 billion at the end of each quarter. During the year ended December 31, 2000 the Company complied with all debt covenants. We have paid two dividends each in the amount of $0.60 per share in the year ended December 31, 2000 resulting in a total cash outflow of $148.3 million compared to one dividend of $1.20 per share totaling $152.9 million in 1999. During the year ended December 31, 2000 we purchased $63.2 million of shares from our shareowners. During 1999 we purchased $172.4 million of shares from our shareowners and received $115.2 million from issuance of shares. 30 In November 1999, the Board announced that it would limit the number of shares of our Common Stock that we were willing to purchase from any shareowners seeking to sell such shares between November 23, 1999 and November 1, 2000. During such period, we were willing to purchase up to 10% of the shares of our Common Stock held by any shareowner as of November 23, 1999. The Board recently decided to similarly limit the number of shares that we would be willing to purchase from any shareowners seeking to sell such shares between November 1, 2000 and December 31, 2001. Accordingly, during such period, we will be willing to purchase up to 10% of the shares of our Common Stock held by any shareowner as of November 1, 2000. This means that if a shareowner of record as of November 1, 2000 subsequently transfers shares to another party, then the Company will not purchase any of these shares from the transferee since the transferee will not have been a shareowner of record as of November 1, 2000. Although no determination has been made, the Board expects that the 10% limitation on share purchases by the Company will continue for years subsequent to 2001 on an annual basis. However, because of our need to maintain a strong and stable capital base, we could, at any time, revise our policy on share purchases from shareowners and impose further limitations on the number of shares of our Common Stock that we will purchase from any shareowner seeking to sell shares. As a result, there can be no assurance of the continuation of our willingness to purchase shares from shareowners who wish to sell shares. Our investment policies are designed to achieve enhanced returns to shareowners, measured over conventional medium to long-term market cycle periods. Our fixed income portfolio comprises highly liquid debt securities of governments, supranationals, government agencies, financial institutions and utilities. Our U.S. and emerging markets equity portfolios are comprised of stocks drawn mainly from within the S&P 500 Index and the IFC Index. Because the liquidity of our investments permits us to respond quickly to changing market conditions, our investments are not significantly affected by inflation. Inflation, including damage awards and costs, can substantially increase the ultimate cost of claims in certain types of insurance. This is because the actual payment of claims may take place a number of years after the provisions for losses are reflected in the financial statements. We will, on the other hand, earn income on the funds retained for a period of time until eventual payment of a claim. Despite the loss of our shipper's risk reinsurance business, we believe that our investments, cash flow from operations and borrowing ability are adequate sources of capital and liquidity for the payment of claims, operating expenses and dividends and for share repurchases. We further believe that our strong capital position will permit expansion of our reinsurance business, should appropriate opportunities arise. In the event we decide to purchase additional capital assets, we may, as demonstrated by our existing portfolio of assets, finance such purchases from internally generated funds or from outside borrowing which we believe would be readily available to us. Credit Risk Disclosures - ----------------------- Credit risk represents the loss that would occur if a counterparty or issuer failed to perform its contractual obligations. Certain policies and procedures have been established to protect the Company against such losses from its investments or receivables. Controlling duration of the investment portfolio by limiting tracking error to known benchmarks, placing limits on exposure to any one counterparty and mandating minimum credit ratings all serve to control the credit exposure associated with the Company's financial instruments. Subsequent Event - ---------------- In February 2001 we completed the sale of Madison Plaza for net cash proceeds of $30.5 million. The purchaser of the property assumed the associated existing debt of $122.3 million. 31 Item 7A. Quantitative and Qualitative Disclosures About Market Risk - -------------------------------------------------------------------- The Company is subject to market risk arising from the potential change in the value of its various financial instruments. These changes may be due to fluctuations in interest rates, equity prices and foreign currency rates. The Company does not use derivatives to hedge market risk. Equity price fluctuations represent the largest market risk factor affecting the Company's financial position due to the significant level of investment in equity securities. The Company's financial instruments that are materially exposed to market risks as of December 31, 2000 and December 31, 1999 are:
(In thousands U.S.$) FAIR VALUE - -------------------------------------------------------------------------------- Trading portfolio: 2000 1999 Investment in equity securities: United States $ 808,065 $1,002,345 Emerging markets 165,188 236,982 Multi-manager funds 504,067 435,480 Real estate investment trust certificates 48,133 62,691 Investment in global fixed income securities 539,302 512,148 - -------------------------------------------------------------------------------- 2,064,755 2,249,646 Cash and cash equivalents 515,159 450,336 - -------------------------------------------------------------------------------- Total $2,579,914 $2,699,982 - --------------------------------------------------------------------------------
The Company also maintains a non-trading portfolio, including held-to-maturity and available-for-sale securities. The held-to-maturity securities consist of U.S. zero-coupon treasury notes and corporate bonds that collateralize certain of the Company's real estate debt obligations. As of December 31, 2000 and 1999 the Company's held-to-maturity securities were carried at an amortized cost of $242.2 million (fair value $285.1 million) and $242.9 million (fair value $254.6 million), respectively. The available-for-sale securities were purchased during 2000 and at December 31, 2000 were carried at a fair value of $44.6 million. As of December 31, 2000 and 1999 the Company also had $896.9 million (fair value $990.9 million) and $866.1 million (fair value $908.0 million), respectively, of debt issued in connection with the Company's real estate activities. The non- trading portfolio does not expose the Company to material market risk. Although the zero-coupon securities' market values are exposed to adverse long-term interest rate fluctuations, the Company has the intent and ability to hold such securities to maturity. Therefore, although the Company may experience temporary declines in the fair value of such instruments, there would be no detrimental impact on the Company's earnings as a result of such fluctuations. The Company's debt is issued at fixed rates. As such, interest rate movements would not impact interest expense. The majority of the Company's invested assets are classified in a trading portfolio, which comprises both fixed income and equity securities: . The fixed income investments include securities issued by the U.S. and foreign governments, supranationals and government agencies. The Company's fixed income portfolio correlates closely with the Salomon Brothers World Government Bond Index (excluding Japan, unhedged). . The Company invests in equity markets in both the U.S. and emerging market countries. The U.S. equity portfolio is highly correlated with the S&P 500 Index, while the emerging market equity portfolio is highly correlated with the IFC Regional Investable Composite Index. . The Company's equity securities include an investment in a strategic income multi-manager fund. The fund is benchmarked to a weighted average of the Lehman Intermediate Government/Corporate, Merrill Lynch 1-3 Years Corporate, Merrill Lynch Convertible and Merrill Lynch High Yield Bond Indices. . The Company's equity securities also include an investment in a market- neutral multi-manager fund. The fund combines different investment styles and techniques whereby long, or bought, positions are matched with short, or sold, positions in an attempt to neutralize the effect of the broader market's overall direction, thereby offering investors an increased likelihood of realizing a return in all types of market conditions. 32 The Company records its trading securities at fair value with unrealized gains or losses reported in the Consolidated Statements of Income. Although the investments are classified as trading securities, the Company does not generally buy securities for sale in the near term. The Company uses financial modeling and asset allocation techniques to optimize risk and return over the long term (typically up to 10 years). Individual asset classes are selected based on characteristics such as yield, credit quality, currency, liquidity, duration, historical volatility and correlation with other asset classes. Independent investment managers are appointed to execute management-approved investment guidelines. The performance of the investment managers is evaluated at least monthly, including the appropriateness of investments and the acceptability of risk and returns relative to the Company's investment objective. The following paragraphs address the significant market risks associated with the Company's trading portfolio as of December 31, 2000 and 1999. Interest Rate Risk - ------------------ The primary exposure to interest rate risk in the trading portfolio relates to fixed income investments. Multi-manager funds include a $450 million investment in a strategic income mutual fund that is also exposed to interest rate risk. Changes in market interest rates directly impact the market value of such securities. The Company's primary risk exposures are interest rates on fixed rate intermediate-term instruments, both in the U.S. and internationally. Additionally, the credit worthiness of the issuer, relative values of alternative investments, liquidity and general market and economic conditions may affect fair values of interest rate sensitive instruments. The Company's general strategy with respect to fixed income securities is to invest in high quality securities while maintaining diversification to avoid significant concentrations to individual issuers and industry segments and countries. Interest rate risk is managed by maintaining an intermediate duration band. The Company's fixed income securities have an average duration of between four and six years. The Company believes that this duration provides an acceptable balance between increased yield at the date of purchase and overall interest rate risk. The Company does not presently match the duration of assets to meet maturing reinsurance liabilities. Equity Price Risk - ----------------- OPL invests in equity securities to diversify its exposure to interest rate risk and to enhance total return. The Company's S&P 500 and IFC portfolios are subject to changes in value due to movements in equity prices. In addition, a portion of the strategic income multi-manager fund is invested in convertible debt securities, whose values are exposed to equity price risk. Fluctuations in the market price of a security may result from perceived changes in the underlying economic characteristics of the investee or its country of operation, liquidity, the relative price of alternative investments or general market conditions. OPL attempts to manage this exposure by avoiding concentrations of exposure to individual issuers and industry segments. The Company's IFC portfolio is also diversified with respect to individual country concentrations. However, it is recognized that dramatic downturns in one sector or market can have a knock-on effect on another, resulting in higher positive correlations and an accumulation of significant losses. In general, equity securities have more year-to-year price volatility than intermediate high-grade fixed income securities. However, equity returns over longer time frames have been consistently higher than fixed income. As such, OPL is not necessarily concerned with short-term price volatility, providing that the portfolio remains well diversified and overall risk does not exceed our tolerance. The Company has adequate capital to absorb short-term equity price volatility. 33 Foreign Currency Risk - --------------------- OPL is exposed to foreign currency risk arising from foreign exchange rate fluctuations against the U.S. dollar on both its global fixed income portfolio and the IFC emerging markets equity portfolio. The primary currency creating foreign exchange rate risk is the euro. Although the IFC portfolio does not expose the Company to material concentration in any one currency, there is some correlation amongst the currencies of emerging market countries. The Company does not hedge against the exchange rate risk associated with its investments in foreign countries as it believes that the direct and opportunity costs associated with a hedging program exceed any benefits in the long term. OPL's reinsurance operations also have exposure to foreign currency rates, particularly the United Kingdom pound sterling and the euro. This exposure is mitigated by the fact that the Company's reinsurance premiums and related receivables are partially offset by claims incurred and claims liabilities, respectively, denominated in the same currency. Value-at-Risk - ------------- Potential gains or losses from changes in market conditions can be estimated through statistical models that attempt to predict, within a specified confidence level, the maximum loss that could occur over a defined period of time. For example: an investment portfolio with a Value-at-Risk ("VaR") of $10 million for a one year time horizon and a 95% probability, means that there is a 5% chance that the portfolio will lose more than $10 million over a year. The Company has performed a VaR analysis to estimate the maximum amount of potential loss in fair value of the Company's cash and investments over a one- year time horizon and at a 95% confidence level. The estimate has been prepared separately for each of the Company's market risk exposures in the trading portfolio. VaR related to the non-trading portfolio has been excluded from this analysis and not reported separately because the amounts were not material. The estimates of VaR were calculated using the variance-covariance (delta normal) methodology. The model uses historical interest and foreign currency exchange rates and equity prices for the 60 months ended December 31, 2000 to estimate the volatility and correlation of each of these rates and prices. The model allocates each investment into a number of security groupings and assigns a benchmark index to each security grouping as a proxy for risk measurement. Mean assumptions include no change in annual interest and foreign currency rates, a 9.0% return on equity securities and a 4.0% return on fixed income securities. The VaR at December 31, 1999 was calculated assuming an 11.0% return on equity securities and a 4.5% return on fixed income securities. VaR is a statistical estimate and should not be viewed as predictive of the Company's future financial performance and there can be no assurance that the Company's actual losses in a particular year will not exceed the VaR amounts indicated in the following table or that such losses will not occur more than once in 20 years. Limitations in the analysis include: . the market risk information is limited by the assumptions and parameters established in creating the related models; . the analysis is based on historical data; . the analysis excludes other significant real estate and reinsurance assets and liabilities; and . the model assumes that the composition of the Company's assets and liabilities remains unchanged throughout the year. Therefore such models are tools and do not substitute for the experience and judgment of management. 34 The VaR for each component of the Company's market risk in the trading portfolio as of December 31, 2000 and December 31, 1999 was: Trading portfolio (in millions U.S.$): 2000 1999 - ----------------------------------------------------------------------- Interest rate risk $ 5.3 $ 6.3 Equity price risk 180.8 171.2 Foreign exchange rate risk 46.3 37.4 Diversification benefit (150.1) (98.9) - ----------------------------------------------------------------------- $ 82.3 $116.0 - -----------------------------------------------------------------------
Estimated changes in fair value associated with the trading portfolio would have a direct effect on net income. The Company's total VaR includes a diversification benefit since interest rate, equity and currency risks are only partially correlated. The average, high and low VaR for each component of the Company's market risk in the trading portfolio for the year ended December 31, 2000 was:
Trading portfolio (in millions U.S.$): Average High Low - -------------------------------------------------------------------------------- Interest rate risk $ 8.1 $ 13.8 $ 5.3 Equity price risk 182.6 184.9 180.8 Foreign exchange rate risk 40.3 46.3 37.1 Diversification benefit (123.3) (126.3) (140.9) - -------------------------------------------------------------------------------- $ 107.7 $ 118.7 $ 82.3 - --------------------------------------------------------------------------------
Despite an increase in volatility in global equity securities and the euro, the decrease in total VaR from 1999 can be attributed to an increase in cash as a proportion of total assets at the end of the year 2000. Cash not only has a very low VaR but also significantly increases the diversification benefits of the whole portfolio. Our asset allocation models are frequently updated to incorporate recent volatility and return characteristics. 35 Safe Harbor Disclosure - ---------------------- The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Some of the statements contained in this report contain forward-looking information. Forward-looking statements are statements other than historical information or statements of current condition. Some forward looking statements can be identified by the use of such words as "expect," "believe," "goal," "plan," "intend," "estimate," "may" and "will" or similar words. These forward-looking statements relate to our plans and objectives for future operations including our growth and operating strategy, our implementation of new products and new reinsurance programs, trends in our industry and our policy on future dividends. You should be aware that these statements are subject to risks, uncertainties and other factors, that could cause the actual results to differ materially from those suggested by the forward-looking statements. Accordingly, there can be no assurance that those indicated results will be realized. Among the important factors that could cause actual results to differ materially from those indicated by our forward-looking statements are: . our ability to replace, with profitable business, the revenues that we derived in the past from reinsurance of excess value package insurance associated with the business of UPS. . pricing pressure resulting from the competitive environment in which we operate . ability to collect reinsurance recoverables . the uncertainties of the reserving process . the occurrence of catastrophic events with a frequency or severity exceeding our estimates . loss of the services of any of the Company's executive officers . uncertainties relating to government and regulatory policies (such as subjecting us to insurance regulation or taxation in certain jurisdictions) . losses due to interest rate fluctuations . volatility in global financial markets which could affect our investment portfolio . the resolution of any pending or future tax assessments by the IRS against us . the resolution of other pending litigation . the impact of mergers and acquisitions . the difficulty of integrating new businesses and significant new staff with our existing operations. We do not undertake to update these forward-looking statements in any manner. 36 Item 8. Financial Statements and Supplementary Data - ------- ------------------------------------------- The Consolidated Financial Statements of OPL are filed together with this Report: see pages [F-1 to F-19] which are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants - ------- --------------------------------------------- on Accounting and Financial Disclosure -------------------------------------- Not applicable. 37 PART III -------- Item 10. Directors and Executive Officers of the Registrant - -------- -------------------------------------------------- Directors - --------- Set forth below is certain biographical information concerning each of the directors. ________________________________________________________________________________ Robert J. Clanin Age 57 Director since 1994 Prior to becoming a director, Mr. Clanin served as Vice President of OPL from June 1990 to August 1994. He served as Senior Vice President, Treasurer and Chief Financial Officer of UPS from 1994 until his retirement on January 8, 2001. Mr. Clanin also retired from the UPS Management Committee effective January 8, 2001. He served on the UPS Board of Directors from 1996 until his retirement on January 8, 2001. ________________________________________________________________________________ D. Scott Davis Age 49 Director since 1999 Mr. Davis served as President and Chief Executive Officer of OPL from January 7, 1999 until his resignation on January 4, 2000 and March 30, 2000, respectively. After his resignation as CEO, Mr. Davis accepted the position of Vice President of Finance for UPS and on January 8, 2001 was appointed Senior Vice President, Treasurer and Chief Financial Officer. Mr. Davis also serves as a member of the UPS Management Committee, which oversees the day-to-day management of UPS. From May 1985 until January 1999, he served as Vice President - Finance and Accounting for UPS, where his responsibilities for several years included banking, investments, financial reporting and shareowner relations. Mr. Davis serves on the Finance Committee of the Georgia Council on Economic Education. ________________________________________________________________________________ Mary R. Hennessy Age 48 Director since 2000 Ms. Hennessy was elected President and Chief Operating Officer of OPL on January 4, 2000 and Chief Executive Officer on April 1, 2000. Prior to her appointment at OPL, Ms. Hennessy held positions at TIG Holdings, Inc. from 1996 to 1999, a NYSE-publicly traded insurance holding company, initially as Executive Vice President and Chief Underwriting Officer and then as President and Chief Operating Officer. From 1988 to 1996, she served as President of Am-Re Services, Inc., Chairman and Chief Executive Officer of Am-Re Consultants, Inc. and Senior Vice President and Chief Actuary for American Re-Insurance Company. She is also a director of Annuity and Life Re Holdings Ltd., an insurer based in Bermuda. ________________________________________________________________________________ Joseph M. Pyne Age 53 Director since 1995 Mr. Pyne has served as Senior Vice President of Corporate Development for UPS since 1996. In this capacity, he directs UPS's worldwide marketing, electronic commerce, advertising, public relations, the UPS Logistics Group, UPS Capital Corporation and other subsidiaries that enable global commerce. From 1995 to 1996, he was the Vice President of Marketing at UPS and served as UPS National Marketing Planning Manager from 1989 to 1995. Mr. Pyne is a member of the Conference Board and the Council of Logistics Management. He is also a member of the Board of Trustees for the UPS Foundation. 38 ________________________________________________________________________________ Cyril E. Rance Age 66 Director since 1995 Mr. Rance was President and Chief Executive Officer of a large Bermuda insurer until his retirement in 1990. He has more than 40 years experience in all aspects of the insurance industry. He also has had a long and varied career in civic and government service, including 10 years as a member of the Bermuda Parliament. He is a director of XL Capital Ltd., an insurance holding company, and of several international companies registered in Bermuda. ________________________________________________________________________________ Executive Officers - ------------------ Listed below is certain information relating to the executive officers of OPL. Name Age Officers - ------------------- --- ---------------------------------------------------- Mark R. Bridges 41 Chief Financial Officer and Treasurer Michael J. Cascio 45 President and Chief Executive Officer of OPUS Re (1) Mark B. Cloutier 45 Chief Claims Officer (2) D. Scott Davis 49 President and Chief Executive Officer (3) Mary R. Hennessy 48 President and Chief Executive Officer (4) Jed E. Rhoads 42 President of OP Finite (5) (1) Mr. Cascio was appointed Chief Underwriting Officer of OPL on January 4, 2000. On February 1, 2001 Mr. Cascio was appointed President and Chief Executive Officer of OPUS Re. (2) Mark B. Cloutier was appointed Chief Claims Officer of OPRe on November 20, 2000. (3) Mr. Davis served as President and Chief Executive Officer of OPL until January 4, 2000 and March 30, 2000, respectively. (4) Ms. Hennessy was appointed President and Chief Operating Officer of OPL on January 4, 2000 and appointed Chief Executive Officer on April 1, 2000. (5) Jed E. Rhoads was appointed President of OP Finite on December 1, 2000. 39 Executive Officer Biographical Information - ------------------------------------------ Mr. Bridges has served as Chief Financial Officer and Treasurer of OPL since May 1998. He also serves as a Director of all OPL subsidiaries. He joined OPL from KPMG Peat Marwick in Bermuda, where he had been a partner since 1988. He qualified as a Member of the Institute of Chartered Accountants in England and Wales in 1983 and was awarded his fellowship in 1994. Mr. Cascio served as Chief Underwriting Officer of OPL from January 4, 2000 until January 31, 2001. He also served on the Board of Directors of all Bermuda subsidiaries and OPUS Re until his appointment on February 1, 2001 as President and Chief Executive Officer of OPUS Re. Mr. Cascio remains a member of the Board of Directors of OPUS Re, however resigned his board positions of the Bermuda subsidiaries. Prior to his appointment at OPL in January 2000, Mr. Cascio was one of the co-founders of Stockton Re, a Bermuda based finite risk reinsurer and from 1994 until 1997, he served as one of the Managing Directors. His prior experience also includes senior underwriting and management positions with Centre Re, Pinnacle Reinsurance, KPMG and Travelers Insurance Company. Mr. Cascio is a Fellow of the Casualty Actuarial Society (FCAS), a member of the American Academy of Actuaries and Founder and first President of CABER (Casualty Actuaries of Bermuda). Mr. Cloutier has served as Chief Claims Officer since November 20, 2000. Prior to joining OPL, Mr. Cloutier held senior management positions at E.W. Blanch Holdings, Inc. for one year and TIG Holdings for four years. Prior to these positions he was at Lindsey Morden Claim Services, and Brouwer and Company. Additionally, Mr. Cloutier was founder and president of an independent claim service company in British Columbia. For biographical information on Mr. Davis, see above section on "Directors". For biographical information on Ms. Hennessy, see above section on "Directors". Mr. Rhoads has served as the President of OP Finite (a division of OPRe) since December 1, 2000. Prior to joining OPL, Mr. Rhoads was, from 1998 a Principal of Stockton Reinsurance Limited, a finite risk reinsurer based in Bermuda. Prior to that, Mr. Rhoads was with Sedgwick Re for 14 years most recently as Senior Executive Vice President and Corporate Treaty Officer responsible for treaty reinsurance business. The officers of OPL serve at the pleasure of the Board of Directors. Section 16(a) Beneficial Ownership Reporting Compliance - ------------------------------------------------------- Based solely on the review of the forms required by Section 16(a) of the Securities Exchange Act of 1934 that have been filed, and written representation that no other forms are required, OPL believes that all filing requirements applicable to its officers and directors have been complied with. There are no beneficial owners known to the Company that own more than 10% percent of the outstanding shares of the Company's Common Stock. 40 Item 11. Executive Compensation - -------- ---------------------- Summary Compensation Table - -------------------------- The following table shows the compensation paid or to be paid by OPL or any of its subsidiaries in 2000, 1999 and 1998 to the following Named Executive Officers in all capacities in which they served:
Long-term Annual Compensation Compensation - --------------------------------------------------------------------------------------------------------------------- Other Annual Shares Underlying Compensation Stock Appreciation Name and Principal Position Year Salary Bonus (7) (8) Rights - --------------------------------------------------------------------------------------------- -------------------- Mary R. Hennessy 2000 $400,000 $ -- $156,000 84,311 President and Chief Executive Officer (1) Mark R. Bridges 2000 $240,000 $ -- $ 96,000 36,414 Chief Financial Officer and 1999 $171,875 $176,135 $135,000 7,021 Treasurer (2) 1998 $104,000 $ -- $ 84,375 -- D. Scott Davis 2000 $ 53,500 $ -- $ -- -- President and Chief Executive 1999 $225,500 $112,680 $ 96,000 13,480 Officer (3) Michael J. Cascio 2000 $280,000 $ -- $120,000 49,181 Chief Underwriting Officer (4) Mark B. Cloutier 2000 $ 24,615 $100,000 $ 29,567 -- Chief Claims Officer of OPRe (5)
(1) Ms. Hennessy commenced employment with OPL in January 2000. (2) Mr. Bridges commenced employment with OPL in May 1998. (3) Mr. Davis commenced employment with OPL in January 1999 and resigned in March 2000. (4) Mr. Cascio commenced employment with OPL in January 2000 as Chief Underwriting Officer. On February 1, 2001 Mr. Cascio was appointed President and Chief Executive Officer of OPUS Re. (5) Mr. Cloutier commenced employment with OPL in November 2000. (6) Mr. Rhoads commenced employment with OPL in December 2000. (7) The 1999 bonus amounts include awards in respect of performance for both 1998 (awarded and paid in January 1999) and 1999 (awarded and paid in November 1999). No performance bonuses were awarded during 2000. Amounts awarded in 2001 in relation to 2000 performance will be recorded in 2001. Mr. Cloutier received a signing on bonus in November 2000. (8) Other annual compensation consists of cost of living allowances. No other executive officers earned annual compensation in excess of $100,000 in 2000. 41 Stock Appreciation Rights - Grants - ---------------------------------- The following table sets forth information concerning grants of Stock Appreciation Rights ("SARs") to the Named Executive Officers in 2000:
Number of Shares Potential Realizable Value at Assumed Underlying % of Total SARs Base Annual Rates of OPL Stock SARs Granted to Price Expiration Appreciation for Rights Term (3) ----------------------------------------- Name Granted Employees (1) Date (2) 5% 10% - --------------------------------------------------------------------------------------------------------------------------------- Mary R. Hennessy 84,311 21.0% $21.50 04/30/03 $285,725 $600,000 Mark R. Bridges 2,690 0.7% $19.84 04/30/04 $ 14,725 $ 32,583 33,724 8.4% $21.50 04/30/03 $114,289 $240,000 Michael J. Cascio 49,181 12.3% $21.50 04/30/03 $166,671 $350,000
(1) Represents the price of OPL Common Stock on the date of the original grant. (2) Rights may only be exercised during the four-week period prior to the expiration date. (3) Based on actual term of SARs and annual compounding. The dollar amounts in these columns are the result of calculations at the assumed appreciation rates set by the Securities and Exchange Commission and are not intended to forecast future appreciation of shares of Common Stock. Stock Appreciation Rights Exercises and Holdings - ------------------------------------------------ The following table sets forth information concerning the value of the SARs of the Named Executive Officers on December 31, 2000. No SARs were exercised by any Named Executive Officers during 2000.
Aggregated SARs Value at December 31, 2000 ------------------------------------------ Number of Unexercised Rights Value of Unexercised Rights (1) Name Exercisable Unexercisable Exercisable Unexercisable - -------------------------------------------------------------------------------------------------- Mary R. Hennessy -- 84,311 $ -- $ 0 Mark R. Bridges -- 43,435 $ -- $ 0 Michael J. Cascio -- 49,181 $ -- $ 0
(1) Based on fair value per share of OPL Common Stock, as determined by the Board of Directors, as of December 31, 2000 minus exercise price. Compensation of Directors - ------------------------- Directors who are employees of OPL receive no additional compensation for their service as directors or as members of committees appointed by the Board of Directors. Other directors receive a fee of $10,000 per board meeting attended. Members of the Audit, Compensation and Nominating Committees who are not employees of OPL receive an additional fee of $1,250 for each Committee meeting they attend. 42 Compensation Committee Interlocks and Insider Participation - ----------------------------------------------------------- The Compensation Committee is comprised of the following members - Cyril E. Rance (Chair), D. Scott Davis and Robert J. Clanin. Two members of the Compensation Committee of the Board of Directors of OPL were officers of OPL. Robert J. Clanin served as Vice President of OPL from 1990 until 1994, and D. Scott Davis served as President and Chief Executive Officer of OPL from January 1999 until March 2000. Item 12. Security Ownership of Certain Beneficial Owners and Management - -------- -------------------------------------------------------------- Stock Ownership of Certain Beneficial Owners and Management - ----------------------------------------------------------- Set forth below is information relating to the beneficial ownership of OPL Common Stock by (i) each director or director nominee, (ii) the Chief Executive Officer and the Named Executive Officers, and (iii) all directors and executive officers as a group. All shares are owned of record and beneficially, and each person and group identified has sole voting and investment power with respect to such shares, except as otherwise indicated. No individual or group known to the Company beneficially owns more than five percent of the outstanding shares of OPL Common Stock.
Common Stock Held as of February 28, 2001(1) --------------------------------------------------------------------------------------- Shares Beneficially Additional Shares in Total Shares and Owned (2) which the Director or Percent of Class Nominee has, or Participates in the Voting or Investment Name Power (3) - --------------------------------------------------------------------------------------------------------------------------- Mark R. Bridges Mintflower Place 8 Par-la-Ville Road P.O. Box 1581 Hamilton, HM GX, Bermuda 8,966 -- 8,966 (0.01%) Michael J. Cascio Mintflower Place 8 Par-la-Ville Road P.O. Box 1581 Hamilton, HM GX, Bermuda -- -- -- Robert J. Clanin 55 Glenlake Parkway NE Atlanta, GA 30328 35,715 5,130,564 5,166,279 (4.30%) Mark B. Cloutier Mintflower Place 8 Par-la-Ville Road P.O. Box 1581 Hamilton, HM GX, Bermuda -- -- -- D. Scott Davis 55 Glenlake Parkway NE Atlanta, GA 30328 17,791 -- 17,791 (0.01%) Mary R. Hennessy Mintflower Place 8 Par-la-Ville Road P.O. Box 1581 Hamilton, HM GX, Bermuda -- -- --
43
Common Stock Held as of February 28, 2001(1) ----------------------------------------------------------------------------- Shares Beneficially Additional Shares in Total Shares and Owned (2) which the Director or Percent of Class Nominee has, or Participates in the Voting or Investment Name Power (3) - --------------------------------------------------------------------------------------------------------------------------------- Joseph M. Pyne 55 Glenlake Parkway NE Atlanta, GA 30328 21,977 -- 21,977 (0.01%) Cyril E. Rance Blue Anchorage No. 6 Agars Hill - Point Shares Pembroke, HM 05, Bermuda 2,000 -- 2,000 (0.00%) All directors and executive officers as a group (8 persons) 86,499 5,130,564 5,217,013 (4.34%)
(1) These holdings are reported in accordance with regulations of the Securities and Exchange Commission (SEC) requiring the disclosure of shares as to which directors and officers hold voting or disposition power, notwithstanding the fact that they are held in a fiduciary, rather than a personal, capacity and that the power is shared among a number of fiduciaries including, in several cases, corporate trustees, directors or other persons who are neither officers nor directors of OPL. (2) The amounts shown in this column include an aggregate of 14,123 shares owned by or held in trust for members of the families of Mr. Clanin as to which they disclaim beneficial ownership. (3) None of the directors, nominees, other officers or members of their families, have any ownership rights in the shares listed in this column. Of the shares 4,793,402 are owned by a charitable foundation on whose Board of Trustees Mr. Clanin and other persons serve and 337,162 shares are held by a charitable foundation of which Mr. Clanin and other persons are trustees. 44 Item 13. Certain Relationships and Related Transactions - -------- ---------------------------------------------- Common Relationships With UPS - ----------------------------- OPL was organized under Bermuda law in June 1983 by UPS. On December 31, 1983, prior to commencing operations, OPL was spun off when UPS paid a special dividend to shareowners of one share of Common Stock for each share of UPS Common Stock outstanding as of November 18, 1983, resulting in the distribution of approximately 97% of the outstanding Common Stock. OPL was organized to reinsure shipper's risks relating to packages carried by subsidiaries of UPS as a common carrier as well as to underwrite other reinsurance for insureds unaffiliated with UPS. Since commencing operations on January 1, 1984, OPL's primary reinsurance business was reinsuring insurance issued by United States-based insurance companies unaffiliated with UPS or OPL. On August 31, 1999, the primary insurer notified OPL that effective October 1, 1999 UPS intended to provide shipper's risk reinsurance for its customers through a UPS subsidiary. With the cancellation of the shipper's risk reinsurance, OPL no longer receives revenue from this program. On March 23, 2000, with an effective date of October 1, 1999, OPL entered into a Claims Handling Agreement with UPS Re Ltd. ("UPS Re"), a subsidiary of UPS, for the purpose of run off of the shipper's risk reinsurance contracts. OPL will pay UPS Re $25,000 annually until termination of this Agreement for claims administration fees. OPL's reinsurance business has also included reinsurance of workers' compensation insurance issued by another unaffiliated United States-based insurance company covering risks of a UPS subsidiary in the State of California. Three members of OPL's Board of Directors served as officers of UPS during 2000. Mr. Robert J. Clanin has served as Vice President, Treasurer and Chief Financial Officer of UPS since 1994 until his retirement on January 8, 2001, Mr. Joseph M. Pyne serves as Senior Vice President - Corporate Marketing of UPS and Mr. D Scott Davis served as Vice President of Finance for UPS from April 1, 2000 until his appointment as Vice President, Treasurer and Chief Financial Officer of UPS on January 8, 2001. As such these individuals had an interest in transactions occurring between the Company and UPS in 2000. In considering which risks related to UPS's business to reinsure, directors of OPL who are also officers and shareowners of UPS must consider the impact of their business decisions on each of the two companies. Although prevailing market conditions are among the factors considered by them in making such decisions, there can be no assurance that transactions relating to the two companies will be on the most favorable terms that could be obtained by either party in the open market. OPL does not have any formal conflict resolution procedures. OPL's business includes leasing certain real estate property to subsidiaries of UPS through OCC. OPL has guaranteed OCC's performance of the leasing arrangements described below. In December 1989, OCC acquired from UPS the Ramapo Ridge facility. Beginning in July 1990, the Facility was leased to UPS for an initial term ending in 2019. UPS uses the Facility as a data processing, telecommunications and operations center. Lease payments have fixed and variable components. The fixed component provides for aggregate lease payments of approximately $216 million over the initial term of the lease. The variable component of the lease payments is based on the number of customer accounts maintained by UPS. OCC has irrevocably assigned the right to receive the fixed component of rentals on the Facility lease to its subsidiary, OPL Funding, a Delaware corporation. OPL Funding pledged its interest in these payments to secure bonds issued to finance the acquisition of the leased assets. UPS's obligation to pay the fixed rentals to OPL Funding is absolute and unconditional during the initial term of each lease, and continues after an early lease termination unless UPS pays to OPL Funding an amount sufficient to defease the remaining interest payments on the bonds. In the event that OCC fails to pay certain income taxes, UPS is obligated to pay additional rentals to provide for such taxes. OCC is required to reimburse UPS the amount of any such termination or tax payments. At the conclusion of the lease in 2050, UPS has an option to purchase the building in which the data processing facility is located at the higher of fair market value or settlement value prevailing at that time. In 2000 OCC received rental payments of approximately $18.5 million in the aggregate from UPS pursuant to the lease described above. 45 PART IV ------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K - -------- --------------------------------------------------------------- (a) 1. Financial Statements. - See Index to Financial Statements and Financial Statement Schedules at page F-1 2. Financial Statement Schedules. - See Index to Financial Statements and Financial Statement Schedules at page F-1 3. List of Exhibits. - See Exhibit Index at page E-1 (b) Reports on Form 8-K. - No reports on Form 8-K were filed during the quarter ended December 31, 2000. (c) Exhibits required by Item 601 of Regulation S-K. - See Exhibit Index at page E-1 46 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Overseas Partners Ltd. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Hamilton, Bermuda. OVERSEAS PARTNERS LTD. Date: March 30, 2001 By: /s/ Mary R. Hennessy ------------------------------------------ President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons in the capacities and on the dates indicated have signed this Report below:
Signature Title Date - ------------------------------------------------------------------------------------------------------------------------ /s/ Mary R. Hennessy President, Chief Executive Officer and Director March 30, 2001 - ---------------------------------------- (Mary R. Hennessy) /s/ Mark R. Bridges Chief Financial Officer March 30, 2001 - ---------------------------------------- (Mark R. Bridges) /s/ Robert J. Clanin Chairman of the Board March 30, 2001 - ---------------------------------------- of Directors and (Robert J. Clanin) Director /s/ D. Scott Davis Director March 30, 2001 - ---------------------------------------- (D. Scott Davis) /s/ Joseph M. Pyne Director March 30, 2001 - ---------------------------------------- (Joseph M. Pyne) /s/ Cyril E. Rance Director March 30, 2001 - ---------------------------------------- (Cyril E. Rance)
EXHIBIT INDEX ------------- (3) Articles of Incorporation and Bye-Laws. 3(a) Certificate of Incorporation Incorporated by Reference of Exhibit 3(a) of Registration Statement (on Form S-1), No. 2-95460. 3(b) Bye-Laws as amended and restated Incorporated by Reference to Exhibit 3(b) of OPL's Annual Report on Form 10-K for the Year Ended December 31, 1999 3(c) Altered Memorandum of Association Filed herewith (4) Instruments defining the rights of security holders, including indentures. 4(a) Copy of specimen stock certificate Incorporated by Reference to Exhibit 4(a) Registration Statement (on Form S-1), No. 2-95460. 4(b) Agreement accepting restrictions Incorporated by Reference of Exhibit 4(b) of on transfer and rights to purchase Registration Statement (on Form S-1), No. 2-95460. executed by recipients of shares (10) Material Contracts. 10(a) Facultative Reinsurance Agreement Incorporated by Reference to Exhibit 10(b) of OPL's between OPL and Liberty Mutual Registration Statement (on Form S-1) No. 2-95460. Fire Insurance Company and Amendments. 10(b) Series A Loan Agreement and Note Incorporated by Reference to Exhibit 10(o) of OPL's between OPL Funding and OPCC dated Post-Effective Amendment No. 1 to Registration Statement November 6, 1990. (on Form S-2) No. 33-30944 10(c) Security Agreement between OPL Incorporated by Reference to Exhibit 10(p) of OPL's Post Funding and OPCC dated November 6, Effective Amendment No. 1 to Registration Statement (on 1990. Form S-2) No. 33-30944. 10(d) Series B Loan Agreement and Note Incorporated by Reference to Exhibit 10(v) of OPL's between OPL Funding and OPCC dated Post-Effective Amendment No. 1 to Registration Statement November 6, 1990 (on Form S-2) No. 33-30944 10(e) Mortgage and Security Agreement Incorporated by Reference to Exhibit 10(w) of OPL's between OPL Funding and OPCC dated Post-Effective Amendment No. 1 to Registration Statement November 6, 1990. (on Form S-2) No. 33-30944. 10(f) Amended and Restated Trust Incorporated by Reference to Exhibit 10(x) of OPL's Indenture and Security Agreement Post-Effective Amendment No. 1 to Registration among OPL Funding, Overseas Statement (on Form S-2) No. 33-30944. Partners Credit, Inc. ("OPL Credit") and Continental Bank N.A. as trustee, dated November 6, 1990.
E-1 10(g) Bond Purchase Agreement among OPL Incorporated by Reference to Exhibit 10(y) of OPL's Funding, UPS, OPL and Salomon Post-Effective Amendment No. 1 to Registration Brothers Inc. dated November 6, Statement (on Form S-2) No. 33-30944. 1990. 10(h) Letter Agreement from OPL Funding, Incorporated by Reference to Exhibit 10(z) of OPL's UPS and OPL to each Purchaser of Post-Effective Amendment No. 1 to Registration Statement the Bonds dated November 9, 1990. (on Form S-2) No. 33-30944. 10(i) Indemnification Agreement among Incorporated by Reference to Exhibit 10(aa) of OPL's OPL, OPL Funding, OPCC and Post-Effective Amendment No. 1 to Registration Statement Continental Bank N.A., as Trustee, (on Form S-2) No. 33-30944. dated November 6, 1990. 10(j) Agreement dated as of December 22, Incorporated by Reference to Exhibit 99.1 of OPL's 1993, among Host Marriott Current Report on Form 8-K dated January 12, 1994. Corporation, Urban Investment and Development Co. and OPCC. 10(k) Agreement dated as of December 31, Incorporated by Reference to Exhibit 99.2 of OPL's 1993 between Mascester Company and Current Report on Form 8-K dated January 12, 1994. OPCC 10(l) OPCC 1995 Stock Appreciation Incorporated by Reference to Exhibit 10(oo) of OPL's Rights Plan. Annual Report on Form 10-K for the Year Ended December 31, 1994 10(m) Purchase and Sale Agreement between Incorporated by Reference to Exhibit 10(pp) of OPL's OPCC and The Mutual Life Insurance Annual Report on Form 10-K for the Year Ended December Company of New York dated August 9, 31, 1996 1996. 10(n) Promissory Note from Overseas Incorporated by Reference to Exhibit 10(tt) of OPL's Partners (AFC), Inc. to The Mutual Annual Report on Form 10-K for the Year Ended December Life Insurance Company of New York 31, 1996 dated October 23, 1996. 10(o) Deed to Secure Debt, Assignment of Incorporated by Reference to Exhibit 10(uu) of OPL's Leases and Rents and Security Annual Report on Form 10-K for the Year Ended December Agreement from Overseas Partners 31, 1996 (AFC), Inc. to The Mutual Life Insurance Company of New York dated October 23, 1996. 10(p) Reserve Account Agreement from Incorporated by Reference to Exhibit 10(vv) of OPL's Overseas Partners (AFC), Inc. and The Annual Report on Form 10-K for the Year Ended December Mutual Life Insurance Company of New 31, 1996 York dated October 23, 1996. 10(q) Side Letter Agreement Waiving Tax and Incorporated by Reference to Exhibit 10(ww) of OPL's Insurance Deposits from The Mutual Annual Report on Form 10-K for the Year Ended December Life Insurance Company of New York to 31, 1996 Overseas Partners (AFC), Inc. dated October 23, 1996.
E-2 10(r) Side Letter Agreement Regarding Audit Incorporated by Reference to Exhibit 10(xx) of OPL's Certification from The Mutual Life Annual Report on Form 10-K for the Year Ended December Insurance Company of New York to 31, 1996 Overseas Partners (AFC), Inc. dated October 23, 1996. 10(s) One Time Transfer Letter from The Incorporated by Reference to Exhibit 10(yy) of OPL's Mutual Life Insurance Company of New Annual Report on Form 10-K for the Year Ended December York to Overseas Partners (AFC), Inc. 31, 1996 dated October 23, 1996. 10(t) Guarantee of Payment Related to Incorporated by Reference to Exhibit 10(zz) of OPL's Leasing between The Mutual Life Annual Report on Form 10-K for the Year Ended December Insurance Company of New York to 31, 1996 Overseas Partners (AFC), Inc. dated October 23, 1996. 10(u) Purchase and Sale Agreement between Incorporated by Reference to Exhibit 10(aaa) of OPL's OPCC and 333 Wacker Drive Limited Annual Report on Form 10-K for the Year Ended December Partnership dated December 24, 1996. 31, 1996 10(v) Purchase and Sale Agreement by and Incorporated by Reference to Exhibit 10(eee) of OPL's among JMB Realty Corporation, Carlyle Annual Report on Form 10-K for the Year Ended December Real Estate Limited Partnership - 31, 1996 XIII, Urban Investment and Development Co. and OPCC dated December 31, 1996. 10(w) First Amendment to Purchase and Sale Incorporated by Reference to Exhibit 10(fff) of OPL's Agreement by and among JMB Realty Annual Report on Form 10-K for the Year Ended December Corporation, Carlyle Real Estate 31, 1996 Limited Partnership - XIII, Urban Investment and Development Co. and OPCC dated January 23, 1997. 10(x) Amended and Restated Limited Incorporated by Reference to Exhibit 10(mmm) of OPL's Liability Company Agreement of Copley Annual Report on Form 10-K for the Year Ended December Place Associates, LLC dated January 31, 1996 23, 1997. 10(y) Agreement of Merger between Copley Incorporated by Reference to Exhibit 10(nnn) of OPL's Place Associates and Copley Place Annual Report on Form 10-K for the Year Ended December Associates, LLC dated January 23, 31, 1996 1997. 10(z) Management Agreement by and between Incorporated by Reference to Exhibit 10(ooo) of OPL's Copley Place Associates, LLC and Annual Report on Form 10-K for the Year Ended December Overseas Management, Inc. dated 31, 1996 January 23, 1997.
E-3 10(aa) Management and Leasing Fee Incorporated by Reference to Exhibit 10(ppp) of OPL's Subordination Agreement by and among Annual Report on Form 10-K for the Year Ended December Copley Place Associates, LLC, Copley 31, 1996 Funding Corporation, Copley Financing Corporation, The Aetna Casualty and Surety Company and Overseas Management, Inc. dated January 23, 1997. 10(bb) Agreement for Purchase of Consulting Incorporated by Reference to Exhibit 10(qqq) of OPL's and Other Services by and between Annual Report on Form 10-K for the Year Ended December Overseas Management, Inc. and Urban 31, 1996 Retail Property Co. dated January 23, 1997. 10(cc) Consulting Subordination Agreement by Incorporated by Reference to Exhibit 10(rrr) of OPL's and among Copley Place Associates, Annual Report on Form 10-K for the Year Ended December LLC, Copley Funding Corporation, 31, 1996 Copley Financing Corporation, The Aetna Casualty and Surety Company and Urban Retail Properties Co. dated January 23, 1997. 10(dd) Class A Promissory Note from Copley Incorporated by Reference to Exhibit 10(sss) of OPL's Place Associates, LLC and Urban Annual Report on Form 10-K for the Year Ended December Investment and Development Co. to the 31, 1997 Metropolitan Life Insurance Company dated July 30, 1997. 10(ee) Class B Promissory Note from Copley Incorporated by Reference to Exhibit 10(ttt) of OPL's Place Associates, LLC and Urban Annual Report on Form 10-K for the Year Ended December Investment and Development Co. to the 31, 1997 Metropolitan Life Insurance Company dated July 30, 1997. 10(ff) Leasehold Mortgage, Security Incorporated by Reference to Exhibit 10(uuu) of OPL's Agreement and Fixture Financing Annual Report on Form 10-K for the Year Ended December Statement by Copley Place Associates, 31, 1997 LLC and Urban Investment and Development Co. to Metropolitan Life Insurance Company dated July 30, 1997. 10(gg) Assignment of Lessor's Interest in Incorporated by Reference to Exhibit 10(vvv) of OPL's Leases by Copley Place Associates, Annual Report on Form 10-K for the Year Ended December LLC to Metropolitan Life Insurance 31, 1997 Company dated July 30, 1997. 10(hh) Collateral Assignment and Security Incorporated by Reference to Exhibit 10(www) of OPL's Agreement in regard to Contracts, Annual Report on Form 10-K for the Year Ended December Licenses, Permits, Agreements, 31, 1997 Warranties and Approvals, to Metropolitan Life Insurance Company dated July 30, 1997.
E-4 10(ii) Guaranty Agreement made by Overseas Incorporated by Reference to Exhibit 10(xxx) of OPL's Partners Capital Corp. and JMB Realty Annual Report on Form 10-K for the Year Ended December Corporation in favor of Metropolitan Life 31, 1997 Insurance Company dated July 30, 1997. 10(jj) Second Amended and Restated Limited Incorporated by Reference to Exhibit 10(yyy) of OPL's Liability Company Agreement of Copley Annual Report on Form 10-K for the Year Ended December Place Associates, LLC by Overseas 31, 1997 Partners Capital Corp., JMB Realty Corporation and Copley Place Corp., Inc. dated July 30, 1997. 10(kk) Notice of Direct Lease by Copley Incorporated by Reference to Exhibit 10(zzz) of OPL's Place Associates, LLC to Urban Annual Report on Form 10-K for the Year Ended December Investment and Development Co. and 31, 1997 Massachusetts Turnpike Authority dated July 30, 1997. 10(ll) Confirmation of Direct Lease and Incorporated by Reference to Exhibit 10(aaaa) of OPL's Leasehold Mortgage by Copley Place Annual Report on Form 10-K for the Year Ended December Associates, LLC, Urban Investment and 31, 1997 Development Co. and Metropolitan Life Insurance Company dated July 30, 1997. 10(mm) Second Amendment to Amended and Incorporated by Reference to Exhibit 10(bbbb) of OPL's Restated Facility Lease Agreement Annual Report on Form 10-K for the Year Ended December among Overseas Partners Leasing, 31, 1997 Inc., United Parcel Services General Services Co. and United Parcel Service of America, Inc. Affecting 340 MacArthur Boulevard. 10(nn) Mortgage, Security Agreement and Incorporated by Reference to Exhibit 10(cccc) of OPL's Fixture Filing by Overseas Partners Annual Report on Form 10-K for the Year Ended December (333), Inc. and The Prudential 31, 1997 Insurance Company of America, Inc. dated August 27, 1997. 10(oo) Promissory Note from Overseas Incorporated by Reference to Exhibit 10(dddd) of OPL's Partners (333), Inc. to The Annual Report on Form 10-K for the Year Ended December Prudential Insurance Company of 31, 1997 America, Inc. dated August 28, 1997. 10(qq) Assignment of Agreements by Overseas Incorporated by Reference to Exhibit 10(ffff) of OPL's Partners (333), Inc. to The Annual Report on Form 10-K for the Year Ended December Prudential Insurance Company of 31, 1997 America, Inc. dated August 28, 1997. 10(rr) Assignment of Leases and Rents by and Incorporated by Reference to Exhibit 10(gggg) of OPL's from Overseas Partners (333), Inc. to Annual Report on Form 10-K for the Year Ended December The Prudential Insurance Company of 31, 1997 America, Inc. dated August 27, 1997.
E-5 10(ss) The Overseas Partners Ltd. and Incorporated by Reference to Exhibit 10(hhhh) of OPL's Subsidiaries Retirement Plan As Annual Report on Form 10-K for the Year Ended December Amended and Restate Generally 31, 1997 Effective January 1, 1997 10(tt) Agreement of General Partnership of Incorporated by Reference to Exhibit 10(iiii) of OPL's OPL Group Investment Partnership Annual Report on Form 10-K for the Year Ended December dated as of December 1, 1997. 31, 1997 10(uu) Purchase and Sale Agreement by and Incorporated by Reference to Exhibit 10(jjjj) of OPL's between Madison Plaza Venture and Quarterly Report on Form 10-Q for the Quarter Ended OPCC dated June 30, 1998 September 30, 1998 10(vv) Term Loan Promissory Note by Overseas Incorporated by Reference to Exhibit 10 (rrrr) of OPL's Partners (Madison Plaza) LLC and Bank Quarterly Report on Form 10-Q for the Quarter Ended of America National Trust and Savings September 30, 1998 Association 10(ww) Guaranty made by Overseas Partners Incorporated by Reference to Exhibit 10 (ssss) of OPL's Ltd. and OPCC in favor of Bank of Quarterly Report on Form 10-Q for the Quarter Ended America National Trust and Savings September 30, 1998 Association 10(xx) Investment Manager Agreement by and Incorporated by Reference to Exhibit 10 (uuuu) of OPL's between Oxford Advisors Ltd. and Quarterly Report on Form 10-Q for the Quarter Ended Overseas Partners Ltd. September 30, 1998 10(yy) Mortgage, Assignment of Leases and Incorporated by Reference to Exhibit 10 (uuu) of OPL's Rents and Security Agreement by Annual Report on Form 10-K for the Year Ended December Overseas Partners (Madison Plaza), 31, 1998 LLC and New York Life Insurance Company dated December 15, 1998 10(zz) Guaranty Agreement made by Overseas Incorporated by Reference to Exhibit 10 (vvv) of OPL's Partners (Madison Plaza), LLC in Annual Report on Form 10-K for the Year Ended December favor of New York Life Insurance 31, 1998 Company dated December 15, 1998. 10(aaa) Promissory Note from Overseas Incorporated by Reference to Exhibit 10 (www) of OPL's Partners (Madison Plaza), LLC to the Annual Report on Form 10-K for the Year Ended December New York Life Insurance Company dated 31, 1998 December 15, 1998. 10(bbb) Agreement for purchase and sale of Filed herewith. One Buckhead Plaza between Overseas Capital Co. and CB Richard Ellis Strategic Partners, L.P. dated May 29, 2000, and Amendments. 10(ccc) Purchase and sale agreement for 333 Filed herewith. West Wacker between Overseas Partners (333), Inc., and 333 West Wacker LLC, dated June 22, 2000 and Amendments.
E-6 10(ddd) Credit agreement dated as of October Filed herewith. 19, 2000 among Overseas Partners Capital Corp. as the Borrower, Overseas Partners Ltd. as the Guarantor, various financial institutions, as the Lenders, and Bank of America, National Association as Administrative Agent for the Lenders. 10(eee) Purchase and sale agreement for Filed herewith. Madison Plaza between Overseas Partners (Madison Plaza) LLC, and TST Madison Plaza, LLC dated November 27, 2000. (21) Subsidiaries Filed herewith. (23) Consent of Deloitte & Touche Filed herewith. (99) Additional exhibits: (99a) Custody Arrangements for OPL Common Incorporated by Reference to Exhibit 28(c) of OPL's Stock. Registration Statement (on Form S-1) No. 2-95460. (99c) OPL's Specimen Stock Certificate Incorporated by Reference to Exhibit 99 (c) of OPL's Annual Report on Form 10-K for the Year Ended December 31, 1996
E-7 OVERSEAS PARTNERS LTD. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Item 8. Financial Statements Page Number - ------- -------------------- ----------- Independent Auditors' Report F - 2 Consolidated Balance Sheets as of December 31, 2000 and 1999 F - 3 Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2000, 1999, and 1998 F - 4 Consolidated Statements of Members' Equity for the years ended December 31, 2000, 1999 and 1998 F - 5 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 F - 6 Notes to Consolidated Financial Statements for the years ended December 31, 2000, 1999 and 1998 F - 7 Item 14(a). Financial Statement Schedules - ---------- ----------------------------- All schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto.
F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Members of Overseas Partners Ltd. Hamilton, Bermuda We have audited the accompanying consolidated balance sheets of Overseas Partners Ltd. and its Subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income and comprehensive income, members' equity, and cash flows for each of the years in the three-year period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Overseas Partners Ltd. and its Subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE Hamilton, Bermuda January 15, 2001 F-2
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES - ----------------------------------------------------------------------------------------------------------------------- Consolidated Balance Sheets December 31, 2000 and 1999 (In thousands U.S.$, except share and per share amounts) ======================================================================================================================= ASSETS: 2000 1999 ---- ---- Investments: Trading, at fair value- Debt securities (amortized cost 2000 - $549,422, 1999 - $559,416) $ 539,302 $ 512,148 Equity securities (cost 2000 - $1,242,202, 1999 - $1,223,954) 1,525,453 1,737,498 Available-for-sale, at fair value- Debt securities (amortized cost 2000 - $44,554, 1999 - $nil) 44,620 -- Restricted investments, held-to-maturity, at amortized cost (fair value 2000-$285,067, 1999-$254,619) 242,209 242,931 - ----------------------------------------------------------------------------------------------------------------------- 2,351,584 2,492,577 Cash and cash equivalents 515,159 450,336 Receivables 685,998 711,495 Deferred acquisition costs 53,075 87,146 Real estate & leasing: Operating leases with UPS 96,335 98,847 Finance leases 43,886 45,400 Hotel 155,219 159,403 Office buildings 582,365 790,864 Other assets: Goodwill 23,568 23,977 Other 70,395 55,237 - ----------------------------------------------------------------------------------------------------------------------- Total assets $4,577,584 $4,915,282 - ----------------------------------------------------------------------------------------------------------------------- LIABILITIES AND MEMBERS' EQUITY: Liabilities: Accrued losses and loss expenses $1,416,733 $ 972,201 Unearned premiums 301,572 376,745 Reinsurance balances payable 77,088 43,466 Accounts payable and other accruals 57,428 48,632 Deferred income taxes 6,116 16,542 Short-term debt 135,000 -- Long-term debt 761,943 866,144 Minority interest 43,699 44,169 - ----------------------------------------------------------------------------------------------------------------------- Total liabilities $2,799,579 $2,367,899 - ----------------------------------------------------------------------------------------------------------------------- Commitments and contingencies -- -- Members' equity: Preference Stock, par value $0.10 per share; authorized 200 million shares; none issued -- -- Common Stock, par value, $0.10 per share; authorized 900 million shares; issued 127.5 million; outstanding 120,936,681 shares (1999: 124,391,415 shares) 12,750 12,750 Contributed surplus 39,991 39,991 Retained earnings 1,850,577 2,556,774 Treasury stock (2000 - 6,563,319 shares, 1999 - 3,108,585 shares), at cost (125,379) (62,132) Accumulated other comprehensive income 66 -- - ----------------------------------------------------------------------------------------------------------------------- Total members' equity 1,778,005 2,547,383 - ----------------------------------------------------------------------------------------------------------------------- Total liabilities and members' equity $4,577,584 $4,915,282 - ----------------------------------------------------------------------------------------------------------------------- Net book value per share $ 14.70 $ 20.48 - -----------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. F-3
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES - ------------------------------------------------------------------------------------------------------------------- Consolidated Statements of Income and Comprehensive Income Years Ended December 31, 2000, 1999 and 1998 (In thousands U.S.$, except share and per share amounts. Number of shares in thousands.) =================================================================================================================== 2000 1999 1998 ---- ---- ---- Revenues: Gross reinsurance premiums written $563,553 $845,023 $923,623 Reinsurance premiums ceded (62,868) (25,340) (14,628) - ----------------------------------------------------------------------------------------------------------------------- Net reinsurance premiums written 500,685 819,683 908,995 Change in unearned premiums 85,331 (11,974) (162,077) - ----------------------------------------------------------------------------------------------------------------------- Reinsurance premiums earned 586,016 807,709 746,918 Commission income 5,621 5,574 6,090 Operating leases with UPS 18,509 17,932 27,079 Finance leases 3,643 3,778 3,901 Hotel 107,055 101,208 93,886 Office buildings 144,615 150,218 130,209 Gain on sale of Boeing 757 aircraft -- -- 11,795 Gain on sale of office buildings 49,496 -- -- Interest 64,104 54,396 52,926 Net holding (loss) gain on trading securities (122,455) 234,525 166,938 Amortization of fixed income securities 14,655 14,657 9,215 Dividends 11,223 11,355 16,132 - ----------------------------------------------------------------------------------------------------------------------- 882,482 1,401,352 1,265,089 - ----------------------------------------------------------------------------------------------------------------------- Expenses: Reinsurance losses and loss expenses 955,286 759,231 404,328 Reinsurance commissions, taxes and other 145,341 120,256 100,332 Depreciation and impairment expense 72,931 36,446 35,392 Real estate and leasing operating expenses 150,680 145,388 136,604 Interest expense 69,563 71,533 65,632 Minority interest in earnings 3,867 3,029 2,822 Investment expenses 4,938 6,197 4,762 Amortization of goodwill 2,973 2,550 2,513 Other operating expenses 14,722 12,795 13,498 ---------------------------------------------------------------------------------------------------------------------- 1,420,301 1,157,425 765,883 - ----------------------------------------------------------------------------------------------------------------------- (Loss) income before income taxes (537,819) 243,927 499,206 ---------------------------------------------------------------------------------------------------------------------- Income taxes - current (30,620) (13,155) (56,822) - deferred 10,523 2,023 45,913 - ----------------------------------------------------------------------------------------------------------------------- (20,097) (11,132) (10,909) - ------------------------------------------------------------------------------------------------------------------------ Net (loss) income (557,916) 232,795 488,297 ---------------------------------------------------------------------------------------------------------------------- Other comprehensive income: Net unrealized gain on available-for-sale securities (net of tax of $42) 66 -- -- ---------------------------------------------------------------------------------------------------------------------- Comprehensive (loss) income $(557,850) $232,795 $488,297 ---------------------------------------------------------------------------------------------------------------------- Basic and diluted net (loss) income per share $ (4.53) $ 1.85 $ 3.87 ---------------------------------------------------------------------------------------------------------------------- Weighted average number of shares outstanding 123,112 125,882 126,014 ----------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. F-4 OVERSEAS PARTNERS LTD. AND SUBSIDIARIES - -------------------------------------------------------------------------------- Consolidated Statements of Members' Equity Years Ended December 31, 2000, 1999 and 1998
(In thousands U.S.$, except share and per share amounts. Number of shares in thousands.) =================================================================================================================================== Preference Common Stock Treasury Stock Contributed Retained Accumulated Total Stock Shares Amount Shares Amount Surplus Earnings Other Members' Comprehensive Equity Income - ------------------------------------------------------------------------------------------------------------------------------------ Balance, January 1, 1998 $ -- 131,000 $ 13,100 -- $ -- $ 26,642 $2,187,420 $ -- $2,227,162 Net income -- -- -- -- -- -- 488,297 -- 488,297 Dividends paid ($1.04 per share) -- -- -- -- -- -- (131,252) -- (131,252) Transfer of Common Stock held for stock plans -- -- -- (1,746) (24,859) -- -- -- (24,859) Purchase of treasury stock -- -- -- (7,452) (126,682) -- -- -- (126,682) Sale of treasury stock -- -- -- 5,421 87,338 4,665 -- -- 92,003 Issuance of Common Stock -- 500 50 (500) (8,500) 8,450 -- -- -- Retirement of treasury stock -- (4,000) (400) 4,000 68,000 -- (67,600) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1998 $ -- 127,500 $12,750 (277) $ (4,703) $ 39,757 $2,476,865 $ -- $2,524,669 Net income -- -- -- -- -- -- 232,795 -- 232,795 Dividends paid ($1.20 per share) -- -- -- -- -- -- (152,886) -- (152,886) Purchase of treasury stock -- -- -- (8,671) (172,443) -- -- -- (172,443) Sale of treasury stock -- -- -- 5,839 115,014 234 -- -- 115,248 - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1999 $ -- 127,500 $12,750 (3,109) $ (62,132) $ 39,991 $2,556,774 $ -- $2,547,383 Net income -- -- -- -- -- -- (557,916) -- (557,916) Net unrealized gain on available- for-sale securities -- -- -- -- -- -- -- 66 66 Dividends paid ($1.20 per share) -- -- -- -- -- -- (148,281) -- (148,281) Purchase of treasury stock -- -- -- (3,454) (63,247) -- -- -- (63,247) - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 2000 $ -- 127,500 $12,750 (6,563) $(125,379) $ 39,991 $1,850,577 $ 66 $1,778,005 - ------------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. F-5 OVERSEAS PARTNERS LTD. AND SUBSIDIARIES - -------------------------------------------------------------------------------- Consolidated Statements of Cash Flows Years Ended December 31, 2000, 1999 and 1998
(In thousands U.S.$) ==================================================================================================================== 2000 1999 1998 ---- ---- ---- CASH FLOW FROM OPERATING ACTIVITIES: Net (loss) income $ (557,916) $ 232,795 $ 488,297 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes (10,523) (2,023) (45,913) Depreciation and impairment expense 72,931 36,446 35,392 Minority interest in earnings 3,867 3,029 2,822 Net holding loss (gain) on trading securities 122,455 (234,525) (166,938) Amortization of fixed income securities (14,655) (14,657) (9,215) Gain on sale of Boeing 757 aircraft -- -- (11,795) Gain on sale of office buildings (49,496) -- -- Other (371) 4,405 3,703 Changes in assets and liabilities: Receivables 25,497 (210,785) (266,750) Deferred acquisition costs 34,071 (7,696) (31,749) Other assets (9,158) (25,722) (8,666) Accrued losses and loss expenses 444,532 503,875 129,901 Unearned premiums (75,173) 24,353 166,967 Reinsurance balances payable 33,622 15,173 20,938 Accounts payable and other accruals 8,796 (6,771) 14,533 Proceeds from sales and maturities of trading investments 1,005,143 1,085,097 1,733,510 Purchase of trading investments (942,707) (905,741) (1,988,370) - -------------------------------------------------------------------------------------------------------------------- Net cash flow provided by operating activities 90,915 497,253 66,667 CASH FLOW FROM INVESTING ACTIVITIES: Proceeds from sales and maturities of available-for-sale investments 49,909 -- -- Purchase of available-for-sale investments (86,349) -- -- Proceeds from maturity of restricted investments 20,146 16,946 -- Purchase of restricted investments (4,769) (1,108) (185,739) Proceeds on sale of Boeing 757 aircraft -- -- 202,220 Proceeds on sale of office buildings 123,224 -- -- Acquisition of office building -- -- (199,308) Acquisition of business, net of cash (16,678) -- -- Additions to real estate and leasing assets (20,926) (10,062) (15,973) - -------------------------------------------------------------------------------------------------------------------- Net cash flow provided (used) by investing activities 64,557 5,776 (198,800) - -------------------------------------------------------------------------------------------------------------------- CASH FLOW FROM FINANCING ACTIVITIES: Purchases of treasury stock (63,247) (172,443) (126,682) Proceeds from sale of treasury stock -- 115,248 92,003 Repayment of long-term debt (9,784) (9,596) (7,788) Borrowings 135,000 -- 125,000 Distributions to minority interest (4,337) (3,871) (3,349) Dividends paid (148,281) (152,886) (131,252) - -------------------------------------------------------------------------------------------------------------------- Net cash flow used by financing activities (90,649) (223,548) (52,068) - -------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 64,823 279,481 (184,201) Cash and cash equivalents: Beginning of year 450,336 170,855 355,056 - ------------------------------------------------------------------------------------------------------------------- End of year $ 515,159 $ 450,336 $ 170,855 - ------------------------------------------------------------------------------------------------------------------- Supplemental disclosures of cash flow information: Amount of cash paid during the period for: U.S. income taxes $ 29,341 $ 10,527 $ 61,928 Interest $ 71,653 $ 72,258 $ 58,572 Assignment of debt in partial consideration for sale of office buildings $ 94,473 $ -- $ -- - -------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. F-6 OVERSEAS PARTNERS LTD. AND SUBSIDIARIES - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements Years Ended December 31, 2000, 1999 and 1998 ================================================================================ 1. ORGANIZATION ------------ The accompanying consolidated financial statements include the accounts of Overseas Partners Ltd. and its subsidiaries (collectively OPL or the Company). OPL is engaged in the property, casualty, property catastrophe and finite risk reinsurance business and in the real estate and leasing business. In prior years, OPL's largest program related to the reinsurance of customer packages shipped by United Parcel Service of America Inc. (UPS). The shipper's risk program was cancelled effective October 1, 1999. The program generated premium revenues of $273.5 million and $371.8 million in 1999 and 1998, respectively, contributing $213.5 million and $241.8 million to net underwriting income in each of those years. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. All activity is recorded in U.S. dollars. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following are the significant accounting policies adopted by the Company. Intercompany balances and transactions have been eliminated in consolidation. Premiums written and ceded are recorded based on estimates of ultimate amounts at inception of the contract. Such estimates are regularly reviewed with adjustments, if any, recorded in the period in which they are determined. Premiums written and ceded are recognized as earned on a pro-rata basis over the period the coverage is provided. Unearned premiums and acquisition costs, primarily commissions and taxes, applicable to the unexpired periods of the policies in force, are deferred. The deferral of acquisition expenses is limited to their realizable value by giving consideration to losses and expenses expected to be incurred as premiums are earned and to the future anticipated investment income related to such premiums. After limiting the deferral of acquisition expenses any additional premium deficiency is recorded as part of accrued losses and loss expenses. The deferral of acquisition expenses is reviewed on a program-by-program basis. The reserve for accrued losses and loss expenses includes an estimate of outstanding losses and an estimate for losses incurred but not reported. Outstanding losses are estimated based on ceding company reports and other data considered relevant to the estimation process. The liability for losses incurred but not reported reflects management's best estimates based on the recommendations of an independent actuary using the past loss experience of the Company and industry data. The reserves as established by management are reviewed quarterly and adjustments are made in the period in which they become known. Although management believes this provision is adequate, based on all available information, there can be no assurance that actual losses will not differ significantly from the amounts provided. Inherent in the estimates of ultimate losses are expected trends in claim severity and frequency and other factors which could vary significantly as claims are settled. The Company recognizes reinsurance recoveries when the associated loss is incurred. All highly liquid debt instruments with maturities of three months or less at the date of acquisition are considered cash equivalents. Trading securities are carried at fair value with any unrealized gains and losses included in net income. Available-for-sale securities are carried at fair value with any unrealized gains and losses included in other comprehensive income. The cost of securities sold is calculated using the specific identification method. Held-to-maturity investments are carried at amortized cost as OPL has the ability and intent to hold such investments to maturity. Non-U.S. dollar securities are translated into U.S. dollars at year end rates. Estimated fair value of investments is based on market quotations. The estimated fair value of long-term debt is based on the net present value of future contractual cash flows, using current interest rates offered for similar debt with similar maturities. The carrying values of other financial instruments approximate their fair values due to the short-term nature of the balances. F-7 OVERSEAS PARTNERS LTD. AND SUBSIDIARIES - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements Years Ended December 31, 2000, 1999 and 1998 ================================================================================ 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) ------------------------------------------ Debt issuance expenses, included in other assets, and original issue discounts are amortized over the term of the related debt. The Company utilizes the liability method of accounting for income taxes. Under the liability method, deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is established for any portion of a deferred tax asset that management believes will not be realized. Goodwill represents the difference between the purchase price paid and the estimated fair value of net assets acquired. Goodwill and other intangibles arising from acquisitions are amortized over their estimated useful lives on a straight-line basis. Estimated useful lives vary between 10 and 40 years. Goodwill arising from the 1997 acquisition of a managing general agent is being amortized over 10 years. Net book value per share is based on 120.9 million shares outstanding (net of treasury) at December 31, 2000 and 124.4 million shares at December 31, 1999. Net income per share is computed based on weighted average shares outstanding of 123.1 million in 2000, 125.9 million in 1999 and 126.0 million in 1998. Real estate and leasing activities include finance leases, operating leases with UPS and the operation of office buildings and a hotel. Income from finance leases is recognized by a method which produces a constant periodic rate of return on the outstanding investment in the lease. Income from operating leases is recognized as rentals and becomes receivable according to the provisions of the leases. The hotel air rights lease is prepaid through the year 2077 (the expiration date of the lease) and is amortized under the straight-line method over the life of the lease. Equipment under operating leases, the hotel and the office buildings are recorded at cost less accumulated depreciation, which is provided under the straight-line method over the estimated useful lives as follows: Operating Leases with UPS - ------------------------- Facility 40 years Hotel - ----- Building and improvements 40 years Furniture, fixtures and equipment 10 years Office Buildings - ---------------- Building and improvements 40 years Furniture, fixtures and equipment 7 years Tenant improvements Lease term
Equipment under operating leases, the hotel and the office buildings held for use are assessed for impairment under Statement of Financial Accounting Standards No. 121 whenever a trigger event occurs. The impairment test is based on whether estimated future undiscounted cash flow from such assets on an individual basis will be less than their net carrying value. If an asset is impaired, its basis is adjusted to fair market value, (net of expected costs to sell), and any such adjustment is recorded as part of depreciation and impairment expense in the consolidated statement of income. Long-lived assets held for sale are recorded at the lower of fair market value, as indicated by independent appraisals or firm offers, and net carrying value. F-8 OVERSEAS PARTNERS LTD. AND SUBSIDIARIES - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements Years Ended December 31, 2000, 1999 and 1998 ================================================================================ 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) ------------------------------------------ In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS 133 is effective beginning in the first quarter of fiscal 2001 and will not have a material impact on the Company's financial position or results of operations. 3. ACQUISITION ----------- On October 2, 2000 OPL, through its wholly owned subsidiary Overseas Partners US Holding Company, completed the acquisition of Overseas Partners US Reinsurance Company (OPUS Re) for $6 million plus its capital and surplus of $28.6 million. OPUS Re provides property & casualty reinsurance and it's principal operations are located in Philadelphia. Since the completion of the acquisition OPL has made capital contributions to OPUS Re such that at December 31, 2000 OPUS Re had capital of approximately $282 million. The acquisition has been accounted for using the purchase method. 4. TAXES ----- OPL is organized under the laws of the Islands of Bermuda and does not consider itself to carry on business through a permanent establishment in the United States and, therefore, does not expect to be subject to U.S. income taxes. Certain of OPL's subsidiaries engage in business in the U.S., including Overseas Partners Capital Corp. (OPCC) and OPUS Re (See Note 3, Acquisition). These subsidiaries, but not OPL, are subject to U.S. income taxes. Under current Bermuda law, OPL is not obligated to pay any tax in Bermuda based upon income or capital gains. The United States Internal Revenue Service (IRS) previously asserted that the Company was subject to U.S. taxation in the amount of approximately $53 million for its 1984 taxable year and $240 million for its 1985 through 1987 taxable years, plus additions to tax and interest for those years. On February 13, 1998, the IRS indicated that it no longer intended to pursue its position against the Company for 1984. On January 4, 1999, the IRS indicated that it no longer intended to pursue its position against the Company for 1985 through 1987. On December 22, 1998, the IRS issued a Notice of Deficiency with respect to the Company's 1988 through 1990 taxable years in which it asserted that the Company is subject to U.S. taxation in the aggregate amount of approximately $170 million, plus additions to tax and interest, for those years. On March 19, 1999, the Company filed a petition in the United States Tax Court contesting the asserted deficiencies in tax and additions to tax in the Notice. On May 18, 1999, the IRS filed its Answer to the Company's Petition. The IRS has also asserted that the Company is subject to U.S. taxation for its 1991 through 1994 taxable years and has proposed an aggregate assessment of $319 million of tax, plus additions to tax and interest, for those years. The Company has filed a Protest against the proposed assessment with the Appellate Division of the IRS with respect to the years 1991 through 1994. The IRS has not proposed an assessment for years subsequent to 1994. However, the IRS may take similar positions for subsequent years pending resolution of the years currently in dispute. OPL believes that it has no tax liability, that it is not subject to U.S. taxation, and that there is substantial authority for its position. It is vigorously contesting the Notice of Deficiency for 1988 through 1990 and will vigorously contest proposed assessments or any future assessments. F-9 OVERSEAS PARTNERS LTD. AND SUBSIDIARIES - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements Years Ended December 31, 2000, 1999 and 1998 ================================================================================ 4. TAXES (continued) ----- The components of income tax expense related to earnings for those subsidiaries engaged in business in the U.S., as indicated above, were as follows:
(In thousands U.S.$) 2000 1999 1998 - ----------------------------------------------------------------------- Current: Federal $ 24,789 $10,639 $ 50,837 State 5,831 2,516 5,985 - ----------------------------------------------------------------------- 30,620 13,155 56,822 - ----------------------------------------------------------------------- Deferred: Federal (8,478) (1,634) (40,842) State (2,045) (389) (5,071) - ------------------------------------------------------------------------ (10,523) (2,023) (45,913) - ------------------------------------------------------------------------ $ 20,097 $11,132 $ 10,909 - -----------------------------------------------------------------------
The income tax rate on earnings differed from the U.S. Federal statutory rate as follows:
2000 1999 1998 - --------------------------------------------------------------------------------------------- U.S. Federal statutory rate on net (loss) income (35.0)% 35.0% 35.0% Bermuda operations not subject to U.S. taxation 38.0 (31.3) (33.0) State taxes 0.7 0.9 0.2 - --------------------------------------------------------------------------------------------- Effective tax rate 3.7% 4.6% 2.2% - ---------------------------------------------------------------------------------------------
The components of deferred income taxes as of December 31, 2000 and 1999 are as follows:
(In thousands U.S.$) 2000 1999 - --------------------------------------------------------------------------- Asset impairment $(15,683) $ -- Expenses not currently deductible (1,277) (3,173) - ---------------------------------------------------------------------------- Total deferred tax assets (16,960) (3,173) - --------------------------------------------------------------------------- Excess of tax over book depreciation 11,568 9,776 Unrealized holding gain on securities 8,725 7,106 Other 2,783 2,833 - --------------------------------------------------------------------------- Total deferred tax liabilities 23,076 19,715 - --------------------------------------------------------------------------- Net deferred income tax liability $ 6,116 $16,542 - ---------------------------------------------------------------------------
F-10 OVERSEAS PARTNERS LTD. AND SUBSIDIARIES - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements Years Ended December 31, 2000, 1999 and 1998 ================================================================================ 5. INVESTMENTS ----------- Amortized cost and fair value of investments in securities are as follows:
- ----------------------------------------------------------------------------------------------------------------------- (In thousands U.S.$) AMORTIZED COST UNREALIZED UNREALIZED FAIR VALUE December 31, 2000: GAINS LOSSES - ----------------------------------------------------------------------------------------------------------------------- Trading debt: U.S. government bonds $ 149,949 $ 5,176 $ (396) $ 154,729 Foreign government bonds 331,633 7,608 (22,528) 316,713 Corporate and other bonds 67,840 1,637 (1,617) 67,860 - ----------------------------------------------------------------------------------------------------------------------- 549,422 14,421 (24,541) 539,302 - ----------------------------------------------------------------------------------------------------------------------- Trading equities: U.S. equities 573,911 269,592 (35,438) 808,065 Emerging markets 191,738 17,204 (43,754) 165,188 Multi-manager funds 449,440 54,627 -- 504,067 Real estate investment trust certificates 27,113 21,020 -- 48,133 - ----------------------------------------------------------------------------------------------------------------------- 1,242,202 362,443 (79,192) 1,525,453 - ----------------------------------------------------------------------------------------------------------------------- Available-for-sale debt: U.S. government bonds 7,148 88 -- 7,236 Corporate and other bonds 37,406 122 (144) 37,384 - ----------------------------------------------------------------------------------------------------------------------- 44,554 210 (144) 44,620 - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- $1,836,178 $377,074 $(103,877) $2,109,375 - -----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------- (In thousands U.S.$) AMORTIZED COST UNREALIZED UNREALIZED FAIR VALUE December 31, 1999: GAINS LOSSES - ----------------------------------------------------------------------------------------------------------------------- Trading debt: U.S. government bonds $ 142,022 $ -- $ (8,377) $ 133,645 Foreign government bonds 378,367 1,123 (38,830) 340,660 Corporate and other bonds 39,027 -- (1,184) 37,843 - ----------------------------------------------------------------------------------------------------------------------- 559,416 1,123 (48,391) 512,148 - ----------------------------------------------------------------------------------------------------------------------- Trading equities: U.S. equities 589,759 428,230 (15,644) 1,002,345 Emerging markets 185,454 65,418 (13,890) 236,982 Multi-manager funds 399,440 36,040 -- 435,480 Real estate investment trust certificates 49,301 18,017 (4,627) 62,691 - ----------------------------------------------------------------------------------------------------------------------- 1,223,954 547,705 (34,161) 1,737,498 - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- $1,783,370 $548,828 $ (82,552) $2,249,646 - -----------------------------------------------------------------------------------------------------------------------
F-11 OVERSEAS PARTNERS LTD. AND SUBSIDIARIES - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements Years Ended December 31, 2000, 1999 and 1998 ================================================================================ 5. INVESTMENTS (continued) ----------- Multi-manager funds consist of two funds listed on the Irish and Cayman Islands Stock Exchanges. One is a strategic income multi-manager fund with underlying securities including high grade bonds, floating rate loans, convertible securities and high yield bonds. The underlying securities are all issued in the U.S. with the average credit quality of the fund not falling below investment grade. The second is a multi-manager, long-short market-neutral fund whereby long, or bought, positions are matched with short, or sold, positions in an attempt to neutralize the effect of the broader markets' overall direction, thereby offering investors an increased likelihood of realizing a return in all types of market conditions. Included in net (loss)/gain on trading securities of $(122.5) million, $234.5 million and $166.9 million in 2000, 1999 and 1998, were $(180.2) million, $135.1 million and $116.7 million of unrealized holding (losses)/gains, respectively. Held-to-maturity securities, which are comprised of zero coupon U.S. treasury notes and bonds, are carried at amortized cost and have an estimated fair value of $285.1 million as of December 31, 2000 and $254.6 million as of December 31, 1999. Gross unrealized holding gains and losses as of December 31, 2000 and 1999 were $42.9 million and $(nil) and $20.9 million and $(9.2) million respectively. The investments are held as substitute collateral for the interest obligation associated with the Series A Bonds and the principal associated with the Series A and B Bonds issued in connection with the original acquisition of the Boeing 757 aircraft and the data processing facility. The Series A obligation was previously collateralized by the fixed minimum rentals on the lease of the aircraft sold in 1998 (see Note 7). The amortized cost and estimated fair value of debt securities, by contractual maturities, are as follows:
2000 - ------------------------------------------------------------------------ AMORTIZED FAIR VALUE (In thousands U.S.$) COST - ------------------------------------------------------------------------ Held to maturity securities: Within 1 year $ 19,589 $ 19,578 After 1 year through 5 years 84,864 86,157 After 5 years through 10 years 52,453 54,294 After 10 years 85,303 125,038 - ------------------------------------------------------------------------ $242,209 $285,067 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ Available-for-sale securities: Within 1 year $ 36,536 $ 36,534 After 1 year through 5 years 5,482 5,543 After 5 years through 10 years -- -- After 10 years 2,536 2,543 - ------------------------------------------------------------------------ $ 44,554 $ 44,620 - ------------------------------------------------------------------------ - ------------------------------------------------------------------------ $286,763 $329,687 - ------------------------------------------------------------------------
The components of realized gains were as follows:
(In thousands U.S.$) 2000 1999 1998 - --------------------------------------------------------------------------------------------------------- U.S. equities $ 93,644 $112,918 $ 65,458 Emerging markets 2,782 (1,245) (25,833) Debt (39,142) (12,239) 8,735 Real estate investment trust certificates 2,361 -- -- Other (1,908) 3 1,848 - --------------------------------------------------------------------------------------------------------- $ 57,737 $ 99,437 $ 50,208 - ---------------------------------------------------------------------------------------------------------
F-12 OVERSEAS PARTNERS LTD. AND SUBSIDIARIES - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements Years Ended December 31, 2000, 1999 and 1998 ================================================================================ 6. FAIR VALUE OF FINANCIAL INSTRUMENTS ----------------------------------- Fair value of financial instruments is as follows:
2000 1999 - ------------------------------------------------------------------------------------------------------ CARRYING FAIR CARRYING FAIR (In thousands U.S.$) VALUE VALUE VALUE VALUE - ------------------------------------------------------------------------------------------------------ Investments (Note 5) $2,351,584 $2,394,442 $2,492,577 $2,504,265 - ------------------------------------------------------------------------------------------------------ Debt (Note 9) $ 896,943 $ 990,908 $ 866,144 $ 908,048 - ------------------------------------------------------------------------------------------------------
7. REAL ESTATE AND LEASING Included within office buildings are two buildings that are expected to be sold in the first half of 2001. The net book value of these buildings at December 31, 2000 is $150.8 million for Madison Plaza and $116.7 million for the Atlanta Financial Center. During 2000 OPL recorded an asset impairment charge of $37.3 million for Madison Plaza to bring the net book value down to the expected net realizable value. The Atlanta Financial Center is expected to sell in excess of the current net book value. Net income for these buildings after depreciation and impairment charges is as follows:
(In thousands U.S.$) 2000 1999 1998 - ------------------------------------------------------------------------------ Net income: Madison Plaza $(38,494) $ (579) $ 322 Atlanta Financial Center 2,063 2,684 2,109 - ------------------------------------------------------------------------------ $(36,431) $2,105 $2,431 - ------------------------------------------------------------------------------
In August 2000 the company sold two office buildings. The net cash proceeds received were $123.2 million. The purchasers of both properties assumed the associated debt totaling $94.5 million. For 333 West Wacker Drive net proceeds were $76.1 million and for One Buckhead Plaza net proceeds were $47.1 million. This resulted in pre-tax gains on sale of $25.2 million and $24.3 million, respectively. In July 1998, the Company sold its five Boeing 757 aircraft to UPS pursuant to the terms of a purchase option granted in a May 31, 1990 Aircraft Lease Agreement between the parties. Proceeds were approximately $202 million, yielding a gain on sale before income taxes of approximately $12 million. F-13 OVERSEAS PARTNERS LTD. AND SUBSIDIARIES - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements Years Ended December 31, 2000, 1999 and 1998 ================================================================================ 7. REAL ESTATE AND LEASING (continued) ----------------------- Real estate and leasing assets consist of the following:
(In thousands U.S.$) 2000 1999 - ---------------------------------------------------------------------------------- Operating Leases with UPS: Data processing facility $118,100 $ 118,125 Accumulated depreciation (21,765) (19,278) - ---------------------------------------------------------------------------------- 96,335 98,847 - ---------------------------------------------------------------------------------- Finance leases: Lease rents receivable 83,074 88,232 Estimated residual value 6,744 6,744 Unearned and deferred income (45,932) (49,576) - ---------------------------------------------------------------------------------- 43,886 45,400 - ---------------------------------------------------------------------------------- Hotel: Building and improvements 152,076 152,076 Furniture, fixtures and equipment 24,345 22,179 Air rights, leasehold interest 18,128 18,128 - ---------------------------------------------------------------------------------- 194,549 192,383 Accumulated depreciation (39,330) (32,980) - ---------------------------------------------------------------------------------- 155,219 159,403 - ---------------------------------------------------------------------------------- Office buildings: Building and improvements 577,339 769,861 Furniture, fixtures and equipment 3,984 4,047 Tenant improvements 52,959 55,809 Land 20,557 34,328 - ---------------------------------------------------------------------------------- 654,839 864,045 Accumulated depreciation (72,474) (73,181) - ---------------------------------------------------------------------------------- 582,365 790,864 - ---------------------------------------------------------------------------------- Total $877,805 $1,094,514 - ----------------------------------------------------------------------------------
The operating lease agreements require fixed annual minimum rentals and variable additional rentals based upon usage for certain of the leases. Variable additional rentals in 2000, 1999 and 1998 were $11.1 million, $10.6 million and $9.8 million, respectively. Total aggregate fixed minimum rentals are as follows:
OPERATING FINANCE OFFICE TOTAL (In thousands U.S.$) LEASES LEASES BUILDINGS - --------------------------------------------------------------------------------------- 2001 $ 7,321 $ 4,476 $ 71,710 $ 83,507 2002 7,321 4,248 66,978 78,547 2003 7,321 4,248 62,718 74,287 2004 7,321 4,248 56,124 67,693 2005 7,321 4,248 36,005 47,574 After 2005 102,494 61,606 77,985 242,085 - --------------------------------------------------------------------------------------- $139,099 $83,074 $371,520 $593,693 - ---------------------------------------------------------------------------------------
F-14 OVERSEAS PARTNERS LTD. AND SUBSIDIARIES - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements Years Ended December 31, 2000, 1999 and 1998 ================================================================================ 8. ACCRUED LOSSES AND LOSS EXPENSES -------------------------------- Activity in accrued losses and loss expenses is summarized as follows:
(In thousands U.S.$) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------ Gross balance as of January 1, $ 972,201 $ 468,326 $ 338,879 Less reinsurance recoverable (15,040) (6,435) (454) - ------------------------------------------------------------------------------------------------------------ Net balance as of January 1, 957,161 461,891 338,425 - ------------------------------------------------------------------------------------------------------------ Incurred related to: Current year 651,027 632,537 409,860 Prior years 304,259 126,694 (5,532) - ------------------------------------------------------------------------------------------------------------ Total incurred 955,286 759,231 404,328 - ------------------------------------------------------------------------------------------------------------ Paid related to: Current year (199,820) (110,366) (134,613) Prior years (331,474) (146,565) (139,219) - ------------------------------------------------------------------------------------------------------------ Total paid (531,294) (256,931) (273,832) - ------------------------------------------------------------------------------------------------------------ Amortization of life and annuity reserve - net (7,030) (7,030) (7,030) - ------------------------------------------------------------------------------------------------------------ Net balance as of December 31, 1,374,123 957,161 461,891 Plus reinsurance recoverable 42,610 15,040 6,435 - ------------------------------------------------------------------------------------------------------------ Gross balance as of December 31, $1,416,733 $ 972,201 $ 468,326 - ------------------------------------------------------------------------------------------------------------
As a result of the change in estimates of insured events in prior years, the provision for losses and loss expenses increased by $304.3 and $126.7 million in 2000 and 1999, respectively. The increase in 2000 related primarily to accident & health, aviation, multi-line, marine and property programs written during 1997 to 1999. The increase reflected significant additional claims reported to the Company during the year and management's assessment of prevailing conditions in the reinsurance market, including industry announcements that indicated deterioration in loss estimates for 1999 storms and other large industry events. The increase in 1999 was primarily due to higher than anticipated losses on two programs in the marine and workers' compensation lines of business. Losses recoverable from reinsurers of $42.6 million and $15.0 million as of December 31, 2000 and 1999, respectively are included in receivables in the consolidated balance sheets. Losses incurred are net of $39.7 million, $9.0 million and $6.0 million of recoveries for the years ended December 31, 2000, 1999 and 1998 respectively. As of December 31, 2000 and 1999, there were no amounts due from any individual reinsurer in excess of 10% of OPL's members' equity. F-15 OVERSEAS PARTNERS LTD. AND SUBSIDIARIES - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements Years Ended December 31, 2000, 1999 and 1998 ================================================================================ 9. DEBT AND COMMITMENTS -------------------- OPL has issued or assumed certain debt obligations, as follows:
(In thousands U.S.$) 2000 1999 - ---------------------------------------------------------------------------------- Short-term debt Bridging loan: 7.029% due February 20, 2001 $135,000 $ -- - ---------------------------------------------------------------------------------- 135,000 -- - ---------------------------------------------------------------------------------- Long-term debt Operating leases: 9 7/8% Series A Bonds due 2012 171,600 171,600 9 7/8% Series B Bonds due 2019 73,400 73,400 - ---------------------------------------------------------------------------------- 245,000 245,000 Unamortized discount (788) (844) - ---------------------------------------------------------------------------------- 244,212 244,156 Finance leases: 7.53% non-recourse note through 2008 19,633 21,501 8.10% non-recourse note through 2011 10,070 10,070 - ---------------------------------------------------------------------------------- 29,703 31,571 Hotel: 8.39% non-recourse note due through 2006 100,716 103,139 Office buildings: 6.90% non-recourse note due through 2011 122,438 123,817 7.246% non-recourse note due through 2005 -- 32,694 7.44% non-recourse note due through 2007 188,375 190,537 7.57% non-recourse note due through 2012 -- 62,851 7.80% non-recourse note due through 2006 76,499 77,379 - ---------------------------------------------------------------------------------- 387,312 487,278 - ---------------------------------------------------------------------------------- Total long-term debt 761,943 866,144 - ---------------------------------------------------------------------------------- Total debt $896,943 $866,144 - ----------------------------------------------------------------------------------
Principal payments under debt obligations are as follows: (In thousands U.S.$) 2001 $144,329 2002 10,138 2003 10,945 2004 11,816 2005 12,756 After 2005 707,747 - ------------------------------------------- 897,731 Unamortized discount (788) - ------------------------------------------- $896,943 - -------------------------------------------
F-16 OVERSEAS PARTNERS LTD. AND SUBSIDIARIES - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements Years Ended December 31, 2000, 1999 and 1998 ================================================================================ 9. DEBT AND COMMITMENTS (continued) -------------------- The long-term debt is collateralized by the related real estate and leasing assets. The short-term debt was obtained to provide temporary working capital. It is anticipated that this loan will be repaid with the proceeds from the sales of Madison Plaza and Atlanta Financial Center. This debt is unsecured but is subject to various covenants. The most significant of these covenants is that the consolidated members' equity of the Company must be at least $1.7 billion at the end of each quarter. During the year ended December 31, 2000 the Company complied with all debt covenants. As discussed in Note 7, One Buckhead Plaza and 333 West Wacker Drive were sold in August 2000. The purchasers of both properties assumed the associated debt totaling $94.5 million. The principal of the Series A and Series B bonds is secured by zero coupon U.S. treasury notes held by an OPL wholly-owned subsidiary, Overseas Partners Credit, Inc. On or prior to the scheduled maturity of each series of the bonds, the U.S. treasury notes will mature in an amount equal to or exceeding the principal amount of that series. The interest obligation associated with the Series A bonds is collateralized by zero coupon U.S. treasury notes and corporate bonds held by an OPL wholly-owned subsidiary, OPL Funding Corp. The right to receive fixed minimum rentals on the data processing facility is used to collateralize and service the debt interest on the Series B bonds. In the normal course of reinsurance business, OPL's bankers have issued letters of credit totaling $621.9 million and $635.3 million as of December 31, 2000 and 1999, respectively, to collateralize the Company's accrued losses and unearned premium obligations to certain reinsureds. 10. BUSINESS SEGMENTS ----------------- The Company's operations are presently conducted through two segments - reinsurance and real estate and leasing. The reinsurance segment is managed from the Bermuda and Philadelphia offices and includes accident & health, agricultural, aviation, casualty, professional liability, property, property catastrophe, workers' compensation and finite risk business. Prior to October 1, 1999 the Company also provided shipper's risk reinsurance. Real estate and leasing activities are owned and managed through U.S. subsidiaries of OPCC, a wholly-owned subsidiary of OPL. There were no inter-segment revenues earned for the years ended December 31, 2000, 1999 and 1998. Inter-segment expenses, such as corporate overhead, were allocated based on estimated utilization for the years ended December 31, 2000, 1999 and 1998. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Income before income taxes by segment consists of revenues less expenses related to the respective segment's operations. The reinsurance segment maintains a portfolio of cash and liquid investments to support its reserves for accrued losses and loss expenses and unearned premiums as well as its capital requirements. Investments relating to real estate and leasing are primarily used to collateralize long-term debt issued in connection with the purchase of real estate properties, operating leases and finance leases. Summary financial information about the Company's segments is presented in the following table: F-17 OVERSEAS PARTNERS LTD. AND SUBSIDIARIES - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements Years Ended December 31, 2000, 1999 and 1998 ================================================================================ 10. BUSINESS SEGMENTS (continued) -----------------
(In thousands U.S.$) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------ REVENUES Reinsurance: Premiums earned $ 586,016 $ 807,709 $ 746,918 Commission income 5,621 5,574 6,090 Investment (loss) income (71,082) 302,143 243,998 - ------------------------------------------------------------------------------------------------------------ 520,555 1,115,426 997,006 - ------------------------------------------------------------------------------------------------------------ Real estate and leasing: Rentals 273,822 273,136 255,075 Gain on sale of Boeing 757 aircraft -- -- 11,795 Gain on sale of office buildings 49,496 -- -- Investment income 38,609 12,790 1,213 - ------------------------------------------------------------------------------------------------------------ 361,927 285,926 268,083 - ------------------------------------------------------------------------------------------------------------ Consolidated $ 882,482 $1,401,352 $1,265,089 - ------------------------------------------------------------------------------------------------------------ NET (LOSS) INCOME BEFORE TAXES Reinsurance $ (585,009) $ 229,742 $ 487,584 Real estate and leasing 64,885 29,530 27,633 Other operating expenses (17,695) (15,345) (16,011) - ------------------------------------------------------------------------------------------------------------ Consolidated $ (537,819) $ 243,927 $ 499,206 - ------------------------------------------------------------------------------------------------------------ ASSETS Reinsurance: Cash and investments $2,486,330 $2,559,897 $2,287,605 Other 792,508 829,739 572,966 - ------------------------------------------------------------------------------------------------------------ 3,278,838 3,389,636 2,860,571 - ------------------------------------------------------------------------------------------------------------ Real estate and leasing: Cash and investments 380,413 383,016 336,110 Other 918,333 1,142,630 1,171,662 - ------------------------------------------------------------------------------------------------------------ 1,298,746 1,525,646 1,507,772 - ------------------------------------------------------------------------------------------------------------ Consolidated $4,577,584 $4,915,282 $4,368,343 - ------------------------------------------------------------------------------------------------------------
Substantially all of the Company's long-lived assets, interest expense, depreciation expense and income tax expense relate to the Company's real estate and leasing operations. Approximately 70% of reinsurance revenues for 2000, 1999 and 1998 were derived primarily from sources located in the U.S. Other revenues were derived from customers located primarily in European countries. For 2000, 1999 and 1998, all of the Company's long-lived assets were located in the U.S. The Company's largest reinsurance program, until its cancellation effective October 1, 1999, related to the reinsurance of customer packages shipped by UPS. Earned premiums on shipper's risk reinsurance were $273.5 million and $371.8 million in 1999 and 1998, respectively. OPL earned premiums of $53.5 million, $48.3 million and $50.6 million for 2000, 1999 and 1998, respectively for the reinsurance of workers' compensation insurance, written by Liberty Mutual Insurance Company, for employees of a UPS subsidiary located in the State of California. OPL's real estate and leasing segment includes five Boeing 757 aircraft (sold in July 1998) and a data processing facility leased to UPS subsidiaries. Total rent from aircraft and facility leases was $18.5 million, $17.9 million and $27.1 million in 2000, 1999 and 1998, respectively. F-18 OVERSEAS PARTNERS LTD. AND SUBSIDIARIES - -------------------------------------------------------------------------------- Notes to Consolidated Financial Statements Years Ended December 31, 2000, 1999 and 1998 ================================================================================ 11. STATUTORY FINANCIAL INFORMATION ------------------------------- The Company's reinsurance subsidiaries are subject to insurance laws and regulations in the jurisdictions in which they operate. In Bermuda, the Bermuda Insurance Act of 1978, amendments thereto and related Regulations require OPL and its Bermuda based reinsurance subsidiaries to each maintain a minimum solvency margin and a liquidity ratio. For the years ended December 31, 2000 and 1999, each of the Bermuda based reinsurance companies met these requirements. The Company's ability to pay dividends to shareowners is not currently affected by these requirements. OPL's U.S. based reinsurance subsidiary OPUS Re is subject to regulations that include restrictions that limit the amount of dividends or other distributions, such as loans or cash advances, available to shareowners without prior approval of the insurance regulatory authorities. 12. SUPPLEMENTARY INFORMATION ------------------------- Reinsurance commissions, taxes and other for 2000, 1999 and 1998 include amortization of acquisition expenses of $129.9 million, $115.0 million and $95.9 million and underwriting expenses of $15.6 million, $5.3 million and $4.4 million, respectively. 13. CONTINGENCIES ------------- On November 19, 1999 and January 27, 2000 OPL was named as a defendant in two class action lawsuits, filed on behalf of customers of UPS, in Montgomery County, Ohio Court and Butler County, Ohio Court, respectively. The lawsuits allege, amongst other things, that UPS told its customers that they were purchasing insurance for coverage of loss or damage to goods shipped by UPS. The lawsuits further allege that UPS wrongfully enriched itself with the monies paid by its customers to purchase such insurance. The allegations in the lawsuits are drawn from a recent opinion by the United States Tax Court, currently on appeal to the United States Court of Appeals for the Eleventh Circuit, that found that the insurance program, as offered through UPS, several domestic insurance companies, and their related reinsurance agreement with OPL, was not adequate for UPS to avoid liability for federal income tax. The November 19, 1999 and January 27, 2000 actions were removed to federal court and thereafter transferred to the United States District Court for the Southern District of New York and consolidated in a multi-district litigation for pretrial discovery purposes with other actions asserting claims against UPS. Plaintiffs subsequently amended those claims against all defendants to join a RICO claim as well. On August 7, 2000, the Company and its wholly owned subsidiary, OPCC, were added as defendants in a third class action lawsuit, also consolidated in the multi-district litigation, which alleges violations of United States antitrust laws, and state unfair trade practice and consumer protection laws. The Company believes that it has meritorious defenses to all three actions and intends to defend them vigorously. The Company has filed motions to dismiss all of the actions on a number of grounds, including that the antitrust claim fails to state a claim upon which relief can be granted, and that the remaining claims are preempted by federal law. There can be no assurance, however, that an adverse determination of the lawsuits would not have a material effect on the Company. 14. COMPARATIVE FIGURES ------------------- Certain of the 1999 and 1998 amounts have been reclassified to conform to the presentation adopted in 2000. F-19 EX-3.(C) 2 0002.txt ALTERED MEMORANDUM OF ASSOCIATION EXHIBIT 3(C) Registration No. 10105 [LOGO] [BERMUDA] CERTIFICATE OF REGISTRATION OF ALTERED MEMORANDUM OF ASSOCIATION THIS IS TO CERTIFY that a copy of the Memorandum of Association of OVERSEAS PARTNERS LTD. ---------------------- altered in accordance with section 12 of the Companies Act 1981 ("the Act") and the consent granted by the Minister pursuant to section 4A were delivered to the Registrar of Companies and registered on the 26th day of September, 2000 pursuant to section 12(7A) of the Act. Given under my hand and the Seal of the REGISTRAR OF COMPANIES this 2nd day of October, 2000. [STAMP ] /s/ Claire Thomas for Registrar of Companies [LOGO] BERMUDA THE COMPANIES ACT 1981 APPLICATION TO ALTER THE MEMORANDUM OF ASSOCIATION Pursuant to section 12(2) Name of Company OVERSEAS PARTNERS LTD. Registration No. EC 7316 ---------------------- ------- (hereinafter referred to as "the Company") 1. The Company is an exempted company as defined by the Companies Act 1981. 2. The Company was registered in the office of the Registrar of Companies on the 28th day of June, 1983. 3. The Company is: a) [ ] Seeking to acquire objects to carry out restricted activities in accordance with section 4A (ministerial consent required); or b) [X] Not seeking to acquire objects to carry out restricted activities (no ministerial consent required). 4. It is proposed to alter the Memorandum of Association of the Company as follows: To delete the existing paragraph 5 and substitute the following: '5. The minimum share capital of the Company shall be US$370,000 fully paid, divided into shares of ten cents each.' 5. The reasons for the proposed alterations are as follows (if seeking to acquire objects to carry out restricted activities): The Company is a composite insurance company and needs to show a minimum capital of $370,000 in its Memorandum of Association. It is not seeking to change its objects. We, the undersigned, as officers of the Company, hereby apply to the Registrar of Companies to alter the Memorandum of Association of the Company. /s/ Mary R. Hennessy /s/ Mark R Bridges - ------------------------ ------------------------ SIGNATURE SIGNATURE DATED this 9/th/ day of August 2000. [LOGO] BERMUDA CERTIFICATE OF REGISTRATION OF ALTERED MEMORANDUM OF ASSOCIATION --------------------------------- THIS IS TO CERTIFY that a copy of the Memorandum of Association of OVERSEAS PARTNERS LTD. altered under and in accordance with Section 12 of the Companies Act 1981 ("The Act") and the Consent granted by the Minister under Section 6(1) as read with Section 12(2) of The Act were delivered to the office of the Registrar of Companies and registered therein on the 29th day of June, 1990 pursuant to Section 12(9) of The Act. IN WITNESS WHEREOF I have hereto set my hand this 29th day of June, 1990. /s/ Pamela L. Adams -------------------------- [SEAL] Pamela L. Adams for REGISTRAR OF COMPANIES FORM NO. 4 [LOGO] BERMUDA THE COMPANIES ACT 1981 APPLICATION FOR CONSENT TO ALTER THE MEMORANDUM OF ASSOCIATION Pursuant to Section 12(2) OVERSEAS PARTNERS LTD. Name of Company ------------------------------------------------ (hereinafter referred to as "the Company") 1. The Company is an exempted* company as defined by the Companies Act 1981. 2. The Company was registered in the office of the Registrar of Companies on the 28th day of June, 1983. 3. It is proposed to alter the Memorandum of Association of the Company as follows:-- By the creation of paragraph 7, sub-paragraph (1) as follows: "7.(1) The Company shall, pursuant to Section 42A of the Companies Act 1981, have the power to purchase its own shares subject to the company conforming with the requirements of the Insurance Act 1978 and with any conditions imposed or directions given thereunder." REGISTERED ON THE 29th day of June, 1990 *Delete as applicable. 4. The reasons for the proposed alterations are as follows:-- The Company is in the process of acquiring all the shares of a Hong Kong company and part of the purchase price will be satisfied by transferring some of its own shares to the vendors of the Hong Kong company. In order to provide the necessary shares it is proposed that Overseas Partners Ltd. buy back some of its own shares from its parent. In addition, the transaction also contemplates that at some time in the future Overseas Partners Ltd. might with to buy back some of the shares issued to the vendors and this power would also enable them to carry out such a buy back. The Company and its principals are familiar with the terms of Section 42A and the provisions of the Insurance Act 1978 and it is confirmed that no problems are envisaged which will arise from the contemplated transaction. We, the undersigned, as officers of the Company, hereby apply to the Minister of Finance for consent to alter the Memorandum of Association of the Company. /s/ J.M. Sharpe --------------------------------------- J.M. Sharpe, Director /s/ R.S.L. Pearman --------------------------------------- R.S.L. Pearman, Alternate Director --------------------------------------- DATED THIS 20th day of October 1987. NOTES 1. This application must be signed by such officers as are empowered to bind the Company, as provided in its bye-laws. 2. Evidence must be submitted that within three months prior to the date of submission of this application the applicants have advertised their intention to alter the memorandum in terms of section 12(2) of the Companies Act 1981. 3. The original of this form together with four facsimile copies must be submitted to the Minister through the Registrar of Companies. 4. When a resolution has been passed at a general meeting of the Company altering the memorandum, a copy of this application endorsed with the consent of the Minister, together with a copy of the memorandum as altered and the prescribed fee, must be delivered to the Registrar of Companies for registration. - -------------------------------------------------------------------------------- FOR OFFICE USE ONLY CONSENT IS HEREBY RANTED TO OVERSEAS PARTNERS LTD. to alter its Memorandum of Association as specified in paragraph 3 of this Form. ---------------------------- Minister of Finance DATED THIS 30th day of October, 1987 FORM NO. 3a [LOGO] BERMUDA CERTIFICATE OF INCORPORATION ON CHANGE OF NAME I hereby certify that UPSINCO LTD. having by resolution and with the approval of the Registrar of Companies changed its name, is now registered under the name of OVERSEAS PARTNERS LTD. Given under my hand the 25th day of November 1983. /s/ Pamela L. Adams ---------------------------- Pamela L. Adams for Registrar of Companies [SEAL] FORM C2 The Companies (Incorporation by Registration) Act, 1970 MEMORANDUM OF ASSOCIATION OF UPSINCO LTD. - -------------------------------------------------------------------------------- (hereinafter referred to as "the Company"). 1. The liability of the members of the Company is limited to the amount (if any) for the time being unpaid on the shares respectively held by them. 2. We, the undersigned, namely,
NAME ADDRESS BERMUDIAN NATIONALITY NUMBER OF STATUS SHARES (Yes/No) SUBSCRIBED John A. Ellison St. George's Yes British One Bermuda C.F.A. Cooper Southampton Yes British One Bermuda N.B. Dill Jr. Pembroke Yes British One Bermuda
do hereby respectively agree to take such number of shares of the Company as may be allotted to us respectively by the provisional directors of the Company, not exceeding the number of shares for which we have respectively subscribed, and to satisfy such calls as may be made by the provisional directors of the Company in pursuance of Section 5 of The Companies Act, 1948, in respect of the shares allotted to us respectively. 3. The Company is to be an exempted* Company as defined by the Companies (Incorporation by Registration) Act, 1970. 4. The Company has power to hold land situate in these Islands not exceeding in all, including the following parcels:--Nil 5. The minimum share capital of the Company shall be US $120,000 fully paid divided into shares of a par value of not less than ten cents each, and having a proposed par value of US $1.00 per share. 6. The objects for which the Company is formed and incorporated are:-- (a) to engage in and carry on outside these Islands from a principal place of business in these Islands the business of insurance, reinsurance, co-insurance and counter-insurance of all kinds and without prejudice to the generality of the foregoing words, to engage in and carry on life, accident, sickness, hospital, health, fire, marine, surety, automobile, aviation, ship, steam boiler, plate glass, windstorm, hailstorm, earthquake, flood, war risk, insurrection, riot, civil commotion, strike, employers' liability, workmen's compensation, disease survivorship, failure of issue, bonding and indemnity, burglary and robbery, theft, fidelity, transit and other casualty insurance, including loss from the interruption of business due to any of the foregoing; (b) all those objects set out in paragraphs (a) to (zb) inclusive of the First Schedule to the Companies (Incorporation by Registration) Act 1970. * Delete as applicable. 7.(1) The Company shall, pursuant to Section 42A of The Companies Act 1981, have the power to purchase its own shares, subject to the Company conforming with the requirements of The Insurance Act 1978 and with any conditions imposed or directions given thereunder. Signed by each subscriber in the presence of at least one witness attesting the signature thereof:-- /s/ John A. Ellison - ----------------------------------- ---------------------------------- John A. Ellison /s/ C.F.A. Cooper - ----------------------------------- ---------------------------------- C.F.A. Cooper /s/ N.B. Dill, Jr. - ----------------------------------- ---------------------------------- N.B. Dill, Jr. - ----------------------------------- ---------------------------------- - ----------------------------------- ---------------------------------- (Subscribers) (Witnesses) SUBSCRIBED this 14th day of June, 1983 EX-10.(BBB) 3 0003.txt AGREEMENT FOR SALE/PURCHASE, ONE BUCKHEAD PLAZA EXHIBIT 10(bbb) AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY BETWEEN OVERSEAS CAPITAL CO. AND CB RICHARD ELLIS STRATEGIC PARTNERS, L.P. ONE BUCKHEAD PLAZA May 29, 2000 AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY ONE BUCKHEAD PLAZA - ------------------------------------------------------------------------------- THIS AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY (the "Agreement"), made and entered into this 29th day of May, 2000, by and between OVERSEAS CAPITAL CO., a Delaware corporation and successor by corporate name changes to Overseas Partners Capital Corp. ("Seller"), and CB RICHARD ELLIS STRATEGIC PARTNERS, L.P., a Delaware limited partnership ("Purchaser"). W I T N E S E T H: WHEREAS, Seller desires to sell certain improved real property commonly known as "One Buckhead Plaza" located at the southwest corner of the intersection of West Paces Ferry and Peachtree Roads, City of Atlanta, Fulton County, Georgia, together with certain related personal and intangible property, and Purchaser desires to purchase such real, personal and intangible property; and WHEREAS, the parties hereto desire to provide for said sale and purchase on the terms and conditions set forth in this Agreement; NOW, THEREFORE, for and in consideration of the premises, the mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt, adequacy, and sufficiency of which are hereby acknowledged by the parties hereto, the parties hereto hereby covenant and agree as follows: ARTICLE 1 DEFINITIONS For purposes of this Agreement, each of the following capitalized terms shall have the meaning ascribed to such terms as set forth below: "Assignment and Assumption of Leases" shall mean the form of assignment and assumption of Leases and Security Deposits to be executed and delivered by Seller and Purchaser at the Closing in the form attached hereto as SCHEDULE 2. "Assignment and Assumption of Operating Agreements" shall mean the form of assignment and assumption of the Operating Contracts to be executed and delivered by Seller and Purchaser at the Closing in the form attached hereto as SCHEDULE 4. "Bill of Sale" shall mean the form of bill of sale to the Personal Property to be executed and delivered by Seller to Purchaser at the Closing in the form attached hereto as SCHEDULE 3. "Broker" shall have the meaning ascribed thereto in Section 10.1 hereof. "Business Day" shall mean any day other than a Saturday, Sunday or other day on which banking institutions in the State of Georgia are authorized by law or executive action to close. "Closing" shall mean the consummation of the purchase and sale of the Property pursuant to the terms of this Agreement. "Closing Date" shall have the meaning ascribed thereto in Section 2.6 hereof. "Commission Agreements" shall mean the agreements more particularly described in items I and II on EXHIBIT "C" attached hereto and made a part hereof. "Due Diligence Material" shall have the meaning ascribed thereto in Section 3.7 hereof. "Earnest Money" shall mean the Initial Earnest Money, together with all interest which accrues thereon as provided in Section 2.3(c) hereof and in the Escrow Agreement. "Effective Date" shall mean the last date upon which the following shall have occurred: (a) Purchaser and Seller shall have delivered at least two (2) fully executed counterparts of this Agreement to the other, (b) Purchaser, Seller and Escrow Agent shall have executed and delivered at least one (1) fully executed counterpart of the Escrow Agreement to each other party, and (c) Purchaser shall have delivered the Initial Earnest Money (by federal wire transfer or delivery of Purchaser's check made payable to Escrow Agent) to Escrow Agent. "Environmental Law" shall mean any law, ordinance, rule, regulation, order, judgment, injunction or decree relating to pollution or Hazardous Substances, including, without limitation, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Hazardous Materials Transportation Act, the Emergency Planning and Community Right to Know Act, any state and local environmental law (including, without limitation, the Georgia Hazardous Site Response Act ("HSRA"), all amendments and supplements to any of the foregoing and all regulations and publications promulgated or issued pursuant thereto. "Escrow Agent" shall mean the Title Company, at its office at 888 West 6th Street, 4th Floor, Los Angeles, California 90017, Attention: Donald Hallman "Escrow Agreement" shall mean that certain Escrow Agreement in the form attached hereto as EXHIBIT "D" entered into contemporaneously with the execution and delivery of this Agreement by Seller, Purchaser and Escrow Agent with respect to the Earnest Money. "Existing Assignment of Leases" shall mean that certain Assignment of Lessor's Interest in Leases between OPCC and MetLife, dated November 15, 1995, recorded in Deed Book 20257, Page 195, Fulton County, Georgia records, a true and correct copy of which Existing Assignment of Leases is attached hereto as EXHIBIT "B". "Existing Environmental Indemnity" shall mean that certain Unsecured Indemnity Agreement between OPCC and MetLife dated November 15, 1995, a true and correct copy of which Existing Environmental Indemnity is attached hereto as EXHIBIT "B". 2 "Existing Environmental Reports" shall mean those certain reports, correspondence and related materials more particularly described on EXHIBIT "E" attached hereto and made a part hereof. "Existing Financing Statements" shall mean all UCC Financing Statements naming MetLife as secured party and Seller (or a predecessor) as debtor and appearing of record with respect to any of the Property. "Existing Mortgage" shall mean that certain Deed to Secure Debt and Security Agreement, dated November 15, 1995, between OPCC and MetLife recorded in Deed Book 20257, Page 157, Fulton County, Georgia records, which secures the Existing Note, a true and correct copy of which Existing Mortgage is attached hereto as EXHIBIT "B". "Existing Note" shall mean that certain Promissory Note dated November 15, 1995, made by OPCC payable to the order of MetLife in the original principal amount of Thirty-Five Million and No/100 Dollars ($35,000,000.00), a true and correct copy of which is attached as EXHIBIT "B" hereto and made a part hereof, and which has a current principal balance of approximately $32,470,575 (as of April 1, 2000), which bears interest at the rate of 7.246% per annum, which is payable in monthly installments of principal and interest in the amount of $252,892.21 (based on a 25-year amortization), with the final payment of all unpaid principal, and accrued but unpaid interest thereon, being due on December 5, 2005, and which has a prepayment penalty as of April 11, 2000 in the approximate amount of $1,010,426. "FIRPTA Affidavit" shall mean the form of FIRPTA Affidavit to be executed and delivered by Seller to Purchaser at Closing in the form attached hereto as SCHEDULE 8. "First Title Notice" shall have the meaning ascribed thereto in Section 3.4 hereof. "General Assignment" shall have the meaning ascribed thereto in Section 5.1(g) hereof. "Hazardous Substances" shall mean any and all pollutants, contaminants, toxic or hazardous wastes or any other substances that might pose a hazard to health or safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage or filtration of which is or shall be restricted, prohibited or penalized under any Environmental Law (including, without limitation, lead paint, asbestos, urea formaldehyde foam insulation, petroleum and polychlorinated biphenyls). "Improvements" shall mean all buildings, structures and improvements now or on the Closing Date situated on the Land, including without limitation, that certain 20-story office building, two (2) free standing two-story restaurants and one (1) nine-story parking garage commonly known collectively as "One Buckhead Plaza" and all parking areas and facilities, improvements and fixtures located on the Land. "Initial Earnest Money" shall mean the sum of One Million Five Hundred Thousand and No/100 Dollars ($1,500,000.00 U.S.). 3 "Inspection Period" shall mean the period expiring at 5:00 P.M. Eastern Standard Time on July 13, 2000. "Intangible Property" shall mean all intangible property, if any, owned by Seller and related to the Land and Improvements, including without limitation, Seller's rights and interests, if any, in and to the following (to the extent assignable): (i) the name "One Buckhead Plaza," but not to "Buckhead Plaza", (ii) all assignable plans and specifications and other architectural and engineering drawings for the Land and Improvements; (iii) all assignable warranties or guaranties given or made in respect of the Improvements or Personal Property; (iv) all transferable consents, authorizations, variances or waivers, licenses, permits and approvals from any governmental or quasi-governmental agency, department, board, commission, bureau or other entity or instrumentality solely in respect of the Land or Improvements; and (v) all of Seller's right, title and interest in and to all assignable Operating Agreements that Purchaser agrees to assume (or is deemed to have agreed to assume). "Land" shall mean those certain tracts or parcels of real property located in the City of Atlanta, Fulton County, Georgia, which are more particularly described on EXHIBIT "A" attached hereto and made a part hereof, together with all rights, privileges and easements appurtenant to said real property, and all right, title and interest of Seller, if any, in and to any land lying in the bed of any street, road, alley or right-of-way, open or closed, adjacent to or abutting the Land. "Lease" and "Leases" shall mean the leases or occupancy agreements, including those in effect on the Effective Date which are more particularly identified on EXHIBIT "F" attached hereto, and any amended or new leases entered into pursuant to Section 4.3(a) of this Agreement, which as of the Closing affect all or any portion of the Land or Improvements. "Major Tenant" or "Major Tenants" shall mean Fitzgerald and Company, JC Bradford and Company, Niles Bolton Associates, Inc., Morgan Keegan & Company and Chops, Inc. "Management Agreement" shall have the meaning ascribed thereto in Section 4.1(f) hereof and is more particularly described on EXHIBIT "C" attached hereto and made a part hereof. "MetLife" shall mean Metropolitan Life Insurance Company or its successors or assigns as the holder of the Existing Note and the Existing Mortgage. "MetLife Consents" shall have the meaning ascribed thereto in Section 3.8 hereof. "MetLife Loan Documents" shall mean the Existing Note, the Existing Mortgage, the Existing Assignment of Leases and the Existing Financing Statements. "Monetary Exception" or "Monetary Exceptions" shall mean (a) any mortgage, deed to secure debt, deed of trust or similar security instrument encumbering all or any part of the Property, except the Existing Mortgage, the Existing Assignment of Leases and the Existing Financing Statements, (b) any mechanic's, materialman's or similar lien (unless resulting from any act or omission of Purchaser or any of its agents, contractors, representatives or employees or 4 any tenant of the Property), (c) the lien of ad valorem real or personal property taxes, assessments and governmental charges affecting all or any portion of the Property which are delinquent, (d) any judgment of record against Seller in the county or other applicable jurisdiction in which the Property is located, and (e) any other encumbrance, exception or matter of record willfully granted by Seller after the Effective Date. "OPCC" shall mean Overseas Partners Capital Corp., a Delaware corporation to which Seller is successor by corporate name changes. "Operating Agreements" shall mean all those certain contracts and agreements more particularly described on EXHIBIT "H" attached hereto and made a part hereof relating to the repair, maintenance or operation of the Land, Improvements or Personal Property which will extend beyond the Closing Date, including, without limitation, all equipment leases. "Other Notices of Sale" shall have the meaning ascribed thereto in Section 5.1(s) hereof. "Permitted Exceptions" shall mean, collectively, (a) liens for taxes, assessments and governmental charges not yet due and payable or due and payable but not yet delinquent, (b) the Leases, (c) all matters of record affecting the Property as of the Effective Date, except such matters as shall be removed, satisfied or otherwise cured by Seller, at Seller's option, in accordance with Section 3.4 hereof, (d) such other easements, restrictions and encumbrances that do not constitute Monetary Exceptions, provided that no encumbrance, exception or matter first appearing of record after the Effective Date shall be a Permitted Exception unless approved or deemed approved by Purchaser in accordance with this Agreement or otherwise approved in writing by Purchaser. "Personal Property" shall mean all furniture (including common area furnishings and interior landscaping items), carpeting, draperies, appliances, personal property, machinery, apparatus and equipment owned by Seller and currently used exclusively in the operation, repair and maintenance of the Land and Improvements and situated thereon, as generally described on EXHIBIT "G" attached hereto and made a part hereof. The Personal Property does not include any property owned by tenants, contractors or licensees, and shall be conveyed by Seller to Purchaser subject to depletions, replacements and additions in the ordinary course of Seller's business. "Property" shall have the meaning ascribed thereto in Section 2.1 hereof. "Purchase Price" shall be the amount specified in Section 2.4 hereof. "Purchaser's Certificate" shall have the meaning ascribed thereto in Section 5.2(d) hereof. "Rent Roll" shall mean EXHIBIT "F" attached to this Agreement and made a part hereof. "Security Deposits" shall mean any security deposits, rent or damage deposits or similar amounts (other than rent paid for the month in which the Closing occurs) actually held by Seller with respect to any of the Leases. 5 "Seller's Affidavit" shall mean the form of owner's affidavit to be given by Seller at Closing to the Title Company in the form attached hereto as SCHEDULE 6. "Seller's Certificate" shall mean the form of certificate to be executed and delivered by Seller to Purchaser at the Closing with respect to the truth and accuracy of Seller's warranties and representations contained in this Agreement (modified and updated as the circumstances require), in the form attached hereto as SCHEDULE 7. "Seller's Estoppel" shall mean the form of estoppel that may be executed and delivered by Seller at Closing in substantially the form attached hereto as SCHEDULE 11, as contemplated in Section 6.1(d) hereof. "Shared MetLife Expenses" shall have the meaning ascribed thereto in Section 3.8(b) hereof. "Survey" and "Surveys" shall have the meaning ascribed thereto in Section 3.4 hereof. "Taxes" shall have the meaning ascribed thereto in Section 5.4(a) hereof. "Tenant Estoppel Certificate" or "Tenant Estoppel Certificates" shall mean certificates to be sought from the tenants under the Leases in substantially the form attached hereto as EXHIBIT "I". "Tenant Inducement Costs" shall mean any out-of-pocket payments required under a Lease to be paid by the landlord thereunder to or for the benefit of the tenant thereunder which is in the nature of a tenant inducement, including specifically, but without limitation, tenant improvement costs, lease buyout payments, and moving, design, refurbishment and club membership allowances and costs. The term "Tenant Inducement Costs" shall not include loss of income resulting from any free rental period, it being understood and agreed that Seller shall bear the loss resulting from any free rental period until the Closing Date and that Purchaser shall bear such loss from and after the Closing Date. "Tenant Notices of Sale" shall have the meaning ascribed thereto in Section 5.1(r) hereof. "Title Company" shall mean Commonwealth Land Title Insurance Company. "Title Commitment" shall have the meaning ascribed thereto in Section 3.4 hereof. "Title Policy" shall mean an owner's policy of title insurance issued by the Title Company to Purchaser in accordance with the Title Commitment, (i) dated the Closing Date, (ii) naming Purchaser as insured in the face amount of the Purchase Price, (iii) containing only the Permitted Exceptions as exceptions to title, and (iv) containing such endorsements requested by Purchaser as Title Company shall have agreed to issue prior to the end of the Inspection Period without conditions or requirements except such conditions or requirements as have been satisfied prior to the end of the Inspection Period. "Warranty Deed" shall mean the form of deed attached hereto as SCHEDULE 1. 6 ARTICLE 2 PURCHASE AND SALE 2.1 Agreement to Sell and Purchase. Subject to and in accordance with the terms and provisions of this Agreement, Seller agrees to sell and Purchaser agrees to purchase, the following property (collectively, the "Property"): (a) the Land; (b) the Improvements; (c) all of Seller's right, title and interest in and to the Leases and the Security Deposits; (d) the Personal Property; and (e) the Intangible Property. 2.2 Permitted Exceptions. The Property shall be conveyed subject to the matters which are, or are deemed to be, Permitted Exceptions. 2.3 Earnest Money. (a) Within one (1) Business Day of the execution and delivery of this Agreement, Purchaser shall deliver the Initial Earnest Money to Escrow Agent by federal wire transfer or by Purchaser's check, payable to Escrow Agent, which Initial Earnest Money shall be held and released by Escrow Agent in accordance with the terms of the Escrow Agreement. (b) The Earnest Money shall be applied to the Purchase Price at the Closing and shall otherwise be held, refunded, or disbursed in accordance with the terms of the Escrow Agreement and this Agreement. All interest and other income from time to time earned on the Initial Earnest Money and interest thereon shall be earned for the account of Purchaser, shall be a part of the Earnest Money; and the Earnest Money hereunder shall be comprised of the Initial Earnest Money and all such interest and other income. 2.4 Purchase Price. Subject to adjustment and credits as otherwise specified in this Section 2.4 and elsewhere in this Agreement, the purchase price (the "Purchase Price") to be paid by Purchaser to Seller for the Property shall be SEVENTY-NINE MILLION THREE HUNDRED FIFTY-THREE THOUSAND FIVE HUNDRED AND NO/100 UNITED STATES DOLLARS ($79,353,500 U.S.). The Purchase Price shall be paid by Purchaser to Seller at the Closing as follows: (a) The Earnest Money shall be paid by Escrow Agent to Seller at Closing; 7 (b) Purchaser shall take title to the Property and assume, the outstanding principal indebtedness of the Existing Note secured as of the Closing Date, by the Existing Mortgage; and (c) An amount equal to the Purchase Price, less the amount equal to the outstanding principal indebtedness of the Existing Note, shall be paid by Purchaser to Seller through Escrow Agent in immediately available funds at the Closing, less the amount of the Earnest Money paid by Escrow Agent to Seller at Closing, and subject to prorations, adjustments and credits as otherwise specified in this Agreement. 2.5 Independent Contract Consideration. In addition to, and not in lieu of the delivery to Escrow Agent of the Initial Earnest Money, Purchaser shall deliver to Seller, concurrently with Purchaser's execution and delivery of this Agreement to Seller, Purchaser's check, payable to the order to Seller, in the amount of One Hundred and No/100 Dollars ($100.00). Seller and Purchaser hereby mutually acknowledge and agree that said sum represents adequate bargained for consideration for Seller's execution and delivery of this Agreement and Purchaser's right to inspect the Property pursuant to Article III. Said sum is in addition to and independent of any other consideration or payment provided for in this Agreement and is nonrefundable in all events. 2.6 Closing. The consummation of the sale by Seller and purchase by Purchaser of the Property (the "Closing") shall be held on any date on or before July 31, 2000. Subject to the foregoing, the Closing shall take place at the offices of Escrow Agent, and at such specific time and date (the "Closing Date") as shall be designated by Purchaser in a written notice to Seller not less than three (3) Business Days prior to Closing. ARTICLE 3 PURCHASER'S INSPECTION AND REVIEW RIGHTS 3.1 Due Diligence Inspections. (a) From and after the Effective Date until the Closing Date or earlier termination of this Agreement, Seller shall permit Purchaser and its authorized representatives to inspect the Property to perform due diligence, soil analysis and environmental investigations, to examine the records of Seller with respect to the Property, and make copies thereof, at such times during normal business hours as Purchaser or its representatives may request. All such inspections shall be nondestructive in nature, and specifically shall not include any physically intrusive testing except for the nine (9) geoprobes specified in EXHIBIT "J" at certain locations approved by Seller. Purchaser covenants and agrees that all soil and groundwater samples shall be analyzed for only those compounds and parameters specified in EXHIBIT "J" and no others. All such inspections shall be performed in such a manner to minimize any interference with the business of the tenants under the Leases at the Property and, in each case, in compliance with Seller's rights and obligations as landlord under the Leases. All inspection fees, appraisal fees, engineering fees and all other costs and expenses of any 8 kind incurred by Purchaser relating to the inspection of the Property shall be solely Purchaser's expense. Seller reserves the right to have a representative present at the time of making any such inspection. Purchaser shall notify Seller not less than one (1) Business Day in advance of making any such inspection. (b) If the Closing is not consummated hereunder, Purchaser shall promptly and as a condition to the refund of the Earnest Money, deliver copies of all reports, surveys and other information furnished to Purchaser by third parties in connection with such inspections to Seller; provided, however, that delivery of such copies and information shall be without warranty or representation whatsoever, express or implied, including, without limitation, any warranty or representation as to ownership, accuracy, adequacy or completeness thereof or otherwise. (c) To the extent that Purchaser or any of its representatives, agents or contractors damages or disturbs the Property or any portion thereof, Purchaser shall return the same to substantially the same condition which existed immediately prior to such damage or disturbance. Purchaser hereby agrees to and shall indemnify, defend and hold harmless Seller from and against any and all expense, loss or damage caused by Purchaser or its representatives, agents or contractors, other than any expense, loss or damage to the extent arising from any act or omission of Seller during any such inspection and other than any expense, loss or damage resulting from the discovery or release of any Hazardous Substances at the Property (other than Hazardous Substances brought on to the Property by Purchaser or its representatives, agents or contractors, or any release of Hazardous Substances resulting from the negligence of Purchaser or its representatives, agents or contractors). Said indemnification agreement shall survive the Closing and any earlier termination of this Agreement. Purchaser shall maintain and shall ensure that Purchaser's consultants and contractors maintain public liability insurance and property damage insurance in an amount not less than $2,000,000 and in form and substance adequate to insure against all liability of Purchaser and its consultants and contractors, respectively, and each of their respective agents, employees and contractors, arising out of inspections and testing of the Property or any part thereof made on Purchaser's behalf. 3.2 Seller's Deliveries to Purchaser; Purchaser's Access to Seller's Property Records. (a) Seller has delivered to Purchaser, and Purchaser acknowledges receipt of, the following: (i) Copies of current Property tax bills and assessor's statements of current assessed value. (ii) Copies of Property operating statements for the past 24 months. (iii) 2000 Operating Plan. 9 (iv) Copies of all Leases, guarantees, any amendments and letter agreements relating thereto existing as of the Effective Date and all operating covenants, reciprocal easement agreements which have been executed or added to existing agreements since January 1, 1999. (v) An aged tenant receivable report, if any, regarding income from the tenants. (vi) Monthly tenant, tax and CAM billing statements and general ledger for the past 24 months. (vii) All Operating Agreements currently in place at the Property. (b) From the Effective Date until the Closing Date or earlier termination of this Agreement, Seller shall allow Purchaser and Purchaser's representatives, on reasonable advance notice and during normal business hours, to have access to Seller's existing books, records and files relating to the Property, at Seller's on-site management office at the Property and at Seller's office at 115 Perimeter Center Place, Suite 940, Atlanta, Georgia, for the purpose of inspecting and (at Purchaser's expense) copying the same, including, without limitation, the materials listed below (to the extent any or all of the same are in Seller's possession), subject, however, to the limitations of any confidentiality or nondisclosure agreement to which Seller may be bound, and provided that Seller shall not be required to deliver or make available to Purchaser any records, reports, notices, test results or other information in Seller's possession relating to the environmental condition of the Property other than the Existing Environmental Reports. Purchaser acknowledges and agrees, however, that Seller makes no representation or warranty of any nature whatsoever, express or implied, with respect to the ownership, enforceability, accuracy or adequacy or otherwise of any of such records, evaluations, data, investigations, reports, cost estimates or other materials. If the Closing contemplated hereunder fails to take place for any reason, Purchaser shall promptly (and as a condition to the refund of the Earnest Money) return all copies of materials copied from Seller's books, records and files relating to the Property. It is understood and agreed that Seller shall have no obligation to obtain, commission or prepare any such books, records, files, reports or studies not now in Seller's possession. Subject to the foregoing, Seller agrees to make available to Purchaser for inspection and copying, without limitation, the following books, records and files relating to the Property, all to the extent the same are in Seller's possession: (i) Tenant Information. Copies of the Leases and any financial statements or other financial information of any tenants under the Leases (and the Lease guarantors, if any), written information relative to the tenants' payment histories, and tenant correspondence, to the extent Seller has the same in its possession; 10 (ii) Plans. Construction plans and specifications in Seller's possession or under Seller's control relating to the development, condition, repair and maintenance of the Property, the Improvements and the Personal Property; (iii) Permits; Licenses. Copies of any permits, licenses, or other similar documents in Seller's possession or under Seller's control relating to the use, occupancy or operation of the Property; and (iv) Operating Costs and Expenses. All records of any operating costs and expenses for the Property in Seller's possession or under Seller's control. 3.3 Condition of the Property. (a) Seller recommends that Purchaser employ one or more independent engineering and/or environmental professionals to perform engineering, environmental and physical assessments on Purchaser's behalf in respect of the Property and the condition thereof. Purchaser and Seller mutually acknowledge and agree that the Property is being sold in an "AS IS" condition and "WITH ALL FAULTS," known or unknown, contingent or existing. Purchaser has the sole responsibility to fully inspect the Property, to investigate all matters relevant thereto, including, without limitation, the condition of the Property, and to reach its own, independent evaluation of any risks (environmental or otherwise) or rewards associated with the ownership, leasing, management and operation of the Property. (b) To the fullest extent permitted by law and except for any matter deliberately caused by Seller during Seller's ownership of the Property, Purchaser hereby unconditionally waives and forever releases Seller, and its officers, directors, shareholders and employees from any present or future claims arising from or relating to the presence or alleged presence of Hazardous Substances in, on, in, at, from, under or about the Property or any adjacent property, including, without limitation, any claims under or on account of any Environmental Law. The terms and provisions of this paragraph shall survive the Closing hereunder. 3.4 Title and Survey. Promptly upon execution of this Agreement, Purchaser may order at its expense, from the Title Company a preliminary title commitment with respect to the Property (the "Title Commitment"). Purchaser shall direct the Title Company to send a copy of the Title Commitment to Seller contemporaneously with the delivery thereof to Purchaser. Promptly upon execution of this Agreement, Purchaser may arrange, also at its expense, for the preparation of one or more surveys with respect to the Property and each portion thereof (each and together, the "Survey"). Purchaser likewise shall make copies of any such Survey available to Seller prior to Closing. Purchaser shall have until fifteen (15) days prior to the end of the Inspection Period to give written notice (the "First Title Notice") to Seller of such objections as Purchaser may have to any exceptions to title disclosed in the Title Commitment or in any Survey or otherwise in Purchaser's examination of title, which First Title Notice shall include a copy of the Title Commitment if not previously furnished to Seller by Title Company or Purchaser and a copy of any Survey referenced in the Title Commitment and not previously furnished to Seller. If no First Title Notice is so given, then the status of title as the same existed 11 on the effective date of the Title Commitment shall be deemed acceptable to Purchaser. From time to time at any time after the First Title Notice and prior to the Closing Date, Purchaser may give written notice of exceptions to title first appearing of record after the effective date of the Title Commitment (or any update thereof) or matters of survey which would not have been disclosed by an accurate updated examination of title or preparation of an updated ALTA survey prior to the effective date of the initial Title Commitment or the initial Survey. Seller shall have the right, but not the obligation (except as to Monetary Exceptions), to attempt to remove, satisfy or otherwise cure any exceptions to title to which the Purchaser so objects. Within five (5) Business Days after receipt of Purchaser's First Title Notice, Seller shall give written notice to Purchaser informing the Purchaser of Seller's election with respect to such objections. If Seller fails to give written notice of election within such five (5) Business Day period, Seller shall be deemed to have elected not to attempt to cure the objections (other than Monetary Exceptions). If Seller elects to attempt to cure any objections, Seller shall be entitled to one or more reasonable adjournments of the Closing of up to but not beyond the thirtieth (30th) day following the initial date set for the Closing to attempt such cure, but, except for Monetary Exceptions, Seller shall not be obligated to expend any sums, commence any suits or take any other action to effect such cure. Except as to Monetary Exceptions, if Seller elects, or is deemed to have elected, not to cure any exceptions to title to which Purchaser has objected or if, after electing to attempt to cure, Seller determines that it is unwilling or unable to remove, satisfy or otherwise cure any such exceptions, Purchaser's sole remedy hereunder in such event shall be either (i) to accept title to the Property subject to such exceptions as if Purchaser had not objected thereto and without reduction of the Purchase Price, or (ii) to terminate this Agreement within three (3) Business Days after receipt of written notice from Seller either of Seller's election not to attempt to cure any objection or of Seller's determination, having previously elected to attempt to cure, that Seller is unable or unwilling to do so, or three (3) Business Days after Seller is deemed hereunder to have elected not to attempt to cure such objections (and upon any such termination, Escrow Agent shall return the Earnest Money to Purchaser). Notwithstanding anything to the contrary contained elsewhere in this Agreement, Seller shall be obligated to cure or satisfy all Monetary Exceptions at or prior to Closing, and may use the proceeds of the Purchase Price at Closing for such purpose. 3.5 Operating Agreements. Prior to fifteen (15) days prior to the expiration of the Inspection Period, Purchaser will designate which Operating Agreements Purchaser will assume and which Operating Agreements will be terminated by Seller at Closing. Purchaser will assume the obligations arising from and after the Closing Date under those Operating Agreements which Purchaser has designated will not be terminated. Seller, at Purchaser's sole cost, shall terminate at Closing all Operating Agreements that are not so assumed, to the extent any relates to the Property. If Purchaser fails to notify Seller in writing on or prior to the expiration of the Inspection Period of any Operating Agreements that Purchaser does not desire to assume at Closing, Purchaser shall be deemed to have elected to assume all such Operating Agreements and to have waived its right to require Seller to terminate such Operating Agreements at Closing. 3.6 Termination of Agreement. Purchaser shall have until the expiration of the Inspection Period to determine, in Purchaser's sole opinion and discretion, the suitability of the Property for acquisition by Purchaser or Purchaser's permitted assignee. Purchaser shall have the right to terminate this Agreement at any time on or before said time and date of expiration of the 12 Inspection Period by giving written notice to Seller of such election to terminate. If Purchaser so elects to terminate this Agreement pursuant to this Section 3.6, Escrow Agent shall pay the Earnest Money to Purchaser, whereupon, except for those provisions of this Agreement which by their express terms survive the termination of this Agreement, no party hereto shall have any other or further rights or obligations under this Agreement except for such obligations which are intended expressly to survive a termination hereof. If Purchaser does not affirmatively elect to so terminate this Agreement prior to the expiration of the Inspection Period then this Agreement shall automatically terminate. 3.7 Confidentiality. All information acquired by Purchaser or any of its designated representatives (including by way of example, but not in limitation, the officers, directors, shareholders and employees of Purchaser, and Purchaser's engineers, consultants, counsel and potential lenders, and the officers, directors, shareholders and employees of each of them) with respect to the Property, whether delivered by Seller or any of Seller's representatives or obtained by Purchaser as a result of its inspection and investigation of the Property, examination of Seller's books, records and files in respect of the Property, or otherwise (collectively, the "Due Diligence Material") shall be used solely for the purpose of determining whether the Property is suitable for Purchaser's acquisition and ownership thereof and for no other purpose whatsoever. All Due Diligence Material which is not published as public knowledge or which is not generally available in the public domain shall be kept in strict confidence and shall not be disclosed to any individual or entity other than to those authorized representatives of Purchaser who need to know the information for the purpose of assisting Purchaser in evaluating the Property for Purchaser's potential acquisition thereof; provided however, that Purchaser shall have the right to disclose any such information if required by applicable law or as may be necessary in connection with any court action or proceeding with respect to this Agreement. Purchaser shall and hereby agrees to indemnify and hold Seller harmless from and against any and all loss, liability, cost, damage or expense that Seller may suffer or incur (including, without limitation, reasonable attorneys' fees actually incurred) as a result of the unpermitted disclosure or use of any of the Due Diligence Material to any individual or entity other than an appropriate representative of Purchaser and/or the use of any Due Diligence Material for any purpose other than as herein contemplated and permitted. If Purchaser elects to terminate this Agreement pursuant to any provision hereof permitting such termination, or if the Closing contemplated hereunder fails to occur for any reason, Purchaser will promptly return to Seller all Due Diligence Material in the possession of Purchaser and any of its representatives, and destroy all copies, notes or abstracts or extracts thereof, as well as all copies of any analyses, compilations, studies or other documents prepared by Purchaser or for its use (whether in written or electronic form) containing or reflecting any Due Diligence Material. In the event of a breach or threatened breach by Purchaser or any of its representatives of this Section 3.7, Seller shall be entitled, in addition to other available remedies, to an injunction restraining Purchaser or its representatives from disclosing, in whole or in part, any of the Due Diligence Material. Nothing contained herein shall be construed as prohibiting or limiting Seller from pursuing any other available remedy, in law or in equity, for such breach or threatened breach. The provisions of this Section shall survive the Closing and any earlier termination of this Agreement. 3.8 Provisions Regarding Ability to Assume Existing Note and Existing Mortgage. 13 (a) MetLife Consents. Purchaser and Seller acknowledge that without the written consent of MetLife, the conveyance of the Property by Seller to Purchaser will be a default under the MetLife Loan Documents. Seller and Purchaser covenant and agree to cooperate and use their commercially reasonable efforts during the Inspection Period to procure from MetLife such consents and/or estoppel statements and the release of Seller for liability under the Existing Environmental Indemnity for events occurring after Closing (and the substitution of Purchaser, by assumption or execution and delivery of a new indemnity document, for such liability for events occurring after Closing) (the "MetLife Consents") as Seller or Purchaser shall reasonably request so that the purchase and sale of the Property in accordance with this Agreement can be effected without causing a default under the MetLife Loan Documents, including without limitation, the preparation and delivery to MetLife of such financial statements, operating histories and other information as MetLife may reasonably request with respect to Purchaser and its proposed ownership, management and operation of the Property after Closing. Notwithstanding the foregoing, except as set forth in Section 3.8(b) below and except for MetLife's reasonable costs and expenses incurred as a result of such transfer (which shall be paid by Purchaser), neither Seller nor Purchaser shall be required to pay any assumption or transfer fee, pay down any outstanding amount of the Existing Note, agree to effect any improvement or modification to the Property or establish any reserve therefor, or modify any of the MetLife Loan Documents in any economically material manner (other than Purchaser's modifications of the MetLife Loan to increase the outstanding amount thereof at Purchaser's request) in order to obtain the MetLife Consents. (b) MetLife Status and Certain Fees and Expenses. Purchaser and Seller further acknowledge that a preliminary discussion among Purchaser, Seller and a MetLife representative indicates that MetLife will favorably consider and grant (i) Purchaser and Seller's request that MetLife approve the conveyance of the Property to, and the assumption of the MetLife Loan by, Purchaser, and (ii) Purchaser's request that, contemporaneously with Purchaser's assumption of the MetLife Loan, MetLife increase the outstanding amount of the MetLife Loan by approximately $7,500,000.00, provided that MetLife is paid a loan assumption fee of $100,000.00 plus the reasonable costs and expenses incurred by MetLife as a result of the transfer of the Property and the costs and expenses required by MetLife to effect the increase in the MetLife Loan (including, without limitation, all intangible taxes, recording expenses, title insurance premiums, due diligence costs, legal fees and other expenses resulting from such transfer and increase in the MetLife Loan amount). Purchaser and Seller agree that if MetLife grants the requests set forth in (i) and (ii) above, (1) Purchaser shall pay (without reduction in or credit against the Purchase Price) any loan assumption and/or other fee or fees charged by MetLife with respect to the assumption or increase in the MetLife Loan and said reasonable costs and expenses incurred by MetLife as a result of the transfer of the Property (collectively, the "Shared MetLife Expenses") up to but not in excess of $100,000.00, and the costs and expenses required by MetLife to effect the increase in the MetLife Loan and which are attributable solely to the increase in the MetLife Loan and are not attributable solely to the assumption of the MetLife Loan (including, without limitation, intangible taxes, recording expenses and title insurance premiums); (2) Seller shall pay up to but not in excess of the next $50,000.00 of Shared MetLife Expenses; and (3) if the Shared MetLife Expenses exceed $150,000.00 and this Agreement is not terminated pursuant to Section 3.9(b) hereof, then Purchaser and Seller each 14 shall pay one-half (1/2) of the Shared MetLife Expenses in excess of $150,000.00. 3.9 Failure to Obtain MetLife Consents. (a) Unsatisfactory MetLife Consents. If MetLife Consents satisfactory to Purchaser and Seller have not been obtained prior to the expiration of the Inspection Period, then within ten (10) days after written notice from either of Purchaser or Seller to the other indicating such unsatisfactory status, Purchaser shall elect by written notice to Seller either (i) to terminate this Agreement, or (ii) to effect the Closing by paying the Purchase Price in full at Closing, subject to prorations, adjustments and credits as specified in this Agreement, without an assumption of the MetLife Loan, in which event the Purchase Price shall be increased by the amount of any prepayment fee or premium required by MetLife to prepay the MetLife Loan in full, and the MetLife Loan Documents shall be deemed Monetary Exceptions (and not Permitted Exceptions) and the MetLife Loan shall be paid in full by Seller from proceeds of the Purchase Price at the Closing. Any failure by Purchaser to elect (i) or (ii) immediately above within said ten (10) day period shall be deemed an election to terminate this Agreement and this Agreement shall automatically terminate upon expiration of such ten (10) day period. (b) Excess Shared MetLife Expenses. Purchaser and Seller agree that if the Shared MetLife Expenses exceed $150,000.00, either party may terminate this Agreement by written notice to the other; provided, however, that any such notice of termination may be cancelled by the recipient thereof by written notice from such recipient to the giver of the termination notice within three (3) Business Days after such termination notice that such recipient has elected to pay all the Shared MetLife Expenses in excess of $150,000.00. ARTICLE 4 REPRESENTATIONS, WARRANTIES AND OTHER AGREEMENTS 4.1 Representations and Warranties of Seller. Seller hereby makes the following representations and warranties to Purchaser: (a) Organization, Authorization and Consents. Seller is a duly organized and validly existing corporation under the laws of the State of Delaware. Seller has the right, power and authority to enter into this Agreement and to convey the Property in accordance with the terms and conditions of this Agreement, to engage in the transactions contemplated in this Agreement and to perform and observe the terms and provisions hereof. (b) Action of Seller, Etc. Seller has taken all necessary action to authorize the execution, delivery and performance of this Agreement, and upon the execution and delivery of any document to be delivered by Seller on or prior to the Closing, this Agreement and such document shall constitute the valid and binding obligation and agreement of Seller, enforceable against Seller in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors. 15 (c) No Violations of Agreements. Provided the consent of MetLife, as holder of the MetLife Loan Documents, is obtained for the conveyance of the Property to Purchaser, neither the execution, delivery or performance of this Agreement by Seller, nor compliance with the terms and provisions hereof, will result in any breach of the terms, conditions or provisions of, or conflict with or constitute a default under, or result in the creation of any lien, charge or encumbrance upon the Property or any portion thereof pursuant to the terms of any indenture, deed to secure debt, mortgage, deed of trust, note, evidence of indebtedness or any other agreement or instrument by which Seller is bound. (d) Litigation. Seller has received no written notice that any investigation, action or proceeding is pending or threatened with respect to the Property except as may be set forth on EXHIBIT "L" attached hereto. (e) Existing Leases. (i) Other than the Leases listed in the Rent Roll, since January 1, 1999, Seller has not entered into any contract or agreement with respect to the occupancy of the Property or any portion or portions thereof which will be binding on Purchaser after the Closing; (ii) the copies of the Leases entered into after January 1, 1999 and heretofore delivered by Seller to Purchaser and, to Seller's knowledge, the copies of all other Leases heretofore delivered by Seller to Purchaser, are true, correct and complete copies thereof; and (iii) to Seller's knowledge, the Leases have not been amended except as evidenced by amendments similarly delivered and constitute the entire agreement between Seller and the tenants thereunder. (f) Leasing Commissions. (i) During Seller's ownership of the Property, Seller has not entered into (or caused any other party to enter into on behalf of Seller), as a party thereto, any lease brokerage agreements, leasing commission agreements or other agreements providing for payments of any amounts for leasing activities or procuring tenants with respect to the Property or any portion or portions thereof other than those Commission Agreements disclosed in item I of EXHIBIT "C" attached hereto, and (ii) there are no agreements relating to the management and leasing of the Property other than as disclosed on said EXHIBIT "C" (the "Management Agreement"); and all leasing commissions, brokerage fees and management fees accrued or due and payable under the Commission Agreements and the Management Agreement, as of the date hereof and at the Closing have been or shall be paid in full (except those leasing commissions for which Purchaser shall receive a credit at Closing in accordance with Section 5.4(d) hereof); and upon the written request of Purchaser, Seller shall terminate the Management Agreement at Closing at no cost to Purchaser. Notwithstanding anything to the contrary contained herein, Purchaser shall be responsible for the payment of all leasing commissions payable for (A) any new leases entered into after the Effective Date that have been approved (or deemed approved) by Purchaser, and (B) the renewal, expansion or extension of any Leases existing as of the Effective Date and exercised or effected after the Effective Date, and C) the Scripps lease of Suite 965; and Purchaser shall pay to the manager under the Management Agreement leasing commissions with respect to leases entered into (or expansions, renewals or extensions effected) by Purchaser within ninety (90) days after the Closing Date with the tenants or prospective tenants listed in item IV of EXHIBIT "C" hereto and approved by Purchaser. 16 (g) Taxes and Assessments. Except as set forth on EXHIBIT "K" attached hereto, Seller has not filed, and has not retained anyone to file, notices of protests against, or to commence action to review, real property tax assessments against the Property. (h) Environmental Matters. Except as may be set forth in the Existing Environmental Reports or in any other Due Diligence Material or as otherwise disclosed by Seller, Seller has received no written notification that any governmental or quasi-governmental authority has determined that there are any violations of any Environmental Law with respect to the Property, nor to Seller's knowledge has Seller received any written notice that any governmental or quasi-governmental authority is contemplating an investigation of the Property, with respect to a violation or suspected violation of any Environmental Law. (i) Compliance with Laws. To Seller's knowledge, Seller has received no written notice alleging any violations of law, municipal or county ordinances, or other legal requirements with respect to the Property or any portion thereof. (j) Easements and Other Agreements. To Seller's knowledge, Seller has not received any written notice of Seller's default in complying with the terms and provisions of any of the covenants, conditions, restrictions or easements constituting a Permitted Exception. (k) Other Agreements. Except for the Leases, the Commission Agreements, the Management Agreement, the Operating Agreements to which Seller is a party and the Permitted Exceptions, there are no leases, Operating Agreements, management agreements, brokerage agreements, leasing agreements or, to Seller's knowledge, other agreements or instruments which have been entered into by Seller and remain in force or effect that grant to any person or any entity any right, title, interest or benefit in and to all or any part of the Property or any rights relating to the use, operation, management, maintenance or repair of all or any part of the Property which will survive the Closing or be binding upon Purchaser other than those which Purchaser has agreed in writing to assume prior to the expiration of the Inspection Period (or is deemed to have agreed to assume). (l) Seller Not a Foreign Person. Seller is not a "foreign person" which would subject Purchaser to the withholding tax provisions of Section 1445 of the Internal Revenue Code of 1986, as amended. (m) Seller has received no written notice of the commencement of any proceedings for taking by condemnation or eminent domain of any part of the Property. (n) Seller has no employees to whom Purchaser will have any obligation after the Closing. (o) Seller is the owner of the Property. 17 (p) To Seller's knowledge, each of the deliveries of Seller to Purchaser pursuant to Section 3.2 hereof is complete in all material respects. The representations and warranties made in this Agreement by Seller shall be continuing and shall be deemed remade by Seller as of the Closing Date, with the same force and effect as if made on, and as of, such date, subject to Seller's right to update such representations and warranties by written notice to Purchaser and in Seller's certificate to be delivered pursuant to Section 5.1(i) hereof. All representations and warranties made in this Agreement by Seller shall survive the Closing for a period of two hundred seventy (270) days, and upon expiration thereof shall be of no further force or effect except to the extent that with respect to any particular alleged breach, Purchaser gives Seller written notice prior to the expiration of said two hundred seventy (270) day period of such alleged breach with reasonable detail as to the nature of such breach and files an action against Seller with respect thereto within ninety (90) days after the giving of such notice. Notwithstanding anything to the contrary contained in this Section 4.1, Seller shall have no liability to Purchaser for the breach of any representation or warranty made in this Agreement unless the loss resulting from Seller's various breaches of its representations and warranties exceeds, in the aggregate, $200,000, in which event Seller shall be liable for each dollar of damages resulting from the breach or breaches of its representations and warranties, but in no event shall Seller's total liability for any such breach or breaches exceed, in the aggregate, Five Million and 00/100 Dollars ($5,000,000 US). In no event shall Seller be liable for, nor shall Purchaser seek, any consequential, indirect or punitive damages; and in no event shall any claim for a breach of any representation or warranty of Seller be actionable or payable if the breach in question results from or is based on a condition, state of facts or other matter which was actually known to Purchaser prior to the Closing. Except as otherwise expressly provided in this Agreement or in any documents to be executed and delivered by Seller to Purchaser at the Closing, Seller has not made, and Purchaser has not relied on, any information, promise, representation or warranty, express or implied, regarding the Property, whether made by Seller, on Seller's behalf or otherwise, including, without limitation, the physical condition of the Property, the financial condition of the tenants under the Leases, title to or the boundaries of the Property, pest control matters, soil conditions, the presence, existence or absence of hazardous wastes, toxic substances or other environmental matters, compliance with building, health, safety, land use and zoning laws, regulations and orders, structural and other engineering characteristics, traffic patterns, market data, economic conditions or projections, past or future economic performance of the tenants or the Property, and any other information pertaining to the Property or the market and physical environments in which the Property is located. Purchaser acknowledges (i) that Purchaser has entered into this Agreement with the intention of making and relying upon its own investigation or that of Purchaser's own consultants and representatives with respect to the physical, environmental, economic and legal condition of the Property and (ii) that Purchaser is not relying upon any statements, representations or warranties of any kind, other than those specifically set forth in this Agreement or in any document to be executed and delivered by Seller to Purchaser at the Closing, made (or purported to be made) by Seller or anyone acting or claiming to act on Seller's behalf. Purchaser has inspected the Property and is fully familiar with the physical condition 18 thereof and, subject to the terms and conditions of this Agreement, shall purchase the Property its "as is" condition, "with all faults," on the Closing Date. The provisions of the foregoing three (3) paragraphs of this Section shall survive the Closing. 4.2 Knowledge Defined. All references in this Agreement to the "knowledge of Seller" shall refer only to the actual knowledge of Marie Kastens and Ignacio de Quesada. Seller represents and warrants that the aforementioned individuals are employees in Seller's organization in the capacities of Atlanta properties' General Manager and Asset Manager, respectively, and as such should be the most knowledgeable about the Property. The term "knowledge of Seller" shall not be construed, by imputation or otherwise, to refer to the knowledge of Seller, Seller's property manager, or any affiliate of either of them, or to any other officer, agent, manager, representative or employee of Seller or said property manager, or any of their respective affiliates, or to impose on any of the individuals named above any duty to investigate the matter to which such actual knowledge, or the absence thereof, pertains. 4.3 Covenants and Agreements of Seller. (a) Leasing Arrangements. During the pendency of this Agreement, Seller will not enter into any lease affecting the Property, or modify or amend in any material respect, or terminate, any of the existing Leases without Purchaser's prior written consent in each instance, which consent shall not be unreasonably withheld, delayed or conditioned and which shall be deemed given unless withheld by written notice to Seller given after Seller's written request therefor, each of which requests shall be accompanied by a copy of any renewal or expansion of an existing Lease or of any new Lease that Seller wishes to execute between the Effective Date and the Closing Date, including, without limitation, a description of any Tenant Inducement Costs associated with such proposed renewal or expansion of an existing Lease or with any such new Lease. If Purchaser fails to notify Seller in writing of its approval or disapproval within said five (5) Business Day period, such failure by Purchaser shall be deemed to be the approval of Purchaser. Seller agrees that Purchaser shall not be deemed to be acting unreasonably if Purchaser withholds its consent or approval under this Section 4.3(a) because the prospective tenant (or its principals) have ever been the subject of any bankruptcy, reorganization or insolvency proceeding or any criminal charges or proceedings, or because Purchaser has had any prior adverse experience with the prospective tenant (or its principals), or because proposed lease terms fail to meet the following: (i) minimum base rent of $26.00 per square foot for full service gross leases, (ii) minimum annual escalations in base rent of 3%, (iii) minimum 5 year term, (iv) maximum tenant improvement allowance of $10 per square foot on new Leases, or $5 per square foot on renewals, and (v) maximum leasing commissions of 7% on new Leases, or 6% on renewals. At Closing, Purchaser shall reimburse Seller for any Tenant Inducement Costs and leasing commissions pursuant to a renewal or expansion of any existing Lease or new Lease approved (or deemed approved) which Purchaser has expressly agreed hereunder to assume. (b) New Contracts. During the pendency of this Agreement, Seller will not enter into any contract, or modify, amend, renew or extend any existing contract, that will 19 be an obligation affecting the Property or any part thereof subsequent to the Closing without Purchaser's prior written consent in each instance (which Purchaser agrees not to withhold or delay unreasonably), except contracts entered into in the ordinary course of business that are terminable without cause (and without penalty or premium) on 30 day (or less) notice. (c) Operation of Property. During the pendency of this Agreement, Seller shall continue to operate the Property in a good and businesslike fashion consistent with Seller's past practices, and shall maintain the Property in its condition as of the date hereof, reasonable wear and tear excepted, provided that Seller shall have no obligation to make any capital improvement or repair. (d) Tenant Estoppel Certificates. Seller shall endeavor in good faith (but without obligation to incur any cost or expense) to obtain and deliver to Purchaser prior to Closing a written Tenant Estoppel Certificate in the form attached hereto as EXHIBIT "I" signed by each tenant under each of the Leases; provided that delivery of such signed Tenant Estoppel Certificates shall be a condition of Closing only to the extent set forth in Section 6.1(d) hereof; and in no event shall the inability or failure of Seller to obtain and deliver said Tenant Estoppel Certificates (Seller having used its good faith efforts as set forth above) be a default of Seller hereunder. (e) MetLife Loan Documents. During the pendency of this Agreement, Seller shall not amend or modify any of the MetLife Loan Documents without the prior written consent of Purchaser. 4.4 Representations and Warranties of Purchaser. (a) Organization, Authorization and Consents. Purchaser is a duly organized and validly existing partnership under the laws of the State of Delaware. Purchaser has the right, power and authority to enter into this Agreement and to purchase the Property in accordance with the terms and conditions of this Agreement, to engage in the transactions contemplated in this Agreement and to perform and observe the terms and provisions hereof. (b) Action of Purchaser, Etc. Purchaser has taken all necessary action to authorize the execution, delivery and performance of this Agreement, and upon the execution and delivery of any document to be delivered by Purchaser on or prior to the Closing, this Agreement and such document shall constitute the valid and binding obligation and agreement of Purchaser, enforceable against Purchaser in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors. (c) No Violations of Agreements. Neither the execution, delivery or performance of this Agreement by Purchaser, nor compliance with the terms and provisions hereof, will result in any breach of the terms, conditions or provisions of, or 20 conflict with or constitute a default under the terms of any indenture, deed to secure debt, mortgage, deed of trust, note, evidence of indebtedness or any other agreement or instrument by which Purchaser is bound. (d) Litigation. Purchaser has received no written notice that any action or proceeding is pending or threatened which questions the validity of this Agreement or any action taken or to be taken pursuant hereto. The representations and warranties made in this Agreement by Purchaser shall be continuing and shall be deemed remade by Purchaser as of the Closing Date, with the same force and effect as if made on, and as of, such date subject to Purchaser's right to update such representations and warranties by written notice to Seller and in Purchaser's certificate to be delivered pursuant to Section 5.2(d) hereof. All representations and warranties made in this Agreement by Purchaser shall survive the Closing for a period of two hundred seventy (270) days, and upon expiration thereof shall be of no further force or effect except to the extent that with respect to any particular alleged breach, Seller gives Purchaser written notice prior to the expiration of said two hundred seventy (270) day period of such alleged breach with reasonable detail as to the nature of such breach and files an action against Seller with respect thereto within ninety (90) days after the giving of such notice. ARTICLE 5 CLOSING DELIVERIES, CLOSING COSTS AND PRORATIONS 5.1 Seller's Closing Deliveries. For and in consideration of, and as a condition precedent to Purchaser's delivery to Seller of the Purchase Price, Seller shall obtain or execute and deliver to Purchaser through Escrow Agent at Closing the following documents, all of which shall be duly executed, acknowledged and notarized where required: (a) Warranty Deed. A limited warranty deed to the Property, in the form attached hereto as SCHEDULE 1 (the "Warranty Deed"), subject only to the Permitted Exceptions, and executed, acknowledged and sealed by Seller. The legal descriptions of the Property set forth in said warranty deed shall be based upon and conform to the applicable record title legal description contained in Seller's vesting deed; (b) Quitclaim Deed. If requested by Purchaser, one or more quitclaim deeds to the Property (or any portion or portions thereof), in form and substance reasonably satisfactory to Seller, and executed, acknowledged and sealed by Seller; (c) Bill of Sale. A bill of sale for the Personal Property related to the Property, in form attached hereto as SCHEDULE 2 (the "Bill of Sale"), without warranty as to the condition of the Personal Property; (d) Assignment and Assumption of Leases and Security Deposits. Two (2) counterparts of an assignment and assumption of Leases and Security Deposits and, to the extent required elsewhere in this Agreement, the obligations of Seller under the 21 Commission Agreements in the form attached hereto as SCHEDULE 3 (the "Assignment and Assumption of Leases"), executed, acknowledged and sealed by Seller; (e) Updated Rent Roll. An update of the Rent Roll (with modifications as appropriate), certified by Seller to be accurate in all material respects as of the date of Closing; (f) Assignment and Assumption of Operating Agreements. Two (2) counterparts of an assignment and assumption of Operating Agreements in the form attached hereto as SCHEDULE 4 (the "Assignment and Assumption of Operating Agreements"), executed, acknowledged and sealed by Seller; (g) General Assignment. An assignment of the Intangible Property in the form attached hereto as SCHEDULE 5 (the "General Assignment"), executed, acknowledged and sealed by Seller; (h) Seller's Affidavit. An owner's affidavit substantially in the form attached hereto as SCHEDULE 6 ("Seller's Affidavit"), stating that there are no known boundary disputes with respect to the Property, that there are no parties in possession of the Property other than Seller and the tenants under the Leases, that there are no brokers except as disclosed herein, that any improvements or repairs made by, or for the account of, or at the instance of Seller to or with respect to the Property within ninety (90) days prior to the Closing have been paid for in full (or that adequate provision has been made therefor to the reasonable satisfaction of the Title Company), and including such other matters as may be reasonably requested by the Title Company; (i) Seller's Certificate. A certificate in the form attached hereto as SCHEDULE 7 ("Seller's Certificate"), evidencing the reaffirmation of the truth and accuracy in all material respects of Seller's representations, warranties, and agreements set forth in Section 4.1 hereof, with such modifications thereto as may be appropriate in light of any change in circumstance since the Effective Date; (j) FIRPTA Certificate A FIRPTA Certificate in the form attached hereto as SCHEDULE 8; (k) Withholding Affidavit. An affidavit with respect to Seller in the form attached hereto as SCHEDULE 9, to establish its residency in the State of Georgia as contemplated by Georgia law such that the proceeds of the sale of the Property are not subject to the withholding laws of the State of Georgia; (l) Evidence of Authority Such documentation as may reasonably be required by Purchaser's Title Insurer to establish that this Agreement, the transactions contemplated herein, and the execution and delivery of the documents required hereunder, are duly authorized, executed and delivered; 22 (m) Settlement Statement A settlement statement setting forth the amounts paid by or on behalf of and/or credited to each of Purchaser and Seller pursuant to this Agreement; (n) Surveys and Plans. Such surveys, site plans, plans and specifications, and other matters relating to the Property as are in the possession or control of Seller to the extent not theretofore delivered to Purchaser; (o) Certificates of Occupancy. To the extent the same are in Seller's possession or under Seller's control, original or photocopies of certificates of occupancy for all space within the Improvements located on the Property; (p) Leases. To the extent the same are in Seller's possession or under Seller's control, original executed counterparts of the Leases; (q) Tenant Estoppel Certificates. All originally executed Tenant Estoppel Certificates; (r) Notices of Sale to Tenants. Seller will join with Purchaser in executing a notice, in form and content reasonably satisfactory to Seller and Purchaser (the "Tenant Notices of Sale"), which Purchaser shall send to each tenant under the Leases informing such tenant of the sale of the Property and of the assignment to and assumption by Purchaser of Seller's interest in the Leases and the Security Deposits and directing that all rent and other sums payable for periods after the Closing under such Lease shall be paid as set forth in said notices; (s) Notices of Sale to Service Contractors and Leasing Agents. Seller will join with Purchaser in executing notices, in form and content reasonably satisfactory to Seller and Purchaser (the "Other Notices of Sale"), which Purchaser shall send to each service provider and leasing agent under the Operating Contracts and Commission Agreements (as the case may be) assumed by Purchaser at Closing informing such service provider or leasing agent (as the case may be) of the sale of the Property and of the assignment to and assumption by Purchaser of Seller's obligations under the Operating Agreements and Commission Agreements arising after the Closing Date and directing that all future statements or invoices for services under such Operating Agreements and/or Commission Agreements for periods after the Closing be directed to Seller or Purchaser as set forth in said notices; (t) Keys and Records. All of the keys to any door or lock on the Property and the original tenant files and other books and records relating to the Property in Seller's possession; and (u) Other Documents. Such other documents as shall be reasonably requested by Purchaser's title insurer to effectuate the purposes and intent of this Agreement. 23 5.2 Purchaser's Closing Deliveries. Purchaser shall obtain or execute and deliver to Seller at Closing the following documents, all of which shall be duly executed, acknowledged and notarized where required: (a) Assignment and Assumption of Leases. Two (2) counterparts of the Assignment and Assumption of Leases, executed, acknowledged and sealed by Purchaser; (b) Assignment and Assumption of Operating Agreements. Two (2) counterparts of the Assignment and Assumption of Operating Agreements, executed, acknowledged and sealed by Purchaser; (c) General Assignment. Two (2) counterparts of the General Assignment, executed, acknowledged and sealed by Purchaser; (d) Purchaser's Certificate. A certificate in the form attached hereto as SCHEDULE 10 ("Purchaser's Certificate"), evidencing the reaffirmation of the truth and accuracy in all material respects of Purchaser's representations, warranties and agreements contained in Section 4.4 hereof, with such modifications thereto as may be appropriate in light of any change in circumstances since the Effective Date; (e) Notice of Sale to Tenants. The Tenant Notices of Sale, executed by Purchaser, as contemplated in Section 5.1(r) hereof; (f) Notices of Sale to Service Contractors and Leasing Agents. The Other Notices of Sale to Service Contractors and Leasing Agents, as contemplated in Section 5.1(s) hereof; (g) Settlement Statement A settlement statement setting forth the amounts paid by or on behalf of and/or credited to each of Purchaser and Seller pursuant to this Agreement; (h) Evidence of Authority. A copy of resolutions of the Board of Directors of Purchaser, certified by the Secretary or Assistant Secretary of Purchaser to be in force and unmodified as of the date and time of Closing, authorizing the purchase contemplated herein, the execution and delivery of the documents required hereunder, and designating the signatures of the persons who are to execute and deliver all such documents on behalf of Purchaser or if Purchaser is not a corporation, such documentation as Seller may reasonably require to establish that this Agreement, the transaction contemplated herein, and the execution and delivery of the documents required hereunder, are duly authorized, executed and delivered; and (i) Other Documents. Such other documents as shall be reasonably requested by Seller's counsel to effectuate the purposes and intent of this Agreement. 5.3 Closing Costs. Seller shall pay the cost of the documentary stamps or transfer taxes imposed by the State of Georgia upon the conveyance of the Property pursuant hereto, the attorneys' fees of Seller, and all other costs and expenses incurred by Seller in closing and 24 consummating the purchase and sale of the Property pursuant hereto. Purchaser shall pay the cost of any owner's title insurance premium and title examination fees, the cost of the Survey, all recording fees on all instruments to be recorded in connection with this transaction, the attorneys' fees of Purchaser, and all other costs and expenses incurred by Purchaser in the performance of Purchaser's due diligence inspection of the Property and in closing and consummating the purchase and sale of the Property pursuant hereto. 5.4 Prorations and Credits. The items in this Section 5.4 shall be prorated between Seller and Purchaser or credited, as specified: (a) Taxes. All general real estate taxes imposed by any governmental authority ("Taxes") for the year in which the Closing occurs shall be prorated between Seller and Purchaser as of the Closing. If the Closing occurs prior to the receipt by Seller of the tax bill for the calendar year or other applicable tax period in which the Closing occurs, Taxes shall be prorated for such calendar year or other applicable tax period based upon the prior year's tax bill. (b) Reproration of Taxes. After receipt of final Taxes and other bills, Purchaser shall prepare and present to Seller a calculation of the reproration of such Taxes and other items, based upon the actual amount of such items charged to or received by the parties for the year or other applicable fiscal period. The parties shall make the appropriate adjusting payment between them within thirty (30) days after presentment to Seller of Purchaser's calculation and appropriate back up information. Purchaser shall provide Seller with appropriate backup materials related to the calculation, and Seller may inspect Purchaser's books and records related to the Property to confirm the calculation. The provisions hereof shall survive the Closing for a period of one (1) year after the Closing Date. (c) Rents, Income and Other Expenses. Rents and any other amounts payable by tenants shall be prorated as of the Closing Date and be adjusted against the Purchase Price on the basis of a schedule which shall be prepared by Seller and delivered to Purchaser for Purchaser's review and approval prior to Closing. Purchaser shall receive at Closing a credit for Purchaser's pro rata share of the rents, additional rent, common area maintenance charges, tenant reimbursements and escalations, and all other payments payable for the month of Closing and for all other rents and other amounts that apply to periods from and after the Closing, but which are received by Seller prior to Closing. Purchaser agrees to pay to Seller, upon receipt, any rents or other payments by tenants under their respective Leases that apply to periods prior to Closing but are received by Purchaser after Closing; provided, however, that any delinquent rents or other payments by tenants shall be applied first to any current amounts owing by such tenants, then to delinquent rents in the order in which such rents are most recently past due, with the balance, if any, paid over to Seller to the extent of delinquencies existing at the time of Closing to which Seller is entitled; it being understood and agreed that Purchaser shall not be legally responsible to Seller for the collection of any rents or other charges payable with respect to the Leases or any portion thereof, which are delinquent or past due as of the Closing Date. Any reimbursements payable by any tenant under the terms of any 25 tenant lease affecting the Property as of the Closing Date, which reimbursements pertain to such tenant's pro rata share of increased operating expenses incurred with respect to the Property at any time prior to the Closing, shall be prorated upon Purchaser's actual receipt of any such reimbursements, on the basis of the number of days of Seller and Purchaser's respective ownership of the Property during the period in respect of which such reimbursements are payable; and Purchaser agrees to pay to Seller Seller's pro rata portion of such reimbursements within thirty (30) days after Purchaser's receipt thereof. Conversely, if any tenant under any such Lease shall become entitled at any time after Closing to a refund of tenant reimbursements actually paid by such tenant prior to Closing, then, Seller shall, within thirty (30) days following Purchaser's demand therefor, pay to Purchaser any amount equal to Seller's pro rata share of such reimbursement refund obligations, said proration to be calculated on the same basis as hereinabove set forth. Purchaser shall receive at Closing a credit for all Security Deposits transferred and assigned to Purchaser at Closing in connection with the Leases, together with a detailed inventory of such Security Deposits certified by Seller in the updated Rent Roll to be delivered by Seller at Closing. Personal property taxes, installment payments of special assessment liens, vault charges, sewer charges, utility charges, interest accrued but unpaid under the Existing Note and normally prorated operating expenses actually paid or payable as of the Closing Date shall be prorated as of the Closing Date and adjusted against the Purchase Price, provided that within ninety (90) days after the Closing, Purchaser and Seller will make a further adjustment for such rents, taxes or charges which may have accrued or been incurred prior to the Closing Date, but not collected or paid at that date. In addition, within ninety (90) days after the close of the fiscal year(s) used in calculating the pass-through to tenants of operating expenses under the Leases (where such fiscal year(s) include(s) the Closing Date), Seller and Purchaser shall, upon the request of either, re-prorate on a fair and equitable basis in order to adjust for the effect of any credits or payments due to or from tenants for periods prior to the Closing Date. All prorations shall be made based on the number of calendar days in such year or month, as the case may be. The provisions of this Section 5.4 shall survive the Closing. (d) Tenant Inducement Costs. Set forth on EXHIBIT "M" attached hereto and made a part hereof is a list of tenants at the Property with respect to which Tenant Inducement Costs and/or leasing commissions have not been paid in full as of the Effective Date. Seller shall pay all such Tenant Inducement Costs and leasing commissions set forth in EXHIBIT "M" as and when the same are due and payable. If said amounts have not been paid in full on or before Closing, Purchaser shall receive a credit against the cash portion of the Purchase Price in the aggregate amount of all such Tenant Inducement Costs and leasing commissions remaining unpaid at Closing, and Purchaser shall assume the obligation to pay amounts payable after Closing up to the amount of such credit received at Closing. Except as may be specifically provided to the contrary elsewhere in this Agreement, Purchaser shall be responsible for the payment of all Tenant Inducement Costs and leasing commissions which become due and payable (whether before or after Closing) (i) as a result of any renewals or extensions or expansions of existing Leases approved or deemed approved by Purchaser in accordance with Section 4.3(a) hereof between the Effective Date and the Closing Date and under 26 any new Leases, approved or deemed approved by Purchaser in accordance with said Section 4.3(a), and (ii) subject to receiving a credit at Closing for the aggregate unpaid amount of Tenant Inducement Costs and leasing commissions due as set forth on EXHIBIT "M" hereto, all Tenant Inducement Costs and leasing commissions that first become due and payable after Closing. ARTICLE 6 CONDITIONS TO CLOSING 6.1 Conditions Precedent to Purchaser's Obligations. The obligations of Purchaser hereunder to consummate the transaction contemplated hereunder shall in all respects be conditioned upon the satisfaction of each of the following conditions prior to or simultaneously with the Closing, any of which may be waived by Purchaser in its sole discretion by written notice to Seller at or prior to the Closing Date: (a) Seller shall have delivered to Escrow Agent all of the items required to be delivered to Purchaser pursuant to the terms of this Agreement, including, but not limited to Section 5.1 hereof; (b) Seller shall have performed, in all material respects, all covenants, agreements and undertakings of Seller contained in this Agreement; (c) All representations and warranties of Seller as set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of Closing, provided that for purposes of this subparagraph such warranties and representations shall be deemed to be given without being limited to Seller's knowledge and without modification (by update or otherwise, as provided in Section 5.1(i) hereof); (d) Tenant Estoppel Certificates executed by tenants occupying not less than eighty percent (80%) of the aggregate net rentable square footage of all of the Improvements located on the Property (including, without limitation, Tenant Estoppel Certificates executed by each of the Major Tenants), with each such estoppel certificate (i) to be substantially in the form attached hereto as EXHIBIT "I", (ii) to be dated within thirty (30) days prior to the originally scheduled Closing Date, (iii) to confirm the material terms of the applicable Lease, as contained in the copies of the Leases obtained by or delivered to Purchaser, and (iv) to confirm the absence of any material defaults under the applicable Lease. The delivery of said Tenant Estoppel Certificates shall be a condition of Purchaser's obligations at Closing, and the failure or inability of Seller to obtain and deliver said Tenant Estoppel Certificates, provided Seller has used its good faith efforts to obtain the same, shall not constitute a default by Seller under this Agreement. Notwithstanding anything to the contrary contained herein, in the event that Seller has been unable to obtain and deliver to Purchaser by Closing Tenant Estoppel Certificates meeting the requirements set forth above, then, at the option of Seller, this condition to Closing may be satisfied by Seller's execution and delivery to Purchaser at Closing in favor of Purchaser, on behalf of any one or more tenants who are not Major 27 Tenants which have failed to provide the required Tenant Estoppel Certificate an estoppel certificate substantially in the form attached hereto as SCHEDULE 11 ("Seller's Estoppel") (provided that Seller Estoppels cannot be delivered with respect to tenants occupying more than ten percent (10%) of the aggregate net rentable square footage of all of the Improvements; and provided that Seller's liability under any such Seller's Estoppel so executed and delivered by Seller to Purchaser at Closing shall cease and terminate upon the receipt by Purchaser after Closing of a duly executed Tenant Estoppel Certificate from the tenant under the applicable Lease covered in such Seller's Estoppel. (e) Title Company shall be irrevocably committed to deliver the Title Policy to Purchaser. In the event any of the conditions in this Section 6.1 have not been satisfied (or otherwise waived in writing by Purchaser) on or before the Closing Date (as same may be extended or postponed as provided in this Agreement), Purchaser shall have the right to terminate this Agreement by written notice to Seller given at any time at or prior to the Closing Date, whereupon (i) Escrow Agent shall return the Earnest Money to Purchaser; and (ii) except for those provisions of this Agreement which by their express terms survive the termination of this Agreement, no party hereto shall have any other or further rights or obligations under this Agreement. 6.2 Conditions Precedent to Seller's Obligations. The obligations of Seller hereunder to consummate the transaction contemplated hereunder shall in all respects be conditioned upon the satisfaction of each of the following conditions prior to or simultaneously with the Closing, any of which may be waived by Seller in its sole discretion by written notice to Purchaser at or prior to the Closing Date: (a) Purchaser shall have paid and Seller shall have received the Purchase Price, as adjusted pursuant to the terms and conditions of this Agreement, which Purchase Price shall be payable in the amount and in the manner provided for in this Agreement; (b) Purchaser shall have delivered to Seller all of the items required to be delivered to Seller pursuant to the terms of this Agreement, including, but not limited to Section 5.2 hereof; (c) Purchaser shall have performed, in all material respects, all covenants, agreements and undertakings of Purchaser contained in this Agreement; and (d) All representations and warranties of Purchaser as set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of Closing, provided that for purposes of this subparagraph such warranties and representations shall be deemed to be given without being limited to Purchaser's knowledge and without modification (by update or otherwise, as provided in Section 5.2(d) hereof). 28 ARTICLE 7 CASUALTY AND CONDEMNATION 7.1 Casualty. Risk of loss up to and including the Closing Date shall be borne by Seller. In the event of any immaterial damage or destruction to the Property or any portion thereof, Seller and Purchaser shall proceed to close under this Agreement, and Purchaser will receive (and Seller will assign to Purchaser at the Closing Seller's rights under insurance policies to receive) any insurance proceeds (including any rent loss insurance applicable to any period on and after the Closing Date) due Seller as a result of such damage or destruction and assume responsibility for such repair, and Purchaser shall receive a credit at Closing for any deductible, uninsured or coinsured amount under said insurance policies. For purposes of this Agreement, the term "immaterial damage or destruction" shall mean such instances of damage or destruction: (i) which can be repaired or restored at a cost of $500,000.00 or less; (ii) which can be restored and repaired within sixty (60) days from the date of such damage or destruction; (iii) which are not so extensive as to allow any Major Tenant to terminate its Lease on account of such damage or destruction; and (iv) in which Seller's rights under its rent loss insurance policy covering the Property are assignable to Purchaser and will continue pending restoration and repair of the damage or destruction. In the event of any material damage or destruction to the Property or any portion thereof, Purchaser may, at its option, by notice to Seller given within the earlier of twenty (20) days after Purchaser is notified by Seller of such damage or destruction, or the Closing Date, but in no event less than ten (10) days after Purchaser is notified by Seller of such damage or destruction (and if necessary the Closing Date shall be extended to give Purchaser the full 10-day period to make such election): (i) terminate this Agreement, whereupon Escrow Agent shall immediately return the Earnest Money to Purchaser, or (ii) proceed to close under this Agreement, receive (and Seller will assign to Purchaser at the Closing Seller's rights under insurance policies to receive) any insurance proceeds (including any rent loss insurance applicable to the period on or after the Closing Date) due Seller as a result of such damage or destruction and assume responsibility for such repair, and Purchaser shall receive a credit at Closing for any deductible, uninsured or coinsured amount under said insurance policies. If Purchaser fails to deliver to Seller notice of its election within the period set forth above, Purchaser will conclusively be deemed to have elected to terminate this Agreement. If Purchaser elects clause (ii) above, Seller will cooperate with Purchaser after the Closing to assist Purchaser in obtaining the insurance proceeds from Seller's insurers. For purposes of this Agreement "material damage or destruction" shall mean all instances of damage or destruction that are not immaterial, as defined herein. 7.2. Condemnation. If, prior to the Closing, all or any part of the Property is subjected to a bona fide threat of condemnation by a body having the power of eminent domain or is taken by eminent domain or condemnation (or sale in lieu thereof), or if Seller has received notice that any condemnation action or proceeding with respect to the Property is contemplated by a body having the power of eminent domain, Seller shall give Purchaser immediate written notice of such threatened or contemplated condemnation or of such taking or sale, and Purchaser may by written notice to Seller given within thirty (30) days after the receipt of such notice from 29 Seller, elect to cancel this Agreement. If Purchaser fails to respond to Seller's notice within ten (10) days after receipt thereof, Purchaser shall be deemed to have elected to cancel this Agreement. If Purchaser chooses to cancel this Agreement in accordance with this Section 7.2, then the Earnest Money shall be returned immediately to Purchaser by Escrow Agent and the rights, duties, obligations, and liabilities of the parties hereunder shall immediately terminate and be of no further force and effect, except for those provisions of this Agreement which by their express terms survive the termination of this Agreement. If Purchaser does not elect to cancel this Agreement in accordance herewith, this Agreement shall remain in full force and effect and the sale of the Property contemplated by this Agreement, less any interest taken by eminent domain or condemnation, or sale in lieu thereof, shall be effected with no further adjustment and without reduction of the Purchase Price, and at the Closing, Seller shall assign, transfer, and set over to Purchaser all of the right, title, and interest of Seller in and to any awards applicable to the Property that have been or that may thereafter be made for such taking. At such time as all or a part of the Property is subjected to a bona fide threat of condemnation and Purchaser shall not have elected to terminate this Agreement as hereinabove provided, Purchaser shall be permitted to participate in the proceedings as if Purchaser were a party to the action. Seller shall not settle or agree to any award or payment pursuant to condemnation, eminent domain, or sale in lieu thereof without obtaining Purchaser's prior written consent thereto in each case. ARTICLE 8 DEFAULT AND REMEDIES 8.1 Purchaser's Default. If Purchaser defaults in its obligations at Closing, Seller shall be entitled, as its sole remedy hereunder, to terminate this Agreement and to receive and retain the Earnest Money as full liquidated damages for such default of Purchaser, the parties hereto acknowledging that it is impossible to estimate more precisely the damages which might be suffered by Seller upon Purchaser's default, and that said Earnest Money is a reasonable estimate of Seller's probable loss in the event of default by Purchaser. Seller's retention of said Earnest Money is intended not as a penalty, but as full liquidated damages. The right to retain the Earnest Money as full liquidated damages is Seller's sole and exclusive remedy in the event of default hereunder by Purchaser, and Seller hereby waives and releases any right to (and hereby covenants that it shall not) sue the Purchaser: (a) for specific performance of this Agreement, or (b) to recover actual damages in excess of the Earnest Money. The foregoing liquidated damages provision shall not apply to Purchaser's obligations under Sections 3.1(c), 3.7 and 10.1 of this Agreement. Purchaser hereby waives and releases any right to (and hereby covenants that it shall not) sue Seller or seek or claim a refund of said Earnest Money (or any part thereof) on the grounds it is unreasonable in amount and exceeds Seller's actual damages or that its retention to Seller constitutes a penalty and not agreed upon and reasonable liquidated damages; provided, however, that the foregoing shall not waive or release any right of Purchaser to sue Seller or seek or claim any such refund on any other grounds. 8.2 Seller's Default. If Seller defaults in its obligations at Closing, Purchaser shall be entitled, as its sole remedy, either (a) to terminate this Agreement and receive the return of the Earnest Money from Escrow Agent, and, if such default by Seller was a willful default, sue Seller for Purchaser's actual damages up to $100,000; or (b) to enforce specific performance of Seller's 30 obligation to execute and deliver the documents required to convey the Property to Purchaser in accordance with this Agreement. Purchaser shall be deemed to have elected to terminate this Agreement and to receive a return of the Earnest Money from Escrow Agent if Purchaser fails to file suit for specific performance against Seller in a court having jurisdiction in the county and state in which the Property is located, on or before sixty (60) days following the date upon which the Closing was to have occurred. ARTICLE 9 ASSIGNMENT 9.1 Assignment. This Agreement and all rights and obligations hereunder shall not be assignable by any party without the written consent of the other; provided that Purchaser may make one assignment of this Agreement to a newly formed title holding entity which is wholly owned by Purchaser. Subject to the foregoing, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective legal representatives, successors and permitted assigns. This Agreement is not intended and shall not be construed to create any rights in or to be enforceable in any part by any other persons. ARTICLE 10 BROKERAGE COMMISSIONS 10.1 Broker. Upon the Closing, and only in the event the Closing occurs, Seller shall pay a brokerage commission to Hamptons International Group ("Broker") pursuant to a separate agreement between Seller and Broker. Seller shall and does hereby indemnify and hold Purchaser harmless from and against any and all liability, loss, cost, damage, and expense, including reasonable attorneys' fees actually incurred and costs of litigation, Purchaser shall ever suffer or incur because of any claim by any agent, salesman, or broker, whether or not meritorious, for any fee, commission or other compensation with regard to this Agreement or the sale and purchase of the Property contemplated hereby, and arising out of any acts or agreements of Seller, including any claim asserted by Broker. Likewise, Purchaser shall and does hereby indemnify and hold Seller free and harmless from and against any and all liability, loss, cost, damage, and expense, including reasonable attorneys' fees actually incurred and costs of litigation, Seller shall ever suffer or incur because of any claim by any agent, salesman, or broker, whether or not meritorious, for any fee, commission or other compensation with respect to this Agreement or the sale and purchase of the Property contemplated hereby and arising out of the acts or agreements of Purchaser. This Section 10.1 shall survive the Closing or any earlier termination of this Agreement. ARTICLE 11 MISCELLANEOUS 11.1 Notices. Wherever any notice or other communication is required or permitted hereunder, such notice or other communication shall be in writing and shall be delivered by 31 overnight courier, hand, facsimile transmission, or sent by U.S. registered or certified mail, return receipt requested, postage prepaid, to the addresses or facsimile numbers set out below or at such other addresses as are specified by written notice delivered in accordance herewith: PURCHASER: CB Richard Ellis Strategic Partners, L.P. 865 South Figueroa Street Suite 3500 Los Angeles, California 90017 Attention: Michael E. Burrichter Facsimile: (213) 683-4301 with a copy to: Mayer, Brown & Platt 350 S. Grand Avenue, 25th Floor Los Angeles, CA 90071 Attention: Kevin A. Corbett Facsimile: 213-625-0248 SELLER: Overseas Capital Co. 115 Perimeter Center Place Suite 940 Atlanta, Georgia 30346 Attention: Michael J. Molletta Facsimile: (770) 913-6750 with a copy to: Troutman Sanders LLP Suite 5200 600 Peachtree Street, N.E. Atlanta, Georgia 30308-2216 Attention: James W. Addison Facsimile: (404) 962-6500 Any notice or other communication (i) mailed as hereinabove provided shall be deemed effectively given or received on the third (3rd) business day following the postmark date of such notice or other communication, (ii) sent by overnight courier or by hand shall be deemed effectively given or received upon receipt, and (iii) sent by facsimile transmission shall be deemed effectively given or received on the day of transmission of such notice and confirmation of such transmission. 11.2 Possession. Full and exclusive possession of the Property, subject to the Permitted Exceptions and the rights of the tenants under the Leases, shall be delivered by Seller to Purchaser on the Closing Date. 11.3 Time Periods. If the time period by which any right, option, or election provided under this Agreement must be exercised, or by which any act required hereunder must be performed, or by which the Closing must be held, expires on a Saturday, Sunday, or holiday, then 32 such time period shall be automatically extended through the close of business on the next regularly scheduled Business Day. 11.4 Publicity. The parties agree that prior to the Closing no party shall, with respect to this Agreement and the transactions contemplated hereby, contact or conduct negotiations with public officials, make any public announcements, issue press releases or otherwise furnish information regarding this Agreement or the transactions contemplated hereby to any third party without the prior written consent of the other party hereto. The parties further agree that after the Closing, no party shall, with respect to this Agreement and the transactions contemplated hereby, make any public announcements, issue press releases or otherwise furnish information regarding this Agreement or the transactions contemplated hereby to any third party without the prior written consent of the other party hereto unless such announcement, release or information does not disclose the material terms of this Agreement or the documents executed at Closing (including, without limitation, the Purchase Price or other compensation paid) and, in no event, shall any such announcement, release or information disclose the name of Seller without Seller's prior written approval. 11.5 Discharge of Obligations. The acceptance by Purchaser of Seller's Warranty Deed hereunder shall be deemed to constitute the full performance and discharge of each and every warranty and representation made by Seller and Purchaser herein and every agreement and obligation on the part of Seller and Purchaser to be performed pursuant to the terms of this Agreement, except those warranties, representations, covenants and agreements which are specifically provided in this Agreement to survive Closing. 11.6 Severability. This Agreement is intended to be performed in accordance with, and only to the extent permitted by, all applicable laws, ordinances, rules and regulations. If any provision of this Agreement, or the application thereof to any person or circumstance, shall, for any reason and to any extent be invalid or unenforceable, the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected thereby but rather shall be enforced to the greatest extent permitted by law. 11.7 Construction. This Agreement shall not be construed more strictly against one party than against the other merely by virtue of the fact that this Agreement may have been prepared by counsel for one of the parties, it being mutually acknowledged and agreed that Seller and Purchaser and their respective counsel have contributed substantially and materially to the preparation and negotiation of this Agreement. Accordingly, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any exhibits or amendments hereto. 11.8 Sale Notification Letters. Promptly following the Closing, Purchaser shall deliver to the Tenant Notices of Sale to each of the respective tenants under the Leases and the Other Notices of Sale to each service provider and leasing agent, the obligations under whose respective Operating Agreements and Commission Agreements Purchaser has assumed at Closing. The provisions of this section shall survive the Closing. 33 11.9 Survival. The provisions of this Article 11 and the provisions of Sections 3.1(c), 3.3, 3.7, 5.1, 5.2, 5.4, 6.1(d) and 10.1 shall survive the Closing to the extent provided in this Agreement and any earlier termination of this Agreement and shall not be merged into the execution and delivery of the Warranty Deed. 11.10 General Provisions. No failure of either party to exercise any power given hereunder or to insist upon strict compliance with any obligation specified herein, and no custom or practice at variance with the terms hereof, shall constitute a waiver of either party's right to demand exact compliance with the terms hereof. This Agreement contains the entire agreement of the parties hereto, and no representations, inducements, promises, or agreements, oral or otherwise, between the parties not embodied herein shall be of any force or effect. Any amendment to this Agreement shall not be binding upon Seller or Purchaser unless such amendment is in writing and executed by both Seller and Purchaser. Subject to the provisions of Section 9.1 hereof, the provisions of this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, legal representatives, successors, and permitted assigns. Time is of the essence in this Agreement. This Agreement may be executed in multiple counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same agreement. The headings inserted at the beginning of each paragraph are for convenience only, and do not add to or subtract from the meaning of the contents of each paragraph. This Agreement shall be construed and interpreted under the laws of the State of Georgia. Except as otherwise provided herein, all rights, powers, and privileges conferred hereunder upon the parties shall be cumulative but not restrictive to those given by law. All personal pronouns used in this Agreement, whether used in the masculine, feminine, or neuter gender shall include all genders, and all references herein to the singular shall include the plural and vice versa. 11.11 Attorneys' Fees. If Purchaser or Seller brings an action at law or equity against the other in order to enforce the provisions of this Agreement or as a result of an alleged default under this Agreement, the prevailing party in such action shall be entitled to recover court costs and reasonable attorney's fees actually incurred from the other. 11.12 Counterparts. This Agreement may be executed in one or more counterparts, each of which when taken together shall constitute one and the same original. To facilitate the execution and delivery of this Agreement, the parties may execute and exchange counterparts of the signature pages by facsimile, and the signature page of either party to any counterpart may be appended to any other counterpart. 11.13 Other Potential Purchasers. For so long as this Agreement remains in effect, Seller agrees (i) not to enter into negotiations or discussions for the purchase and sale of the Property with any third party, and (ii) not to distribute any of the Due Diligence Materials to any third party which has expressed an interest in purchasing the Property. 34 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day, month and year first above written. SELLER: OVERSEAS CAPITAL CO., a Delaware corporation and successor by corporate name changes to Overseas Partners Capital Corp. By: /s/ Michael J. Molletta ------------------------------ Name: Michael J. Molletta ------------------------------ Title: Vice President ------------------------------ (CORPORATE SEAL) [Signatures continued on next page] S-1 [Signatures continued from previous page] PURCHASER CB RICHARD ELLIS STRATEGIC PARTNERS, L.P., a Delaware limited partnership, its sole member By: CB Richard Ellis Partners, L.L.C., a Delaware limited liability company, its sole general partner By: /s/ Michael E. Burrichter --------------------------- Name: Michael E. Burrichter ------------------------ Title: Vice President ------------------------ By: --------------------------- Name: ------------------------ Title: ------------------------ S-2 FIRST AMENDMENT TO AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY THIS FIRST AMENDMENT TO AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY (this "First Amendment") is entered into as of July ___, 2000, by and between OVERSEAS CAPITAL CO., a Delaware corporation ("Seller"), and CB RICHARD ELLIS STRATEGIC PARTNERS, L.P., a Delaware limited partnership ("Purchaser"), with reference to the following Recitals: R E C I T A L S: --------------- A. Seller and Purchaser have entered into that certain Agreement for Purchase and Sale of Real Property dated as of May 29, 2000 (the "Original Agreement"). All initial capitalized terms not otherwise defined herein shall have the meanings set forth in the Original Agreement unless the context clearly indicates otherwise. References to "the Agreement" or "this Agreement" in the Original Agreement or in this First Amendment shall mean and refer to the Original Agreement, as amended by this First Amendment. B. Seller and Purchaser desire to amend the Agreement as more particularly set forth herein. NOW, THEREFORE, in consideration of the foregoing Recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Title and Survey. Seller and Purchaser desire to extend the period during ---------------- which Seller may object to title and survey matters until the end of the Inspection Period. Accordingly, the fifth sentence of Section 3.4 of the ----------- Original Agreement is hereby amended by deleting the phrase "fifteen (15) days prior to" in such sentence. 2. Conditions Precedent to Purchaser's Obligations. Seller and Purchaser ----------------------------------------------- desire to extend the period during which the Tenant Estoppel Certificates must be dated. Accordingly, Section 6.1(d)(ii) is hereby deleted in its ------------------ entirety and replaced with the following: "(ii) to be dated within sixty (60) days prior to the originally scheduled Closing Date,". 3. Effect of this First Amendment. Except as amended and/or modified by this ------------------------------ First Amendment, the Agreement is hereby ratified and confirmed and all other terms of the Original Agreement shall remain in full force and effect, unaltered and unchanged by this First Amendment. In the event of any conflict between the provisions of this First Amendment and the provisions of the Original Agreement, the provisions of this First Amendment shall prevail. Whether or not specifically amended by this First Amendment, all terms and provisions of the Original Agreement are hereby amended to the extent necessary to give effect to the purpose and intent of this First Amendment. 4. Counterparts. This First Amendment may be executed in any number of ------------ counterparts, each of which shall be deemed any original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this First Amendment attached thereto. [Signatures on next page] IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this First Amendment as of the date first above written. SELLER: OVERSEAS CAPITAL CO., a Delaware corporation and successor by corporate name changes to Overseas Partners Capital Corp. By: /s/ Michael J. Molletta ---------------------------- Name: Michael J. Molletta Its: Vice President PURCHASER: CB RICHARD ELLIS STRATEGIC PARTNERS, L.P., a Delaware limited partnership By: CB Richard Ellis Partners, L.L.C., a Delaware limited liability company, its sole general partner By: /s/ Michael E. Burrichter ---------------------------------- Name: Michael E. Burrichter ---------------------------- Its: Vice President ----------------------------- By: ---------------------------------- Name: ---------------------------- Its: ----------------------------- SECOND AMENDMENT TO AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY THIS SECOND AMENDMENT TO AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY (this "Second Amendment") is entered into as of July 13, 2000, by and between OVERSEAS CAPITAL CO., a Delaware corporation ("Seller"), and CB RICHARD ELLIS STRATEGIC PARTNERS, L.P., a Delaware limited partnership ("Purchaser"), with reference to the following Recitals: R E C I T A L S: - - - - - - - - A. Seller and Purchaser have entered into that certain Agreement for Purchase and Sale of Real Property dated as of May 29, 2000 (the "Original Agreement") as amended by that certain First Amendment to Agreement for Purchase and Sale of Real Property dated as of July __, 2000 (the "First Amendment"). All initial capitalized terms not otherwise defined herein shall have the meanings set forth in the Original Agreement unless the context clearly indicates otherwise. References to "the Agreement" or "this Agreement" in the Original Agreement or in this Second Amendment shall mean and refer to the Original Agreement, as amended by the First Amendment. B. Seller and Purchaser desire to amend the Agreement as more particularly set forth herein. NOW, THEREFORE, in consideration of the foregoing Recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Inspection Period. Seller and Purchaser desire to extend the period during ----------------- which Purchaser shall determine, in Purchaser's sole opinion and discretion, the suitability of the Property for acquisition by Purchaser or Purchaser's permitted assignee. Accordingly, the definition of "Inspection Period" set forth in Article I of the Agreement is hereby deleted in its entirety and replaced with the following: "Inspection Period" shall mean the period expiring at 5:00 P.M. Eastern Standard Time on July 21, 2000. 2. Effect of this Second Amendment. Except as amended and/or modified by this ------------------------------- Second Amendment, the Agreement is hereby ratified and confirmed and all other terms of the Original Agreement shall remain in full force and effect, unaltered and unchanged by this Second Amendment. In the event of any conflict between the provisions of this Second Amendment and the provisions of the Original Agreement, the provisions of this Second Amendment shall prevail. Whether or not specifically amended by this Second Amendment, all of the terms and provisions of the Original Agreement are hereby amended to the extent necessary to give effect to the purpose and intent of this Second Amendment. 3. Counterparts. This Second Amendment may be executed in any number of ------------ counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this Second Amendment attached thereto. [Signatures on next page] IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this Second Amendment as of the date first above written. SELLER: OVERSEAS CAPITAL CO., a Delaware corporation and successor by corporate name changes to Overseas Partners Capital Corp. By: /s/ Michael J. Molletta -------------------------- Name: Michael J. Molletta Its: Vice President PURCHASER: CB RICHARD ELLIS STRATEGIC PARTNERS, L.P., a Delaware limited partnership By: CB Richard Ellis Partners, L.L.C, a Delaware limited liability company, its sole general partner By: /s/ Michael E. Burrichter --------------------------- Name: Michael E. Burrichter Its: Vice President By: --------------------------- Name: --------------------- Its: --------------------- THIRD AMENDMENT TO AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY THIS THIRD AMENDMENT TO AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY (this "Third Amendment") is entered into as of July 14, 2000, by and between OVERSEAS CAPITAL CO., a Delaware corporation ("Seller"), and CB RICHARD ELLIS STRATEGIC PARTNERS, L.P., a Delaware limited partnership ("Purchaser"), with reference to the following Recitals: R E C I T A L S: - - - - - - - - A. Seller and Purchaser have entered into that certain Agreement for Purchase and Sale of Real Property dated as of May 29, 2000 (the "Original Agreement"), as amended by that certain First Amendment to Agreement for Purchase and Sale of Real Property dated as of July ___, 2000 (the "First Amendment"), and by that certain Second Amendment to Agreement for Purchase and Sale of Real Property dated as of July 13, 2000 (the "Second Amendment"). All initially capitalized terms not otherwise defined herein shall have the meanings set forth in the Original Agreement unless the context clearly indicates otherwise. References to "the Agreement" or "this Agreement" in the Original Agreement or in this Third Amendment shall mean and refer to the Original Agreement, as amended by the First Amendment and the Second Amendment. B. Seller and Purchaser desire to amend the Agreement as more particularly set forth herein. NOW, THEREFORE, in consideration of the foregoing Recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Closing. Section 2.6 of the Agreement is hereby deleted in its entirety and replaced with the following: "2.6 Closing. The consummation of the sale by Seller and purchase by Purchaser of the Property (the 'Closing') shall be held on August 1, 2000 (said date, or such other date as Seller and Purchaser may hereafter agree as the date on which the Closing shall take place, is herein called the 'Closing Date'). The Closing shall take place at the offices of Escrow Agent, and at such specific time as shall be designated by Purchaser in a written notice to Seller not less than three (3) Business Days prior to Closing." 2. Effect of this Third Amendment. Except as amended and/or modified by this Third Amendment, the Agreement is hereby ratified and confirmed and all other terms of the Original Agreement shall remain in full force and effect, unaltered and unchanged by this Third Amendment. In the event of any conflict between the provisions of this Third Amendment and the provisions of the Original Agreement, the provisions of this Third Amendment shall prevail. Whether or not specifically amended by this Third Amendment, all of the terms and provisions of the Original Agreement are hereby amended to the extent necessary to give effect to the purpose and intent of this Third Amendment. 3. Counterparts. This Third Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon, provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this Third Amendment attached thereto. [Signatures on next page] 2 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this Third Amendment as of the date first above written. SELLER: OVERSEAS CAPITAL CO., a Delaware corporation and successor by corporate name changes to Overseas Partners Capital Corp. By: /s/ Michael J. Molletta ----------------------------- Name: Michael J. Molletta Its: Vice President PURCHASER: CB RICHARD ELLIS STRATEGIC PARTNERS, L.P., a Delaware limited partnership By: CB Richard Ellis Partners, L.L.C., a Delaware limited liability company, its sole general partner By: /s/ Michael E. Burrichter ---------------------------- Name: Michael E. Burrichter Its: Vice President By:____________________________ Name:__________________________ Its:___________________________ 3 REINSTATEMENT AND FOURTH AMENDMENT TO AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY THIS REINSTATEMENT AND FOURTH AMENDMENT TO AGREEMENT FOR PURCHASE AND SALE OF REAL PROPERTY (this "Fourth Amendment") is entered into as of August 23, 2000, by and between OVERSEAS CAPITAL CO., a Delaware corporation ("Seller"), and CB RICHARD ELLIS STRATEGIC PARTNERS, L.P., a Delaware limited partnership ("Purchaser"), with reference to the following Recitals: R E C I T A L S: - - - - - - - - A. Seller and Purchaser have entered into that certain Agreement for Purchase and Sale of Real Property dated as of May 29, 2000 (the "Original Agreement") as amended by that certain First Amendment to Agreement for Purchase and Sale of Real Property dated as of July __, 2000 (the "First Amendment"), that certain Second Amendment to Agreement for Purchase and Sale of Real Property dated as of July 13, 2000 (the "Second Amendment"), and by that certain Third Amendment to Agreement for Purchase and Sale of Real Property dated as of July 14, 2000 (the "Third Amendment"). All initial capitalized terms not otherwise defined herein shall have the meanings set forth in the original Agreement unless the context clearly indicates otherwise. References to "the Agreement" or "this Agreement" in the Original Agreement or in this Fourth Amendment shall mean and refer to the Original Agreement, as amended by the First Amendment, Second Amendment and the Third Amendment. B. On July 20, 2000, Purchaser elected to terminate the Agreement pursuant to the provisions of Section 3.6 of the Agreement. ----------- C. Seller and Purchaser desire to reinstate and amend the Agreement as more particularly set forth herein. NOW, THEREFORE, in consideration of the foregoing Recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Reinstatement of Agreement. The termination of the Agreement is hereby -------------------------- revoked and, except as expressly modified by this Fourth Amendment, the Agreement shall be, and hereby is, reinstated in its entirety and shall be in full force and effect as if the same had never been terminated. The Ernest Money under the Agreement remains with the Escrow Agent and shall continue as the Ernest Money under the Agreement. 2. Closing. Section 2.6 of the Agreement is hereby deleted in its entirety ------- and replaced with the following: 2.6. Closing. The consummation of the sale by Seller and the ------- purchase by Purchaser of the property (the "Closing") shall be held on any ------- date on or before August 31, -1- 2000, provided, however, that Purchaser shall have the right to extend the ----------------- date of the Closing to September 15, 2000 if MetLife, on or before August 31, 2000, withdraws or terminates its commitment to fund Seven Million Five Hundred Fifty-Eight Thousand Seven Hundred Ninety-Three Dollars ($7,558,793) or otherwise refuses to fund such amount, as additional financing for Purchaser's acquisition of the Property and MetLife is ready, willing and able to permit the assumption by Purchaser of the existing MetLife loan encumbering the Property. Subject to the foregoing, the Closing shall take place at the offices of Escrow Agent at such specific time and date (the "Closing Date") as shall be mutually agreed upon by Purchaser and Seller. -------------- 3. Inspection Period. Notwithstanding anything contained in the Agreement to ----------------- the contrary, Seller and Purchaser hereby acknowledge and agree that (a) the Inspection Period shall terminate as of 5:00 p.m. Eastern Standard Time on the date of this Fourth Amendment and (b) prior to the expiration of the Inspection Period, Seller has received the first Title Notice, which is attached hereto as Exhibit A, the Title Commitment and the Survey. Purchaser --------- hereby acknowledges and agrees that Purchaser finds the Property suitable and shall not have the right to terminate the Agreement pursuant to Section 3.6. ----------- 4. Conditions Precedent to Purchaser's Obligations. Section 6.1 of the ----------------------------------------------- ----------- Agreement is hereby amended by inserting the following Section 6.1(f) as a -------------- condition precedent to Purchaser's obligation to consummate the transaction contemplated by the Agreement: (f) MetLife and Seller shall have delivered to Escrow Agent executed, and if appropriate acknowledged, originals of all of the documents, in form and substance reasonably satisfactory to Purchaser, necessary for Purchaser's assumption of the borrower's obligations, and assignment to Purchaser of the borrower's rights, evidenced by the MetLife Loan Documents (the "Assumption Documents"); provided, however, that the condition set ----------------- forth in this Section 6.1(f) shall not be a condition precedent to Closing -------------- if such condition fails solely because of a bad faith breach by Purchaser of its obligations under any commitment by MetLife to consent to the assumption by Purchaser of the obligations evidenced by the MetLife Loan Documents. 5. Conditions Precedent to Seller's Obligations. Section 6.2 of the Agreement -------------------------------------------- ----------- is hereby amended by inserting the following Section 6.2(e) as a condition -------------- precedent to Seller's obligation to consummate the transaction contemplated by the Agreement: (e) MetLife and Purchaser shall have delivered to Escrow Agent the Assumption Documents, in form and substance reasonably satisfactory to Seller. 6. Assignment of Agreement. Pursuant to Section 9.1 of the Agreement, Seller ----------------------- ----------- hereby acknowledges and agrees that, concurrently with the execution of this Fourth Amendment, Purchaser shall assign the Agreement and all of Purchaser's rights and obligations thereunder to SP One Buckhead Plaza LLC, a Delaware limited liability company. -2- 7. Effect of this Fourth Amendment. Except as amended and/or modified by this ------------------------------- Fourth Amendment, the Agreement is hereby ratified and confirmed and all other terms of the Agreement shall remain in full force and effect, unaltered and unchanged by this Fourth Amendment. In the event of any conflict between the provisions of this Fourth Amendment and the provisions of the Agreement, the provisions of this Fourth Amendment shall prevail. Whether or not specifically amended by this Fourth Amendment, all of the terms and provisions of the Agreement are hereby amended to the extent necessary to give effect to the purpose and intent of this Fourth Amendment. 8. Counterparts. This Fourth Amendment may be executed in any number of ------------ counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument. The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon provided such signature page is attached to any other counterpart identical thereto except having additional signature pages executed by other parties to this Fourth Amendment attached thereto. [Signatures on next page] -3- IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this Fourth Amendment as of the date first above written. SELLER: OVERSEAS CAPITAL CO., a Delaware corporation and successor by corporate name changes to Overseas Partners Capital Corp. By: /s/ Michael J. Molletta ---------------------------- Name: Michael J. Molletta Its: Vice President PURCHASER: CB RICHARD ELLIS STRATEGIC PARTNERS, L.P., a Delaware limited partnership By: CB Richard Ellis Partners, L.L.C., a Delaware limited liability company, its sole general partner By: /s/ Michael E. Burrichter ---------------------------------- Name: Michael E. Burrichter Its: Vice President By: /s/ V Maddocks ---------------------------------- Name: Vance Maddocks Its: President EX-10.(CCC) 4 0004.txt PURCHASE AND SALE AGREEMENT, 333 WEST WACKER EXHIBIT 10(ccc) PURCHASE AND SALE AGREEMENT by and between OVERSEAS PARTNERS (333), INC., an Illinois corporation and 333 WEST WACKER LLC, a Delaware limited liability company Effective Date: June 22, 2000 Table of Contents PURCHASE AND SALE AGREEMENT..................................................1 ARTICLE 1 - CERTAIN DEFINITIONS..............................................1 ARTICLE 2 - SALE OF PROPERTY.................................................6 ARTICLE 3 - PURCHASE PRICE...................................................6 3.1 Deposit Money..........................................................6 3.2 Cash at Closing........................................................6 3.3 Existing Loan..........................................................6 3.3.1 Assumption of Existing Loan........................................6 3.3.2 Approval of Lender.................................................6 ARTICLE 4 - TITLE AND SURVEY MATTERS.........................................7 4.1 Title to Real Property.................................................7 4.2 Title Defects..........................................................7 4.2.1 Certain Exceptions to Title........................................7 4.2.2 Discharge of Title Objections......................................8 4.3 Title Insurance.......................................................8 ARTICLE 5 - BUYER'S DUE DILIGENCE/CONDITION OF THE PROPERTY..................9 5.1 Buyer's Inspections and Due Diligence..................................9 5.2 Termination of Agreement During Due Diligence Period...................9 5.3 Tenant Estoppels.......................................................9 5.4 AS-IS SALE............................................................10 ARTICLE 6 - ADJUSTMENTS AND PRORATIONS......................................11 6.1 Lease Rentals.........................................................11 6.1.1 Definition of "Rent"..............................................11 6.1.2 Rents.............................................................11 6.2 Reimbursable Lease Expenses...........................................12 6.3 Real Estate Taxes.....................................................12 6.4 Other Property Operating Expenses.....................................12 6.5 Closing Costs.........................................................13 6.6 Cash Security Deposits................................................13 6.7 Payments on Existing Loan.............................................13 6.8 Apportionment Credit..................................................14 6.9 Delayed Adjustment; Delivery of Operating and Other Financial Statements.........................................14 ARTICLE 7 - ESCROW AND CLOSING..............................................14 7.1 Closing Date..........................................................14 7.2 Title Transfer and Payment of Purchase Price..........................15 7.3 Seller's Closing Deliveries...........................................15 (a) Deed..............................................................15 (b) Bill of Sale......................................................15 (c) Assignment of Tenant Leases.......................................15 (d) Assignment of Intangible Property.................................15 (e) Notice to Tenants.................................................16 (f) Non-Foreign Status Affidavit......................................16 (g) Evidence of Authority.............................................16 (h) Other Documents...................................................16 (i) Letters of Credit as Tenant Security Deposits.....................16 1 (j) Transfer Taxes....................................................16 (k) Assignment of Existing Loan.......................................16 (l) Estoppel Certificates.............................................16 (l) Tenants").........................................................17 (m) Keys and Original Documents. .....................................17 (n) Termination of Management Agreement...............................17 (o) Lender Estoppel...................................................17 (p) IRPTA.............................................................17 (q) Guaranty. ........................................................17 (r) Closing Statement. ...............................................17 7.4 Buyer's Closing Deliveries............................................18 (a) Purchase Price....................................................18 (b) Assignment of Leases..............................................18 (c) Assignment of Intangible Property.................................18 (d) Evidence of Authority.............................................18 (e) Assumption of Existing Loan.......................................18 (f) Other Documents...................................................18 (g) Transfer Taxes....................................................18 (h) Release...........................................................18 (i) Closing Statement.................................................18 ARTICLE 8 - CONDITIONS TO CLOSING...........................................19 8.1 Conditions to Seller's Obligations....................................19 (a) Representations True..............................................19 (b) Buyer's Financial Condition.......................................19 (c) Buyer's Deliveries Complete.......................................19 8.2 Conditions to Buyer's Obligations.....................................19 (a) Representations True..............................................19 (b) Title Conditions Satisfied........................................19 (c) Seller's Deliveries Complete......................................19 (d) Seller's Financial Condition......................................19 8.3 Waiver of Failure of Conditions Precedent.............................19 8.4 Approvals not a Condition to Buyer's Performance......................20 ARTICLE 9 - REPRESENTATIONS AND WARRANTIES..................................20 9.1 Buyer's Representations...............................................20 9.1.1 Buyer's Authorization.............................................20 9.1.2 Buyer's Financial Condition.......................................20 9.1.3 ERISA.............................................................20 9.2 Seller's Representations..............................................21 9.2.1 Seller's Authorization............................................21 9.2.2 Other Seller's Representations....................................21 9.2.3 No Other Agreements...............................................22 9.2.4 Existing Loan.....................................................22 9.2.5 Commissions; Tenant Inducements...................................23 9.2.6 Rent Roll.........................................................23 9.2.7 Litigation........................................................23 9.2.8 UBIT..............................................................23 9.2.9 ERISA.............................................................23 9.3 General Provisions....................................................24 2 9.3.1 No Representation as to Leases....................................24 9.3.2 Definition of "Seller's Knowledge"................................24 9.3.3 Seller's Representations Deemed Modified..........................24 9.3.4 Notice of Breach; Seller's Right to Cure..........................24 9.3.5 Survival; Limitation on Seller's Liability........................25 ARTICLE 10 - COVENANTS......................................................25 10.1 Buyer's Covenants....................................................25 10.1.1 Confidentiality..................................................25 10.1.2 Buyer's Indemnity; Delivery of Reports...........................26 10.1.3 Limit on Government Contacts.....................................26 10.2 Seller's Covenants...................................................26 10.2.1 Contracts........................................................26 10.2.2 Maintenance of Property..........................................27 10.2.3 Access to Property...............................................27 10.2.4 Termination of Certain Contracts.................................28 10.2.5 Compliance with Loan Documents...................................28 10.2.6 Bulk Sales Release...............................................28 10.2.7 No Marketing of Property.........................................28 10.2.8 Condemnation.....................................................28 10.3 Mutual Covenants.....................................................28 10.3.1 Publicity........................................................28 10.3.2 Broker...........................................................29 10.3.3 Tax Protests; Tax Refunds and Credits............................29 10.3.4 Survival.........................................................30 ARTICLE 11 - FAILURE OF CONDITIONS..........................................30 11.1 To Seller's Obligations..............................................30 11.2 To Buyer's Obligations...............................................30 ARTICLE 12 - CONDEMNATION/CASUALTY..........................................31 12.1 Condemnation.........................................................31 12.1.1 Right to Terminate...............................................31 12.1.2 Assignment of Proceeds...........................................31 12.2 Destruction or Damage................................................31 12.3 Insurance............................................................32 12.4 Effect of Termination................................................32 12.5 Waiver...............................................................32 ARTICLE 13 - ESCROW.........................................................32 ARTICLE 14 - LEASING MATTERS................................................34 14.1 New Leases; Lease Modifications......................................34 14.2 Lease Expenses.......................................................35 14.3 Lease Enforcement....................................................35 14.4 Tenant Notes.........................................................36 ARTICLE 15 - MISCELLANEOUS..................................................36 15.1 Buyer's Assignment...................................................36 15.2 Designation Agreement................................................36 15.3 Survival/Merger......................................................36 15.4 Integration; Waiver..................................................37 15.5 Governing Law........................................................37 15.6 Captions Not Binding; Exhibits.......................................37 3 15.7 Binding Effect.......................................................37 15.8 Severability.........................................................37 15.9 Notices..............................................................37 15.10 Counterparts.......................................................39 15.11 No Recordation.....................................................39 15.12 Additional Agreements; Further Assurances..........................39 15.13 Construction.......................................................39 15.14 Business Day.......................................................40 15.15 Maximum Aggregate Liability........................................40 15.16 WAIVER OF JURY TRIAL...............................................40 15.17 JURISDICTION.......................................................40 15.18 Facsimile Signatures...............................................40 EXHIBITS Exhibit A Legal Description Exhibit B List of Contracts and Leasing Commissions Due Exhibit C Form of Letter of Credit Exhibit D Form of Release Exhibit E Form of Deed Exhibit F Form of Bill of Sale Exhibit G Form of Assignment of Leases Exhibit H Form of Assignment of Intangible Property Exhibit I Form of Notice to Tenants Exhibit J Form of FIRPTA Affidavit Exhibit K Condemnation Disclosure Exhibit L-1 List of Major Tenants Exhibit L-2 Form of Tenant Estoppel Certificate Exhibit L-3 Form of Seller's Representation Letter Exhibit M List of Existing Loan Documents Exhibit N Litigation Notices, Contract Defaults, Governmental Violations and Lease Defaults Exhibit O Rent Roll Exhibit P Reimbursable Lease Expenses Exhibit Q Leasing Guidelines Exhibit R Guaranty of OPCC 4 PURCHASE AND SALE AGREEMENT THIS PURCHASE AND SALE AGREEMENT ("Agreement") is made to be effective as of June 22, 2000, by and between OVERSEAS PARTNERS (333), INC., an Illinois corporation ("Seller"), and 333 WEST WACKER LLC, a Delaware limited liability company ("Buyer"). W I T N E S S E T H: In consideration of the mutual covenants and agreements set forth herein the parties hereto do hereby agree as follows: ARTICLE 1 - CERTAIN DEFINITIONS As used herein, the following terms shall have the following meanings: "Agreed Exceptions" shall have the meaning set forth in Section 4.2.1. "Broker" shall mean Eastdil Realty Co., LLC. "Building" shall mean the 36 story office building comprising part of the Real Property. "Buyer's Designated Employees" shall mean John Q. O'Donnell, Executive Vice President and CFO of The John Buck Company, Gary Blakely, senior vice president of The John Buck Company, Darin L. Schwab, senior financial analyst with The John Buck Company, Charles R. Beaver, Principal of Lend Lease Real Estate Investments, Steven P. Schiltz, Principal of Lend Lease Real Estate Investments and Jeffrey A. Lee, analyst with Lend Lease Real Estate Investments, who are the individuals primarily responsible for Buyer's Due Diligence. "Buyer's Representatives" shall mean Buyer, its partners or members and any of the officers, directors, employees, agents, representatives and attorneys of Buyer, its partners or members. "Closing" shall mean the closing of the Transaction. "Closing Date" shall mean July 26, 2000 or such other date to which the Closing is moved pursuant to Section 7.1. "Contracts" shall mean all service, supply, maintenance, utility and commission agreements, all equipment leases, and all other contracts, subcontracts and agreements relating to the Real Property and the Personal Property (including all contracts, subcontracts and agreements relating to the construction of any unfinished tenant improvements), all of which are described in Exhibit B attached hereto and incorporated herein by this reference, and any additional contracts, subcontracts and agreements 1 entered into in accordance with the terms of Subsection 10.2.1 hereof, but shall not include the Management Agreement with Overseas Management, Inc., which shall be terminated upon Closing. "deemed to know" (or words of similar import) shall have the following meaning: (a) Buyer shall be "deemed to know" of the existence of a fact or circumstance to the extent that such fact or circumstance is disclosed by this Agreement, the Documents, any estoppel certificate executed by any tenant of the Property and delivered to Buyer or any of Buyer's Designated Employees, or any studies, tests, reports, or analyses prepared by or for or otherwise obtained by Buyer or Buyer's Designated Employees; and (b) Buyer shall be "deemed to know" that a representation or warranty is untrue, inaccurate or incorrect to the extent that this Agreement, the Documents, any estoppel certificate executed by any tenant of the Property and delivered to Buyer or any of Buyer's Designated Employees (or any representation letter executed by Seller in lieu thereof), or any studies, tests, reports or analyses prepared by or for or otherwise obtained by Buyer or Buyer's Designated Employees contains information which is inconsistent with such representation or warranty. "Documents" shall mean the documents and instruments applicable to the Property or any portion thereof that Seller or any of the other Seller Parties deliver or make available to Buyer prior to Closing or otherwise allow Buyer access to prior to Closing, including, but not limited to, the Title Commitment, the Survey, the Title Documents, and the Property Documents. "Due Diligence" shall mean examinations, inspections, investigations, tests, studies, analyses, appraisals, evaluations and/or investigations with respect to the Property, the Documents, and other information and documents regarding the Property, including, without limitation, examination and review of title matters, applicable land use and zoning Laws and other Laws applicable to the Property, the physical condition of the Property, and the economic status of the Property. "Due Diligence Commencement Date" shall mean May 12, 2000. "Due Diligence Period" shall mean the period commencing on the Due Diligence Commencement Date and expiring on July 12, 2000, subject to extension by Seller pursuant to Section 5.3. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "Escrow Agent" shall mean First American Title Insurance Company, whose mailing address is 30 North LaSalle Street, Suite 310, Chicago, Illinois 60602, Attention: Wayne Bennett, in its capacity as escrow agent. "Existing Loan" shall mean the loan in the original principal amount of $65,000,000.00 from The Prudential Insurance Company of America to Seller, having a principal balance as of the date of this Agreement of approximately $62,500,000.00. "Existing Loan Documents" shall have the meaning set forth in Section 9.2.4. 2 "Existing Leases" shall mean, collectively, any lease, license or occupancy agreement for space at the Property in effect as of the Due Diligence Commencement Date. "Hazardous Materials" shall mean any substance, chemical, waste or material that is or becomes regulated by any federal, state or local governmental authority because of its toxicity, infectiousness, radioactivity, explosiveness, ignitability, corrosiveness or reactivity, including, without limitation, asbestos or any substance containing more than 0.1 percent asbestos, the group of compounds known as polychlorinated biphenyls, flammable explosives, oil, petroleum or any refined petroleum product. "Laws" shall mean all municipal, county, state or federal statutes, codes, ordinances, laws, rules or regulations. "Leases" shall mean all leases, licenses and occupancy agreements for space at the Real Property on the Closing Date. "Lender" shall mean The Prudential Insurance Company of America. "New Leases" shall mean, collectively, any lease, license or occupancy agreement for space at the Real Property entered into between the Due Diligence Commencement Date and the Closing Date in accordance with the terms of this Agreement. "Occupiable Portion of the Building" shall mean the lobby and the floors of the Building above the lobby which are intended for occupancy by tenants. "Other Property Rights" shall mean, collectively, Seller's interest, if any, in and to all of the following, if and to the extent the same are assignable by Seller without any expense to Seller: (a) to the extent that the same are in effect as of the Closing Date, any licenses, permits and other written authorizations necessary for the use, operation or ownership of the Real Property, (b) those guaranties and warranties in effect with respect to any portion of the Property as of the Closing Date, and (c) the name and image of the Building. "Permitted Exceptions" shall mean and include all of the following: (a) applicable zoning and building ordinances and land use regulations, (b) all covenants, conditions, restrictions, easements, encumbrances and other matters of record which do not materially adversely affect title to the Real Property, (c) such state of facts as is disclosed in the Survey which does not materially adversely affect title to the Real Property, (d) the lien of taxes and assessments not yet due and payable (it being agreed by Buyer and Seller that if any tax or assessment is levied or assessed with respect to the Property after the date hereof and the owner of the Property has the election to pay such tax or assessment either immediately or under a payment plan with interest, Seller may elect to pay under a payment plan, which election shall be binding on Buyer), (e) any exceptions caused by Buyer, its agents, representatives, employees or contractors, (f) such other exceptions as the Title Company shall commit to insure over in a manner reasonably acceptable to Buyer, without any additional cost to Buyer, whether such insurance is made available in consideration of payment, bonding, indemnity of Seller or otherwise, (g) the rights of the tenants (as tenants only without rights or options to purchase) under the Leases, (h) any matters of which Buyer's Designated Employees know or are deemed 3 to know prior to the expiration of the Due Diligence Period, unless Buyer has timely identified such matter to Seller in writing as a Title Objection and Seller has agreed that such matter shall be an Agreed Exception, (i) the Existing Loan Documents, and (j) any matters approved or deemed approved pursuant to Subsection 4.2.1 hereof, or otherwise deemed to constitute additional Permitted Exceptions under Subsection 4.2.1 hereof. Any of the Permitted Exceptions may be shown as exceptions to Seller's covenants and warranties in the Deed. "Personal Property" shall mean all tangible personal property owned by Seller (excluding any computer software which either (a) is licensed to Seller, or (b) Seller deems proprietary), located on the Real Property and used in the ownership, operation and maintenance of the Real Property and all non-confidential books, records and files (excluding any appraisals, budgets (other than the calendar year 2000 operating budget), strategic plans for the Real Property, internal analyses, information regarding the marketing of the Property for sale, submissions relating to Seller's obtaining of corporate authorization, attorney and accountant work product, attorney-client privileged documents, or other information in the possession or control of Seller or Seller's property manager which Seller reasonably deems proprietary) relating to the Real Property. "Property" shall mean, collectively, (a) the Real Property, (b) the Personal Property, (c) Seller's interest as landlord in all Leases; (d) if and to the extent assignable by Seller without any expense to Seller, the Contracts, and (e) the Other Property Rights. "Property Documents" shall mean, collectively, (a) the Leases, (b) the Contracts, and (c) any other documents or instruments which constitute or otherwise create any portion of the Property. "Purchase Price" shall mean $141,059,246.00 (which represents $142,000,000.00 plus the $208,000 attributed to the land described in Exhibit K plus $50,000 less $1,198,754.00, representing obligations of the landlord under the lease with John Nuveen & Company, Incorporated). "Real Property" shall mean that certain parcel of real estate commonly known as 333 West Wacker Drive, Chicago, Illinois and legally described in Exhibit A attached hereto and incorporated herein by this reference, together with all buildings, improvements and fixtures located thereon and owned by Seller as of the Closing Date and all rights, privileges and appurtenances pertaining thereto including all of Seller's right, title and interest in and to all rights-of-way, open or proposed streets, alleys, easements, strips or gores of land adjacent thereto. "Reimbursable Lease Expenses" shall mean, collectively, (1) any and all fees of the type described in clauses (i) through (iii) below paid by Seller prior to Closing or costs and expenses incurred by Seller prior to Closing arising out of or in connection with (a) any extensions, renewals or expansions under any lease for space at the Property exercised or granted in accordance with the terms of this Agreement between the Due Diligence Commencement Date and the Closing Date or (b) any New Lease, except for those Leases described on Exhibit P as "Leases in Negotiation" or "Recently Executed Leases," and (2) those expenses described on Exhibit P as "Vacant Space" and "Purchaser's Future Improvement Allowances." Reimbursable Lease Expenses shall 4 include, without limitation, (i) brokerage commissions and fees to effect any such leasing transaction referenced in clauses (1) and (2), (ii) expenses incurred for repairs, improvements, equipment, painting, decorating, partitioning and other items to satisfy the tenant's requirements with regard to such leasing transaction, and (iii) expenses incurred for the purpose of satisfying or terminating the obligations of a tenant under a New Lease to the landlord under another lease (whether or not such other lease covers space in the Property). "Required Exceptions" shall have the meaning set forth in Section 4.2.1. "Seller's Designated Employees" shall mean Mark Sabatino, the general manager of the Property and an employee of Overseas Management, Inc., a management company wholly owned by Seller, Ignacio deQuesada, the asset manager of Seller, and Michael Molletta, Vice President of Seller. "Seller Lease Expenses" shall mean the expenses described in clauses (i) through (iii) of the definition of Reimbursable Lease Expenses with respect to those leases described on Exhibit P as "Leases in Negotiation" or "Recently Executed Leases." "Seller Parties" shall mean and include, collectively, (a) Seller; (b) its counsel; (c) Broker; (d) Seller's property manager, (e) any direct or indirect equity owner, officer, director, employee, or agent of Seller, its counsel, Broker or Seller's property manager; and (f) any other entity or individual affiliated or related in any way to any of the foregoing. "Seller's Warranties" shall mean Seller's representations and warranties set forth in Section 9.2 and any documents executed by Seller for the benefit of Buyer in connection with Closing, including, without limitation, the representations and warranties set forth in any representation letters delivered by Seller in accordance with the terms of Subsection 7.3(l) hereof. "Survey" shall mean an ALTA/ACSM Land Title Survey of the Property dated no earlier than six (6) months prior to the Closing Date. "Tax Year" shall mean the year period commencing on January 1 of each calendar year and ending on December 31 of such calendar year, being the real estate tax year for the county in which the Property is located. "Title Commitment" shall mean a commitment to issue an Owner's Policy of Title Insurance with respect to the Property issued by the Title Company, to be delivered to Buyer by Seller pursuant to Section 4.1. "Title Company" shall mean First American Title Insurance Company. "Title Documents" shall mean all recorded documents referred to on Schedule B of the Title Commitment as exceptions to coverage. "Transaction" shall mean the transaction contemplated by this Agreement. 5 ARTICLE 2 - SALE OF PROPERTY Seller agrees to sell, transfer and assign and Buyer agrees to purchase, accept and assume, subject to the terms and conditions set forth in this Agreement and the Exhibits attached hereto, all of Seller's right, title and interest in and to the Property. ARTICLE 3 - PURCHASE PRICE 3.1 Deposit Money. Within two (2) business days after the execution hereof, Buyer shall deposit the sum of FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000.00) as an initial deposit ("Initial Deposit") with Escrow Agent. Within two (2) business days after the expiration of the Due Diligence Period, Buyer shall deposit with the Escrow Agent the additional sum of FOUR MILLION AND NO/100 DOLLARS ($4,000,000.00) in immediately available funds as an additional deposit (the "Secondary Deposit"). The Initial Deposit and the Secondary Deposit, together with the Extension Deposit, if any, shall be herein collectively called the "Deposit". Buyer shall have the right to provide up to $2,000,000.00 of the Secondary Deposit in the form of a Letter of Credit issued by a financial institution reasonably acceptable to Seller (it being agreed that Bank One and Northern Trust Bank are acceptable) and in the form of Exhibit C attached hereto. The Deposit shall be held and delivered by Escrow Agent in accordance with the provisions of Article 13. Any interest earned on the Deposit shall be considered a part of the Deposit. Except as otherwise set forth herein, the cash portion of the Deposit shall be applied against the Purchase Price on the Closing Date. 3.2 Cash at Closing. On the Closing Date, Buyer shall pay to Seller an amount equal to the Purchase Price, subject to the prorations and adjustments set forth in Article 6 or as otherwise provided under this Agreement, plus any other amounts required to be paid by Buyer at Closing, less, if (and only if) Buyer assumes the Existing Loan in accordance with Section 3.3 below, the principal amount outstanding on the Existing Loan as of the Closing Date. Such amount shall be paid in immediately available funds by wire transfer as more particularly set forth in Section 7.2. 3.3 Existing Loan. 3.3.1 Assumption of Existing Loan. Buyer shall assume the Existing Loan and take title to the Property subject to the terms of the mortgage securing the Existing Loan, on the terms and conditions set forth in Section 3.3.2 below. 3.3.2 Approval of Lender. Buyer, at its sole expense, with the reasonable cooperation of Seller, shall promptly endeavor to obtain (i) Lender's approval of Buyer's assumption of the Existing Loan, (ii) a release of Seller and Overseas Partners Capital Corp. ("OPCC") from all obligations and liability relating to the Existing Loan, and (iii) an estoppel certificate from Lender concerning the Existing Loan confirming (A) that the Existing Loan is not in default, (B) the outstanding principal balance of the Existing Loan , (C) that the Existing Loan Documents are all of the documents in connection with the Existing Loan, and (D) such other facts regarding the Existing Loan as Buyer may reasonably require. In connection with the request for Lender's approval, Buyer shall promptly supply to Lender such information and documentation as is required by Lender and, if necessary, 6 shall provide a credit-worthy entity to assume the obligations of the "Guarantor" under the Existing Loan Documents. Buyer shall also pay any servicing fee actually charged by Lender in connection with such request for approval. Buyer's assumption of the Existing Loan, but not its obligation to purchase the Property hereunder, is subject to the consent of Lender to such assumption and the release by Lender of Seller and OPCC. If such consent and release are not obtained and Buyer does not terminate this Agreement prior to the end of the Due Diligence Period, Buyer shall be obligated to purchase the Property without assuming the Existing Loan, the Existing Loan shall be repaid by Seller at Closing and Buyer shall pay any prepayment premium or penalty in connection therewith. Buyer's ability to obtain alternative financing shall not be a condition to Buyer's obligations hereunder. Buyer shall pay all fees and charges of Lender for the assumption of the Existing Loan, including, without limitation, the 0.5% assumption fee and any additional amounts that may be charged by Lender for transaction costs, attorneys' fees or delays in Closing. Buyer hereby acknowledges that Lender will not permit a second mortgage on the Property. ARTICLE 4 - TITLE AND SURVEY MATTERS 4.1 Title to Real Property. Seller shall deliver or cause to be delivered to Buyer, as soon as practicable after the date hereof, but in no event later than fifteen (15) business days prior to the end of the Due Diligence Period, (a) the Title Commitment, (b) copies of all of the Title Documents, and (c) the Survey. 4.2 Title Defects. 4.2.1 Certain Exceptions to Title. Buyer shall notify Seller in writing within ten (10) business days after its receipt of both the Title Commitment and the Survey of its approval or disapproval of the exceptions to title disclosed therein. Any exception which Buyer timely disapproves is referred to herein as a "Title Objection." Any exception to title disclosed in the Title Commitment or the Survey which is approved or not timely disapproved by Buyer shall be a Permitted Exception hereunder. Seller shall notify Buyer in writing within ten (10) business days after its receipt of Buyer's Title Objections (but in any event prior to the expiration of the Due Diligence Period) as to which of Buyer's Title Objections, if any, it elects, in its sole discretion, to remove (the "Agreed Exceptions"). If Buyer does not terminate this Agreement on or before the last day of the Due Diligence Period, any Title Objection which Seller has not elected in writing to remove shall be a Permitted Exception hereunder. Buyer shall further have the right to object in writing to any title matters that are not Permitted Exceptions and that materially adversely affect Buyer's title to the Real Property which may appear on supplemental title reports or updates to the Title Commitment or the Survey, issued after the date of the Title Commitment or the Survey, as the case may be, within five (5) days after receipt thereof by Buyer. Any such matter which is timely objected to by Buyer shall also be a Title Objection. If this Agreement is not terminated by Buyer in accordance with the provisions hereof, Seller shall, at Closing, remove or cause to be removed any Title Objections to the extent (and only to the extent) that (i) such Title Objections 7 have not been caused by Buyer, its agents, representatives or employees, and (ii) such Title Objections are either (A) liens evidencing monetary encumbrances (other than liens for non-delinquent general real estate taxes or broker liens for commissions for which Buyer is responsible hereunder) which can be removed by payment of liquidated amounts not to exceed $250,000 in the aggregate for all such liens, or (B) voluntary liens created by Seller or its agents and affiliates, but only to the extent such liens are created after the date of this Agreement or (C) Agreed Exceptions (clauses (i) and (ii) are, collectively, the "Required Exceptions"). Seller shall be entitled to a reasonable adjournment of the Closing (not to exceed 45 days) for the purpose of removing any Required Exceptions, which removal will be deemed effected by the issuance of title insurance eliminating or insuring against the effect of the Title Objections (the language or endorsement effecting the latter to be reasonably acceptable to Buyer). If Seller is unable to remove or endorse over any Required Exception prior to the Closing, Buyer may elect to either (a) terminate this Agreement, in which event the Deposit shall be paid to Buyer and, thereafter, the parties shall have no further rights or obligations hereunder except (i) for obligations which expressly survive the termination of this Agreement and (ii) as set forth in Section 11.2 hereof, or (b) waive such Required Exception in which event such Required Exception(s) shall be deemed additional Permitted Exceptions and the Closing shall occur as herein provided without any reduction or credit against the Purchase Price. In the event that it is necessary for Seller to pay or bond over claims for tenant improvement work to deliver title as required hereby, Buyer agrees that, notwithstanding anything to the contrary contained herein, Seller shall have the right to pursue all of its rights and remedies against the tenant involved to recover amounts expended therefor, including without limitation bringing a legal action against such tenant; provided, however, that Seller may not seek to terminate such tenant's lease or rights of possession. 4.2.2 Discharge of Title Objections. If on the Closing Date there are any Required Exceptions, Seller may use any portion of the Purchase Price to satisfy the same, provided Seller shall either (a) deliver to Buyer at the Closing instruments in recordable form and sufficient to cause such Title Objections to be released of record, together with the cost of recording or filing such instruments, or (b) cause the Title Company to insure over the same in a commercially reasonable manner, without any additional cost to Buyer, whether such insurance is made available in consideration of payment, bonding, indemnity of Seller or otherwise. 4.3 Title Insurance. At Closing, the Title Company shall issue to Buyer an ALTA Owner's Form of title insurance policy (either 1970 form or current form with the creditors' rights exception deleted) in the form of the Title Commitment (the "Owner's Title Policy"), in the amount of the Purchase Price, insuring that fee simple title to the Real Property is vested in Buyer subject only to the Permitted Exceptions. Buyer shall be entitled to request that the Title Company provide such endorsements (or amendments) to the Owner's Title Policy as Buyer may reasonably require, provided that (a) such endorsements (or amendments) shall be at no cost to, and shall impose no additional liability on, Seller (other than execution of customary ALTA certificates and gap affidavits (such gap not to exceed 3 business days)), (b) Buyer's obligations under this 8 Agreement shall not be conditioned upon Buyer's ability to obtain such endorsements and, if Buyer is unable to obtain such endorsements, Buyer shall nevertheless be obligated to proceed to close the Transaction without reduction of or set off against the Purchase Price, and (c) the Closing shall not be delayed as a result of Buyer's request. ARTICLE 5 - BUYER'S DUE DILIGENCE/CONDITION OF THE PROPERTY 5.1 Buyer's Inspections and Due Diligence. Buyer acknowledges that during the Due Diligence Period, Buyer shall conduct such Due Diligence as Buyer shall deem necessary or appropriate. 5.2 Termination of Agreement During Due Diligence Period. If Buyer is not reasonably satisfied with the results of its Due Diligence during the Due Diligence Period, Buyer may terminate this Agreement by written notice to Seller given in accordance with the provisions of Section 15.9 hereof at any time prior to 5:00 p.m. Central Daylight Savings Time on the last day of the Due Diligence Period, and, in the event of such termination, neither Seller nor Buyer shall have any liability hereunder except for those obligations which expressly survive the termination of this Agreement and Buyer shall be entitled to the return of the Deposit, and Seller shall so promptly direct Escrow Agent in writing. In the event Buyer fails to terminate this Agreement prior to 5:00 p.m. Central Daylight Savings Time on the last day of the Due Diligence Period, Buyer shall be deemed to have waived its rights to terminate this Agreement in accordance with this Article 5. Buyer and Seller each acknowledge and agree that Buyer may conduct further due diligence after the expiration of the Due Diligence Period but shall have no further right to terminate this Agreement pursuant to this Article 5. 5.3 Tenant Estoppels. Seller shall deliver to Buyer copies of the tenant estoppel certificates required to be delivered pursuant to Section 7.3(l) as they are received. Buyer shall notify Seller within five (5) business days after receipt of an estoppel certificate (whether during or after the Due Diligence Period) as to whether such estoppel certificate is acceptable to Buyer and, if it is not, shall identify the area in which it is deficient. Buyer shall not have the right to reject an estoppel certificate due to immaterial deviations from the required form or immaterial disclosures therein. If Buyer does not terminate this Agreement by the end of the Due Diligence Period, Buyer shall be deemed to have agreed to accept any tenant estoppel certificate which has been delivered to it by the date five (5) business days prior to the expiration of the Due Diligence Period, as the same may have been extended by Seller pursuant to this Section unless Seller has agreed in writing to attempt to correct any specified deficiencies therein. Seller shall have no obligation to correct the deficiencies it agrees to attempt to correct, but if Seller does not, the estoppel shall not satisfy the condition to closing set forth in Section 7.3(l). Seller shall have the unilateral right, by notice to Buyer given no later than the day immediately preceding the last day of the Due Diligence Period, to extend the Due Diligence Period by up to ten (10) business days to enable Seller to obtain and deliver to Buyer additional tenant estoppel certificates. Nothing contained herein shall require Seller to deliver any tenant estoppel certificate it has not received from a tenant prior to Closing, it being understood that tenant estoppel certificates are a condition to Closing and not a Due Diligence Period requirement. 9 5.4 AS-IS SALE. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT OR IN DOCUMENTS OR CERTIFICATES DELIVERED PURSUANT HERETO AT CLOSING, IT IS UNDERSTOOD AND AGREED THAT SELLER IS NOT MAKING AND HAS NOT AT ANY TIME MADE ANY WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EXPRESSED OR IMPLIED, WITH RESPECT TO THE PROPERTY, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OR REPRESENTATIONS AS TO HABITABILITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, ZONING, TAX CONSEQUENCES, LATENT OR PATENT PHYSICAL OR ENVIRONMENTAL CONDITION, UTILITIES, OPERATING HISTORY OR PROJECTIONS, VALUATIONS, GOVERNMENTAL APPROVALS, THE COMPLIANCE OF THE PROPERTY WITH GOVERNMENTAL LAWS, THE TRUTH, ACCURACY OR COMPLETENESS OF THE PROPERTY DOCUMENTS OR ANY OTHER INFORMATION PROVIDED BY OR ON BEHALF OF SELLER TO BUYER, OR ANY OTHER MATTER OR THING REGARDING THE PROPERTY. BUYER ACKNOWLEDGES AND AGREES THAT UPON CLOSING SELLER SHALL SELL AND CONVEY TO BUYER AND BUYER SHALL ACCEPT THE PROPERTY, "AS IS, WHERE IS, WITH ALL FAULTS," EXCEPT TO THE EXTENT EXPRESSLY PROVIDED OTHERWISE IN THIS AGREEMENT OR IN DOCUMENTS OR CERTIFICATES DELIVERED PURSUANT HERETO AT CLOSING. SELLER IS NOT LIABLE FOR OR BOUND BY ANY EXPRESSED OR IMPLIED WARRANTIES, GUARANTIES, STATEMENTS, REPRESENTATIONS OR INFORMATION PERTAINING TO THE PROPERTY OR RELATING THERETO (INCLUDING SPECIFICALLY, WITHOUT LIMITATION, PROPERTY INFORMATION PACKAGES DISTRIBUTED WITH RESPECT TO THE PROPERTY) MADE OR FURNISHED BY SELLER, THE MANAGER OF THE PROPERTY, OR ANY REAL ESTATE BROKER OR AGENT REPRESENTING OR PURPORTING TO REPRESENT SELLER, TO WHOMEVER MADE OR GIVEN, DIRECTLY OR INDIRECTLY, ORALLY OR IN WRITING, UNLESS SPECIFICALLY SET FORTH IN THIS AGREEMENT OR IN DOCUMENTS OR CERTIFICATES DELIVERED PURSUANT HERETO AT CLOSING. BUYER REPRESENTS TO SELLER THAT BUYER HAS CONDUCTED, OR WILL CONDUCT PRIOR TO CLOSING, SUCH INVESTIGATIONS OF THE PROPERTY, INCLUDING BUT NOT LIMITED TO THE PHYSICAL AND ENVIRONMENTAL CONDITIONS THEREOF, AS BUYER DEEMS NECESSARY TO SATISFY ITSELF AS TO THE CONDITION OF THE PROPERTY AND THE EXISTENCE OR NONEXISTENCE OR CURATIVE ACTION TO BE TAKEN WITH RESPECT TO ANY HAZARDOUS OR TOXIC SUBSTANCES ON OR DISCHARGED FROM THE PROPERTY, AND WILL RELY SOLELY UPON SAME AND NOT UPON ANY INFORMATION PROVIDED BY OR ON BEHALF OF SELLER OR ITS AGENTS OR EMPLOYEES WITH RESPECT THERETO, OTHER THAN SUCH REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER AS ARE EXPRESSLY SET FORTH IN THIS AGREEMENT OR IN DOCUMENTS OR CERTIFICATES DELIVERED PURSUANT HERETO AT CLOSING. UPON CLOSING, BUYER SHALL ASSUME THE RISK THAT ADVERSE MATTERS, INCLUDING BUT NOT LIMITED TO CONSTRUCTION DEFECTS AND ADVERSE PHYSICAL AND ENVIRONMENTAL CONDITIONS, MAY NOT HAVE BEEN REVEALED BY BUYER'S INVESTIGATIONS, AND BUYER, UPON CLOSING, 10 SHALL BE DEEMED TO HAVE WAIVED, RELINQUISHED AND RELEASED SELLER AND THE SELLER PARTIES FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, CAUSES OF ACTION (INCLUDING CAUSES OF ACTION IN TORT), LOSSES, DAMAGES, LIABILITIES, COSTS AND EXPENSES (INCLUDING ATTORNEYS' FEES AND COURT COSTS) OF ANY AND EVERY KIND OR CHARACTER, KNOWN OR UNKNOWN, WHICH BUYER MIGHT HAVE ASSERTED OR ALLEGED AGAINST SELLER OR THE SELLER PARTIES AT ANY TIME BY REASON OF OR ARISING OUT OF ANY LATENT OR PATENT CONSTRUCTION DEFECTS OR PHYSICAL CONDITIONS, VIOLATIONS OF ANY APPLICABLE LAWS (INCLUDING WITHOUT LIMITATION ANY ENVIRONMENTAL LAWS) AND ANY AND ALL OTHER ACTS, OMISSIONS, EVENTS, CIRCUMSTANCES OR MATTERS REGARDING THE PROPERTY UNLESS SUCH CLAIM RESULTS FROM A BREACH OF ANY APPLICABLE REPRESENTATION OR WARRANTY OF SELLER HEREUNDER OR IN ANY DOCUMENT OR CERTIFICATE DELIVERED PURSUANT HERETO AT CLOSING, SUBJECT TO THE PROVISIONS OF SECTIONS 9.35 AND 15.15 . BUYER AGREES THAT SHOULD ANY CLEANUP, REMEDIATION OR REMOVAL OF HAZARDOUS SUBSTANCES OR OTHER ENVIRONMENTAL CONDITIONS ON THE PROPERTY BE REQUIRED AFTER THE DATE OF CLOSING, BUYER SHALL MAKE NO CLAIM OR DEMAND AGAINST SELLER TO PROVIDE OR PAY FOR ALL OR ANY PART OF SUCH CLEAN-UP, REMOVAL OR REMEDIATION UNLESS SUCH CLAIM RESULTS FROM A BREACH OF ANY APPLICABLE REPRESENTATION OR WARRANTY HEREUNDER OR IN ANY DOCUMENT OR CERTIFICATE DELIVERED PURSUANT HERETO AT CLOSING. ARTICLE 6 - ADJUSTMENTS AND PRORATIONS The following adjustments and prorations shall be made at Closing: 6.1 Lease Rentals. 6.1.1 Definition of "Rent". For purposes of this Article 6, the term "Rent" shall mean all base rents, percentage rents, additional rent and any tax and operating expense reimbursements and escalations due from the tenants under the Leases. 6.1.2 Rents. All collected Rents shall be prorated between Seller and Buyer as of the day prior to the Closing Date. Seller shall be entitled to all Rents attributable to any period to but not including the Closing Date. Buyer shall be entitled to all Rents attributable to any period on and after the Closing Date. Rents not collected as of the Closing Date shall not be prorated at the time of Closing. After Closing, Buyer shall make a good faith effort to collect any Rents not collected as of the Closing Date on Seller's behalf and to tender the same to Seller upon receipt (which obligation of Buyer shall survive the Closing and not be merged therein); provided, however, that all Rents collected by Buyer on or after the Closing Date shall first be applied to all amounts due under the Leases at the time of collection (i.e., current Rents and sums due Buyer as the current owner and landlord) with the balance (if any) payable to Seller, but only to the extent of amounts delinquent and actually due Seller. Buyer shall not have an exclusive 11 right to collect the sums due Seller under the Leases and Seller hereby retains its rights to pursue any tenant under the Leases for sums due Seller for periods attributable to Seller's ownership of the Property; provided, however, that Seller (i) shall be required to notify Buyer in writing of its intention to commence or pursue such legal proceedings; (ii) shall only be permitted to commence or pursue any legal proceedings after the date which is three (3) months after Closing; and (iii) shall not be permitted to commence or pursue any legal proceedings against any tenant seeking eviction of such tenant or the termination of the underlying lease. The terms of the immediately preceding sentence shall survive the Closing and not be merged therein. 6.2 Reimbursable Lease Expenses. At Closing, Buyer shall (i) reimburse Seller for the Reimbursable Lease Expenses to the extent required by the terms of Article 14 and (ii) receive a credit against the Purchase Price for any unpaid Seller Lease Expenses. 6.3 Real Estate Taxes. Real estate taxes assessed during calendar year 1999 and due and payable during calendar year 2000 shall be prorated as provided herein. Purchaser shall receive a proration credit equal to (x) the amount of real estate taxes assessed during calendar year 1999 and due and payable during 2000 multiplied by a fraction the numerator of which is the number of days in calendar year 2000 prior to the Closing Date and the denominator of which is 365, minus (y) any amounts previously paid by Seller to the taxing authority on account of 1999 taxes due and payable in 2000. If, at Closing, the real estate tax rate and assessments for 1999 taxes due and payable in 2000 are not yet known, then the proration of such taxes shall be based upon the rate and assessments for the preceding Tax Year, and such proration shall be adjusted between Seller and Buyer after Closing upon presentation of written evidence that the actual 1999 real estate taxes due and payable during calendar year 2000 differ from the amounts used at Closing and in accordance with the provisions of Section 6.8. Purchaser shall be responsible for the payment of all real estate taxes assessed during calendar year 2000 and due and payable during calendar year 2001. Seller shall pay all installments of special assessments due and payable prior to the Closing Date and Buyer shall pay all installments of special assessments due and payable on and after the Closing Date. Notwithstanding the foregoing terms of this section, Seller shall have no obligation to pay (and Buyer shall not receive a credit at Closing for) any real estate or personal property taxes or special assessments to the extent that Buyer is entitled after Closing to reimbursement of taxes and assessments, or the recovery of any increase in taxes and assessments, from the tenants under the Leases, regardless of whether Buyer actually collects such reimbursement or increased taxes and assessments from such tenants, it being understood and agreed by Buyer and Seller that (a) as between Buyer and Seller, Buyer shall be responsible for payment of all of such real estate or personal property taxes and assessments, and (b) the burden of collecting such reimbursements shall be solely on Buyer. 6.4 Other Property Operating Expenses. Operating expenses for the Property shall be prorated as of 12:01 a.m. on the Closing Date. Seller shall pay all utility charges and other operating expenses attributable to the Property (including, without limitation, dues or other charges of any professional association (such as BOMA) or neighborhood association) to, but not including, the Closing Date (except for those utility charges and 12 operating expenses payable by tenants directly to the utility company or other provider in accordance with the Leases) and Buyer shall pay all utility charges and other such operating expenses attributable to the Property on or after the Closing Date. To the extent that the amount of actual consumption of any utility services is not determined prior to the Closing Date, a proration shall be made at Closing based on the last available reading and post-closing adjustments between Buyer and Seller shall be made within twenty (20) days of the date that actual consumption for such pre-closing period is determined, which obligation shall survive the Closing and not be merged therein. Seller shall not assign to Buyer any deposits which Seller has with any of the utility services or companies servicing the Property. Buyer shall arrange with such services and companies to have accounts opened in Buyer's name beginning at 12:01 a.m. on the Closing Date. Notwithstanding the foregoing terms of this section, Seller shall have no obligation to pay (and Buyer shall not receive a credit at Closing for) any operating expenses to the extent that Buyer is entitled after Closing to reimbursement of operating expenses, or the recovery of any increase in operating expenses, from the tenants under the Leases, regardless of whether Buyer actually collects such reimbursement or increased operating expenses from such tenants, it being understood and agreed by Buyer and Seller that (a) as between Buyer and Seller, Buyer shall be responsible for payment of all of such operating expenses, and (b) the burden of collecting such reimbursements shall be solely on Buyer. 6.5 Closing Costs. Seller shall pay (a) all premiums and charges of the Title Company for the Title Commitment and the Owner's Title Policy (excluding endorsements requested by Buyer), (b) the cost of the Survey , (c) one-half of all escrow or closing charges, (d) the commission due Broker, (e) all Cook County and State of Illinois transfer taxes and similar charges, (f) all fees due its attorneys and (g) all costs incurred in connection with causing the Title Company to remove any Required Exceptions. Buyer shall pay (1) the cost of any title endorsements requested by Buyer, (2) all recording and filing charges in connection with the instrument by which Seller conveys the Property, (3) one-half of all escrow or closing charges, (4) all City of Chicago transfer taxes and similar charges, if any, applicable to the transfer of the Property to Buyer, (5) all costs of Buyer's Due Diligence, including fees due its consultants and attorneys, (6) all lenders' fees related to any financing to be obtained by Buyer and (7) any assumption fees and other expenses in connection with Buyer's assumption of the Existing Loan or, if Buyer is unable to assume the Existing Loan, any prepayment penalty, premium or similar charge in connection with the payoff of the Existing Loan. The obligations of the parties under this Section 6.5 shall survive the Closing (and not be merged therein) or any earlier termination of this Agreement. 6.6 Cash Security Deposits. At Closing, Seller shall give Buyer a credit against the Purchase Price in the aggregate amount of any cash security deposits under the Leases (other than any amounts returned to tenants or applied to obligations of tenants under the Leases) less any administrative or similar charges to which Seller may be entitled under applicable Law. 6.7 Payments on Existing Loan. In the event Buyer shall assume the Existing Loan, the amount of unpaid interest under the Existing Loan which shall have accrued for the 13 month in which Closing occurs will be prorated, and Seller shall be credited for the amount of any escrows held by Lender in connection with the Existing Loan. 6.8 Apportionment Credit. In the event the apportionments to be made at the Closing result in a credit balance (a) to Buyer, such sum shall be paid (at Seller's option) at the Closing by giving Buyer a credit against the Purchase Price in the amount of such credit balance, or (b) to Seller, Buyer shall pay the amount thereof to Seller at the Closing by wire transfer of immediately available funds to the account or accounts to be designated by Escrow Agent for the payment of the Purchase Price. 6.9 Delayed Adjustment; Delivery of Operating and Other Financial Statements. If at any time following the Closing Date, the amount of an item listed in any section of this Article 6 shall prove to be incorrect (whether as a result in an error in calculation or a lack of complete and accurate information as of the Closing), the party in whose favor the error was made shall promptly pay to the other party the sum necessary to correct such error upon receipt of proof of such error, provided that such proof is delivered to the party from whom payment is requested on or before one (1) year after Closing (such period being referred to herein as the "Post Closing Adjustment Period"). By way of illustration, assume that Seller is collecting $100 per month in estimated operating expenses from a tenant, the Closing occurs on July 31, 2000, operating expense estimates payable by tenants under leases were not increased during the period August 1, 2000 through December 31, 2000 and actual operating expenses are $1,000 for calendar year 2000. Since the actual operating expenses for the period of Seller's ownership which the tenant is required to pay (i.e., $583.33 or 7/12 of $1,000) is less than the amount collected by Seller in respect of that period (i.e., $700.00), Seller overcharged the tenant, and therefore owes Buyer $116.67. In order to enable Seller to determine whether any such delayed adjustment is necessary, Buyer shall provide to Seller current operating and financial statements for the Property by the date one (1) month prior to the expiration of the Post-Closing Adjustment Period; provided that if Buyer is unable to provide the statements by such date, Buyer shall use reasonable efforts to provide such statements as soon as possible thereafter, and in any event by the date one (1) month after expiration of the Post Closing Adjustment Period, and the Post Closing Adjustment Period shall be extended for a period equal to the number of days from the date one (1) month prior to expiration of the Post-Closing Adjustment Period to the date on which Buyer provides such statements. The provisions of this Section 6.9 shall survive the Closing and not be merged therein. ARTICLE 7 - ESCROW AND CLOSING Buyer and Seller hereby agree that the Transaction shall be consummated as follows: 7.1 Closing Date. Subject to Seller's right to extend the Closing as provided in this Agreement, Closing shall occur on the Closing Date; provided, however, that (i) Buyer shall have the right to extend the Closing Date to August 9, 2000 by giving written notice of such extension to Seller no later than two (2) business days prior to the then scheduled Closing Date and delivering to Escrow Agent the amount of $1,000,000.00 (which may be in the form of a letter of credit from a financial institution acceptable to Seller and in the form of Exhibit C) (the "Extension Deposit"), and (ii) if Seller extends the Due 14 Diligence Period pursuant to Section 5.3, the Closing Date shall be extended one (1) business day for each business day the Due Diligence Period is extended. The Extension Deposit shall be treated for all purposes hereunder as part of the Deposit. Closing may also occur on any earlier date mutually agreed upon by Buyer and Seller. Closing shall occur through an escrow with Escrow Agent. Buyer and Seller shall conduct a "pre-closing" at 10:00 a.m. Central Daylight Savings Time on the last business day prior to the Closing Date at the offices of Seller's attorney located in Chicago, Illinois, with title transfer and payment of the Purchase Price to be completed through escrow on the Closing Date as set forth in Section 7.2. Time is of the essence with respect to the Closing Date. 7.2 Title Transfer and Payment of Purchase Price. Provided all conditions precedent to Seller's obligations hereunder have been satisfied, Seller agrees to convey the Property to Buyer upon confirmation of receipt of the Purchase Price, adjusted as provided herein, by the Escrow Agent as set forth below. Provided all conditions precedent to the Closing have been satisfied, Buyer agrees to pay the Purchase Price, adjusted as provided herein, by timely delivering the same to Escrow Agent and unconditionally directing the Escrow Agent to deposit the same in Seller's designated account by 10:00 a.m. Central Daylight Savings Time on the Closing Date. For each full or partial day after the Closing Date that Seller has not received in its account the payment specified in Article 3 because Buyer has not delivered the required funds to Escrow Agent and directed Escrow Agent to so deposit the same in Seller's account by such time, Buyer shall pay to Seller one (1) day's interest on the unpaid funds at the rate per annum equal to the "prime rate" as such rate is reported in the "Money Rates" section of The Wall Street Journal, as published and distributed in New York, New York, in effect from time to time. Notwithstanding the foregoing, Seller shall have the right to terminate this Agreement at any time if such payment is not received in Seller's designated account by 5:00 p.m. Central Daylight Savings Time on the Closing Date. 7.3 Seller's Closing Deliveries. At Closing, Seller shall deliver or cause to be delivered the following: (a) Deed. A special warranty deed in the form of Exhibit E attached hereto and incorporated herein by this reference ("Deed") executed and acknowledged by Seller. (b) Bill of Sale. A bill of sale in the form of Exhibit F attached hereto and incorporated herein by this reference ("Bill of Sale") executed by Seller. (c) Assignment of Tenant Leases. An assignment and assumption of tenant leases, in the form of Exhibit G attached hereto and incorporated herein by this reference ("Assignment of Leases") executed by Seller, together with an assignment of Seller's right, title and interest in and to the Note dated August 31, 1992 from Vantas West Wacker to Seller in the face amount of $368,790.00. (d) Assignment of Intangible Property. An assignment and assumption of the Contracts and the Other Property Rights (to the extent the same are not transferred by the Deed, Bill of Sale or Assignment of Leases) in the form 15 of Exhibit H attached hereto and incorporated herein by this reference ("Assignment of Intangible Property") executed by Seller. (e) Notice to Tenants. A single form letter in the form of Exhibit I attached hereto and incorporated herein by this reference, executed by Seller, duplicate copies of which shall be sent by Buyer after Closing to each tenant under the Leases. (f) Non-Foreign Status Affidavit. A non-foreign status affidavit in the form of Exhibit J attached hereto and incorporated herein by this reference, as required by Section 1445 of the Internal Revenue Code, executed by Seller. (g) Evidence of Authority. Documentation to establish to Buyer's reasonable satisfaction the due authorization of Seller's sale of the Property and execution and delivery of all documents contemplated by this Agreement (including the organizational documents of Seller, as they may have been amended from time to time, resolutions of Seller and incumbency certificates of Seller). (h) Other Documents. Such other documents as may be reasonably required by the Title Company or Escrow Agent or as may be agreed upon by Seller and Buyer to consummate the Transaction. (i) Letters of Credit as Tenant Security Deposits. With respect to any security deposits which are letters of credit, Seller shall, if the same are assignable, (i) deliver to Buyer at the Closing such letters of credit, (ii) execute and deliver such other instruments as the issuers of such letters of credit shall reasonably require, and (iii) cooperate with Buyer to change the named beneficiary under such letters of credit to Buyer so long as Seller does not incur any additional liability or expense in connection therewith. (j) Transfer Taxes. Duly completed and signed real estate transfer tax returns. (k) Assignment of Existing Loan. An assignment and assumption agreement relating to the Existing Loan pursuant to which Seller assigns the Existing Loan to Buyer without recourse and Buyer assumes all obligations of Seller under the Existing Loan and, if Seller and OPCC have not received a release in the form of Exhibit D but elect to close hereunder, indemnifies Seller and OPCC for all obligations of Seller and OPCC under the Loan Documents (the "Loan Assumption"). (l) Estoppel Certificates. Executed estoppel certificates from (i) each of those tenants identified on Exhibit L-1 attached hereto and incorporated herein by this reference as "Major Tenants" (the "Major Tenants"), and (ii) other tenants which, collectively with the Major Tenants, occupy no less than eighty percent (80%) of the total leased area of the Building (the "Other 16 Tenants"). All of such estoppel certificates shall be dated no earlier than the first to occur of (i) the Due Diligence Commencement Date and (ii) forty-five (45) days prior to the initially scheduled Closing Date and shall be substantially in the form which such Major Tenant or Other Tenant is required to provide pursuant to the terms of such Major Tenant's or Other Tenant's Lease or, if no form is specified in any of the Leases, in the form of Exhibit L-2 attached hereto and incorporated herein by this reference. Although an estoppel substantially in the form required by a Tenant's Lease shall satisfy this condition, Seller shall request that each Tenant (other than the Major Tenants) sign an estoppel certificate in the form of Exhibit L-2. In the event Seller cannot for any reason obtain a tenant estoppel certificate from any tenant (other than a Major Tenant), Seller, at its option, may deliver to Buyer a representation letter in the form of Exhibit L-3 attached hereto and incorporated herein by this reference; provided, however, that Seller may not deliver representation letters covering more than 10% of the total leased area of the Building. Seller's liability under Seller's representation letters shall expire and be of no further force or effect on the earlier of (A) two hundred seventy (270) days following the Closing Date, and (B) the date that Buyer receives an estoppel certificate from any such tenant. (m) Keys and Original Documents. Keys to all locks on the Real Property in Seller's or Seller's building manager's possession and originals or, if originals are not available, copies, of all of the Property Documents, to the extent not previously delivered to Buyer. (n) Termination of Management Agreement. Evidence that the management agreement(s) between Seller and Overseas Management, Inc. for management and leasing of the Property shall have been terminated. (o) Lender Estoppel. An estoppel certificate from Lender covering the matters described in Section 3.3.2 (iii) reasonably satisfactory to Buyer. (p) IRPTA. (1) An original affidavit by which Seller represents and warrants to Buyer that neither the Property nor the transfer of the Property contemplated by this Agreement is subject to the Illinois Responsible Property Transfer Act, 765 ILCS 90/1 et seq. ("IRPTA") or (2) an original, fully completed and executed IRPTA disclosure form for the Property. (q) Guaranty. A Guaranty of OPCC in the form of Exhibit R. (r) Closing Statement. An executed counterpart of the closing statement for the Transaction. (s) Certificate re Leases. A certificate of Seller setting forth any of the actions described in clauses (a) through (d) of Section 14.1 taken by Seller between May 1, 2000 and the Closing Date. 17 The items to be delivered by Seller in accordance with the terms of Subsections (a) through (k) and (n) through (s) of this Section 7.3 shall be delivered to Escrow Agent no later than 5:00 p.m. Central Daylight Savings Time on the last business day prior to the Closing Date and the items to be delivered by Seller in accordance with the terms of Subsection (m) of this Section 7.3 shall be delivered outside of escrow and shall be deemed delivered if the same are located at the Property on the Closing Date. The items to be delivered by Seller in accordance with the terms of Subsection (l) of this Section 7.3 shall be delivered to Buyer outside of escrow as they are received. 7.4 Buyer's Closing Deliveries. At the Closing, Buyer shall deliver or cause to be delivered the following: (a) Purchase Price. The Purchase Price, as adjusted for apportionments and other adjustments required under this Agreement, plus any other amounts required to be paid by Buyer at Closing. (b) Assignment of Leases. The Assignment of Leases executed by Buyer. (c) Assignment of Intangible Property. The Assignment of Intangible Property executed by Buyer. (d) Evidence of Authority. Documentation to establish to Seller's reasonable satisfaction the due authorization of Buyer's acquisition of the Property and Buyer's delivery of the documents required to be delivered by Buyer pursuant to this Agreement (including, but not limited to, the organizational documents of Buyer, as they may have been amended from time to time, resolutions of Buyer and incumbency certificates of Buyer), and, if Buyer is a partnership or limited liability company, the foregoing documents for all general partners and managing members. (e) Assumption of Existing Loan. The Loan Assumption and such other documents relating thereto as shall have been required by Lender. (f) Other Documents. Such other documents as may be reasonably required by the Title Company or Escrow Agent or may be agreed upon by Seller and Buyer to consummate the Transaction. (g) Transfer Taxes. Duly completed and signed real estate transfer tax returns. (h) Release. In the event Buyer assumes the Existing Loan, a complete release of Seller and OPCC from all liability and obligations in connection therewith executed by Lender, which release shall be in the form of Exhibit D hereto. (i) Closing Statement. An executed counterpart of the closing statement for the Transaction. 18 The Purchase Price shall be paid in accordance with the terms of Section 7.4 hereof and the items to be delivered by Buyer in accordance with the terms of Subsections (b) through (j) of this Section 7.4 shall be delivered to Escrow Agent no later than 5:00 p.m. Central Daylight Savings Time on the last business day prior to the Closing Date. ARTICLE 8 - CONDITIONS TO CLOSING 8.1 Conditions to Seller's Obligations. Seller's obligation to close the Transaction is conditioned on all of the following, any or all of which may be waived by Seller by an express written waiver, at its sole option: (a) Representations True. All representations and warranties made by Buyer in this Agreement shall be true and correct in all material respects on and as of the Closing Date, as if made on and as of such date except to the extent they expressly relate to an earlier date, and Buyer shall deliver to Seller at Closing a certificate so stating; (b) Buyer's Financial Condition. No petition has been filed by or against Buyer under the Federal Bankruptcy Code or any similar state or federal Law, whether now or hereafter existing; and (c) Buyer's Deliveries Complete. Buyer shall have delivered the funds required hereunder and all of the documents to be executed by Buyer set forth in Section 7.4 and shall have performed all other covenants, undertakings and obligations, and complied with all conditions required by this Agreement, to be performed or complied with by Buyer at or prior to the Closing. 8.2 Conditions to Buyer's Obligations. Buyer's obligation to close the Transaction is conditioned on all of the following, any or all of which may be expressly waived by Buyer in writing, at its sole option: (a) Representations True. Subject to the provisions of Section 9.3, all representations and warranties made by Seller in this Agreement, as the same may be amended as provided in Section 9.3, shall be true and correct in all material respects on and as of the Closing Date, as if made on and as of such date except to the extent that they expressly relate to an earlier date, and Seller shall deliver to Buyer at Closing a certificate so stating; (b) Title Conditions Satisfied. At the time of the Closing, title to the Property shall be as provided in Article 4 of this Agreement; (c) Seller's Deliveries Complete. Seller shall have delivered all of the documents and other items required pursuant to Section 7.3 and shall have performed all other covenants, undertakings and obligations, and complied with all conditions required by this Agreement, to be performed or complied with by Seller at or prior to the Closing; and 19 (d) Seller's Financial Condition. No petition has been filed by or against Seller under the Federal Bankruptcy Code or any similar state or federal law, whether now or hereafter existing. 8.3 Waiver of Failure of Conditions Precedent. At any time or times on or before the date specified for the satisfaction of any condition, Seller or Buyer may elect in writing to waive the benefit of any such condition set forth in Section 8.1 or Section 8.2, respectively. By closing the Transaction, each of Buyer and Seller shall be conclusively deemed to have waived the benefit of any remaining unfulfilled conditions set forth in Section 8.2 and 8.1, as applicable. In the event any of the conditions set forth in Sections 8.1 or 8.2 are neither waived nor fulfilled, Seller or Buyer (as appropriate) may exercise such rights and remedies, if any, that such party may have pursuant to the terms of Article 11 hereof. 8.4 Approvals not a Condition to Buyer's Performance. Subject to Buyer's right to terminate this Agreement prior to the expiration of the Due Diligence Period in accordance with the terms of Article 5 hereof, Buyer acknowledges and agrees that its obligation to perform under this Agreement is not contingent upon Buyer's ability to obtain any (a) governmental or quasi-governmental approval of changes or modifications in use or zoning, or (b) modification of any existing land use restriction, or (c) consents to assignments of any service contracts, management agreements or other agreements which Buyer requests, or (d) endorsements to the Owner's Title Policy. ARTICLE 9 - REPRESENTATIONS AND WARRANTIES 9.1 Buyer's Representations. Buyer represents and warrants to, and covenants with, Seller as follows: 9.1.1 Buyer's Authorization. Buyer (a) is duly organized, validly existing and in good standing under the laws of its State of organization and the State in which the Property is located, (b) is authorized to consummate the Transaction and fulfill all of its obligations hereunder and under all documents contemplated hereunder to be executed by Buyer, and (c) has all necessary power to execute and deliver this Agreement and all documents contemplated hereunder to be executed by Buyer, and to perform all of its obligations hereunder and thereunder. This Agreement and all documents contemplated hereunder to be executed by Buyer has been duly authorized by all requisite partnership, corporate or other required action on the part of Buyer and is the valid and legally binding obligation of Buyer, enforceable in accordance with their respective terms. Neither the execution and delivery of this Agreement and all documents contemplated hereunder to be executed by Buyer, nor the performance of the obligations of Buyer hereunder or thereunder will result in the violation of any Law or any provision of the organizational documents of Buyer or will conflict with any order or decree of any court or governmental instrumentality of any nature by which Buyer is bound. 9.1.2 Buyer's Financial Condition. To Buyer's knowledge, no petition has been filed by or against Buyer under the Federal Bankruptcy Code or any similar state or federal Law. As used herein, "Buyer's knowledge" shall mean the actual knowledge of Buyer's Designated Employees. 20 9.1.3 ERISA. (a) Buyer is not an "employee benefit plan" or a "governmental plan" for purposes of ERISA; and (b) One or more of the following circumstances is true: (i) Equity interests in Buyer are publicly offered securities, within the meaning of 29 C.F.R. Section 2510.3-101(b)(2); or (ii) Less than twenty-five percent (25%) of all equity interests in Buyer are held by "benefit plan investors" within the meaning of 29 C.F.R. Section 2510.3-101(f)(2); or (iii) Buyer qualifies as an "operating company," a "real estate operating company" or a "venture capital operating company" within the meaning of 29 C.F.R. Section 2510.3-101(c), (d) or (e). 9.2 Seller's Representations. Seller represents and warrants to Buyer as follows: 9.2.1 Seller's Authorization. Seller (a) is duly organized, validly existing and in good standing under the laws of Illinois, (b) is authorized to consummate the Transaction and fulfill all of its obligations hereunder and under all documents contemplated hereunder to be executed by Seller, and (c) has all necessary power to execute and deliver this Agreement and all documents contemplated hereunder to be executed by Seller, and to perform all of its obligations hereunder and thereunder. This Agreement and all documents contemplated hereunder to be executed by Seller have been duly authorized by all requisite corporate or other required action on the part of Seller and are the valid and legally binding obligation of Seller, enforceable in accordance with their respective terms. Neither the execution and delivery of this Agreement and all documents contemplated hereunder to be executed by Seller, nor the performance of the obligations of Seller hereunder or thereunder, will result in the violation of any Law or any provision of the organizational documents of Seller or will conflict with any order or decree of any court or governmental instrumentality of any nature by which Seller is bound. 9.2.2 Other Seller's Representations. To Seller's knowledge (as defined in Subsection 9.3.2): (a) Seller has not entered into any contracts, subcontracts or agreements, and to Seller's knowledge there are no contracts, subcontracts or agreements entered into by Seller's predecessors in title, affecting the Property which will be binding upon Buyer after the Closing other than the Contracts listed in Exhibit B attached hereto and any Contracts approved by Buyer. (b) Except for defaults cured on or before the date hereof, Seller has not received any written notice of default under the terms of any of the Contracts except as listed in Exhibit N attached hereto. Seller has not 21 given any written notice of default under the terms of any of the Contracts except as listed on Exhibit N attached hereto. (c) As of May 1, 2000, the only tenants of the Property are the tenants listed in Exhibit O attached hereto and incorporated herein by this reference and the licensees set forth on Exhibit B; provided, however, that the foregoing is not intended (and shall not be construed) as representation by Seller of the parties that are in actual possession of any portion of the Property since there may be subtenants, licensees or assignees that are in possession of portions of the Property of which Seller may not be aware. As of the date of this Agreement, Seller has not given or received any written notice of default under the terms of the Leases except as listed on Exhibit N attached hereto. (d) Except for violations cured or remedied on or before the date hereof and except as listed in Exhibit N attached hereto, as of the date of this Agreement, Seller has not received any written notice from any governmental authority of any violation of any Law applicable to the Property. (e) No petition has been filed by or against Seller under the Federal Bankruptcy Code or any similar state or federal Law. (f) Seller shall give or otherwise make available to Buyer or Buyer's Representatives all books, records and other writings in its or its building manager's possession related in any material way to the use, ownership or operation of the Property, other than books, records, and other writings that contain confidential, proprietary or privileged materials. (g) There are no condemnation proceedings in process or threatened with respect to the Property except as set forth in Exhibit K. (h) Seller has not received any written notice from any insurance company of any defects or inadequacies in the Property that would materially and adversely affect the insurability of the Property or cause any material increase in the premiums for insurance for the Property that have not been cured or repaired. 9.2.3 No Other Agreements. There are no currently effective agreements for the sale of Seller's interest in and to the Property (except for this Agreement). 9.2.4 Existing Loan. The documents evidencing and securing the Existing Loan (the "Existing Loan Documents") are listed on Exhibit M. There are no documents evidencing or securing the Existing Loan other than the Existing Loan Documents. The Existing Loan Documents have not been amended or modified. Neither Seller nor OPCC has received any written notice of default in connection with the Existing Loan Documents that has not been cured, and Seller has no knowledge of any other uncured default by Seller. Seller has paid all amounts currently due and payable under the Existing Loan Documents. Seller has not 22 given any written notice of default under the Existing Loan Documents and has no knowledge of any material default by Lender under the Existing Loan Documents. Seller has not assigned any interest in the Existing Loan or the Existing Loan Documents. 9.2.5 Commissions; Tenant Inducements. As of the date of this Agreement, except as set forth in Exhibits B and P attached hereto, there are no currently effective leasing commission agreements with respect to the Property (other than for commissions which shall become due in the future due to lease expansions, extensions or renewals). All commissions (other than those which become due because of future events and those for which Buyer is to be credited at Closing) and tenant inducements for which Seller is responsible hereunder have been fully paid. 9.2.6 Rent Roll. The rent roll for the Property which is delivered to Buyer by Seller during the Due Diligence Period and shall thereafter be deemed attached to this Agreement as Exhibit O (and shall be designated as such by Seller) (the "Rent Roll") is true, correct and complete in all material respects as of the date set forth thereon. 9.2.7 Litigation. Except as listed in Exhibits K and N attached hereto and incorporated herein by this reference, Seller has not received any written notice of any current or pending litigation against Seller and has no knowledge of any threatened litigation which in each case would not be covered by insurance and would, if determined adversely to Seller, materially adversely affect the Property. 9.2.8 UBIT. Seller (i) does not bear a relationship described in subparagraph (C), (E), or (G) of Section 4975 (e)(2) of the Internal Revenue Code to the plan with respect to which the Pension Plans of the United Parcel Service of America, Inc. was formed; and (ii) is not a ten percent (10%) or more shareholder of any person described in clause (i) above. 9.2.9 ERISA. (a) Seller is not an "employee benefit plan" or a "governmental plan" for purposes of ERISA; and (b) One or more of the following circumstances is true: (i) Equity interests in Seller are publicly offered securities, within the meaning of 29 C.F.R. Section 2510.3-101(b)(2); or (ii) Less than twenty-five percent (25%) of all equity interests in Seller are held by "benefit plan investors" within the meaning of 29 C.F.R. Section 2510.3-101(f)(2); or (iii) Seller qualifies as an "operating company," a "real estate operating company" or a "venture capital operating company" within the meaning of 29 C.F.R. Section 2510.3-101(c), (d) or (e). 23 9.3 General Provisions. 9.3.1 No Representation as to Leases. Seller does not represent or warrant that any particular lease or leases will be in force or effect on the Closing Date or that the tenants will have performed their obligations thereunder. 9.3.2 Definition of "Seller's Knowledge". All references in this Agreement to "Seller's knowledge" or words of similar import shall refer only to the actual knowledge of the Seller's Designated Employees and shall not be construed to refer to the knowledge of any other officer, director, shareholder, employee, agent or representative of Seller, or any affiliate of any of the foregoing, or to impose or have imposed upon the Seller's Designated Employees any duty to investigate the matters to which such knowledge, or the absence thereof, pertains, including, but not limited to, the contents of the files, documents and materials made available to or disclosed to Buyer or the contents of files maintained by the Seller's Designated Employees. There shall be no personal liability on the part of the Seller's Designated Employees arising out of any representations or warranties made herein. 9.3.3 Seller's Representations Deemed Modified. To the extent that Buyer's Designated Employees know or are deemed to know prior to the expiration of the Due Diligence Period that Seller's representations and warranties are inaccurate, untrue or incorrect in any way, such representations and warranties shall be deemed modified to reflect Buyer's knowledge or deemed knowledge, as the case may be, except to the extent that Seller knowingly made a material and intentional misrepresentation. 9.3.4 Notice of Breach; Seller's Right to Cure. If prior to the Closing, Buyer's Designated Employees obtain actual knowledge that any of the representations or warranties made herein by Seller are untrue, inaccurate or incorrect in any material respect, Buyer shall give Seller written notice thereof within five (5) business days of obtaining such knowledge (but, in any event, prior to the Closing). If at or prior to the Closing, Seller obtains actual knowledge that any of the representations or warranties made herein by Seller are untrue, inaccurate or incorrect in any material respect, Seller shall give Buyer written notice thereof within five (5) business days of obtaining such knowledge (but, in any event, prior to the Closing). In either such event, Seller shall have the right to cure such misrepresentation or breach and shall be entitled to a reasonable adjournment of the Closing (not to exceed forty-five (45) days) for the purpose of such cure. If Seller is unable to so cure any misrepresentation or breach, then, unless such misrepresentation constitutes a Wilful Default, in which case Section 11.2 shall apply, Buyer, as its sole remedy for any and all such materially untrue, inaccurate or incorrect material representations or warranties, shall elect either (a) to waive such misrepresentations or breaches of representations and warranties and consummate the Transaction without any reduction of or credit against the Purchase Price, or (b) to terminate this Agreement by written notice given to Seller on the Closing Date, in which event this Agreement shall be terminated, the Deposit shall be returned to Buyer and, thereafter, neither party shall have any 24 further rights or obligations hereunder except as provided in any section hereof that by its terms expressly provides that it survives any termination of this Agreement. If any such representation or warranty is untrue, inaccurate or incorrect but is not untrue, inaccurate or incorrect in any material respect, Buyer shall be deemed to waive such misrepresentation or breach of warranty, and Buyer shall be required to consummate the Transaction without any reduction of or credit against the Purchase Price. The untruth, inaccuracy or incorrectness of a representation or warranty shall be deemed material only if Buyer's aggregate damages resulting from the untruth, inaccuracy or incorrectness of any of the representations or warranties are reasonably estimated to exceed $250,000.00. 9.3.5 Survival; Limitation on Seller's Liability. The representations and warranties made by Seller in Section 9.2 shall survive the Closing and not be merged therein for a period of two hundred seventy (270) days and Seller shall only be liable to Buyer hereunder for a breach of a representation and warranty made herein or in any of the documents executed by Seller at the Closing with respect to which a claim is made by Buyer against Seller on or before the date which is two hundred seventy (270) days after the date of the Closing. Anything in this Agreement to the contrary notwithstanding, the maximum aggregate liability of Seller for Seller's breaches of representations and warranties herein or in any documents executed by Seller at Closing (including, but not limited to, any of Seller's representation letters delivered pursuant to Section 7.3(k) shall be limited as set forth in Section 15.15 hereof. Notwithstanding the foregoing, however, if the Closing occurs, Buyer hereby expressly waives, relinquishes and releases any right or remedy available to it at law, in equity, under this Agreement or otherwise to make a claim against Seller for damages that Buyer may incur, or to rescind this Agreement and the Transaction, as the result of any of Seller's representations or warranties being untrue, inaccurate or incorrect if (a) Buyer's Designated Employees knew or are deemed to have known that such representation or warranty was untrue, inaccurate or incorrect at the time of the Closing, or (b) Buyer's damages as a result of such representations or warranties being untrue, inaccurate or incorrect are reasonably estimated to aggregate less than $250,000.00. ARTICLE 10 - COVENANTS 10.1 Buyer's Covenants. Buyer hereby covenants as follows: 10.1.1 Confidentiality. Buyer acknowledges that any information heretofore or hereafter furnished to Buyer with respect to the Property has been and will be so furnished on the condition that Buyer maintain the confidentiality thereof. Accordingly, Buyer shall hold, and shall cause its partners and members and the officers, directors, employees, agents and representatives of Buyer, its partners and members to hold, in strict confidence, and not disclose to any other person without the prior written consent of Seller until the Closing shall have been consummated, (a) the terms of the Agreement and (b) any of the information in respect of the Property delivered to or for the benefit of Buyer whether by agents, consultants, employees or representatives of Buyer or by Seller or any of its 25 agents, representatives or employees, including, but not limited to, any information heretofore or hereafter obtained by Buyer or any of Buyer's Representatives in connection with its Due Diligence. In the event the Closing does not occur or this Agreement is terminated, Buyer shall promptly return to Seller all copies of documents containing any of such information without retaining any copy thereof or extract therefrom (except for any third party reports commissioned by Buyer, which Buyer shall continue to hold in confidence), or shall certify to Seller that all copies of such documents have been destroyed. Notwithstanding anything to the contrary hereinabove set forth, Buyer may disclose such information (a) on a need-to-know basis to its employees, members of professional firms serving it or potential lenders or investors, provided any such persons or entities agree to and shall maintain the confidentiality thereof, (b) as any court or governmental agency may require in order to comply with applicable Laws, (c) to the extent necessary to enforce its rights under this Agreement, and (d) to the extent that such information is a matter of public record. The provisions of this Subsection 10.1.1 shall survive any termination of this Agreement. 10.1.2 Buyer's Indemnity; Delivery of Reports. Buyer hereby agrees to indemnify, defend, and hold Seller and each of the other Seller Parties free and harmless from and against any and all damages, losses, costs, claims, liabilities, expenses, demands and obligations of any kind or nature whatsoever (including reasonable attorneys fees and costs but excluding any diminution in the value of the Property caused by Buyer's disclosure to Seller of any information obtained by Buyer in the course of its due diligence) arising out of or resulting from the breach of the terms of Subsection 10.1.1 by Buyer, any Buyer Representative or any person or entity to whom Buyer discloses confidential information, or the entry on the Real Property and/or the conduct of any Due Diligence by Buyer or any of Buyer's Representatives at any time prior to the Closing, which indemnity shall survive the Closing (and not be merged therein) or any earlier termination of this Agreement. 10.1.3 Limit on Government Contacts. Notwithstanding any provision in this Agreement to the contrary, Buyer shall not contact any governmental official or representative regarding the Property without Seller's prior written consent thereto, which consent shall not be unreasonably withheld. In addition, if Seller's consent is obtained by Buyer, Seller shall be entitled to receive at least five (5) days prior written notice of the intended contact and to have a representative present when Buyer has any such contact with any governmental official or representative. The foregoing shall not prevent Buyer from performing, without Seller's consent, routine building code and zoning violation searches which do not involve discussing the Building with, or having the Building inspected by, any governmental official or representative. 10.2 Seller's Covenants. Seller hereby covenants as follows: 10.2.1 Contracts. Without Buyer's prior consent, which consent shall not be unreasonably withheld and shall be deemed granted if Buyer does not respond 26 within five (5) business days following Seller's request for consent, between the date of this Agreement and the Closing Date Seller shall not extend, renew, replace or modify any Contract unless such contract (as so extended, renewed, replaced or modified) can be terminated by the owner of the Property without penalty on not more than thirty (30) days' notice. 10.2.2 Maintenance of Property. Except to the extent Seller is relieved of such obligations by Article 12 hereof, between the date hereof and the Closing Date Seller shall maintain and keep the Property in a manner consistent with Seller's past practices with respect to the Property; provided, however, that, subject to Buyer's right to terminate this Agreement prior to the expiration of the Due Diligence Period in accordance with the terms of Article 5 hereof, Buyer hereby agrees that it shall accept the Property subject to, and Seller shall have no obligation to cure, (a) any violations of Laws, and (b) any physical conditions which would give rise to violations, which, with respect to both clauses (a), (b) exist on the date hereof or which arise between the date hereof and the end of the Due Diligence Period and (c) any violations of Law which arise after the end of the Due Diligence Period as a result of the enactment of new laws or new interpretations of or regulations under existing laws after the end of the Due Diligence Period. Between the date hereof and the Closing Date, Seller will promptly deliver to Buyer a copy of any written notice Seller receives after the date hereof from any governmental authority of the violation of any Laws regulating the condition or use of the Property. 10.2.3 Access to Property. Between the date hereof and the Closing Date Seller shall allow Buyer or Buyer's Representatives access to the Property upon reasonable prior notice at reasonable times provided (a) such access does not interfere with the operation of the Property or the rights of tenants; (b) Buyer shall not contact any tenant without Seller's prior written consent (it being understood that Buyer shall have the right to interview tenants with a representative of Seller present, and Seller shall reasonably cooperate with Buyer in making its representatives available to accompany Buyer at reasonable times and upon reasonable advance notice); (c) after the expiration of the Due Diligence Period Buyer shall not be permitted to perform any further testing or other physical evaluation of the Property prior to Closing; (d) Seller or its designated representative shall have the right to pre-approve and be present during any physical testing of the Property, such approval not to be unreasonably withheld or delayed; and (e) Buyer shall return the Property to the condition existing prior to such tests and inspections. Prior to such time as Buyer or any of Buyer's Representatives enter the Property, Buyer shall (i) obtain policies of general liability insurance which insure Buyer, its agents and representatives with liability insurance limits of not less than $1,000,000 combined single limit for personal injury and property damage and name Seller and Seller's property manager as additional insureds and which are with such insurance companies, provide such coverages and carry such other limits as Seller shall reasonably require, and (ii) provide Seller with certificates of insurance evidencing that Buyer has obtained the aforementioned policies of insurance. 27 10.2.4 Termination of Certain Contracts. If Buyer notifies Seller in writing prior to the expiration of the Due Diligence Period that Buyer elects to have any Contracts terminated prior to Closing, Seller shall use good faith and reasonable efforts to terminate the Contracts so designated by Buyer effective as of the Closing Date; provided, however, that in no event shall Seller be required by the foregoing to pay any sums (or incur any other liability) to the other parties to said Contracts. If Seller is unable to so terminate the aforementioned Contracts effective as of the Closing Date, then Seller shall assign and Buyer shall assume the same at Closing in accordance with the terms of this Agreement and the Assignment of Intangible Property. 10.2.5 Compliance with Loan Documents. Seller shall comply with all of its material obligations under the Existing Loan Documents, including, without limitation, making all payments as and when due. 10.2.6 Bulk Sales Release. Following execution of this Agreement, Seller shall file a notice of sale of assets with the Illinois Department of Revenue in connection with the requirements of the Illinois Income Tax Act, 35 ILCS 5/902(d) (the "Illinois Tax Act") and shall provide Buyer with a copy of same. Seller shall be responsible for delivering at or prior to the Closing a certificate from the Illinois Department of Revenue (the "IDR") stating that no assessed but unpaid tax, penalties or interest are due under the Illinois Tax Act. In the event Seller does not obtain such a certificate, or alternatively, in the event the IDR delivers a notice of taxes due, then Seller may elect to provide to Buyer an indemnification agreement reasonably acceptable to Buyer, whereby Seller shall indemnify, defend and hold Buyer harmless of, from and against any and all claims, costs, damages, expenses, liabilities or losses which Buyer may incur or suffer as a result of Seller's failure to comply with the provisions of the Illinois Tax Act. 10.2.7 No Marketing of Property. Seller agrees that for so long as this Agreement shall remain in effect, it shall not market the Property for sale. 10.2.8 Condemnation. Seller shall not, after the date of this Agreement, negotiate with the City of Chicago with respect to the condemnation described on Exhibit K without notifying Buyer and providing Buyer the opportunity to participate, or take any other action to settle such condemnation without the participation or consent of Buyer. 10.3 Mutual Covenants. 10.3.1 Publicity. Seller and Buyer each hereby covenant that (a) prior to the Closing neither Seller nor Buyer shall issue any Release (as hereinafter defined) with respect to the Transaction without the prior consent of the other, except to the extent required by applicable Law, and (b) after the Closing, any Release issued by either Seller or Buyer shall be subject to the review and approval of both parties (which approval shall not be unreasonably withheld); provided that Buyer may disclose its purchase of the Property, the Seller's identity and the purchase price, but not the other material terms of the Transaction, in fund marketing brochures and similar materials sent to investors and potential investors, on its 28 web page and in its other marketing materials. If either Seller or Buyer is required by applicable Law to issue a Release, such party shall, at least two (2) business days prior to the issuance of the same, deliver a copy of the proposed Release to the other party for its review. As used herein, the term "Release" shall mean any press release or public statement with respect to the Transaction or this Agreement. 10.3.2 Broker. Seller and Buyer expressly acknowledge that Broker has acted as the exclusive broker with respect to the Transaction and with respect to this Agreement, and that Seller shall pay any brokerage commission due to Broker in accordance with the separate agreement between Seller and Broker. Seller agrees to hold Buyer harmless and indemnify Buyer from and against any and all damages, losses, costs, claims, liabilities, expenses, demands and obligations (including, but not limited to, reasonable attorneys' fees and disbursements) suffered or incurred by Buyer as a result of any claims by any party (including but not limited to Broker) claiming to have represented Seller as broker in connection with the Transaction. Buyer agrees to hold Seller harmless and indemnify Seller from and against any and all damages, losses, costs, claims, liabilities, expenses, demands and obligations (including, but not limited to, reasonable attorneys' fees and disbursements) suffered or incurred by Seller as a result of any claims by any party claiming to have represented Buyer as broker in connection with the Transaction. 10.3.3 Tax Protests; Tax Refunds and Credits. Seller shall have the right to continue and to control the progress of and to make all decisions with respect to any contest of the real estate taxes for the Property assessed during calendar year 1999 and due and payable during calendar year 2000 and all prior Tax Years. Seller shall from time to time, upon request by Buyer, update Buyer on the status of any such tax contest. Buyer shall have the right to control the progress of and to make all decisions with respect to any tax contest of the real estate taxes for the Property due and payable during all Tax Years thereafter. All real estate tax refunds and credits received after Closing with respect to the Property shall be applied in the following order of priority: first, to pay the out-of-pocket costs and expenses (including reasonable attorneys' fees and expenses) incurred in connection with obtaining such tax refund or credit; second, to pay any amounts due to any past or present tenant of the Property as a result of such tax refund or credit to the extent required pursuant to the terms of the Leases or any prior leases not in effect on the Closing Date; and third, apportioned between Buyer and Seller as follows: (a) with respect to any refunds or credits attributable to real estate taxes assessed during calendar year 1999 and due and payable during calendar year 2000, such refunds and credits shall be apportioned between Buyer and Seller in proportion to the number of days in calendar year 2000 that each party owned the Property (with title to the Property being deemed to have passed as of 12:01 a.m. on the Closing Date); 29 (b) with respect to any refunds or credits attributable to real estate taxes assessed for years prior to calendar year 1999 Seller shall be entitled to the entire refunds and credits; and (c) with respect to any refunds or credits attributable to real estate taxes assessed for years after calendar year 1999 and due and payable in calendar year 2001 or thereafter Buyer shall be entitled to the entire refunds and credits. 10.3.4 Survival. The provisions of this Section 10.3 shall survive the Closing (and not be merged therein) or earlier termination of this Agreement. ARTICLE 11 - FAILURE OF CONDITIONS 11.1 To Seller's Obligations. If, on or before the Closing Date, (i) Buyer is in default of any of its obligations hereunder, or (ii) any of Buyer's material representations or warranties are untrue in any material respect, then Seller may elect to (a) terminate this Agreement by written notice to Buyer; or (b) proceed to close the Transaction. If this Agreement is so terminated, then Seller shall be entitled to the Deposit as liquidated damages, and thereafter neither party to this Agreement shall have any further rights or obligations hereunder other than any arising under any section herein which expressly provides that it survives the termination of this Agreement. 11.2 To Buyer's Obligations. If, at the Closing, (i) Seller is in default of any of its obligations hereunder, or (ii) any of Seller's material representations or warranties are untrue in any material respect (as defined in Section 9.3.4), Buyer shall have the right to elect, as its sole and exclusive remedy, to (a) terminate this Agreement by written notice to Seller, promptly after which the Deposit shall be returned to Buyer and, in the event that the Closing does not occur due to (1) Seller knowingly having made an intentional and material misrepresentation, (2) Seller voluntarily conveying the Property to another party while this Agreement is in full force and effect or (3) Seller voluntarily encumbering the Property to secure a borrowing (a "Wilful Default"), but in no other event, Seller shall pay to Buyer as liquidated damages the sum of $250,000.00, or (b) waive the condition and proceed to close the Transaction, or (c) seek specific performance of this Agreement by Seller. As a condition precedent to Buyer exercising any right it may have to bring an action for specific performance hereunder, Buyer must commence such an action within one hundred twenty (120) days after the occurrence of Seller's default. Buyer agrees that its failure to timely commence such an action for specific performance within such one hundred twenty (120) day period shall be deemed a waiver by it of its right to commence an action for specific performance as well as a waiver by it of any right it may have to file or record a notice of lis pendens or notice of pendency of action or similar notice against any portion of the Property. Notwithstanding the foregoing, if Seller, after the date hereof and prior to the earlier of (i) the date which is five (5) business days after the scheduled Closing Date (as the same may be extended pursuant hereto), and (ii) the date on which this Agreement is terminated by Buyer (in writing or by demanding return of the Escrow Deposits), (A) voluntarily encumbers the Property to secure borrowed money or (B) sells or transfers title to the Property (other than to Buyer or an assignee of Buyer), Buyer shall have the right to exercise all of its rights and remedies, at law or in equity, for 30 such breach of this Agreement. In the event a legal action is brought to enforce this Agreement following an alleged Wilful Default by Seller, the prevailing party in such action shall be entitled to recover its reasonable attorneys' fees and costs, not to exceed $50,000.00, from the non-prevailing party. ARTICLE 12 - CONDEMNATION/CASUALTY 12.1 Condemnation. 12.1.1 Right to Terminate. If, prior to the Closing Date, all or any significant portion (as hereinafter defined) of the Property is taken by eminent domain (or is the subject of a pending taking which has not yet been consummated), Seller shall notify Buyer in writing of such fact promptly after obtaining knowledge thereof, and, thereafter, Buyer shall have the right to terminate this Agreement by giving written notice to the other no later than ten (10) business days after the giving of Seller's notice, and the Closing Date shall be extended, if necessary, to provide sufficient time for Buyer to make such election. The failure by Buyer to so elect in writing to terminate this Agreement within such ten business (10) day period shall be deemed an election not to terminate this Agreement. For purposes hereof, a "significant portion" of the Property shall mean such a portion (1) as shall have a value in excess of One Million Dollars ($1,000,000.00), (2) the taking of which shall materially adversely affect access to the Property or (3) the taking of which shall materially adversely affect use of the Property as an office building, but a significant portion shall not include the property described on Exhibit K which is the subject of the condemnation described on Exhibit K. If Buyer elects to terminate this Agreement as aforesaid, the provisions of Section 12.4 shall apply. 12.1.2 Assignment of Proceeds. If (a) Buyer does not elect to terminate this Agreement as aforesaid if all or any significant portion of the Property is taken, or (b) a portion of the Property not constituting a significant portion of the Property is taken or becomes subject to a pending taking by eminent domain, there shall be no abatement of the Purchase Price; provided, however, that, at the Closing, Seller shall pay to Buyer the amount of any award for or other proceeds on account of such taking which have been actually paid to Seller prior to the Closing Date as a result of such taking (less all reasonable out-of-pocket costs and expenses, including reasonable attorneys' fees and costs, incurred by Seller as of the Closing Date in obtaining payment of such award or proceeds) and, to the extent such award or proceeds have not been paid, Seller shall assign to Buyer at the Closing (without recourse to Seller), pursuant to documents reasonably satisfactory to Buyer, the rights of Seller to, and Buyer shall be entitled to receive and retain, all awards for the taking of the Property or such portion thereof. Notwithstanding anything herein to the contrary, the award or proceeds relating to the property described on Exhibit K shall be allocated as provided in Exhibit K. 12.2 Destruction or Damage. In the event any of the Property is damaged or destroyed prior to the Closing Date, Seller shall notify Buyer in writing of such fact promptly after obtaining knowledge thereof. If any such damage or destruction (a) is an insured 31 casualty and (b) would cost less than Three Million Dollars ($3,000,000.00) to repair or restore, then this Agreement shall remain in full force and effect and Buyer shall acquire the Property upon the terms and conditions set forth herein. In such event, Buyer shall receive a credit against the Purchase Price equal to the deductible amount applicable under Seller's casualty policy less all reasonable out-of-pocket costs and expenses, including reasonable attorneys' fees and costs, incurred by Seller as of the Closing Date in connection with the negotiation and/or settlement of the casualty claim with the insurer (the "Realization Costs"), and Seller shall assign to Buyer all of Seller's right, title and interest in and to all proceeds of insurance on account of such damage or destruction. In the event the Property is damaged or destroyed prior to the Closing Date and the cost of repair would equal or exceed Three Million Dollars ($3,000,000.00), or the casualty is an uninsured casualty, then, notwithstanding anything to the contrary set forth above in this section, Buyer shall have the right, at its election, to terminate this Agreement. Buyer shall have thirty (30) days after Seller notifies Buyer that a casualty has occurred to make such election by delivery to the other of a written election notice (the "Election Notice") and the Closing Date shall be extended, if necessary, to provide sufficient time for Buyer to make such election. The failure by Buyer to deliver the Election Notice within such thirty (30) day period shall be deemed an election not to terminate this Agreement. In the event Buyer does not elect to terminate this Agreement as set forth above, this Agreement shall remain in full force and effect, Seller shall assign to Buyer, pursuant to documents reasonably satisfactory to Buyer, all of Seller's right, title and interest in and to any and all proceeds of insurance on account of such damage or destruction, if any, and, if the casualty was an insured casualty, Buyer shall receive a credit against the Purchase Price equal to the deductible amount (less the Realization Costs) under Seller's casualty insurance policy. 12.3 Insurance. Seller shall maintain the property insurance coverage currently in effect for the Property through the Closing Date. 12.4 Effect of Termination. If this Agreement is terminated pursuant to Section 12.1 or Section 12.2, the Deposit shall be returned to Buyer. Upon such refund, this Agreement shall terminate and neither party to this Agreement shall have any further rights or obligations hereunder other than any arising under any section herein which expressly provides that it shall survive the termination of this Agreement. 12.5 Waiver. The provisions of this Article 12 supersede the provisions of any applicable Laws with respect to the subject matter of this Article 12. ARTICLE 13 - ESCROW 13.1 The Deposit and any other sums which the parties agree shall be held in escrow (herein collectively called the "Escrow Deposits"), together with all interest earned thereon, shall be held by the Escrow Agent, in trust, and disposed of only in accordance with the following provisions: (a) The Escrow Agent shall invest the cash portion of the Escrow Deposits in government insured interest-bearing instruments satisfactory to both Buyer and Seller, shall not commingle the Escrow Deposits with any 32 funds of the Escrow Agent or others, and shall promptly provide Buyer and Seller with confirmation of the investments made. (b) If the Closing occurs, the Escrow Agent shall deliver the cash portion of the Escrow Deposits to, or upon the instructions of, Seller on the Closing Date and shall return any letter of credit comprising part of the Escrow Deposits to Buyer. (c) If for any reason the Closing does not occur, the Escrow Agent shall deliver the Escrow Deposits and all interest earned thereon to Seller or Buyer only upon receipt of a written demand therefor from such party, subject to the following provisions of this Subsection (c). If for any reason the Closing does not occur and either party makes a written demand upon the Escrow Agent for payment of the Escrow Deposits and the interest earned thereon, the Escrow Agent shall give written notice to the other party of such demand. If the Escrow Agent does not receive a written objection from the other party to the proposed payment within ten (10) days after the giving of such notice, the Escrow Agent is hereby authorized to make such payment and, if such payment is to Seller, to draw upon any letter of credit comprising part of the Escrow Deposits and pay the proceeds thereof over to Seller. If the Escrow Agent does receive such written objection within such period, the Escrow Agent shall continue to hold such amount until otherwise directed by written instructions signed by Seller and Buyer or a final judgment of a court; provided, however, that unless Buyer replaces any letter of credit comprising part of the Escrow Deposits with cash, Escrow Agent shall draw upon such letter of credit no later than five (5) business days before its expiration date and shall hold the proceeds of such draw as part of the Escrow Deposits. (d) If this Agreement remains in effect on the date which is one month prior to the expiration of any letter of credit comprising a portion of the Escrow Deposits, Escrow Agent shall immediately request that Buyer replace such letter of credit with either cash or a replacement letter of credit in substantially the form of such letter of credit with an expiry date no sooner than three months after the expiry of the existing Letter of Credit, and if Buyer does not do so within ten (10) business days after such notice, Escrow Agent shall promptly, and in no event later than five (5) business days before its expiration date, draw upon such letter of credit and hold the proceeds of such draw as part of the Escrow Deposits. (e) Buyer may, prior to the expiration of the Due Diligence Period, make a written demand on Escrow Agent for return of the Escrow Deposits and interest earned thereon, and Escrow Agent shall promptly upon receipt thereof give written notice to Seller of such demand. Upon release of the Escrow Deposits, this Agreement shall automatically terminate and neither party shall have any further rights or obligations hereunder other than any 33 arising under any section hereof which expressly provides that it shall survive the termination of this Agreement. (f) The parties acknowledge that the Escrow Agent is acting solely as a stakeholder at their request and for their convenience, that the Escrow Agent shall not be deemed to be the agent of either of the parties, and that the Escrow Agent shall not be liable to either of the parties for any action or omission on its part taken or made in good faith, and not in disregard of this Agreement, but shall be liable for its negligent acts and for any loss, cost or expense incurred by Seller or Buyer resulting from the Escrow Agent's mistake of law respecting the Escrow Agent's scope or nature of its duties. Seller and Buyer shall jointly and severally indemnify and hold the Escrow Agent harmless from and against all damages, losses, costs, claims, liabilities, expenses, demands and obligations, including reasonable attorneys' fees, incurred in connection with the performance of the Escrow Agent's duties hereunder, except with respect to actions or omissions taken or made by the Escrow Agent in bad faith, in disregard of this Agreement or involving negligence on the part of the Escrow Agent. (g) Buyer shall pay any income taxes on any interest earned on the Escrow Deposits. Buyer represents and warrants to the Escrow Agent that its taxpayer identification number is 36-4370857. (h) The Escrow Agent has executed this Agreement in the place indicated on the signature page hereof in order to confirm that the Escrow Agent has received and shall hold the Escrow Deposits and the interest earned thereon, in escrow, and shall disburse the Escrow Deposits, and the interest earned thereon, pursuant to the provisions of this Article 13. ARTICLE 14 - LEASING MATTERS 14.1 New Leases; Lease Modifications. After the Due Diligence Commencement Date, Seller shall not, without Buyer's prior written consent in each instance, which consent shall not be unreasonably withheld and shall be given or denied, with the reasons for such denial specified in reasonable detail, within five (5) business days after receipt by Buyer of the information referred to in the next sentence, (a) enter into a New Lease; (b) modify or amend any Existing Lease (except pursuant to the exercise by a tenant of a renewal, extension or expansion option or other right contained in such tenant's lease); provided that the lease with Overseas Management, Inc. may be terminated effective as of the Closing Date; (c) consent to any assignment or sublease in connection with any Existing Lease or New Lease; or (d) remove any tenant under any Existing Lease or New Lease, whether by summary proceedings or otherwise, except by reason of a default of the tenant under the subject Existing Lease or New Lease; provided, however, that Seller may, in good faith and in accordance with its reasonable business judgment, enter into any lease which is consistent with the leasing guidelines set forth on Exhibit Q without the consent of Buyer, but after notice to Buyer. Seller shall furnish Buyer with a written notice of the proposed action which shall contain information regarding the proposed action that Seller believes is reasonably necessary to enable Buyer to make informed decisions with respect to the advisability of the proposed action. If Buyer fails to object 34 in writing to any such proposed action within five (5) business days after receipt of the aforementioned information, Buyer shall be deemed to have approved the proposed action. If any Lease requires that the landlord's consent be given under the applicable circumstances (or not be unreasonably withheld), then Buyer shall be deemed ipso facto to have approved such action. Any notice from Buyer rejecting the proposed action shall include a description of the reasons for Buyer's rejection. During the period prior to the end of the Due Diligence Period, if Buyer rejects the proposed action, Seller nevertheless retains full right, power and authority to execute such documents as are necessary to effect such action, and Seller shall promptly advise Buyer of the same. The foregoing notwithstanding, in the event Buyer has rejected the proposed action but Seller nonetheless proceeds to effect it, Buyer shall have the right, within three (3) business days after receipt of Seller's notice that Seller has taken such action, to elect to terminate this Agreement by the delivery to Seller of a written notice of termination, in which case the Deposit shall be paid to Buyer and, thereafter, the parties shall have no further rights or obligations hereunder other than any arising under any section herein which expressly provides that it shall survive the termination of this Agreement. If Buyer fails to notify Seller within such time period, Buyer shall be deemed to have fully waived any rights to terminate this Agreement pursuant to this Section 14.1. Following the end of the Due Diligence Period, if Buyer rejects the proposed action, Seller shall refrain from taking such action. Seller shall deliver to Buyer a true and complete copy of each such New Lease, renewal or extension agreement, modification, or amendment, as the case may be, promptly after the execution and delivery thereof. 14.2 Lease Expenses. At Closing, Buyer shall reimburse Seller for any and all Reimbursable Lease Expenses to the extent that the same have been paid by Seller prior to Closing. In addition, at Closing, Buyer shall assume Seller's obligations to pay, when due (whether on a stated due date or accelerated) any Reimbursable Lease Expenses unpaid as of the Closing, including any leasing commissions payable to Overseas Management, Inc. (or to Jones Lang LaSalle through Overseas Management, Inc.) with respect to new leases or renewals or expansions of existing Leases entered into by Buyer within ninety (90) days after Closing with parties shown on a list to be provided by Seller to Buyer at Closing, which list shall include prospective tenants with whom substantive discussions have taken place and to whom lease proposals approved by Seller's asset manager have been sent. Buyer also acknowledges that Seller shall have no liability for any rent concessions covering any period following the Closing Date. Buyer hereby agrees to indemnify and hold Seller harmless from and against any and all damages, losses, costs, claims, liabilities, expenses, demands and obligators with respect to such Reimbursable Lease Expenses which remain unpaid for any reason at the time of Closing, which obligations of Buyer shall survive the Closing and shall not be merged therein. Each party shall make available to the other all records, bills, vouchers and other data in such party's control verifying Reimbursable Lease Expenses and the payment thereof. 14.3 Lease Enforcement. Subject to the provisions of Section 14.1 above, prior to the Closing Date, Seller shall have the right, but not the obligation, to enforce the rights and remedies of the landlord under any Existing Lease or New Lease, by summary proceedings or otherwise (including, without limitation, the right to remove any tenant), and to apply all or any portion of any security deposits then held by Seller toward any loss or damage incurred by Seller by reason of any defaults by tenants (provided that Seller shall not 35 apply security deposits unless the default in respect of which such security deposit is applied has existed for at least 60 days), and the exercise of any such rights or remedies shall not affect the obligations of Buyer under this Agreement in any manner or entitle Buyer to a reduction in, or credit or allowance against, the Purchase Price or give rise to any other claim on the part of Buyer. 14.4 Tenant Notes. Buyer acknowledges that the promissory note dated July 28, 1989 from Horwood Marcus and Berk to Seller in the face amount of $100,000.00 is not included in the Transaction and shall be retained by Seller, which shall have the right to seek payment of such note when due and to exercise any available remedies it may have in connection therewith. ARTICLE 15 - MISCELLANEOUS 15.1 Buyer's Assignment. Buyer shall not assign this Agreement or its rights hereunder to any individual or entity without the prior written consent of Seller, which consent Seller may grant or withhold in its sole discretion, and any such assignment shall be null and void ab initio. In the event of any permitted assignment by Buyer, any assignee shall assume any and all obligations and liabilities of Buyer under this Agreement but, notwithstanding such assumption, Buyer shall continue to be liable hereunder. 15.2 Designation Agreement. Section 6045(e) of the United States Internal Revenue Code and the regulations promulgated thereunder (herein collectively called the "Reporting Requirements") require an information return to be made to the United States Internal Revenue Service, and a statement to be furnished to Seller, in connection with the Transaction. Escrow Agent ("Agent") is either (x) the person responsible for closing the Transaction (as described in the Reporting Requirements) or (y) the disbursing title or escrow company that is most significant in terms of gross proceeds disbursed in connection with the Transaction (as described in the Reporting Requirements). Accordingly: (a) Agent is hereby designated as the "Reporting Person" (as defined in the Reporting Requirements) for the Transaction. Agent shall perform all duties that are required by the Reporting Requirements to be performed by the Reporting Person for the Transaction. (b) Seller and Buyer shall furnish to Agent, in a timely manner, any information requested by Agent and necessary for Agent to perform its duties as Reporting Person for the Transaction. (c) Agent hereby requests Seller to furnish to Agent Seller's correct taxpayer identification number. Seller acknowledges that any failure by Seller to provide Agent with Seller's correct taxpayer identification number may subject Seller to civil or criminal penalties imposed by law. Accordingly, Seller hereby certifies to Agent, under penalties of perjury, that Seller's correct taxpayer identification number is 36-4135985. 36 15.3 Survival/Merger. Except for the provisions of this Agreement which are explicitly stated to survive the Closing, (a) none of the terms of this Agreement shall survive the Closing, and (b) the delivery of the Deed and any other documents and instruments by Seller and the acceptance thereof by Buyer shall effect a merger, and be deemed the full performance and discharge of every obligation on the part of Buyer and Seller to be performed hereunder. 15.4 Integration; Waiver. This Agreement, together with the Exhibits hereto, embodies and constitutes the entire understanding between the parties with respect to the Transaction and all prior agreements, understandings, representations and statements, oral or written, are merged into this Agreement. Neither this Agreement nor any provision hereof may be waived, modified, amended, discharged or terminated except by an instrument signed by the party against whom the enforcement of such waiver, modification, amendment, discharge or termination is sought, and then only to the extent set forth in such instrument. No waiver by either party hereto of any failure or refusal by the other party to comply with its obligations hereunder shall be deemed a waiver of any other or subsequent failure or refusal to so comply. 15.5 Governing Law. This Agreement shall be governed by, and construed in accordance with, the law of the State in which the Property is located. 15.6 Captions Not Binding; Exhibits. The captions in this Agreement are inserted for reference only and in no way define, describe or limit the scope or intent of this Agreement or of any of the provisions hereof. All Exhibits attached hereto shall be incorporated by reference as if set out herein in full. 15.7 Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. 15.8 Severability. If any term or provision of this Agreement or the application thereof to any persons or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Agreement or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby, and each term and provision of this Agreement shall be valid and enforced to the fullest extent permitted by law. 15.9 Notices. Any notice, request, demand, consent, approval and other communications under this Agreement shall be in writing, and shall be deemed duly given or made at the time and on the date when received by facsimile (provided that the sender of such communication receives a confirmation of receipt thereof) or when personally delivered as shown on a receipt therefor (which shall include delivery by a nationally recognized overnight delivery service) or three (3) business days after being mailed by prepaid registered or certified mail, return receipt requested, to the address for each party set forth below. Any party, by written notice to the other in the manner herein provided, may designate an address different from that set forth below. 37 IF TO BUYER: The John Buck Company 233 South Wacker Drive Chicago, Illinois 60606 Attention: John Q. O'Donnell and Darin L. Schwab Telephone #: 312/993-9800 Fax #: 312/993-0857 and: Lend Lease Real Estate Investments, Inc. 455 N. Cityfront Plaza Drive, Suite 3200 Chicago, Illinois 60611 Attention: Charles R. Beaver Telephone #: 312/527-5000 Fax #: 312/396-5551 COPY TO: Piper Marbury, Rudnick & Wolfe 203 North LaSalle Street, Suite 1800 Chicago, Illinois 60601 Attention: Lawrence J. Fey Telephone #: 312/368-4000 Fax #: 312/236-7516 and: King & Spalding 191 Peachtree Street, N.W. Atlanta, Georgia 30303 Attention: William J. Armstrong Telephone #: 404/572-4870 Fax #: 404/572-5148 38 IF TO SELLER: Overseas Partners (333), Inc. 115 Perimeter Center Place Suite 940 Atlanta, Georgia 30346 Attention: Michael Molletta Telephone #: 770/913-6745 Fax #: 770/913-6756 and: Attention: Legal Department Telephone #: 770/913-6234 Fax #: 770/913-6756 COPY TO: Sonnenschein Nath & Rosenthal 8000 Sears Tower Chicago, Illinois 60606 Attention: Linda D. White Telephone #: 312/876-8950 Fax #: 312/876-7934 15.10 Counterparts. This Agreement may be executed in counterparts, each of which shall be an original and all of which counterparts taken together shall constitute one and the same agreement. 15.11 No Recordation. Seller and Buyer each agrees that neither this Agreement nor any memorandum or notice hereof shall be recorded and Buyer agrees (a) not to file any notice of pendency or other instrument (other than a judgment) against the Property or any portion thereof in connection herewith and (b) to indemnify Seller against all damages, losses, costs, claims, liabilities, expenses, demands and obligations, including, without limitation, reasonable attorneys' fees and disbursements, incurred by Seller by reason of the filing by Buyer of such notice of pendency or other instrument. 15.12 Additional Agreements; Further Assurances. Subject to the terms and conditions herein provided, each of the parties hereto shall execute and deliver such documents as the other party shall reasonably request in order to consummate and make effective the Transaction; provided, however, that the execution and delivery of such documents by such party shall not result in any additional liability or cost to such party. 15.13 Construction. The parties acknowledge that each party and its counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendment hereof or Exhibit hereto. 39 15.14 Business Day. As used herein, the term "business day" shall mean any day other than a Saturday, Sunday, or any federal or State of Illinois holiday. If any period expires on a day which is not a business day or any event or condition is required by the terms of this Agreement to occur or be fulfilled on a day which is not a business day, such period shall expire or such event or condition shall occur or be fulfilled, as the case may be, on the next succeeding business day. 15.15 Maximum Aggregate Liability. Notwithstanding any provision to the contrary contained in this Agreement or any documents executed by Seller pursuant hereto or in connection herewith, the maximum aggregate liability of Seller and the Seller Parties, and the maximum aggregate amount which may be awarded to and collected by Buyer, in connection with the Transaction, the Property, under this Agreement and under any and all documents executed pursuant hereto or in connection herewith (including, without limitation, in connection with the breach of any of Seller's Warranties for which a claim is timely made by Buyer) shall not exceed Two Million Five Hundred Thousand Dollars ($2,500,000.00). The provisions of this section shall survive the Closing (and not be merged therein) or any earlier termination of this Agreement. 15.16 WAIVER OF JURY TRIAL. EACH PARTY HEREBY WAIVES TRIAL BY JURY IN ANY PROCEEDINGS BROUGHT BY THE OTHER PARTY IN CONNECTION WITH ANY MATTER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE TRANSACTION, THIS AGREEMENT, THE PROPERTY OR THE RELATIONSHIP OF BUYER AND SELLER HEREUNDER. 15.17 JURISDICTION. WITH RESPECT TO ANY SUIT, ACTION OR PROCEEDINGS RELATING TO THE TRANSACTION, THIS AGREEMENT, THE PROPERTY OR THE RELATIONSHIP OF BUYER AND SELLER HEREUNDER ("PROCEEDINGS") EACH PARTY IRREVOCABLY (A) SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS, AND (B) WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY PROCEEDINGS BROUGHT IN ANY SUCH COURT, WAIVES ANY CLAIM THAT SUCH PROCEEDINGS HAVE BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO SUCH PROCEEDINGS, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER SUCH PARTY 15.18 Facsimile Signatures. Signatures to this Agreement transmitted by telecopy shall be valid and effective to bind the party so signing. Each party agrees to promptly deliver an execution original to this Agreement with its actual signature to the other party, but a failure to do so shall not affect the enforceability of this Agreement, it being expressly agreed that each party to this Agreement shall be bound by its own telecopied signature and shall accept the telecopied signature of the other party to this Agreement. 40 IN WITNESS WHEREOF, each party hereto has caused this Agreement to be duly executed as of the date(s) set forth below to be effective as of the day and year first above written. SELLER: OVERSEAS PARTNERS (333), INC., an Illinois corporation By: /s/ Michael J. Molletta -------------------------- Name: Michael J. Molletta ------------------------ Title: Vice President ----------------------- Date: 06/22/00 ------------------------ BUYER: 333 WEST WACKER LLC, a Delaware limited liability company By: The John Buck Company, an Illinois corporation, its managing member By: /s/ John Q. O'Donnell ---------------------------- Name: John Q. O'Donnell -------------------------- Title: Executive Vice President ------------------------- Date: 06/23/00 -------------------------- By: Value Enhancement Fund IV, L.P., a Georgia limited partnership, its member By: VEF IV GP, Inc., a Georgia corporation, its sole general partner By: /s/ B. Stanton Breon -------------------------- Name: B. Stanton Breon ------------------------ Title: Vice President ----------------------- Date: 06/22/00 ------------------------ 41 AGREEMENT OF ESCROW AGENT The undersigned has executed this Agreement solely to confirm its agreement to (a) hold the Escrow Deposits in escrow in accordance with the provisions hereof and (b) comply with the provisions of Article 13 and Section 15.2. FIRST AMERICAN TITLE INSURANCE COMPANY By:__________________________ Name:________________________ Title:_______________________ Date:________________________ 42 EX-10.(DDD) 5 0005.txt CREDIT AGREEMENT WITH BANK AMERICA EXHIBIT 10(ddd) ================================================================================ CREDIT AGREEMENT dated as of October 19, 2000 among OVERSEAS PARTNERS CAPITAL CORP. as the Borrower, OVERSEAS PARTNERS LTD. as the Guarantor, VARIOUS FINANCIAL INSTITUTIONS, as the Lenders, and BANK OF AMERICA, NATIONAL ASSOCIATION, as Administrative Agent for the Lenders ================================================================================ TABLE OF CONTENTS ----------------- ARTICLE I DEFINITIONS.................................................................... 1 SECTION 1.1 Definitions............................................................. 1 SECTION 1.2 Other Interpretive Provisions........................................... 14 SECTION 1.3 Accounting Principles................................................... 15 ARTICLE II THE CREDIT.................................................................... 15 SECTION 2.1 Loan Commitment......................................................... 15 SECTION 2.2 Loan Accounts........................................................... 15 SECTION 2.3 Procedure for Borrowing................................................. 15 SECTION 2.4 Conversion and Continuation Elections................................... 16 SECTION 2.5 Repayments.............................................................. 17 SECTION 2.6 Interest................................................................ 18 SECTION 2.7 Fees.................................................................... 18 SECTION 2.8 Computation of Fees and Interest........................................ 19 SECTION 2.9 Payments by the Borrower................................................ 19 SECTION 2.10 Sharing of Payments, Etc............................................... 19 ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY....................................... 20 SECTION 3.1 Taxes................................................................... 20 SECTION 3.2 Illegality.............................................................. 21 SECTION 3.3 Increased Costs and Reduction of Return................................. 22 SECTION 3.4 Funding Losses.......................................................... 22 SECTION 3.5 Inability to Determine Rates............................................ 23 SECTION 3.6 Certificates of Lenders................................................. 23 SECTION 3.7 Substitution of Lenders................................................. 24 SECTION 3.8 Survival................................................................ 24 ARTICLE IV REPRESENTATIONS AND WARRANTIES................................................ 24 SECTION 4.1 Due Organization, Authorization, etc.................................... 24 SECTION 4.2 Statutory Financial Statements.......................................... 25 SECTION 4.3 GAAP Financial Statements............................................... 25 SECTION 4.4 Litigation and Contingent Liabilities................................... 26 SECTION 4.5 Regulated Entity........................................................ 26 SECTION 4.6 Regulations U and X..................................................... 26 SECTION 4.7 Proceeds................................................................ 26 SECTION 4.8 Injunctions, Orders...................................................... 27 SECTION 4.9 No Default.............................................................. 27 SECTION 4.10 ERISA Compliance....................................................... 27 SECTION 4.11 Title to Properties.................................................... 28 SECTION 4.12 Accuracy of Information................................................ 28
i SECTION 4.13 Subsidiaries........................................................... 28 SECTION 4.14 Insurance.............................................................. 28 SECTION 4.15 Insurance Licenses..................................................... 28 SECTION 4.16 Taxes.................................................................. 28 SECTION 4.17 Securities Laws........................................................ 29 SECTION 4.18 Compliance with Laws................................................... 29 ARTICLE V AFFIRMATIVE COVENANTS.......................................................... 29 SECTION 5.1 Reports, Certificates and Other Information............................. 29 SECTION 5.2 Corporate Existence; Foreign Qualification.............................. 33 SECTION 5.3 Books, Records and Inspections.......................................... 33 SECTION 5.4 Insurance............................................................... 33 SECTION 5.5 Taxes and Liabilities................................................... 33 SECTION 5.6 Employee Benefit Plans.................................................. 33 SECTION 5.7 Compliance with Laws.................................................... 33 SECTION 5.8 Maintenance of Permits.................................................. 34 SECTION 5.9 Conduct of Business..................................................... 34 SECTION 5.10 Environmental Laws...................................................... 34 ARTICLE VI NEGATIVE COVENANTS............................................................ 34 SECTION 6.1 Limitations on Debts..................................................... 34 SECTION 6.2 Limitation on Liens..................................................... 34 SECTION 6.3 Net Worth............................................................... 36 SECTION 6.4 Disposition of Assets................................................... 36 SECTION 6.5 Mergers, Consolidations and Acquisitions................................ 36 SECTION 6.6 Regulations U and X..................................................... 36 SECTION 6.7 Other Agreements........................................................ 36 SECTION 6.8 Transactions with Affiliates............................................ 37 SECTION 6.9 Restrictions On Negative Pledge Agreements.............................. 37 SECTION 6.10 No Amendment of Certain Documents...................................... 37 SECTION 6.11 Dividends, Etc......................................................... 37 ARTICLE VII EVENTS OF DEFAULT AND THEIR EFFECT........................................... 37 SECTION 7.1 Events of Default....................................................... 37 SECTION 7.2 Effect of Event of Default.............................................. 40 ARTICLE VIII CONDITIONS.................................................................. 40 SECTION 8.1 Conditions to Occurrence of the Effective Date.......................... 40 SECTION 8.2 Conditions to All Credit Extensions..................................... 41 ARTICLE IX THE ADMINISTRATIVE AGENT...................................................... 42 SECTION 9.1 Appointment and Authorization........................................... 42
ii SECTION 9.2 Delegation of Duties.................................................... 42 SECTION 9.3 Liability of Administrative Agent....................................... 42 SECTION 9.4 Reliance by Administrative Agent........................................ 43 SECTION 9.5 Notice of Default....................................................... 43 SECTION 9.6 Credit Decision......................................................... 43 SECTION 9.7 Indemnification......................................................... 44 SECTION 9.8 Administrative Agent in Individual Capacity............................. 44 SECTION 9.9 Successor Administrative Agent.......................................... 45 SECTION 9.10 Withholding Tax........................................................ 45 ARTICLE X GUARANTY....................................................................... 47 SECTION 10.1 Guaranty............................................................... 47 SECTION 10.2 Acceleration of Guaranty............................................... 47 SECTION 10.3 Guaranty Absolute, etc................................................. 47 SECTION 10.4 Reinstatement, etc..................................................... 48 SECTION 10.5 Waiver, etc............................................................ 49 SECTION 10.6 Waiver of Subrogation and Contribution................................. 49 ARTICLE XI MISCELLANEOUS................................................................. 49 SECTION 11.1 Amendments and Waivers................................................. 49 SECTION 11.2 Notices................................................................ 50 SECTION 11.3 No Waiver; Cumulative Remedies......................................... 51 SECTION 11.4 Costs and Expenses..................................................... 51 SECTION 11.5 Indemnity.............................................................. 51 SECTION 11.6 Payments Set Aside..................................................... 52 SECTION 11.7 Successors and Assigns................................................. 52 SECTION 11.8 Assignments, Participations, etc....................................... 52 SECTION 11.9 Confidentiality........................................................ 54 SECTION 11.10 Set-off............................................................... 54 SECTION 11.11 Notification of Addresses, Lending Offices, Etc....................... 55 SECTION 11.12 Counterparts.......................................................... 55 SECTION 11.13 Severability.......................................................... 55 SECTION 11.14 No Third Parties Benefitted........................................... 55 SECTION 11.15 Governing Law and Jurisdiction........................................ 55 SECTION 11.16 Waiver of Jury Trial.................................................. 56 SECTION 11.17 Currency Indemnity.................................................... 56 SECTION 11.18 Entire Agreement...................................................... 57
iii CREDIT AGREEMENT ---------------- THIS CREDIT AGREEMENT, dated as of October 19, 2000, is entered into by and among Overseas Partners Capital Corp., a Delaware corporation (the "Borrower"), Overseas Partners Ltd., a Bermuda company (the "Guarantor"), various financial institutions which are parties hereto (the "Lenders"), and Bank of America, National Association, as Administrative Agent for the Lenders (in such capacity, the "Administrative Agent"). W I T N E S S E T H: ------------------- WHEREAS, the Borrower desires to obtain a credit facility from the Lenders whereby the Lenders would make loans to the Borrower upon the terms and conditions set forth in this Agreement; and WHEREAS, the Guarantor is the 100% owner of the Borrower and it is in the Guarantor's financial interest to guaranty the obligations of the Borrower hereunder; NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree as follows: ARTICLE I DEFINITIONS SECTION I.1 Definitions. When used herein the following terms shall ------------ have the following meanings: Administrative Agent means (a) Bank of America, National Association, -------------------- in its capacity as administrative agent for the Lenders, and (b) each other Person as shall have subsequently been appointed as the successor Administrative Agent pursuant to Section 9.9. ----------- Affiliate of any Person means any other Person which, directly or --------- indirectly, controls or is controlled by or is under common control with such Person (excluding any trustee under, or any committee with responsibility for administering, any Plan). A Person shall be deemed to be: (a) "controlled by" any other Person if such other Person possesses, directly or indirectly, power: (i) to vote 20% or more of the securities having at the time of any determination hereunder voting power for the election of directors of such Person; or (ii) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise; or (b) "controlled by" or "under common control with" such other Person if such other Person is the executor, administrator, or other personal representative of such Person. Agent-Related Persons means BofA (and any successor administrative --------------------- agent arising under Section 9.9), together with their respective Affiliates, and ----------- the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. Agent's Payment Office means the address for payments set forth on ---------------------- Schedule 10.2 in relation to the Administrative Agent, or such other address as - ------------- the Administrative Agent may from time to time specify. Agreement means this Credit Agreement. --------- Annual Statement means the annual financial statement of the Guarantor ---------------- or any Insurance Subsidiary as required to be filed with the Minister (or similar Governmental Authority) of the Guarantor's or such Insurance Subsidiary's domicile, together with all exhibits or schedules filed therewith, prepared in conformity with SAP. References to amounts on particular exhibits, schedules, lines, pages and columns of the Annual Statement are based on the format promulgated by the Minister for the 1999 Annual Statements. If such format is changed in future years so that different information is contained in such items or they no longer exist, it is understood that the reference is to information consistent with that reported in the referenced item in the 1999 Annual Statement of such Insurance Subsidiary. Applicable Margin means (a) in the case of Offshore Rate Loans, 0.45% ----------------- and (b) in the case of Base Rate Loans, 0%. Asset Sale means any sale, lease (other than ordinary course of ---------- business leases), transfer or other disposition (including by way of merger or consolidation or joint venture) of any Asset to be Sold. Assets to be Sold means the real estate assets listed on Schedule 1.1. ----------------- ------------ Assignee is defined in Section 11.8(a). -------- --------------- Assignment and Acceptance is defined in Section 11.8(a). ------------------------- --------------- Attorney Costs means and includes all reasonable fees and -------------- disbursements of any law firm or other external counsel, the reasonable allocated cost of internal legal services and all reasonable disbursements of internal counsel. Authorized Officers means those officers of the Borrower or the ------------------- Guarantor, as the case may be, whose signatures and incumbency shall have been certified to the Administrative Agent pursuant to Section 8.1(c). -------------- Base Rate means, for any day, the higher of: (a) 0.50% per annum --------- above the latest Federal Funds Rate; and (b) the rate of interest in effect for such day as publicly announced from time to time by BofA in Charlotte, North Carolina, as its "reference rate." (The "reference rate" is a rate set by BofA based upon various factors including BofA's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate.) Any change in the reference rate announced by BofA shall take effect at the opening of business on the day specified in the public announcement of such change. Base Rate Loan means a Loan that bears interest based on the Base -------------- Rate. BofA means Bank of America, National Association, a national banking ---- association. Borrowing means a borrowing hereunder consisting of Loans of the same --------- Type made to the Borrower on the same day by the Lenders under Article II, and, ---------- other than in the case of Base Rate Loans, having the same Interest Period. Borrowing Date means any date on which a Borrowing occurs under -------------- Section 2.4. - ----------- Borrower is defined in the Preamble. -------- -------- Business Day means any day other than a Saturday, Sunday or other day ------------ on which commercial banks in New York City, Chicago, Dallas, Charlotte or (except in determining applicable rates hereunder) Hamilton, Bermuda are authorized or required by law to close and, if the applicable Business Day relates to any Offshore Rate Loan, means such a day on which dealings are carried on in the applicable eurodollar interbank market. Capital Adequacy Regulation means any guideline, request or directive --------------------------- of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case, regarding capital adequacy of any Lender or of any corporation controlling a Lender. 3 Capitalized Lease means, as to any Person, any lease which is or ----------------- should be capitalized on the balance sheet of such Person in accordance with GAAP, together with any other lease which is in substance a financing lease, including, without limitation, any lease under which (a) such Person has or will have an option to purchase the property subject thereto at a nominal amount or an amount less than a reasonable estimate of the fair market value of such property as of the date the lease is entered into or (b) the term of the lease approximates or exceeds the expected useful life of the property leased thereunder. Catastrophe Bond means any note, bond or other Debt instrument or any ---------------- swap or other similar agreement which has a catastrophe, weather or other risk feature linked to payments thereunder and which, in the case of Catastrophe Bonds purchased by the Guarantor or any of its Subsidiaries, are purchased in accordance with its customary reinsurance underwriting procedures. Change in Control shall be deemed to have occurred if (a) any sale, ----------------- lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Guarantor occurs; (b) any "person" as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") is or becomes, directly or indirectly, the "beneficial owner," as defined in Rule 13d-3 under the Exchange Act, of securities of the Guarantor that represent 51% or more of the combined voting power of the Guarantor's then outstanding securities; (c) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Guarantor (together with any new directors whose election by the Board of Directors or whose nomination by the stockholders of the Guarantor was approved by a vote of the directors of the Guarantor then still in office who are either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Guarantor's Board of Directors then in office or (d) the Guarantor ceases to own 100% of the voting and beneficial interest of the Borrower. Code means the Internal Revenue Code of 1986, as amended and any ---- successor statute of similar import, together with the regulations thereunder, as amended, reformed or otherwise modified and in effect from time to time. References to sections of the Code shall be construed to also refer to successor sections. Compliance Certificate means a certificate substantially in the form ---------------------- of Exhibit C but with such changes as the Administrative Agent may from time to --------- time request for purposes of monitoring the Guarantor's compliance herewith. Contingent Liability means any agreement, undertaking or arrangement -------------------- by which any Person (outside the ordinary course of business) guarantees, endorses, acts as surety for or otherwise becomes or is contingently liable for (by direct or indirect agreement, contingent or otherwise, to provide funds for payment by, to supply funds to, or otherwise to invest in, a debtor, 4 or otherwise to assure a creditor against loss) the Debt, obligation or other liability of any other Person (other than by endorsements of instruments in the course of collection), or for the payment of dividends or other distributions upon the shares of any other Person or undertakes or agrees (contingently or otherwise) to purchase, repurchase, or otherwise acquire or become responsible for any Debt, obligation or liability or any security therefor, or to provide funds for the payment or discharge thereof (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain solvency, assets, level of income, or other financial condition of any other Person, or to make payment or transfer property to any other Person other than for fair value received; provided, however, that obligations of the Guarantor or -------- ------- any of its Subsidiaries under Primary Policies or Reinsurance Agreements which are entered into in the ordinary course of business (including security posted to secure obligations thereunder) shall not be deemed to be Contingent Liabilities of such Person for the purposes of this Agreement. The amount of any Person's obligation under any Contingent Liability shall (subject to any limitation set forth therein) be deemed to be the lesser of (i) the outstanding principal amount (or maximum permitted principal amount, if larger) of the Debt, obligation or other liability guaranteed or supported thereby or (ii) the maximum stated amount so guaranteed or supported. Contractual Obligation means, relative to any Person, any obligation, ---------------------- commitment or undertaking under any agreement or other instrument to which such Person is a party or by which it or any of its property is bound or subject. Controlled Group means the Guarantor and any corporation, trade or ---------------- business that is, along with the Guarantor, a member of a controlled group of corporations or a controlled group of trades or businesses as described in sections 414(b) and 414(c), respectively, of the Code or in section 4001 of ERISA. Credit Extension means making, continuing or converting any Loan at ---------------- the request of the Borrower. Debt means, with respect to any Person, at any date, without ---- duplication, (a) all obligations of such Person for borrowed money or in respect of loans or advances (including, without limitation, any such obligation issued by such Person that qualify as Catastrophe Bonds described in clause (a) of the definition thereof net of any escrow established (whether directly or to secure any letter of credit issued to back such Catastrophe Bonds) in connection with such Catastrophe Bonds); (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (c) all obligations in respect of letters of credit which have been drawn but not reimbursed by the Person for whose account such letter of credit was issued, and bankers' acceptances issued for the account of such Person; (d) all obligations in respect of Capitalized Leases of such Person; (e) all net Hedging Obligations of such Person; (f) whether or not so included as liabilities in accordance with GAAP, all obligations of such Person to pay the deferred purchase price of property or services; (g) Debt of such Person secured by a Lien on property owned or being purchased by such Person (including Debt arising under conditional 5 sales or other title retention agreements) whether or not such Debt is limited in recourse (it being understood, however, that if recourse is limited to such property, the amount of such Debt shall be limited to the lesser of the face amount of such Debt and the fair market value of all property of such Person securing such Debt); (h) any Debt of another Person secured by a Lien on any assets of such first Person, whether or not such Debt is assumed by such first Person (it being understood that if such Person has not assumed or otherwise become personally liable for any such Debt, the amount of the Debt of such person in connection therewith shall be limited to the lesser of the face amount of such Debt and the fair market value of all property of such Person securing such Debt); and (i) any Debt of a partnership in which such Person is a general partner unless such Debt is nonrecourse to such Person; and provided that, notwithstanding anything to contrary contained herein, Debt shall not include (x) issued, but undrawn, letters of credit which have been issued to reinsurance cedents in the ordinary course of business, (y) unsecured current liabilities incurred in the ordinary course of business and paid within 90 days after the due date (unless contested diligently in good faith by appropriate proceedings and, if requested by the Administrative Agent, reserved against in conformity with GAAP) other than liabilities that are for money borrowed or are evidenced by bonds, debentures, notes or other similar instruments (except as described in clause (x) above) or (z) any obligations of such Person under any Reinsurance Agreement or any Primary Policy. Default means any condition or event, which, after notice or lapse of ------- time or both, would constitute an Event of Default. Department is defined in Section 4.2. ---------- ----------- Dollar(s) and the sign "$" means lawful money of the United States of --------- - America. Effective Date means the date on which the conditions precedent for -------------- the effectiveness of this Agreement specified in Section 8.1 shall be met. ----------- Eligible Assignee means (a) a commercial bank organized under the laws ----------------- of the United States, any state thereof, or the District of Columbia and having a combined capital and surplus of at least $250,000,000; (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having a combined capital and surplus of at least $250,000,000, provided that such bank is acting through a branch or agency located in the United States; (c) a Person that is primarily engaged in the business of commercial banking and that is (i) a Subsidiary of a Lender, (ii) a Subsidiary of a Person of which a Lender is a Subsidiary, or (iii) a Person of which a Lender is a Subsidiary; (d) mutual funds, pension funds and other institutional investors (except an Affiliate of the Guarantor) regularly engaged in the making of commercial loans, and (e) any Lender. 6 Environmental Claims means all claims, however asserted, by any -------------------- Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law. Environmental Laws means the Comprehensive Environmental Response, ------------------ Compensation, and Liability Act (42 U.S.C. 9601 et seq.), the Resource -- --- Conversation and Recovery Act (42 U.S.C. 6901 et seq.), the Federal Water -- --- Pollution Control Act (33 U.S.C. 1251 et seq.), the Clean Air Act (42 U.S.C. -- --- 7401 et seq.) the Toxic Substances Control Act (15 U.S.C. 2601 et seq.), and -- --- -- --- the Occupational Safety and Health Act (29 U.S.C. 651 et seq.), the Oil -- --- Pollution Act of 1990 (33 U.S.C. 2701 et seq.) (P.L. 101-380), the Hazardous -- --- Material Transportation Act (49 U.S.C. 1801 et seq.), and any analogous or -- --- future federal, or present or future applicable state or local, statutes and the regulations promulgated thereunder. ERISA means the Employee Retirement Income Security Act of 1974, as ----- amended, and any successor statute of similar import, together with the regulations promulgated thereunder and under the Code, in each case as in effect from time to time. References to sections of ERISA also refer to successor sections. ERISA Event means, with respect to the Borrower, (a) a Reportable ----------- Event (other than a Reportable Event not subject to the provision for 30-day notice to the PBGC under regulations issued under section 4043 of ERISA), (b) the withdrawal of the Borrower or any Affiliate from a Plan during a plan year in which it was a "substantial employer" as defined in section 4001(a)(2) of ERISA if such withdrawal would have a Material Adverse Effect on the Borrower or on the Guarantor and its Subsidiaries taken as a whole, (c) the filing of a notice of intent to terminate a Plan under a distress termination or the treatment of a Plan amendment as a distress termination under section 4041(c) of ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC under section 4042 of ERISA, (e) the failure to make required contributions which would result in the imposition of a Lien under section 412 of the Code or section 302 of ERISA, or (f) any other event or condition which might reasonably be expected to constitute grounds under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. Event of Default means any of the events described in Section 7.1. ---------------- ----------- Executive Officer means, as to any Person, the president, the chief ----------------- financial officer, the chief executive officer, the general counsel, the treasurer or the secretary. Federal Funds Rate means, for any day, the rate set forth in the ------------------ weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, "H.15(519)") on the preceding Business Day opposite the caption "Federal Funds (Effective)"; or, if for any relevant day such rate is not so published on any such preceding Business Day, the rate for such day will be the arithmetic mean 7 as determined by the Administrative Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Administrative Agent. Fiscal Quarter means any quarter of a Fiscal Year. -------------- Fiscal Year means any period of twelve consecutive calendar months ----------- ending on the last day of December. FRB means the Board of Governors of the Federal Reserve System, and --- any Governmental Authority succeeding to any of its principal functions. GAAP means generally accepted accounting principles set forth from ---- time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination. Governmental Authority means any nation or government, any state or ---------------------- other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. Guarantor is defined in the preamble. --------- Hedging Obligations means, with respect to any Person, the net ------------------- liability of such Person under any futures contract or options contract (including property catastrophe futures and options), interest rate swap agreements and interest rate collar agreements and all other agreements or arrangements (other than Retrocession Agreements and Catastrophe Bonds) designed to protect such Person against catastrophic events, fluctuations in interest rates or currency exchange rates. Indemnified Liabilities is defined in Section 11.5. ----------------------- ------------ Indemnified Person is defined in Section 11.5. ------------------ ------------ Insurance Code means, with respect to the Guarantor or any Insurance -------------- Subsidiary, the Insurance Code of the Guarantor's or such Insurance Subsidiary's domicile and any successor statute of similar import, together with the regulations thereunder, as amended or otherwise modified and in effect from time to time. References to sections of the Insurance Code shall be construed to also refer to successor sections. 8 Insurance Policies means policies purchased from insurance companies ------------------ by the Guarantor or any of its Subsidiaries, for its own account to insure against its own liability and property loss (including, without limitation, casualty, liability and workers' compensation insurance), other than Retrocession Agreements. Insurance Subsidiary means any Subsidiary of the Guarantor which is -------------------- licensed by any Governmental Authority to engage in the insurance business. Interest Payment Date means, as to any Offshore Rate Loan, the last --------------------- day of each Interest Period applicable to such Loan and, as to any Base Rate Loan, the last Business Day of each calendar quarter. Interest Period means as to any Offshore Rate Loan, the period --------------- commencing on the Borrowing Date of such Loan or on the Conversion/Continuation Date on which the Loan is converted into or continued as an Offshore Rate Loan, and ending on the date one, two or three months thereafter as selected by the Borrower in its Notice of Borrowing or Notice of Conversion/Continuation; provided that: -------- (i) if any Interest Period would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day unless, in the case of an Offshore Rate Loan, the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; (ii) any Interest Period pertaining to an Offshore Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and (iii) no Interest Period for any Loan shall extend beyond the Stated Maturity Date. IRS means the U.S. Internal Revenue Service, and any Governmental --- Authority succeeding to any of its principal functions under the Code. Lenders is defined in the Preamble. ------- -------- Lending Office means, as to any Lender, the office or offices of such -------------- Lender specified as its "Lending Office" or "Domestic Lending Office" or "Offshore Lending Office", as 9 the case may be, on Schedule 11.2, or such other office or offices as such ------------- Lender may from time to time notify the Borrower and the Administrative Agent. License(s) is defined in Section 4.16. ---------- ------------ Lien means, when used with respect to any Person, any interest in any ---- real or personal property, asset or other right held, owned or being purchased or acquired by such Person for its own use, consumption or enjoyment which secures payment or performance of any obligation and shall include any mortgage, lien, pledge, encumbrance, charge, retained title of a conditional vendor or lessor, or other security agreement, mortgage, deed of trust, chattel mortgage, assignment, pledge, retention of title, financing or similar statement or notice, or other encumbrance arising as a matter of law, judicial process or otherwise. Loan means a loan by a Lender to the Borrower under Article II, and ---- may be a Base Rate Loan or an Offshore Rate Loan (each, a "Type" of Loan). ---- Loan Documents means this Agreement, and all other agreements, -------------- instruments, certificates, documents, schedules or other written indicia delivered by the Guarantor or any of its Subsidiaries in connection with any of the foregoing. Margin Stock means "margin stock" as such term is defined in ------------ Regulation U or X of the FRB. Material Adverse Effect means, the occurrence of an event (including ----------------------- any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), which has or could reasonably be expected to have a materially adverse effect on: (a) the assets, business, financial condition or operations of the Guarantor and its Subsidiaries taken as a whole; or (b) the ability of the Borrower or the Guarantor to perform any of its payment or other material obligations under any of the Loan Documents; or (c) the legality, validity, binding effect or enforceability against the Borrower or the Guarantor of any Loan Document that by its terms purports to bind the Borrower or the Guarantor. Minister means the Minister of Finance of Bermuda or similar -------- Governmental Authority in the applicable jurisdiction. 10 Multiemployer Plan means a "multiemployer plan" as defined in section ------------------ 4001(a)(3) of ERISA, and to which the Guarantor or any of the Subsidiaries is making, or is obligated to make, contributions, or has made, or has been obligated to make, contributions. Net Cash Proceeds means with respect to any Asset Sale, the proceeds ----------------- thereof in the form of cash or cash equivalents including payments of principal and interest in respect of deferred payment obligations when received in the form of, or stock or other assets when disposed of for, cash or cash equivalents net of (i) brokerage commissions and other reasonable fees and expenses (including fees and expenses of counsel and investment bankers) related to such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale, (iii) payments made to retire indebtedness where payment of such indebtedness is secured by the assets or properties the subject of such Asset Sale (or, in the case of the Mawah Facility, the indebtedness required to be repaid upon sale of such asset), (iv) amounts required to be paid to any Person (other than the Guarantor or any Subsidiary) owning a beneficial interest in the assets subject to the Asset Sale, (v) escrows for taxes and other prorated items, and (vi) appropriate amounts to be provided by the Guarantor or any Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against any liabilities associated with such Asset Sale and retained by the Guarantor or any such Subsidiary, as the case may be, after such Asset Sale, including real estate true-ups, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as reflected in an Officers' Certificate delivered to the Administrative Agent within three (3) Business Days of the closing of such Asset Sale. Net Worth means the shareholders' equity of the Guarantor on a --------- consolidated basis, calculated in accordance with GAAP. Notice of Borrowing means a notice in substantially the form of ------------------- Exhibit A. - --------- Notice of Conversion/Continuation means a notice in substantially the --------------------------------- form of Exhibit B. --------- Obligations means all obligations and liabilities of the Borrower to ----------- the Administrative Agent, or any of the Lenders, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, primary or secondary, joint or several, recourse or nonrecourse or now or hereafter existing or due or to become due, whether for principal, interest, fees, expenses, lease obligations, claims, indemnities or otherwise, under or in connection with this Agreement or any other Loan Document. Offshore Rate means, for any Interest Period, with respect to Offshore ------------- Rate Loans comprising part of the same Borrowing, the rate of interest per annum (rounded upward to the next 1/100th of 1%) determined by the Administrative Agent as follows: 11 Offshore Rate = LIBOR ------------------------------------ 1.00 - Eurodollar Reserve Percentage Where, Eurodollar Reserve Percentage means for any day for any Interest ----------------------------- Period the maximum reserve percentage (expressed as a decimal, rounded upward to the next 1/100th of 1%) in effect on such day (whether or not applicable to any Lender) under regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency liabilities"); and LIBOR means the rate of interest per annum determined by the ----- Administrative Agent to be the arithmetic mean (rounded upward to the next 1/100th of 1%) of the rates of interest per annum determined by the Administrative Agent as the rate of interest at which dollar deposits in the approximate amount of the amount of the Loan to be made or continued as, or converted into, an Offshore Rate Loan by the Administrative Agent or its Affiliates and having a maturity comparable to such Interest Period would be offered by the Administrative Agent to major banks in the London interbank market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period. The Offshore Rate shall be adjusted automatically as to all Offshore Rate Loans then outstanding as of the effective date of any change in the Eurodollar Reserve Percentage. Offshore Rate Loan means a Loan that bears interest based on the ------------------ Offshore Rate. Ordinary Course Litigation is defined in Section 4.4. -------------------------- ----------- Organization Documents means, for any corporation, the certificate or ---------------------- articles of incorporation, the bylaws, any certificate of determination or instrument relating to the rights of preferred shareholders of such corporation, any shareholder rights agreement, and all applicable resolutions of the board of directors (or any committee thereof) of such corporation. Other Taxes means any present or future stamp or documentary taxes or ----------- any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Documents. Participants is defined in Section 11.8(d). ------------ --------------- 12 PBGC means the Pension Benefit Guaranty Corporation or any entity ---- succeeding to any or all of its functions. Permitted Liens is defined in Section 6.2. --------------- ----------- Person means any natural person, corporation, partnership, firm, ------ trust, limited liability company, association, government, governmental agency or other entity, whether acting in an individual, fiduciary or other capacity. Plan means any "employee pension benefit plan," as such term is ---- defined in ERISA, which is subject to Title IV of ERISA (other than a "Multiemployer Plan"), and as to which any entity in the Controlled Group has or may have any liability, including any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA for any time within the preceding five years or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA. Primary Policies means any insurance policies issued by the Guarantor ---------------- or any Insurance Subsidiary. Pro Rata Share means as to any Lender at any time, the percentage -------------- equivalent (expressed as a decimal, rounded to the ninth decimal place) at such time which such Lender's then outstanding principal amount of Loans is of the then aggregate outstanding principal amount of Loans of all Lenders. Reinsurance Agreements means any agreement, contract, treaty, ---------------------- certificate or other arrangement whereby the Guarantor or any Subsidiary agrees to assume from or reinsure an insurer or reinsurer all or part of the liability of such insurer or reinsurer under a policy or policies of insurance issued by such insurer or reinsurer including (for purposes of this Agreement) Catastrophe Bonds. Reportable Event means, any of the events set forth in Section 4043(b) ---------------- of ERISA or the regulations thereunder, other than any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC. Required Lenders means, at any time, Lenders then holding more than ---------------- 50% of the then aggregate unpaid principal amount of the Credit Extensions. Requirement of Law for any Person means the Organization Documents of ------------------ such Person, and any law, treaty, rule, ordinance or regulation or determination of an arbitrator or a court or other governmental authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. 13 Retrocession Agreements means any agreement, treaty, certificate or ----------------------- other arrangement whereby the Guarantor or any Insurance Subsidiary cedes to another insurer all or part of the Guarantor's or such Insurance Subsidiary's liability under a policy or policies of insurance reinsured by the Guarantor or such Insurance Subsidiary. SAP means, as to the Guarantor and each Insurance Subsidiary, the --- statutory accounting practices prescribed or permitted by the Minister (or other similar authority) in the Guarantor's or such Insurance Subsidiary's domicile for the preparation of Annual Statements and other financial reports by insurance corporations of the same type as the Guarantor and such Insurance Subsidiary. Stated Maturity Date means the date which is six months from the date -------------------- the initial Loans are made under Section 2.1. ------------ Statutory Financial Statements is defined in Section 4.2. ------------------------------ ----------- Subsidiary means a Person of which the indicated Person and/or its ---------- other Subsidiaries, individually or in the aggregate, own, directly or indirectly, such number of outstanding shares or other equity interests as have at the time of any determination hereunder more than 50% of the ordinary voting power. Unless otherwise specified, "Subsidiary" shall mean a Subsidiary of the Guarantor. Taxes means any and all present or future taxes, levies, imposts, ----- deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Administrative Agent, such taxes (including income taxes or franchise taxes) as are imposed on or measured by each Lender's net income by the jurisdiction (or any political subdivision thereof) under the laws of which such Lender or the Administrative Agent, as the case may be, is organized or maintains a lending office. Welfare Plan means any "employee welfare benefit plan" as such term is ------------ defined in ERISA, as to which the Guarantor has any liability. SECTION I.2 Other Interpretive Provisions. (a) The meanings of defined ----------------------------- terms are equally applicable to the singular and plural forms of the defined terms. (b) The words "hereof", "herein", "hereunder" and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement; and subsection, Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. (c) (i) The term "documents" includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced. 14 (ii) The term "including" is not limiting and means "including without limitation." (iii) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including"; the words "to" and "until" each mean "to but excluding", and the word "through" means "to and including." (d) Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document, and (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting the statute or regulation. (e) The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement. (f) This Agreement and other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms. (g) This Agreement and the other Loan Documents are the result of negotiations among and have been reviewed by counsel to the Administrative Agent, the Borrower, the Guarantor and the other parties, and are the products of all parties. Accordingly, they shall not be construed against the Lenders or the Administrative Agent merely because of the Administrative Agent's or Lenders' involvement in their preparation. SECTION I.3 Accounting Principles. Unless otherwise defined or the --------------------- context otherwise requires, all financial and accounting terms used herein or in any of the Loan Documents or any certificate or other document made or delivered pursuant hereto shall be defined in accordance with GAAP or SAP, as the context may require. When used in this Agreement, the term "financial statements" shall include the notes and schedules thereto. In addition, when used herein, the terms "best knowledge of" or "to the best knowledge of" any Person shall mean matters within the actual knowledge of such Person (or an Executive Officer or general partner of such Person) or which should have been known by such Person after reasonable inquiry. ARTICLE II 15 THE CREDIT SECTION II.1 Loan Commitment. Upon and subject to the terms and --------------- conditions hereof, (a) each of the Lenders severally and for itself agrees to make a loan to the Borrower (collectively called the Loans and individually called a "Loan") on any Business Day on or before the fifth Business Day after the Effective Date, in such Lender's Pro Rata Share of such amounts not to exceed $135,000,000 as the Borrower may request from all Lenders. Any amount repaid may not be reborrowed. SECTION II.2 Loan Accounts. The Loans made by each Lender shall be ------------- evidenced by one or more loan accounts or records maintained by such Lender in the ordinary course of business and by one or more control accounts or records maintained by the Administrative Agent. The loan accounts and control accounts shall set forth the date and amount of each Loan, the Type of Loan, the applicable interest rate and Interest Period and the amounts of principal, interest and other sums paid and payable from time to time hereunder with respect thereto. The entries in each such account shall be conclusive, absent manifest error, of the amount of Loans made to the Borrower and the interest and payments thereon. Any failure so to record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to any Obligations. In case of a discrepancy between the entries in the Administrative Agent's records and any Lender's records, such Lender's records shall be considered correct in the absence of manifest error. SECTION II.3 Procedure for Borrowing. (a) The Loan shall be made upon the ----------------------- Borrower's irrevocable written notice delivered to the Administrative Agent in the form of a Notice of Borrowing (which notice must be received by the Administrative Agent prior to 10:00 a.m. (Dallas time) (x) three Business Days prior to the requested Borrowing Date, in the case of Offshore Rate Loans; and (y) one Business Day prior to the requested Borrowing Date, in the case of Base Rate Loans, specifying: (i) the requested Borrowing Date, which shall be a Business Day; (ii) the Type of Loans comprising the Borrowing; and (iii) the duration of the Interest Period applicable to any Offshore Loans included in such notice. (b) The Administrative Agent will promptly notify each Lender of its receipt of the Notice of Borrowing and of the amount of such Lender's Pro Rata Share of that Borrowing. (c) Each Lender will make the amount of its Pro Rata Share of the Borrowing available to the Administrative Agent for the account of the Borrower at the Administrative Agent's Payment Office by 11:00 a.m. (Dallas time) on the Borrowing Date requested by the 16 Borrower in funds immediately available to the Administrative Agent. The proceeds of all such Loans will then be made available to the Borrower by the Administrative Agent by wire transfer in accordance with written instructions provided to the Administrative Agent by the Borrower of like funds as received by the Administrative Agent. SECTION II.4 Conversion and Continuation Elections. (a) The Borrower ------------------------------------- may, upon irrevocable written notice to the Administrative Agent in accordance with Section 2.4(b): -------------- (i) elect, as of any Business Day, in the case of Base Rate Loans, or as of the last day of the applicable Interest Period, in the case of any other Type of Loans, to convert any such Loans (or any part thereof in an amount not less than $5,000,000, or that is in an integral multiple of $500,000 in excess thereof) into Loans of any other Type; or (ii) elect, as of the last day of the applicable Interest Period, to continue any Loans having Interest Periods expiring on such day (or any part thereof in an amount not less than $5,000,000, or that is in an integral multiple of $500,000 in excess thereof). (b) The Borrower shall deliver a Notice of Conversion/ Continuation to be received by the Administrative Agent not later than 10:00 a.m. (Dallas time) at least (x) three Business Days in advance of the Conversion/Continuation Date, if the Loans are to be converted into or continued as Offshore Rate Loans; and (y) one Business Day in advance of the Conversion/Continuation Date, if the Loans are to be converted into Base Rate Loans, specifying: (i) the proposed Conversion/Continuation Date; (ii) the aggregate amount of Loans to be converted or continued; (iii) the Type of Loans resulting from the proposed conversion or continuation; and (iv) other than in the case of conversions into Base Rate Loans, the duration of the requested Interest Period. (c) If upon the expiration of any Interest Period applicable to Offshore Rate Loans, the Borrower has failed to select timely a new Interest Period to be applicable to such Offshore Rate Loans, as the case may be, or if any Default or Event of Default then exists, such Offshore Rate Loans shall convert automatically into Base Rate Loans effective as of the expiration date of such Interest Period. (d) The Administrative Agent will promptly notify each Lender of its receipt of a Notice of Conversion/Continuation, or, if no timely notice is provided by the Borrower, the Administrative Agent will promptly notify each Lender of the details of any automatic 17 conversion. All conversions and continuations shall be made ratably according to the respective outstanding principal amounts of the Loans with respect to which the notice was given held by each Lender. (e) After giving effect to any conversion or continuation of Loans, there may not be more than five (5) different Interest Periods in effect. SECTION II.5 Repayments. (a) Subject to Section 3.4, the Borrower may, ---------- ----------- at any time or from time to time, upon not less than three (3) Business Days' irrevocable notice to the Administrative Agent, ratably prepay Loans in whole or in part, in minimum amounts of $1,000,000 or any multiple of $500,000 in excess thereof. Such notice of prepayment shall specify the date and amount of such prepayment and the Type(s) of Loans to be prepaid. The Administrative Agent will promptly notify each Lender of its receipt of any such notice, and of such Lender's Pro Rata Share of such prepayment. If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein, together with, in the case of prepayment of Offshore Rate Loans, accrued interest to each such date on the amount prepaid and any amounts required pursuant to Section 3.4. Any amounts prepaid may not be reborrowed. ----------- (b) On each date that is three (3) Business Days after the receipt of any Net Cash Proceeds, the Borrower shall repay Loans in an amount equal to such Net Cash Proceeds together with, in the case of prepayment of Offshore Rate Loans, accrued interest to each such date on the amount prepaid and any amounts required to pursuant to Section 3.4. Any amounts prepaid may not be reborrowed. ----------- (c) The Borrower shall repay to the Lenders on the Stated Maturity Date the aggregate principal amount of Loans outstanding on such date. (d) The Borrower shall, immediately upon any acceleration of the maturity date of the Obligations pursuant to Section 7.2, repay the aggregate ----------- principal amount of Loans outstanding on such date. SECTION II.6 Interest. (a) Each Loan shall bear interest on the -------- outstanding principal amount thereof from the applicable Borrowing Date at a rate per annum equal to, the Offshore Rate or the Base Rate, as the case may be (and subject to the Borrower's right to convert to other Types of Loans under Section 2.4), plus the Applicable Margin. - ----------- ---- (b) Interest on each Loan shall be paid in arrears on each Interest Payment Date. Interest shall also be paid on the date of any prepayment of Offshore Rate Loans under Section 2.5 for the portion of the Loans so prepaid ----------- and upon payment (including prepayment) in full thereof and, during the existence of any Event of Default, interest shall be paid on demand of the Administrative Agent at the request or with the consent of the Required Lenders. 18 (c) Notwithstanding clause (a) of this Section, after acceleration ---------- or, at the election of the Required Lenders while any Event of Default exists, the Borrower shall pay interest (after as well as before entry of judgment thereon to the extent permitted by law) on the principal amount of all outstanding Obligations, at a rate per annum which is determined by adding 2% per annum to the Applicable Margin then in effect for such Loans and, in the case of Obligations not subject to an interest rate, at a rate per annum equal to the Base Rate plus 2%; provided, however, that, on and after the expiration -------- ------- of any Interest Period applicable to any Offshore Rate Loan outstanding on the date of occurrence of such Event of Default or acceleration, the principal amount of such Loan shall, during the continuation of such Event of Default or after acceleration, bear interest at a rate per annum equal to the Base Rate plus 2%. (d) Anything herein to the contrary notwithstanding, the obligations of the Borrower to any Lender hereunder shall be subject to the limitation that payments of interest shall not be required for any period for which interest is computed hereunder, to the extent (but only to the extent) that contracting for or receiving such payment by such Lender would be contrary to the provisions of any law applicable to such Lender limiting the highest rate of interest that may be lawfully contracted for, charged or received by such Lender, and in such event the Borrower shall pay such Lender interest at the highest rate permitted by applicable law. SECTION II.7 Fees. (a) Underwriting Fee. On the Effective Date, the ---- ---------------- Borrower shall pay a $35,000 underwriting fee to the Administrative Agent for the Administrative Agent's own account. (b) Additional Fee. On the earlier of the Stated Maturity Date or -------------- the date the Loans are repaid in full, the Borrower shall pay to the Administrative Agent, for its own account, an additional fee of $170,000 unless on or before such date the Borrower or the Guarantor shall have entered into a syndicated credit facility arranged or placed by the Administrative Agent or its Affiliates. SECTION II.8 Computation of Fees and Interest. (a) Interest on Base Rate -------------------------------- Loans and shall be computed on the basis of a 365/366-day year and actual days elapsed. All computations of fees and other interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more interest being paid than if computed on the basis of a 365-day year). Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to the last day thereof. 19 (b) Each determination of an interest rate by the Administrative Agent shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. SECTION II.9 Payments by the Borrower. (a) All payments to be made by ------------------------ the Borrower shall be made without set-off, recoupment or counterclaim. Except as otherwise expressly provided herein, all payments by the Borrower shall be made to the Administrative Agent for the account of Persons entitled thereto at the Administrative Agent's Payment Office, and shall be made in Dollars and in immediately available funds, no later than 11:00 a.m. (Dallas time) on the date specified herein. The Administrative Agent will promptly distribute to each Lender its Pro Rata Share (or other applicable share as expressly provided herein) of such payment in like funds as received. Any payment received by the Administrative Agent later than 11:00 a.m. (Dallas time) shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue. (b) Subject to the provisions set forth in the definition of "Interest Period" herein, whenever any payment is due on a day other than a Business Day, such payment shall be made on the following Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. (c) Unless the Administrative Agent receives notice from the Borrower prior to the date on which any payment is due to the Lenders that the Borrower will not make such payment in full as and when required, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date in immediately available funds and the Administrative Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrower has not made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent on demand such amount distributed to such Lender, together with interest thereon at the Federal Funds Rate for each day from the date such amount is distributed to such Lender until the date repaid. SECTION II.10 Sharing of Payments, Etc. If, other than as expressly ------------------------- provided elsewhere herein, any Lender shall obtain on account of the Credit Extension made by it any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its Pro Rata Share, such Lender shall immediately (a) notify the Administrative Agent of such fact, and (b) purchase from the other Lenders such participations in the Credit Extensions made by them as shall be necessary to cause such purchasing Lender to share the excess payment pro rata with each of them; provided, however, that if -------- ------- all or any portion of such excess payment is thereafter recovered from the purchasing Lender, such purchase shall to that extent be rescinded and each other Lender shall repay to the purchasing Lender the purchase price paid therefor, together with an amount equal to such paying Lender's ratable share (according to the proportion of (i) the amount of such paying Lender's required repayment to (ii) 20 the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off, but subject to Section 11.10) with respect to such participation as fully as if such Lender ------------- were the direct creditor of the Borrower in the amount of such participation. The Administrative Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased under this Section and will in each case notify the Lenders following any such purchases or repayments. ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY SECTION III.1 Taxes. (a) Any and all payments by the Borrower to each ----- Lender or the Administrative Agent under this Agreement and any other Loan Document shall be made free and clear of, and without deduction or withholding for any Taxes. In addition, the Borrower shall pay all Other Taxes. (b) The Borrower agrees to indemnify and hold harmless each Lender and the Administrative Agent for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section) paid by the Lender or the Administrative Agent and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date the Lender or the Administrative Agent makes written demand therefor. (c) If the Borrower shall be required by law to deduct or withhold any Taxes or Other Taxes from or in respect of any sum payable hereunder to any Lender or the Administrative Agent, then: (i) the sum payable shall be increased as necessary so that after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section) such Lender, or the Administrative Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions or withholdings been made; (ii) the Borrower shall make such deductions and withholdings; (iii) the Borrower shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and 21 (iv) the Borrower shall also pay, without duplication, to each Lender or the Administrative Agent for the account of such Person, at the time interest is paid, all additional amounts which the respective Person specifies as necessary to preserve the after-tax yield the Lender would have received if such Taxes or Other Taxes had not been imposed. (d) Within 30 days after the date of any payment by the Borrower of Taxes or Other Taxes, the Borrower shall furnish the Administrative Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Administrative Agent. (e) If the Borrower is required to pay additional amounts to any Lender or the Administrative Agent pursuant to Section 3.1(c), then such Person -------------- shall use reasonable efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its Lending Office so as to eliminate any such additional payment by the Borrower which may thereafter accrue, if such change in the judgment of such Person is not otherwise disadvantageous to such Lender or inconsistent with such Person's internal policies. SECTION III.2 Illegality. (a) If any Lender determines that the ---------- introduction of any Requirement of Law, or any change in any Requirement of Law, or in the interpretation or administration of any Requirement of Law, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make Offshore Rate Loans, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, any obligation of that Lender to make Offshore Rate Loans shall be suspended until the Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. (b) If a Lender determines that it is unlawful to maintain any Offshore Rate Loan, the Borrower shall, upon its receipt of notice of such fact and demand from such Lender (with a copy to the Administrative Agent), prepay in full such Offshore Rate Loans of that Lender then outstanding, together with interest accrued thereon and amounts required under Section 4.4, either on the ----------- last day of the Interest Period thereof, if the Lender may lawfully continue to maintain such Offshore Rate Loans to such day, or immediately, if the Lender may not lawfully continue to maintain such Offshore Rate Loan. If the Borrower is required to so prepay any Offshore Rate Loan, then concurrently with such prepayment, the Borrower shall borrow from the affected Lender, in the amount of such repayment, a Base Rate Loan. (c) If the obligation of any Lender to make or maintain Offshore Rate Loans has been so terminated or suspended, the Borrower may elect, by giving notice to the Lender through the Administrative Agent that all Loans which would otherwise be made by the Lender as Offshore Rate Loans shall be instead Base Rate Loans. 22 (d) Before giving any notice to the Administrative Agent under this Section, the affected Lender shall designate a different Lending Office with respect to its Offshore Rate Loans if such designation will avoid the need for giving such notice or making such demand and will not, in the judgment of the Lender, be illegal or otherwise disadvantageous to the Lender or inconsistent with such Lender's internal policies. SECTION III.3 Increased Costs and Reduction of Return. (a) If any Lender ---------------------------------------- determines that, due to either (i) the introduction of or any change (other than any change by way of imposition of or increase in reserve requirements included in the calculation of the Offshore Rate) in or in the interpretation of any law or regulation or (ii) the compliance by such Lender with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to such Lender of agreeing to make or making, funding or maintaining any Offshore Rate Loans, then the Borrower shall be liable for, and shall from time to time, upon demand (with a copy of such demand to be sent to the Administrative Agent), pay to the Administrative Agent for the account of such Lender, additional amounts as are sufficient to compensate such Lender for such increased costs; provided that the Borrower shall not be obligated to pay any additional amounts which were incurred by such Lender more than 90 days prior to the date of such request. (b) If any Lender shall have determined that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by such Lender (or its Lending Office) or any corporation controlling such Lender with any Capital Adequacy Regulation, affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy and such Lender's desired return on capital) determines that the amount of such capital is increased or its rate of return is decreased as a consequence of its loans, credits or obligations under this Agreement, then, upon demand of such Lender to the Borrower through the Administrative Agent, the Borrower shall pay to such Lender, from time to time as specified by the Lender, additional amounts sufficient to compensate such Lender for such increase; provided that the Borrower shall not be obligated to pay any additional amounts which were incurred by such Lender more than 90 days prior to the date of such request. SECTION III.4 Funding Losses. The Borrower shall reimburse each Lender -------------- and hold each Lender harmless from any loss or expense which the Lender may sustain or incur as a consequence of: (a) the failure of the Borrower to make on a timely basis any payment of principal of any Offshore Rate Loan; 23 (b) the failure of the Borrower to borrow, continue or convert a Loan after the Borrower has given (or is deemed to have given) a Notice of Borrowing or a Notice of Conversion/ Continuation that includes an Offshore Rate Loan; (c) the failure of the Borrower to make any prepayment in accordance with any notice delivered under Section 2.5; ----------- (d) the prepayment (including pursuant to Section 2.5) or other ----------- payment (including after acceleration thereof) of an Offshore Rate Loan on a day that is not the last day of the relevant Interest Period; or (e) the automatic conversion under Section 2.4 of any Offshore Rate ----------- Loan to a Base Rate Loan on a day that is not the last day of the relevant Interest Period; including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its Offshore Rate Loans or from fees payable to terminate the deposits from which such funds were obtained. For purposes of calculating amounts payable by the Borrower to the Lenders under this Section and under Section 3.3(a), each Offshore Rate Loan made by a Lender (and each -------------- related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the LIBOR used in determining the Offshore Rate for such Offshore Rate Loan by a matching deposit or other borrowing in the interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Offshore Rate Loan is in fact so funded. SECTION III.5 Inability to Determine Rates. If the Administrative Agent ---------------------------- determines that for any reason adequate and reasonable means do not exist for determining the Offshore Rate for any requested Interest Period with respect to a proposed Offshore Rate Loan, or the Administrative Agent determines (or the Required Lenders advise the Administrative Agent) that the Offshore Rate applicable pursuant to Section 2.6(a) for any requested Interest Period with -------------- respect to a proposed Offshore Rate Loan does not adequately and fairly reflect the cost to the Lenders of funding such Loan, the Administrative Agent will promptly so notify the Borrower and each Lender. Thereafter, the obligation of the Lenders to make or maintain Offshore Rate Loans, as the case may be, hereunder shall be suspended until the Administrative Agent revokes such notice in writing. Upon receipt of such notice, the Borrower may revoke any Notice of Borrowing or Notice of Conversion/ Continuation then submitted by it. If the Borrower does not revoke such Notice, the Lenders shall make, convert or continue the Loans, as proposed by the Borrower, in the amount specified in the applicable notice submitted by the Borrower, but such Loans shall be made, converted or continued as Base Rate Loans instead of Offshore Rate Loans. SECTION III.6 Certificates of Lenders. Any Person claiming reimbursement ----------------------- or compensation under this Article III shall deliver to the Borrower (with a ----------- copy to the Administrative Agent) a certificate setting forth in reasonable detail the amount payable to such 24 Person hereunder and such certificate shall be conclusive and binding on the Borrower in the absence of manifest error. SECTION III.7 Substitution of Lenders. Upon the receipt by the Borrower ----------------------- from any Lender (an "Affected Lender") of a claim for compensation under Section --------------- ------- 3.1, 3.2 or 3.3 the Borrower may: (i) request the Affected Lender to use its - --- --- --- reasonable efforts to obtain a replacement bank or financial institution satisfactory to the Borrower to acquire and assume all or a ratable part of all of such Affected Lender's Loans (a "Substitute Lender"); (ii) request one more ----------------- of the other Lenders to acquire and assume all or part of such Affected Lender's Loans; or (iii) designate a Substitute Lender. Any such designation of a Substitute Lender under clause (i) or (iii) shall be subject to the prior written consent of the Administrative Agent (which consent shall not be unreasonably withheld). SECTION III.8 Survival. The agreements and obligations of the Borrower in -------- this Article III shall survive the payment of all other Obligations. ARTICLE IV REPRESENTATIONS AND WARRANTIES To induce the Lenders to enter into this Agreement and to make Credit Extensions hereunder, the Guarantor represents and warrants as to itself and its Subsidiaries and the Borrower represents and warrants as to itself and its Subsidiaries to each Lender that: SECTION IV.1 Due Organization, Authorization, etc. Each of the Guarantor ------------------------------------- and each Subsidiary (a) is a corporation duly organized, validly existing and (to the extent applicable) in good standing under the laws of its jurisdiction of incorporation, (b) is duly qualified to do business and (to the extent applicable) in good standing in each jurisdiction where, because of the nature of its activities or properties, such qualification is required except where the failure to qualify would not have a Material Adverse Effect, (c) has the requisite corporate power and authority and the right to own and operate its properties, to lease the property it operates under lease, and to conduct its business as now and proposed to be conducted, and (d) has obtained all material licenses, permits, consents or approvals from or by, and has made all filings with, and given all notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct (including, without limitation, the consummation of the transactions contemplated by this Agreement) as to each of the foregoing, except where the failure to do so would not have a Material Adverse Effect. The future status of the Borrower and its Subsidiaries shall be effected in accordance with the resolutions adopted by the Borrower and attached hereto as Schedule 4.1. The ------------ execution, delivery and performance by the Borrower and the Guarantor of this Agreement and the consummation of the transactions contemplated hereby and thereby are within its corporate powers and have been duly authorized by all necessary 25 corporate action (including, without limitation, shareholder approval, if required). Each of the Guarantor, the Borrower and the Subsidiaries which own Assets to be Sold has received all other material consents and approvals (if any shall be required) necessary for such execution, delivery and performance, and such execution, delivery and performance do not and will not contravene or conflict with, or create a Lien or right of termination or acceleration under, any Requirement of Law or Contractual Obligation binding upon the Guarantor, the Borrower or such Subsidiaries. This Agreement and each of the Loan Documents is (or when executed and delivered will be) the legal, valid, and binding obligation of each of the Borrower and the Guarantor enforceable against the Borrower or the Guarantor, as the case may be, in accordance with its respective terms. SECTION IV.2 Statutory Financial Statements. The Annual Statement of the ------------------------------ Guarantor and each Insurance Subsidiary (including, without limitation, the provisions made therein for investments and the valuation thereof, reserves, policy and contract claims and statutory liabilities) as filed with the appropriate Governmental Authority of its jurisdiction of domicile (the "Department") delivered to each Lender prior to the execution and delivery of ---------- this Agreement, as of and for the 1999 Fiscal Year (the "Statutory Financial ------------------- Statements"), have been prepared in accordance with SAP applied on a consistent - ---------- basis (except as noted therein). Each such Statutory Financial Statement was in compliance with applicable law when filed. The Statutory Financial Statements fairly present the financial position, the results of operations and changes in equity of each such Person as of and for the respective dates and periods indicated therein in accordance with SAP applied on a consistent basis, except as set forth in the notes thereto or on Schedule 4.2. Except for liabilities ------------ and obligations, including, without limitation, reserves, policy and contract claims and statutory liabilities (all of which have been computed in accordance with SAP), disclosed or provided for in the Statutory Financial Statements, each such Person did not have, as of the respective dates of each of such financial statements, any liabilities or obligations (whether absolute or contingent and whether due or to become due) which, in conformity with SAP, applied on a consistent basis, would have been required to be or should be disclosed or provided for in such financial statements. All books of account of each such Person fully and fairly disclose all of the transactions, properties, assets, investments, liabilities and obligations of each such Person and all of such books of account are in the possession of each such Person and are true, correct and complete in all material respects. SECTION IV.3 GAAP Financial Statements. (a) The audited consolidated ------------------------- financial statements of the Guarantor and its Subsidiaries for the Fiscal Year ending December 31, 1999 and the unaudited consolidated financial statements of the Guarantor and its Subsidiaries for the six months ended June 30, 2000 which have been delivered to the Lenders (i) are true and correct in all material respects, (ii) have been prepared in accordance with GAAP (except as disclosed therein and, in the case of interim financial statements, for the absence of footnote disclosures and normal year-end adjustments) and (iii) present fairly the consolidated financial condition of the Guarantor and its Subsidiaries at such dates, the results of their operations for the periods then ended and the investments and reserves for the periods then ended. 26 (b) With respect to any representation and warranty which is deemed to be made after the date hereof by the Guarantor or the Borrower, the balance sheet and statements of operations, of shareholders' equity and of cash flow, which as of such date shall most recently have been furnished by or on behalf of the Guarantor to each Lender for the purposes of or in connection with this Agreement or any transaction contemplated hereby, shall have been prepared in accordance with GAAP consistently applied (except as disclosed therein and, in the case of interim financial statements, for the absence of footnote disclosures), and shall present fairly the consolidated financial condition of the corporations covered thereby as at the dates thereof for the periods then ended, subject, in the case of quarterly financial statements, to normal year- end audit adjustments. (c) There has been no change in the business, assets, operations or financial condition of the Guarantor or any Subsidiary which has had or could reasonably be expected to have a Material Adverse Effect since June 30, 2000. SECTION IV.4 Litigation and Contingent Liabilities. ------------------------------------- (a) Except as set forth (including estimates of the dollar amounts involved) in Schedule 4.4 hereto and (b) except for claims which are covered by Insurance - ------------ Policies, coverage for which has not been denied in writing, or which relate to Primary Policies or Reinsurance Agreements issued by the Guarantor or its Subsidiaries or to which it is a party entered into by the Guarantor or its Subsidiaries in the ordinary course of business (referred to herein as "Ordinary -------- Course Litigation"), no claim, litigation (including, without limitation, - ----------------- derivative actions), arbitration, governmental investigation or proceeding or inquiry is pending or, to the best knowledge of the Guarantor, threatened at law or in equity or before any Governmental Authority against the Guarantor or any of its Subsidiaries or their respective properties (i) which would, if adversely determined, have a Material Adverse Effect or (ii) which relates to any of the transactions contemplated hereby, and there is no basis known to the Guarantor or the Borrower for any of the foregoing. Other than any liability incident to such claims, litigation or proceedings, the Guarantor and its Subsidiaries have no material Contingent Liabilities not provided for or referred to in the financial statements delivered pursuant to Section 4.3. ----------- SECTION IV.5 Regulated Entity. Neither the Guarantor nor any of its ---------------- Subsidiaries is an "investment company" or a company "controlled by an investment company," within the meaning of the Investment Company Act of 1940, as amended. Neither the Guarantor nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935 (other than Section 9(a)(2) which by its terms is applicable to all Persons). The Guarantor is engaged in the insurance business and the Borrower and the majority of its Subsidiaries are engaged in the business of owning and leasing real and personal property. One of the Borrower's Subsidiaries is engaged in the business of managing real estate and another is an insurance agent. 27 SECTION IV.6 Regulations U and X. Neither the Guarantor nor any of its ------------------- Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock. SECTION IV.7 Proceeds. The proceeds of the Loans will be used for -------- general corporate purposes including the purposes set forth in Schedule 4.1. ------------ None of such proceeds will be used in violation of applicable law, and none of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any margin stock as defined in Regulation U of the FRB. SECTION IV.8 Injunctions, Orders. No injunction, writ, temporary ------------------- restraining order or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery or performance of this Agreement or any other Loan Document, or directing that the transactions provided for herein or therein not be consummated as herein or therein provided. SECTION IV.9 No Default. No Default or Event of Default exists or would ---------- result from the incurring of any Obligations by the Borrower. As of the Effective Date, neither the Guarantor nor any Subsidiary is in default under or with respect to any Contractual Obligation in any respect which, individually or together with all such defaults, could reasonably be expected to have a Material Adverse Effect, or that would, if such default had occurred after the Effective Date, create an Event of Default under Section 7.1(e). -------------- SECTION IV.10 ERISA Compliance. (a) Each Plan is in compliance in all ---------------- material respects with the applicable provisions of ERISA, the Code and other federal or state law. Each Plan which is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the Internal Revenue Service, and any Governmental Authority succeeding to any of its principal functions under the Code, and to the best knowledge of the Borrower, nothing has occurred which would cause the loss of such qualification. The Borrower and each ERISA Affiliate has made all required contributions to any Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan. (b) There are no pending or, to the best knowledge of the Borrower, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. (c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any 28 liability under Title IV of ERISA with respect to any Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iii) neither the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (iv) neither the Borrower nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA, which in any one case or in the aggregate would result in a Material Adverse Effect. SECTION IV.11 Title to Properties. The Guarantor, the Borrower and the ------------------- Subsidiaries which own Assets to be Sold have good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of their respective businesses, except for such defects in title as could not, individually or in the aggregate, have a Material Adverse Effect. The property of the Guarantor, the Borrower and the Subsidiaries which own Assets to be Sold is subject to no Liens, other than Permitted Liens. SECTION IV.12 Accuracy of Information. All factual written information ----------------------- furnished heretofore or contemporaneously herewith by the Guarantor or any of its Subsidiaries to the Administrative Agent or the Lenders for purposes of or in connection with this Agreement or any of the transactions contemplated hereby, as supplemented to the date hereof, is and all other such factual written information hereafter furnished by the Guarantor or any of its Subsidiaries to the Administrative Agent or the Lenders will be, true and accurate in every material respect on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information not misleading. SECTION IV.13 Subsidiaries. The Guarantor has no Subsidiaries other than ------------ those specifically disclosed in part (a) of Schedule 4.13 hereto and the ------------- Guarantor and its Subsidiaries have no equity investments in any other corporation or entity other than those specifically disclosed in part (b) of Schedule 4.13. - ------------- SECTION IV.14 Insurance. The properties of the Guarantor, the Borrower --------- and the Subsidiaries which own Assets to be Sold are insured with financially sound and reputable insurance companies not Affiliates of the Guarantor, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Guarantor, the Borrower or such Subsidiary operates. SECTION IV.15 Insurance Licenses. Schedule 4.15 as revised from time to ------------------ ------------- time by the Borrower pursuant to Section 5.1(j) lists all of the jurisdictions -------------- in which the Guarantor or any of the Insurance Subsidiaries hold licenses (including, without limitation, licenses or certificates of authority from applicable insurance departments), permits or authorizations to transact insurance and reinsurance business (collectively, the "Licenses"). Except as -------- set forth on Schedule 4.15, to the best of the Guarantor's knowledge, no such ------------- License is the subject of a proceeding for 29 suspension or revocation or any similar proceedings, there is no sustainable basis for such a suspension or revocation, and no such suspension or revocation is threatened by the Department. Schedule 4.15 as revised from time to time by ------------- the Borrower pursuant to Section 5.1(j) indicates the line or lines of insurance -------------- which the Guarantor or each such Insurance Subsidiary is permitted to be engaged in with respect to each License therein listed. Neither the Guarantor nor any Insurance Subsidiaries transact any insurance business, directly or indirectly, in any jurisdiction other than those enumerated on Schedule 4.15 as revised from ------------- time to time by the Borrower pursuant to Section 5.1(j) hereto, where such -------------- business requires that any such Person obtain any license, permit, governmental approval, consent or other authorization. SECTION IV.16 Taxes. The Guarantor and each of its Subsidiaries has ----- filed all tax returns that are required to be filed by it, and has paid or provided adequate reserves for the payment of all material taxes, including, without limitation, all payroll taxes and federal and state withholding taxes, and all assessments payable by it that have become due, other than (a) those that are not yet delinquent or that are disclosed on Schedule 4.16 and are being ------------- contested in good faith by appropriate proceedings and with respect to which reserves have been established, and are being maintained, in accordance with GAAP or (b) those which the failure to file or pay would not have a Material Adverse Effect. Except as set forth in Schedule 4.16, there is no ongoing audit ------------- or, to the Guarantor's or the Borrowers knowledge, other governmental investigation of the tax liability of the Guarantor or any of its Subsidiaries and there is no unresolved claim by a taxing authority concerning the Guarantor's or any such Subsidiary's tax liability, for any period for which returns have been filed or were due. As used in this Section 4.16, the term ------------ "taxes" includes all taxes of any nature whatsoever and however denominated, including, without limitation, excise, import, governmental fees, duties and all other charges, as well as additions to tax, penalties and interest thereon, imposed by any government or instrumentality, whether federal, state, local, foreign or other. SECTION IV.17 Securities Laws. Neither the Guarantor nor any Affiliate, --------------- nor anyone acting on behalf of any such Person, has directly or indirectly offered any interest in the Loans or any other Obligation for sale to, or solicited any offer to acquire any such interest from, or has sold any such interest to any Person that would subject the issuance or sale of the Loans or any other liability to registration under the Securities Act of 1933, as amended. SECTION IV.18 Compliance with Laws. Neither the Guarantor nor any of its -------------------- Subsidiaries is in violation of any law, ordinance, rule, regulation, order, policy, guideline or other requirement of any Governmental Authority, if the effect of such violation could reasonably be expected to have a Material Adverse Effect and, to the best of the Guarantor's knowledge, no such violation has been alleged and each of the Guarantor and its Subsidiaries (i) has filed in a timely manner all reports, documents and other materials required to be filed by it with any Governmental Authority, if such failure to so file could reasonably be expected to have a Material Adverse Effect; and the information contained in each of such filings is true, correct and complete in all material respects and (ii) has retained all records and documents required to be 30 retained by it pursuant to any law, ordinance, rule, regulation, order, policy, guideline or other requirement of any Governmental Authority, if the failure to so retain such records and documents could reasonably be expected to have a Material Adverse Effect. ARTICLE V AFFIRMATIVE COVENANTS Until the Loans and all other Obligations are paid in full each of the Borrower and the Guarantor agrees that, unless at any time the Required Lenders shall otherwise expressly consent in writing, it will: SECTION V.1 Reports, Certificates and Other Information. Furnish or -------------------------------------------- cause to be furnished to the Administrative Agent and the Lenders: (a) GAAP Financial Statements: ------------------------- (i) Within 45 days after the close of each of the first three Fiscal Quarters of each Fiscal Year of the Guarantor, a copy of the unaudited consolidated balance sheets of the Guarantor and its Subsidiaries, as of the close of such quarter and the related consolidated statements of income and cash flows for that portion of the Fiscal Year ending as of the close of such Fiscal Quarter, all prepared in accordance with GAAP (subject to normal year-end adjustments and except that footnote and schedule disclosure may be abbreviated) and the related consolidating balance sheets and income statements for such period and accompanied by the certification of the chief executive officer, chief financial officer or treasurer of the Guarantor that all such financial statements are complete and correct and present fairly in accordance with GAAP (subject to normal year-end adjustments) the consolidated results of operations and cash flows of the Guarantor as at the end of such Fiscal Quarter and for the period then ended. 31 (ii) Within 90 days after the close of each Fiscal Year, a copy of the annual financial statements of the Guarantor and its Subsidiaries, consisting of audited consolidated and unaudited consolidating balance sheets and audited consolidated and unaudited consolidating statements of income and retained earnings and cash flows, setting forth in comparative form the consolidated figures for the previous Fiscal Year, which financial statements shall be prepared in accordance with GAAP, certified without material qualification by the independent certified public accountants regularly retained by the Guarantor, or any other firm of independent certified public accountants of recognized national standing selected by the Guarantor and reasonably acceptable to the Required Lenders that all such financial statements are complete and correct and present fairly in accordance with GAAP the consolidated financial position and the consolidated results of operations and cash flows of the Guarantor and its Subsidiaries as at the end of such year and for the period then ended. (iii) On each date that financial statements are delivered pursuant to Section 5.1(a)(i) or (ii), a schedule in form and substance satisfactory ----------------- ---- to the Administrative Agent setting forth claims schedule detail. (b) Tax Returns. If requested by the Administrative Agent, copies of ----------- all federal, state, local and foreign tax returns and reports in respect of income, franchise or other taxes on or measured by income (excluding sales, use or like taxes) filed by the Guarantor or any of its Subsidiaries. (c) SAP Financial Statements. Within (i) 5 days after the date filed ------------------------ with the Minister for each of its Fiscal Years, but in any event within 125 days after the end of each Fiscal Year of each the Guarantor and each Insurance Subsidiary a copy of the Annual Statement of for such Fiscal Year, if any, required by such Department to be filed, each of which statements delivered to be prepared in accordance with SAP and accompanied by the certification of the chief financial officer or chief executive officer of such Person that such financial statement is complete and correct and presents fairly in accordance with SAP the financial position of such Subsidiary for the period then ended. (d) Notice of Default, etc. Immediately after an Executive Officer ---------------------- of the Borrower or the Guarantor knows or has reason to know of the existence of any Default, or any development or other information which would have a Material Adverse Effect, telephonic or telegraphic notice specifying the nature of such Default or development or information, including the anticipated effect thereof, which notice shall be promptly confirmed in writing within three (3) Business Days. (e) Other Information. The following certificates and other ----------------- information related to the Borrower and the Guarantor: 32 (i) Within five (5) Business Days of receipt, a copy of any financial examination reports by a Governmental Authority with respect to the Guarantor or the Insurance Subsidiaries relating to the insurance business of the Guarantor or the Insurance Subsidiaries (when, and if, prepared). (ii) Copies of all filings (other than nonmaterial tax and insurance rate and other ministerial regulatory filings) with Governmental Authorities by the Guarantor or any Subsidiary not later than five (5) Business Days after such filings are made, including, without limitation, filings which seek approval of Governmental Authorities with respect to transactions between the Guarantor or such Subsidiary and its Affiliates. (iii) Within five (5) Business Days of such notice, notice of proposed or actual suspension, termination or revocation of any material License of the Guarantor or any Subsidiary by any Governmental Authority or of receipt of notice from any Governmental Authority notifying the Guarantor or any Insurance Subsidiary of a hearing relating to such a suspension, termination or revocation, including any request by a Governmental Authority which commits the Guarantor or any Subsidiary to take, or refrain from taking, any action or which otherwise materially and adversely affects the authority of the Guarantor or any Subsidiary to conduct its business. (iv) Within five (5) Business Days of such notice, notice of any pending or threatened investigation or regulatory proceeding (other than routine periodic investigations or reviews) by any Governmental Authority concerning the business, practices or operations of the Guarantor or any Insurance Subsidiary. (v) Promptly, notice of any actual or, to the best of the Guarantor's knowledge, proposed material changes in the Insurance Code governing the investment or dividend practices of any Insurance Subsidiary. (vi) Promptly, such additional financial and other information as the Administrative Agent may from time to time reasonably request. (f) Compliance Certificates. Concurrently with the delivery to the ----------------------- Administrative Agent of the GAAP financial statements under Sections 5.1(a)(i) ------------------ and 5.1(a)(ii), for each Fiscal Quarter and Fiscal Year of the Guarantor, and at ---------- any other time no later than thirty (30) Business Days following a written request of the Administrative Agent, a duly completed Compliance Certificate, signed by the chief financial officer, treasurer or controller of the Guarantor, and showing compliance with Section 6.3, and to the effect that, to the best of ----------- such officer's knowledge, as of such date no Default has occurred and is continuing. 33 (g) Reports to SEC and to Shareholders. Promptly upon the filing or ---------------------------------- making thereof copies of (i) each filing and report made by the Guarantor or any of its Subsidiaries with or to any securities exchange or the Securities and Exchange Commission and (ii) each communication from the Guarantor to shareholders generally. (h) Notice of Litigation, License, ERISA. Promptly upon learning of ------------------------------------ the occurrence of any of the following, written notice thereof, describing the same and the steps being taken by the Guarantor with respect thereto: (i) the institution of, or any adverse determination in, any litigation, arbitration proceeding or governmental proceeding (including any Internal Revenue Service or Department of Labor proceeding with respect to any Plan or Welfare Plan) which could, if adversely determined, be reasonably expected to have a Material Adverse Effect and which is not Ordinary Course Litigation, (ii) an ERISA Event or an event with respect to any Plan which could result in the incurrence by the Guarantor or any of its Subsidiaries of any material liability (other than a liability for contributions or premiums), fine or penalty which could reasonable be expected to have a Material Adverse Effect, (iii) the commencement of any dispute which might lead to the modification, transfer, revocation, suspension or termination of this Agreement or any Loan Document or (iv) any event which could be reasonably expected to have a Material Adverse Effect. (i) New Subsidiaries. Promptly upon formation or acquisition of any ---------------- Subsidiary, written notice of the name, purpose and capitalization of such Subsidiary and whether such Subsidiary is a Subsidiary. (j) Updated Schedules. From time to time, and in any event ----------------- concurrently with delivery of the financial statements under Section 5.1(a)(i) ----------------- and (ii), a revised Schedule 4.15, if applicable, showing changes from the ---- ------------- Schedule previously delivered. - -------- (k) Other Information. From time to time such other information ----------------- concerning the Guarantor or any Subsidiary as the Administrative Agent or any Lender may reasonably request. SECTION V.2 Corporate Existence; Foreign Qualification. Do and cause to ------------------------------------------ be done at all times all things necessary to (a) maintain and preserve the corporate existence of the Guarantor, the Borrower and each other Subsidiary of the Guarantor (except that inactive Subsidiaries of the Guarantor may be merged out of existence or dissolved, a Subsidiary (other than the Borrower) may be dissolved if the Guarantor determines in good faith that such termination is in the best interests of the Guarantor and is not materially disadvantageous to the Lenders and Subsidiaries of the Borrower may be dissolved in accordance with Schedule 4.1), (b) be, and ensure that each Subsidiary of the Guarantor is, duly - ------------ qualified to do business and (to the extent applicable) be in good standing as a foreign corporation in each jurisdiction where the nature of its business makes such qualification necessary unless the failure to be so qualified would not have a Material Adverse Effect, and (c) do or cause to be done all things necessary to 34 preserve and keep in full force and effect the Borrowers and the Guarantor's corporate existence. SECTION V.3 Books, Records and Inspections. (a) Maintain, and cause each ------------------------------ of its Subsidiaries to maintain, materially complete and accurate books and records in accordance with GAAP and in addition, with respect to the Guarantor and each Insurance Subsidiary, SAP, (b) permit, and cause each of its Subsidiaries to permit, access at reasonable times by the Administrative Agent to its books and records, (c) permit, and cause each of its Subsidiaries to permit, the Administrative Agent or its designated representative to inspect at reasonable times its properties and operations, and (d) permit, and cause each of its Subsidiaries to permit, the Administrative Agent to discuss its business, operations and financial condition with its officers and its independent accountants. SECTION V.4 Insurance. Maintain, and cause each of its Subsidiaries to --------- maintain, Insurance Policies to such extent and against such hazards and liabilities as is required by law or customarily maintained by prudent companies similarly situated. SECTION V.5 Taxes and Liabilities. Pay, and cause each of its --------------------- Subsidiaries to pay, when due all material taxes, assessments and other material liabilities except as contested in good faith and by appropriate proceedings with respect to which reserves have been established, and are being maintained, in accordance with GAAP except where failure to pay would not have a Material Adverse Effect. SECTION V.6 Employee Benefit Plans. Maintain, and cause each of its ---------------------- Subsidiaries to maintain, each Plan and Welfare Plan in compliance in all material respects with all applicable Requirements of Law except where failure to so comply would not have a Material Adverse Effect. SECTION V.7 Compliance with Laws. Comply, and cause each of its -------------------- Subsidiaries to comply, (a) with all federal and local laws, rules and regulations related to its businesses (including, without limitation, the establishment of all insurance reserves required to be established under SAP and applicable laws restricting the investments of the Guarantor and its Insurance Subsidiaries), and (b) with all Contractual Obligations binding upon such entity, except in each case where failure to so comply would not in the aggregate have a Material Adverse Effect. SECTION V.8 Maintenance of Permits. Maintain, and cause each of its ---------------------- Subsidiaries to maintain, all permits, licenses and consents as may be required for the conduct of its business by any federal or local government agency or instrumentality except (x) for such permits, licenses and consents related to assets which are sold in accordance with Section 6.4 or (y) where failure to ----------- maintain the same would not have a Material Adverse Effect. 35 SECTION V.9 Conduct of Business. Engage, and cause each Subsidiary ------------------- (other than the Borrower and its Subsidiaries) to engage, primarily in insurance and reinsurance business and related activities. SECTION V.10 Environmental Laws. The Guarantor shall, and shall cause ------------------ each Subsidiary to, conduct its operations and keep and maintain its property in compliance with all applicable Environmental Laws except where the failure to so comply would not in the aggregate have a Material Adverse Effect. ARTICLE VI NEGATIVE COVENANTS Until the Loans and all other Obligations are paid in full each of the Borrower and the Guarantor agrees that, unless at any time the Required Lenders shall otherwise expressly consent in writing, it will: SECTION VI.1 Limitations on Debts. Not and not suffer or permit any -------------------- Subsidiary to, create, incur, assume or suffer to exist any Debt, except (a) obligations arising under the Loan Documents, (b) Debt outstanding on the Effective Date and listed on Schedule 6.1 and any extension or renewal of such ------------ Debt provided that the Debt so extended or renewed does not exceed the aggregate principal amount of such Debt prior to giving effect to such extension or renewal or, (c) Debt hereafter incurred in connection with Liens permitted by Section 6.2. - ----------- SECTION VI.2 Limitation on Liens. Not, and not suffer or permit any ------------------- Subsidiary to, directly or indirectly, make, create, incur, assume or suffer to exist any Lien upon or with respect to any part of its property, whether now owned or hereafter acquired, other than the following ("Permitted Liens"): --------------- (a) any Lien existing on property of the Guarantor or any Subsidiary on the Effective Date and set forth in Schedule 6.2 securing Debt outstanding on ------------ such date and any extension, renewal of, or substitution for such Lien provided that the Debt secured by such Lien after such extension, renewal or substitution does not exceed the aggregate principal amount of such Debt prior to giving effect to such extension, renewal or substitution and any such substitution Lien does not cover Asset to be Sold; (b) Liens for taxes, fees, assessments or other governmental charges which are not delinquent or remain payable without penalty, or to the extent that non-payment thereof is permitted by Section 4.17, provided that no notice ------------ of lien has been filed or recorded under the Code; 36 (c) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other similar Liens arising in the ordinary course of business which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto; (d) Liens (other than any Lien imposed by ERISA) consisting of pledges or deposits required in the ordinary course of business in connection with workers' compensation, unemployment insurance and other social security legislation; (e) Liens consisting of judgment or judicial attachment liens, provided that the enforcement of such Liens is effectively stayed and all such liens in the aggregate at any time outstanding for the Guarantor and its Subsidiaries do not exceed $5,000,000; (f) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the businesses of the Guarantor and its Subsidiaries; (g) purchase money security interests on any property acquired or held by the Guarantor or its Subsidiaries in the ordinary course of business, securing Indebtedness incurred or assumed for the purpose of financing all or any part of the cost of acquiring such property; provided that (i) any such Lien -------- ---- attaches to such property concurrently with or within 20 days after the acquisition thereof, (ii) such Lien attaches solely to the property so acquired in such transaction, (iii) the principal amount of the debt secured thereby does not exceed 100% of the cost of such property, and (iv) the principal amount of the Indebtedness secured by any and all such purchase money security interests shall not at any time exceed $5,000,000; and (h) Liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; provided that (i) such deposit account is not a -------- ---- dedicated cash collateral account and is not subject to restrictions against access by the Guarantor or such Subsidiary in excess of those set forth by regulations promulgated by the FRB, and (ii) such deposit account is not intended by the Guarantor or any Subsidiary to provide collateral to the depository institution. SECTION VI.3 Net Worth. Not permit Net Worth to be less than --------- $1,700,000,000. SECTION VI.4 Disposition of Assets. The Guarantor shall not, and shall --------------------- not suffer or permit any Subsidiary to, directly or indirectly, sell, assign, lease, convey, transfer or otherwise dispose of (whether in one or a series of transactions) all or any substantial part of its property 37 (including accounts and notes receivable, with or without recourse) or enter into any agreement to do any of the foregoing, except: (a) dispositions of used, worn-out or surplus equipment, all in the ordinary course of business; (b) the sale of equipment to the extent that such equipment is exchanged for credit against the purchase price of similar replacement equipment, or the proceeds of such sale are reasonably promptly applied to the purchase price of such replacement equipment; (c) dispositions of the Assets to be Sold provided the Net Cash Proceeds are applied as required under Section 2.5; ----------- (d) any such sale, transfer, lease or disposition to the Guarantor or a wholly owned Subsidiary other than the Assets to be Sold; (e) any lease in the ordinary course of business; and (f) any such disposition in connection with the dissolution of a Subsidiary in accordance with Section 5.2 hereof. ----------- SECTION VI.5 Mergers, Consolidations and Acquisitions. Not, and not ---------------------------------------- permit any of its Subsidiaries to, merge or consolidate, or purchase or otherwise acquire all or substantially all of the assets or stock of any class of, or any partnership or joint venture interest in, any other Person (other than a newly formed Subsidiary or the acquisition of a Subsidiary which constitutes less than 10% of the consolidated assets of the Guarantor or the acquisition of shares of a Subsidiary held by minority shareholders), except for any such merger or consolidation, sale, transfer, conveyance, lease or assignment of any wholly owned Subsidiary into, with or to any other wholly owned Subsidiary, the Borrower or the Guarantor, provided, in the case of any merger or consolidation of the Borrower or the Guarantor, the Borrower or the Guarantor, as the case may be is the surviving corporation. SECTION VI.6 Regulations U and X. Not, and not permit any of its ------------------- Subsidiaries to, hold margin stock (as such term is defined in Regulation U of the FRB) having a value in excess of 20% of the value of the assets of the Guarantor and its Subsidiaries taken as a whole after taking into account the application of the proceeds of the Credit Extensions. SECTION VI.7 Other Agreements. Not, and not permit any of its ---------------- Subsidiaries to, enter into any agreement containing any provision which would be violated or breached by the performance of obligations hereunder or under any instrument or document delivered or to be delivered by it hereunder or in connection herewith. 38 SECTION VI.8 Transactions with Affiliates. Not, and not permit any ---------------------------- Subsidiary to, enter into, or cause, suffer or permit to exist, directly or indirectly, any arrangement, transaction or contract with any of its Affiliates unless such arrangement, transaction or contract is on an arm's length basis. SECTION VI.9 Restrictions On Negative Pledge Agreements. Not, and not ------------------------------------------ permit any of its Subsidiaries to enter into or assume any agreement to which it is a party, other than this Agreement which places any restrictions upon the right of the Guarantor or any of its Subsidiaries to sell, pledge or otherwise dispose of any material portion of its properties now owned or hereafter acquired except for such restrictions imposed by federal or state laws upon the rights of the Guarantor or any of its Subsidiaries to sell, pledge or otherwise dispose of securities owned by it. SECTION VI.10 No Amendment of Certain Documents. Not enter into or permit --------------------------------- to exist any amendment, modification or waiver of Organization Documents as in effect on the Effective Date which would (a) create or amend redemption provisions applicable to the Guarantor's capital stock to provide for mandatory redemption or redemption at the option of the holder prior to the Stated Maturity Date or (b) in any manner be materially adverse to the interests of the Lenders. SECTION VI.11 Dividends, Etc.. Not, and not permit its Subsidiaries to, --------------- (a) declare or pay any dividends on any of its capital stock (other than pro rata payments of dividends by a Subsidiary to the Guarantor and such Subsidiary's other shareholders), (b) purchase or redeem any capital stock of the Guarantor or any Subsidiary (except as set forth in Section 6.5) or any ----------- warrants, options or other rights in respect of such stock (other than the pro rata purchase or redemption by a Subsidiary of its capital stock, warrants, options or other rights in respect of such stock), or (c) set aside funds for any of the foregoing if at the time of such declaration, payment, purchase or redemption, a Default or Event of Default has occurred and is continuing. ARTICLE VII EVENTS OF DEFAULT AND THEIR EFFECT SECTION VII.1 Events of Default. Each of the following shall ------------------ constitute an Event of Default under this Agreement: (a) Non-Payment of Loan. Default in the payment when due of any ------------------- principal on the Loans. (b) Non-Payment of Interest, Fees, etc. Default, and continuance ---------------------------------- thereof for three (3) Business Days, in the payment when due of interest on the Credit Extensions, fees or of any other amount payable hereunder or under the Loan Documents. 39 (c) Non-Payment of Other Debt. (i) Default in the payment when due ------------------------- and continuance of such default after any applicable grace period (whether or not such Debt is accelerated) of any other Debt of, or guaranteed by, the Guarantor or any of its Subsidiaries if the aggregate amount of Debt of the Guarantor and/or any of its Subsidiaries which is due and payable or which is or may be accelerated, by reason of such default or defaults is $5,000,000 or more, or (ii) default in the performance or observance of any obligation or condition and continuance of such default after any applicable grace period with respect to any such other Debt of, or guaranteed by, the Guarantor and/or any of its Subsidiaries if the effect of such default or defaults is to accelerate or permit the acceleration of the maturity of any such Debt of $5,000,000 or more in the aggregate prior to its expressed maturity. (d) Other Material Obligations. Except for obligations covered under -------------------------- other provisions of this Article VII, default in the payment when due, or in the ----------- performance or observance of, any material obligation of, or material condition agreed to by, the Guarantor or any of its Subsidiaries with respect to any material purchase or lease obligation of $5,000,000 or more (unless the existence of any such default is being contested in good faith and by appropriate proceedings and the Guarantor has established, and is maintaining, adequate reserves therefor in accordance with GAAP) which default continues for a period of 30 days. (e) Bankruptcy, Insolvency, etc. (i) The Guarantor or any Subsidiary --------------------------- becomes insolvent or generally fails to pay, or admits in writing its inability to pay, debts as they become due; (ii) there shall be commenced by or against any such Person any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, supervision, conservatorship, liquidation, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, rehabilitation, conservation, supervision, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, obligations or liabilities, or (B) seeking appointment of a receiver, trustee, custodian, rehabilitator, conservator, supervisor, liquidator or other similar official for it or for all or any substantial part of its assets, in each case which (1) results in the entry of an order for relief or any such adjudication or appointment or (2) if filed against such Person, remains undismissed, undischarged or unstayed for a period of 60 days; or (iii) there shall be commenced against any such Person any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) any of such Persons shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause(ii) or (iii) above; or (v) any Governmental Authority shall ---------- ----- issue any order of conservation, supervision or any other order of like effect relating to any of such Persons. 40 (f) Non-compliance With Certain Financial Conditions. Failure by the ------------------------------------------------ Guarantor or the Borrower to comply with its covenants set forth in Article VI. ---------- (g) Non-compliance With Other Provisions. Failure by the Guarantor ------------------------------------ or the Borrower to comply with or to perform any provision of this Agreement or the other Loan Documents (and not constituting an Event of Default under any of the other provisions of this Article VII) and continuance of such failure for 30 ----------- days. (h) Warranties and Representations. Any warranty or representation ------------------------------ made by or on behalf of the Guarantor or any Subsidiary herein is inaccurate or incorrect or is breached or false or misleading in any material respect as of the date such warranty or representation is made; or any schedule, certificate, financial statement, report, notice, or other instrument furnished by or on behalf of Guarantor or any Subsidiary to the Administrative Agent or the Lenders is false or misleading in any material respect on the date as of which the facts therein set forth are stated or certified. (i) Employee Benefit Plans. A contribution failure occurs with ---------------------- respect to any Plan sufficient to give rise to a Lien against the Guarantor or any of its Subsidiaries under section 302(f)(1) of ERISA (as in effect on the Effective Date) or withdrawal by one or more companies in the Controlled Group from one or more Multiemployer Plans to which it or they have an obligation to contribute and the withdrawal liability (without unaccrued interest) to multiemployer plans as a result of such withdrawal or withdrawals (including any outstanding withdrawal liability that the Controlled Group has incurred on the date of such withdrawal) is $5,000,000 or more. (j) Loan Documents. Any action shall be taken by or on behalf of the -------------- Borrower, the Guarantor or any Affiliate thereof to discontinue any of the Loan Documents or to contest the validity, binding nature or enforceability of any thereof. (k) Change in Control. A Change in Control occurs. ----------------- (l) Judgments. A final judgment or judgments which exceed an --------- aggregate of $5,000,000 (excluding any portion thereof which is covered by insurance so long as the insurer is reasonably likely to be able to pay and has accepted a tender of defense and indemnification without reservation of rights) shall be rendered against the Guarantor or any Subsidiary and shall not have been discharged or vacated or had execution thereof stayed pending appeal within 60 days after entry or filing of such judgment(s). (m) Change in Law. Any change is made in the Insurance Code which ------------- affects the dividend practices of any Insurance Subsidiary and which is reasonably likely to have a Material Adverse Effect on the ability of the Guarantor to perform its obligations under the Agreement and such circumstances shall continue for30 days. 41 SECTION VII.2 Effect of Event of Default. If any Event of Default -------------------------- described in Section 7.1(e) shall occur, all Obligations hereunder shall become -------------- immediately due and payable and the Borrower shall become immediately obligated to repay all Loans, all without notice of any kind; and, in the case of any other Event of Default, the Administrative Agent may, and upon the written request of the Required Lenders shall, declare all Obligations to be due and payable and demand that the Borrower repay all Loans, whereupon all of the Obligations shall become immediately due and payable and the Borrower shall immediately repay all Obligations, all without further notice of any kind. The Administrative Agent shall promptly advise the Borrower of any such declaration but failure to do so shall not impair the effect of such declaration. Notwithstanding the foregoing, the effect as an Event of Default of any event described in Section 7.1(a) may not be waived except by consent of all of the -------------- Lenders and acknowledged by the Administrative Agent in writing. ARTICLE VIII CONDITIONS SECTION VIII.1 Conditions to Occurrence of the Effective Date. The ---------------------------------------------- occurrence of the Effective Date shall be subject to receipt by the Administrative Agent of all of the following, each duly executed and dated the Effective Date (or such earlier date as shall be satisfactory to the Administrative Agent), each in form and substance satisfactory to the Administrative Agent (with such copies as the Administrative Agent shall request): (a) This Agreement and Certain Related Documents. This Agreement and -------------------------------------------- such other Loan Documents as are required to be delivered by the terms of this Agreement. (b) Resolutions. Certified copies of resolutions of the Board of ----------- Directors of the Guarantor and the Borrower authorizing the execution, delivery and performance, respectively, of those documents and matters required of it with respect to this Agreement or the other Loan Documents. (c) Incumbency and Signatures. A certificate of an Authorized ------------------------- Officer of the Borrower and of the Guarantor certifying the names of the individual or individuals authorized to sign this Agreement and the other Loan Documents, together with a sample of the true signature of each such individual. (The Lenders may conclusively rely on each such certificate until formally advised by a like certificate of any changes therein.) (d) Organization Documents, etc. A Certificate of an Authorized --------------------------- Officer certifying true and correct copies of the Organization Documents of the Borrower and the Guarantor. 42 (e) Opinion of Counsel. The opinion of (i) LeBouef, Lamb, Green & ------------------ MacRae, L.L.P., New York counsel to the Borrower and the Guarantor and (ii) Conyers, Dill & Pearman, Bermuda counsel to the Borrower and the Guarantor, in each case addressed to the Administrative Agent and the Lenders in form and substance satisfactory to the Administrative Agent and its counsel. (f) Insurance Proceedings. Certificate of an Authorized Officer --------------------- certifying that to such officer's best knowledge there are no Insurance regulatory proceedings pending or threatened against the Guarantor or any Insurance Subsidiary in any jurisdiction. (g) Material Adverse Change Certificate. An officer's certificate, ----------------------------------- signed by an Authorized Officer, certifying that to such officer's best knowledge, since June 30, 2000, no event has occurred which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect. (h) Acquisition. The Guarantor shall have completed the acquisition ----------- of Reliance Re on terms and conditions acceptable to the Administrative Agent. (i) Other. Such other documents as the Administrative Agent may ----- reasonably request. SECTION VIII.2 Conditions to All Credit Extensions. The obligation of ----------------------------------- the Lenders to make all Credit Extensions shall be subject to the prior or concurrent satisfaction (in form and substance satisfactory to the Administrative Agent) of each of the conditions precedent set forth below: (a) No Default. No Default or Event of Default shall have occurred ---------- and be continuing or will result from the making of the Credit Extensions and no Default or Event of Default shall have occurred and be continuing under the Loan Documents or will result from the making of the Credit Extensions. (b) Warranties and Representations. All warranties and ------------------------------ representations contained in this Agreement shall be true and correct in all material respects as of the date of such Credit Extension, with the same effect as though made on the date of and concurrently with the making of such Credit Extension (except where such representation speaks as of specified date). (c) Litigation. (i) No litigation (including, without limitation, ---------- derivative actions), arbitration, governmental investigation or proceeding or inquiry shall be, on the date of any Credit Extension, pending, or to the knowledge of the Borrower or the Guarantor, threatened which seeks to enjoin or otherwise prevent the consummation of, or to recover any damages or to 43 obtain material relief as a result of, the transactions contemplated hereunder or, in the reasonable opinion of the Required Lenders, could be reasonably expected to be materially adverse to any of the parties to this Agreement and which is not Ordinary Course Litigation, and (ii) in the reasonable opinion of the Required Lenders, no material adverse development shall have occurred in any litigation (including, without limitation, derivative actions), arbitration, government investigation or proceeding or inquiry disclosed in Schedule 4.4 ------------ which is likely to have a Material Adverse Effect. (d) Fees. The fees referred to in Section 2.7 which are due and ---- ----------- payable on or prior to the Effective Date shall have been paid to the Administrative Agent. (e) Borrowing Request. With respect to the initial Loans, the ----------------- Administrative Agent shall have received a Borrowing Request in form and substance acceptable to the Administrative Agent. ARTICLE IX THE ADMINISTRATIVE AGENT SECTION IX.1 Appointment and Authorization. Each Lender hereby ----------------------------- irrevocably (subject to Section 9.9) appoints, designates and authorizes the ----------- Administrative Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Administrative Agent have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent. SECTION IX.2 Delegation of Duties. The Administrative Agent may execute -------------------- any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. SECTION IX.3 Liability of Administrative Agent. None of the Agent-Related --------------------------------- Persons shall (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (b) be responsible in any manner to any of the Lenders for any recital, statement, representation or warranty made by the 44 Guarantor or any Subsidiary or Affiliate of the Guarantor, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of the Guarantor or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Administrative Agent-Related Person shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Guarantor or any of the Guarantor's Subsidiaries or Affiliates. SECTION IX.4 Reliance by Administrative Agent. (a) The Administrative -------------------------------- Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Borrower or the Guarantor), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Required Lenders and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders. (b) For purposes of determining compliance with the conditions specified in Section 8.1, each Lender that has executed this Agreement shall be ----------- deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by the Administrative Agent to such Lender for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to such Lender. SECTION IX.5 Notice of Default. The Administrative Agent shall not be ----------------- deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Administrative Agent for the account of the Lenders, unless the Administrative Agent shall have received written notice from a Lender or the Borrower or the Guarantor referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". The Administrative Agent will notify the Lenders of its receipt of any such notice. 45 The Administrative Agent shall take such action with respect to such Default or Event of Default as may be requested by the Required Lenders in accordance with Article VII; provided, however, that unless and until the Administrative Agent - ----------- -------- ------- has received any such request, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable or in the best interest of the Lenders. SECTION IX.6 Credit Decision. Each of the Lenders acknowledges that none --------------- of the Agent-Related Persons has made any representation or warranty to it, and that no act by the Administrative Agent hereinafter taken, including any review of the affairs of the Guarantor and its Subsidiaries, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Guarantor and its Subsidiaries, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Borrower hereunder. Each Lender also represents that it will, independently and without reliance upon any Agent- Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Borrower or the Guarantor. Except for notices, reports and other documents expressly herein required to be furnished to the Lenders by the Administrative Agent, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Borrower or the Guarantor which may come into the possession of any of the Agent-Related Persons. SECTION IX.7 Indemnification. Whether or not the transactions --------------- contemplated hereby are consummated, the Lenders shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of the Borrower and without limiting the obligation of the Borrower to do so), pro rata, from and against any and all Indemnified Liabilities; provided, however, -------- ------- that no Lender shall be liable for the payment to the Agent-Related Persons of any portion of such Indemnified Liabilities resulting solely from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender shall reimburse the Administrative Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document 46 contemplated by or referred to herein, to the extent that the Administrative Agent is not reimbursed for such expenses by or on behalf of the Borrower. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of the Administrative Agent. SECTION IX.8 Administrative Agent in Individual Capacity. BofA and its ------------------------------------------- Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Guarantor and its Subsidiaries and Affiliates as though BofA were not the Administrative Agent hereunder and without notice to or consent of the Lenders. The Lenders acknowledge that, pursuant to such activities, BofA or its Affiliates may receive information regarding the Guarantor or its Affiliates (including information that may be subject to confidentiality obligations in favor of the Guarantor or such Subsidiary) and acknowledge that the Administrative Agent shall be under no obligation to provide such information to them. With respect to its Credit Extensions, BofA shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" include BofA in its individual capacity. SECTION IX.9 Successor Administrative Agent. The Administrative Agent ------------------------------ may, and at the request of the Required Lenders shall, resign as Administrative Agent upon 30 days' notice to the Lenders. If the Administrative Agent resigns under this Agreement, the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders which successor agent shall be approved by the Borrower. If no successor agent is appointed prior to the effective date of the resignation of the Administrative Agent, the Administrative Agent may appoint, after consulting with the Lenders and the Borrower, a successor agent from among the Lenders. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Administrative Agent and the term "Administrative Agent" shall mean such successor agent and the retiring Administrative Agent's appointment, powers and duties as Administrative Agent shall be terminated. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Article IX and Sections 11.4 and ---------- ------------- 11.5 shall inure to its benefit as to any actions taken or omitted to be taken - ---- by it while it was Administrative Agent under this Agreement. If no successor agent has accepted appointment as Administrative Agent by the date which is 30 days following a retiring Administrative Agent's notice of resignation, the retiring Administrative Agent's resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. SECTION IX.10 Withholding Tax. (a) If any Lender (other than a Lender --------------- located in Bermuda) is a "foreign corporation, partnership or trust" within the meaning of the Code and such Lender claims exemption from U.S. withholding tax under Sections 1441 or 1442 of the 47 Code, such Lender agrees with and in favor of the Administrative Agent, to deliver to the Administrative Agent and the Borrower: (i) if such Lender claims an exemption from withholding tax under a United States tax treaty, properly completed IRS Forms 1001 and W-8 before the payment of any interest in the first calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (ii) if such Lender claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Lender, two properly completed and executed copies of IRS Form 4224 before the payment of any interest is due in the first taxable year of such Lender and in each succeeding taxable year of such Lender during which interest may be paid under this Agreement, and IRS Form W-9; and (iii) such other form or forms as may be required under the Code or other laws of the United States as a condition to exemption from United States withholding tax. Each Lender agrees to promptly notify the Administrative Agent and the Borrower of any change in circumstances which would modify or render invalid any claimed exemption. (b) If any Lender claims exemption from withholding tax under a United States tax treaty by providing IRS Form 1001 and such Lender sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Borrower to such Lender, such Lender agrees to notify the Administrative Agent of the percentage amount in which it is no longer the beneficial owner of Obligations of the Borrower to such Lender. To the extent of such percentage amount, the Administrative Agent will treat such Lender's IRS Form 1001 as no longer valid. (c) If any Lender claiming exemption from United States withholding tax by filing IRS Form 4224 with the Administrative Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Borrower, such Lender agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the Code. (d) If the forms or other documentation required by subsection (a) of this Section are not delivered, then the Administrative Agent may withhold from any interest payment to such Lender not providing such forms or other documentation an amount equivalent to the applicable withholding tax. 48 (e) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify the Administrative Agent of a change in circumstances which rendered the exemption from withholding tax ineffective, or for any other reason) such Lender shall indemnify the Administrative Agent fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Administrative Agent under this Section, together with all costs and expenses (including Attorney Costs). The obligation of Lenders under this subsection shall survive the payment of all Obligations and the resignation or replacement of the Administrative Agent. ARTICLE X GUARANTY SECTION X.1 Guaranty. The Guarantor hereby absolutely, unconditionally -------- and irrevocably, as primary obligor and not merely as surety, guarantees the full and prompt payment when due, whether by acceleration or otherwise, and at all times thereafter, of all Obligations (monetary or otherwise) of the Borrower, to each of the Lenders and to the Administrative Agent, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, which arise out of or in connection with this Agreement or any other Loan Document, in each case as the same may be amended, modified, extended or renewed from time to time (all such obligations being herein collectively called the "Guaranteed Obligations"), ---------------------- The obligations of the Guarantor under this Article X constitute a guaranty --------- by the Guarantor of payment when due and not of collection and the Guarantor specifically agrees that it shall not be necessary or required that the Administrative Agent or any Lender exercise any right, assert any claim or demand or enforce any remedy whatsoever against the Borrower (or any other Person) before or as a condition to the obligations of the Guarantor hereunder. Any term or provision of this Article X or any other Loan Document to the --------- contrary notwithstanding, the aggregate maximum amount of the Guaranteed Obligations for which the Guarantor shall be liable shall not exceed the maximum amount for which the Guarantor can be liable without rendering the obligations of the Guarantor under this Article X or any other Loan Document as it relates --------- to the Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer. 49 SECTION X.2 Acceleration of Guaranty. The Guarantor agrees that, in the ------------------------ event of any Event of Default under Section 7.1(e), and if such event shall -------------- occur at a time when any of its Guaranteed Obligations are not then due and payable, the Guarantor shall pay to the Administrative Agent for the account of the Administrative Agent and the Lenders forthwith the full amount which would be payable hereunder by the Guarantor if all the Guaranteed Obligations were then due and payable. SECTION X.3 Guaranty Absolute, etc. The obligations of the Guarantor ---------------------- under this Article X shall in all respects be continuing, absolute, --------- unconditional and irrevocable, and shall remain in full force and effect until all the Guaranteed Obligations have been paid in full, finally and indefeasibly and all obligations of the Guarantor hereunder shall have been paid in full, finally and indefeasibly. The Guarantor guarantees that the Guaranteed Obligations shall be paid strictly in accordance with the terms of this Agreement and each other Loan Document under which they arise, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Administrative Agent or any Lender with respect thereto. The creation or existence from time to time of additional Guaranteed Obligations to the Administrative Agent or the Lenders or any of them is hereby authorized, without notice to the Guarantor, and shall in no way impair the rights of the Administrative Agent or the Lenders or the obligations of the Guarantor under this Article X, including the guaranty --------- hereunder of such additional Guaranteed Obligations. The liability of the Guarantor under this Article X shall be absolute, unconditional and irrevocable --------- irrespective of: (a) any lack of validity, legality or enforceability of this Agreement or any other Loan Document; (b) the failure of the Administrative Agent or any Lender (i) to assert any claim or demand or to enforce any right or remedy against the Borrower or any other Person (including any other guarantor) under the provisions of this Agreement or any other Loan Document or otherwise, or (ii) to exercise any right or remedy against any other guarantor of, or collateral securing, any Guaranteed Obligations; (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations, or any other extension, compromise or renewal of any Guaranteed Obligation; (d) any reduction, limitation, impairment or termination of any Guaranteed Obligations for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and the Guarantor hereby waives any right to or claim of) any defense or setoff, counterclaim, recoupment or termination whatsoever by 50 reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any Guaranteed Obligations; (e) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of this Agreement or any other Loan Document; (f) (i) any addition, exchange, release, surrender or non-perfection of any collateral or (ii) any amendment to or waiver or release or addition of, or consent to departure from, any other guaranty held by the Administrative Agent or any Lender, securing or supporting any of the Guaranteed Obligations; or (g) any other circumstance which might otherwise constitute a defense available to, or a legal or equitable discharge of, the Guarantor, the Borrower, any surety or any other guarantor. SECTION X.4 Reinstatement, etc. The Guarantor agrees that its obligations ------------------ under this Article X shall continue to be effective or be reinstated, as the --------- case may be, if at any time any payment (in whole or in part) of any of the Guaranteed Obligations is rescinded or must otherwise be restored by the Administrative Agent or any Lender, upon the insolvency, bankruptcy or reorganization of the Borrower, any other Person or otherwise, as though such payment had not been made. SECTION X.5 Waiver, etc. The Guarantor hereby waives promptness, ----------- diligence, notice of acceptance and any other notice with respect to any of the Guaranteed Obligations and its obligations under this Article X and any --------- requirement that the Administrative Agent or any Lender protect, secure, perfect or insure any security interest or Lien, or any property subject thereto, or exhaust any right or take any action against the Borrower or any other Person (including any other guarantor) or entity or any collateral securing any Guaranteed Obligations. SECTION X.6 Waiver of Subrogation and Contribution. Until the Guaranteed -------------------------------------- Obligations have been paid in cash indefeasibly in full, the Guarantor hereby irrevocably waives any claim or other rights which it may now or hereafter acquire against the Borrower or any other Person that arise from the existence, payment, performance or enforcement of the Guarantor's obligations under this Article X or any other Loan Document, including any right of subrogation, - --------- reimbursement, contribution, exoneration, or indemnification, any right to participate in any claim or remedy of the Administrative Agent or any Lender against the Borrower or any other Person or any collateral which the Administrative Agent or any Lender now has or hereafter acquires, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including the right to take or receive from the Borrower or any other Person, directly or indirectly, in cash or other property or by set-off or in any manner, payment or security 51 on account of such claim or other rights. If any amount shall be paid to the Guarantor in violation of the preceding sentence and the Guaranteed Obligations shall not have been paid in cash indefeasibly in full, such amount shall be deemed to have been paid to the Guarantor for the benefit of, and held in trust for, the Administrative Agent and the Lenders, and shall forthwith be paid to the Administrative Agent to be credited and applied upon the Guaranteed Obligations, whether matured or unmatured. The Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Agreement and that the waiver set forth in this Section is knowingly made in contemplation of such benefits. ARTICLE XI MISCELLANEOUS SECTION XI.1 Amendments and Waivers. No amendment or waiver of any ---------------------- provision of this Agreement or any other Loan Document, and no consent with respect to any departure by the Borrower therefrom, shall be effective unless the same shall be in writing and signed by the Required Lenders (or by the Administrative Agent at the written request of the Required Lenders) and the Borrower and acknowledged by the Administrative Agent, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or -------- ------- consent shall, unless in writing and signed by all the Lenders and the Borrower and acknowledged by the Administrative Agent, do any of the following: (a) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any other Loan Document; (b) reduce the principal of, or the rate of interest specified herein, or any fees or other amounts payable hereunder or under any other Loan Document; (c) change the definition of Required Lenders; or (d) amend this Section, or Section 2.10, or any provision herein ------------ providing for consent or other action by all Lenders; and, provided further, that no amendment, waiver or consent shall, unless in -------- ------- writing and signed by the Administrative Agent in addition to the Required Lenders or all the Lenders, as the case may be, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document. 52 SECTION XI.2 Notices. (a) All notices, requests and other communications ------- shall be in writing (including, unless the context expressly otherwise provides, by facsimile transmission, provided that any matter transmitted by the Borrower by facsimile (i) shall be immediately confirmed by a telephone call to the recipient at the number specified on Schedule 10.2, and (ii) except in the case ------------- of Notices of Borrowing and Notices of Conversions/Continuation, shall be followed promptly by delivery of a hard copy original thereof) and mailed, faxed or delivered, to the address or facsimile number specified for notices on Schedule 10.2; or, as directed to the Borrower or the Administrative Agent, to - ------------- such other address as shall be designated by such party in a written notice to the other parties, and as directed to any other party, at such other address as shall be designated by such party in a written notice to the Borrower and the Administrative Agent. (b) All such notices, requests and communications shall, when transmitted by overnight delivery, or faxed, be effective when delivered for overnight (next-day) delivery, or transmitted in legible form by facsimile machine, respectively, or, if delivered, upon delivery, except that notices pursuant to Article II or IX shall not be effective until actually received by ---------- -- the Administrative Agent. (c) Any agreement of the Administrative Agent, and the Lenders herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Borrower. The Administrative Agent and the Lenders shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Borrower to give such notice and the Administrative Agent and the Lenders shall not have any liability to the Borrower or other Person on account of any action taken or not taken by the Administrative Agent or the Lenders in reliance upon such telephonic or facsimile notice. The obligation of the Borrower to repay the Obligations shall not be affected in any way or to any extent by any failure by the Administrative Agent and the Lenders to receive written confirmation of any telephonic or facsimile notice or the receipt by the Administrative Agent and the Lenders of a confirmation which is at variance with the terms understood by the Administrative Agent and the Lenders to be contained in the telephonic or facsimile notice. SECTION XI.3 No Waiver; Cumulative Remedies. No failure to exercise and ------------------------------ no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. SECTION XI.4 Costs and Expenses. The Borrower shall: ------------------ (a) whether or not the transactions contemplated hereby are consummated, pay or reimburse BofA (including in its capacity as Administrative Agent) within ten Business Days after demand for all costs and expenses incurred by BofA (including in its capacity as 53 Administrative Agent) in connection with the development, preparation, delivery, administration and execution of, and any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement, any Loan Document and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including reasonable Attorney Costs incurred by BofA (including in its capacity as Administrative Agent) with respect thereto; and (b) pay or reimburse the Administrative Agent and each Lender within ten Business Days after demand for all costs and expenses (including Attorney Costs) incurred by them in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Agreement or any other Loan Document during the existence of an Event of Default or after acceleration of the Loans (including in connection with any "workout" or restructuring regarding the Credit Extensions, and including in any insolvency proceeding or appellate proceeding). SECTION XI.5 Indemnity. Whether or not the transactions contemplated --------- hereby are consummated, the Borrower shall indemnify and hold the Agent-Related Persons and each Lender and each of its respective officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person") ------------------ harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including Attorney Costs) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Obligations and the termination, resignation or replacement of the Administrative Agent or replacement of any Lender) be imposed on, incurred by or asserted against any such Person in any way relating to or arising out of this Agreement or any document contemplated by or referred to herein, or the transactions contemplated hereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including any insolvency proceeding or appellate proceeding) related to or arising out of this Agreement or the Credit Extensions or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "Indemnified Liabilities"); ----------------------- provided, that the Borrower shall have no obligation hereunder to any - -------- Indemnified Person with respect to Indemnified Liabilities resulting solely from the gross negligence or willful misconduct of such Indemnified Person. The agreements in this Section shall survive payment of all other Obligations. SECTION XI.6 Payments Set Aside. To the extent that the Borrower makes a ------------------ payment to the Administrative Agent or the Lenders, or the Administrative Agent or the Lenders exercise their right of set-off, and such payment or the proceeds of such set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any insolvency proceeding or otherwise, then (a) to the extent of such recovery the obligation or part 54 thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred, and (b) each Lender severally agrees to pay to the Administrative Agent upon demand its pro rata share of any amount so recovered from or repaid by the Administrative Agent. SECTION XI.7 Successors and Assigns. The provisions of this Agreement ---------------------- shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, except that neither Borrower nor the Guarantor may assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Administrative Agent and each Lender. SECTION XI.8 Assignments, Participations, etc. (a) Any Lender may, with --------------------------------- the written consent of the Borrower (at all times other than during the existence of an Event of Default) and the Administrative Agent, which consents shall not be unreasonably withheld (provided that no written consent of the Borrower or the Administrative Agent shall be required in connection with any assignment and delegation by a Lender to an Eligible Assignee that is an Affiliate of such Lender) (each an "Assignee") all, or any ratable part of all, -------- of the Credit Extensions and the other rights and obligations of such Lender hereunder, provided, however, that (x) the aggregate principal amount of the -------- ------- Credit Extensions assigned by any Lender to someone other than another Lender shall be in a minimum amount of $5,000,000 (or if less, the entire Credit Extensions then held by such Lender) and (y) after giving effect to any such assignment by a Lender, the aggregate amount of the Credit Extensions held by such assigning Lender is at least $5,000,000 (unless such Lender has assigned the entire Credit Extensions then held by it). The Guarantor and the Administrative Agent may continue to deal solely and directly with such Lender in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Borrower and the Administrative Agent by such Lender and the Assignee; (ii) such Lender and its Assignee shall have delivered to the Borrower and the Administrative Agent an Assignment and Acceptance in the form of Exhibit D --------- ("Assignment and Acceptance") and (iii) the assignor Lender or Assignee has paid ------------------------- to the Administrative Agent a processing fee in the amount of $3,000. (b) From and after the date that the Administrative Agent notifies the assignor Lender that it has received (and provided its consent with respect to) an executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Lender under the Loan Documents, and (ii) the assignor Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Documents. 55 (c) Immediately upon each Assignee's making its processing fee payment under the Assignment and Acceptance, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee. (d) Any Lender may at any time sell to one or more commercial banks or other Persons not Affiliates of the Borrower (a "Participant") participating ----------- interests in any Credit Extension and the other interests of that Lender (the "originating Lender") hereunder and under the other Loan Documents; provided, ------------------ -------- however, that (i) the originating Lender's obligations under this Agreement - ------- shall remain unchanged, (ii) the originating Lender shall remain solely responsible for the performance of such obligations, (iii) the Borrower and the Administrative Agent shall continue to deal solely and directly with the originating Lender in connection with the originating Lender's rights and obligations under this Agreement and the other Loan Documents, and (iv) no Lender shall transfer or grant any participating interest under which the Participant has rights to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment, consent or waiver would require unanimous consent of the Lenders as described in the first proviso to Section 10.1. In the case of any such ----- ------- ------------ participation, the Participant shall be entitled to the benefit of Sections 3.1, ------------ 3.3 and 10.5 to the extent the Lender selling such participation would be so - --- ---- entitled as though it were also a Lender hereunder, and if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement. (e) Notwithstanding any other provision in this Agreement, any Lender may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement in favor of any Federal Reserve Lender in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR 203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. SECTION XI.9 Confidentiality. Each of the Lenders agrees to take and to --------------- cause its Affiliates to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information identified as "confidential" or "secret" by the Borrower or the Guarantor and provided to it by the Borrower, the Guarantor or any Subsidiary, or by the Administrative Agent on the Borrower's, the Guarantor's or such Subsidiary's behalf, under this Agreement or any other Loan Document, and neither it nor any of its Affiliates shall use any such information other than in connection with or in enforcement of this Agreement and the other Loan Documents or in connection with other business now or hereafter existing or contemplated with the Guarantor or any Subsidiary; except to the extent such information (i) was or becomes generally available to the public other than as a result of disclosure by such Lender, or (ii) was or becomes available on a non-confidential basis from a source other than the 56 Borrower or the Guarantor, provided that such source is not bound by a confidentiality agreement with the Borrower or the Guarantor known to such Lender; provided, however, that any Lender may disclose such information (A) at -------- ------- the request or pursuant to any requirement of any Governmental Authority to which such Lender is subject or in connection with an examination of such Lender by any such authority; (B) pursuant to subpoena or other court process; (C) when required to do so in accordance with the provisions of any applicable Requirement of Law; (D) to the extent reasonably required in connection with any litigation or proceeding to which the Administrative Agent, any Lender or their respective Affiliates may be party; (E) to the extent reasonably required in connection with the exercise of any remedy hereunder or under any other Loan Document; (F) to such Lender's independent auditors and other professional advisors; (G) to any Participant or Assignee, actual or potential, provided that such Person agrees in writing to keep such information confidential to the same extent required of the Lenders hereunder; (H) to any Lender or its Affiliate, as expressly permitted under the terms of any other document or agreement regarding confidentiality to which the Borrower or the Guarantor or any Subsidiary is party or is deemed party with such Lender or such Affiliate; and (I) to its Affiliates which are either such Lender's parent or it or its parent's wholly owned Subsidiary or, with the prior written consent of the Borrower which shall not be unreasonably withheld, its other Affiliates. SECTION XI.10 Set-off. In addition to any rights and remedies of or the ------- Lenders provided by law, if an Event of Default exists or the Loans have been accelerated, the Administrative Agent and each Lender is authorized at any time and from time to time, without prior notice to the Borrower and the Guarantor, any such notice being waived by the Borrower or the Guarantor to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, the Administrative Agent or such Lender to or for the credit or the account of the Borrower or the Guarantor against any and all Obligations owing to the Administrative Agent or such Lender, now or hereafter existing, irrespective of whether or not or the Administrative Agent or such Lender shall have made demand under this Agreement or any Loan Document and although such Obligations may be contingent or unmatured. The Administrative Agent and each Lender exercising its right of set-off agrees promptly to notify the Borrower or the Guarantor and the Administrative Agent after any such set-off and application made by such Lender; provided, however, -------- ------- that the failure to give such notice shall not affect the validity of such set- off and application. SECTION XI.11 Notification of Addresses, Lending Offices, Etc. Each party ------------------------------------------------ hereto shall notify the Administrative Agent in writing of any changes in the address to which notices to such Person should be directed, of addresses of any Lending Office, of payment instructions in respect of all payments to be made to it hereunder and of such other administrative information as the Administrative Agent shall reasonably request. 57 SECTION XI.12 Counterparts. This Agreement may be executed in any number ------------ of separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument. SECTION XI.13 Severability. The illegality or unenforceability of any ------------ provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. SECTION XI.14 No Third Parties Benefitted. This Agreement is made and --------------------------- entered into for the sole protection and legal benefit of the Borrower, the Guarantor, the Lenders, the Administrative Agent and the Agent-Related Persons, and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. SECTION XI.15 Governing Law and Jurisdiction. (a) THIS AGREEMENT SHALL ------------------------------ BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK; PROVIDED THAT THE ADMINISTRATIVE AGENT AND THE LENDERS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWER, THE GUARANTOR, THE ADMINISTRATIVE AGENT AND THE LENDERS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE BORROWER, THE GUARANTOR, THE ADMINISTRATIVE AGENT, AND THE LENDERS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE -------------------- BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. EACH OF THE BORROWER, THE GUARANTOR, THE ADMINISTRATIVE AGENT AND THE LENDERS WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS AND IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID OR BY ANY OTHER MEANS PERMITTED BY NEW YORK OR FEDERAL LAW. SECTION XI.16 Waiver of Jury Trial. EACH OF THE BORROWER, THE GUARANTOR, -------------------- THE LENDERS AND THE ADMINISTRATIVE AGENT EACH WAIVE 58 THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWER, THE GUARANTOR, THE LENDERS AND THE ADMINISTRATIVE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. SECTION XI.17 Currency Indemnity. If, for the purposes of obtaining ------------------ judgment in any court in any jurisdiction with respect to any Loan Document, it becomes necessary to convert into the currency of such jurisdiction (the "Judgment Currency") any amount due under any Loan Document in any currency ----------------- other than the Judgment Currency (the "Currency Due"), then conversion shall be ------------ made at the rate of exchange prevailing on the Business Day before the day on which judgment is given. For this purpose, "rate of exchange" means the rate at which the Administrative Agent is able, on the relevant date, to purchase the Currency Due with the Judgment Currency in accordance with its normal practice at its main branch in Charlotte, North Carolina. In the event that there is a change in the rate of exchange prevailing between the Business Day before the day on which the judgment is given and the date of payment of the amount due, the Borrower or the Guarantor, as the case may be, will, on the day of payment, pay such additional amount, if any, or be entitled to receive reimbursement of such amount, if any, as may be necessary to ensure that the amount paid on such date is the amount in the Judgment Currency which when converted at the rate of exchange prevailing on the date of payment is the amount then due under any Loan Document in the Currency Due. If the amount of the Currency Due which the Administrative Agent is so able to purchase is less than the amount of the Currency Due originally due to it, the Borrower or the Guarantor, as the case may be, shall indemnify and save the Administrative Agent harmless from and against loss or damage arising as a result of such deficiency. This indemnity shall constitute an obligation separate and independent from the other obligations contained in any Loan Document, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by the Administrative Agent from time to time and shall continue in full force and effect 59 notwithstanding any judgment or order for a liquidated sum in respect of an amount due under any Loan Document or under any judgment or order. SECTION XI.18 Entire Agreement. This Agreement, together with the other ---------------- Loan Documents, embodies the entire agreement and understanding among the Borrower, the Guarantor, the Lenders and the Administrative Agent, and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof. 60 OVERSEAS PARTNERS CAPITAL CORP., as Borrower By: /s/ Mark R. Bridges Title: Treasurer S-1 OVERSEAS PARTNERS LTD., as Guarantor By: /s/ Mary R. Hennessy Title: President and CEO S-2 BANK OF AMERICA, NATIONAL ASSOCIATION, as Administrative Agent and Lender By: /s/ Gary R. Peet Title: ______________________________________ S-3 EX-10.(EEE) 6 0006.txt PURCHASE AND SALE AGREEMENT, MADISON PLAZA EXHIBIT 10(eee) PURCHASE AND SALE AGREEMENT THIS PURCHASE AND SALE AGREEMENT (the "Agreement") is made as of the 27th day of November, 2000 (the "Effective Date"), by and between OVERSEAS PARTNERS (MADISON PLAZA) LLC, an Illinois limited liability company ("Seller"), having an office at 115 Perimeter Center Place, Suite 940, Atlanta, Georgia 30346, and TST MADISON PLAZA, LLC, a Delaware limited liability company ("Purchaser"), having an office at 520 Madison Avenue, New York, New York 10022. W I T N E S S E T H: ARTICLE I PURCHASE AND SALE 1.1 Agreement of Purchase and Sale. Subject to the terms and conditions ------------------------------ hereinafter set forth, Seller agrees to sell and convey and Purchaser agrees to purchase the following: (a) that certain tract or parcel of land situated in Cook County, Illinois, more particularly described on Exhibit 1.1(a) attached hereto and -------------- made a part hereof, together with all and singular the rights and appurtenances pertaining to such property, including any right, title and interest of Seller in and to adjacent streets, alleys or rights-of-way (the property described in clause (a) of this Section 1.1 being herein referred to collectively as the "Land"); (b) the buildings, structures, fixtures and other improvements on the Land, including specifically, without limitation, that certain office building located thereon having a street address of 200 West Madison Street, Chicago, Illinois (the property described in clause (b) of this Section 1.1 being herein referred to collectively as the "Improvements"); (c) all of Seller's right, title and interest in and to all tangible personal property upon the Land or within the Improvements, including specifically, without limitation, appliances, furniture, carpeting, draperies and curtains, artwork and sculptures, tools and supplies, equipment, computers, plans, specifications and other items of personal property (excluding cash, proprietary software, internal analyses, information regarding the marketing of the Land and Improvements for sale, submissions relating to Seller's obtaining of company authorization, attorney and accountant work product, or other information in the possession or control of Seller or Seller's property manager 1 which Seller reasonably deems proprietary) relating to and used exclusively in connection with the operation of the Land and the Improvements including, without limitation, the items listed on Exhibit 1.1(c) attached -------------- hereto and made a part hereof (the property described in clause (c) of this Section 1.1 being herein referred to collectively as the "Personal Property"); (d) all of Seller's right, title and interest in and to all agreements listed and described on Exhibit 1.1(d) (the "Lease Schedule") attached -------------- hereto and made a part hereof, pursuant to which any portion of the Land or Improvements is used or occupied by anyone other than Seller (the property described in clause (d) of this Section 1.1 being herein referred to collectively as the "Leases"); and (e) all of Seller's right, title and interest in and to (i) the assignable contracts and agreements (collectively, the "Operating Agreements") listed and described on Exhibit 1.1(e) (the "Operating -------------- Agreements Schedule") attached hereto and made a part hereof, relating to the upkeep, repair, maintenance or operation of the Land, Improvements or Personal Property which will extend beyond the date of Closing (as such term is defined in Section 4.1 hereof, including specifically, without limitation, assignable equipment leases, which Purchaser elects to assume pursuant to Section 3.3 hereof, (ii) all assignable existing warranties and guaranties (expressed or implied) issued to Seller in connection with the Improvements or the Personal Property, (iii) all permits and licenses relating to the use and operation of the Land, Improvements or Personal Property and (iv) the name "Madison Plaza" (the property described in this Section 1.1(e) being sometimes herein referred to collectively as the "Intangibles"). 1.2 Property Defined. The Land, the Improvements, the Personal Property, ---------------- the Leases and the Intangibles are hereinafter sometimes referred to collectively as the "Property." 1.3. Permitted Exceptions. The Property shall be conveyed subject to the -------------------- matters which are, or are deemed to be, Permitted Exceptions pursuant to Article II hereof (herein referred to collectively as the "Permitted Exceptions"). 1.4 Purchase Price. Seller is to sell and Purchaser is to purchase the -------------- Property for a total of ONE HUNDRED SIXTY MILLION DOLLARS ($160,000,000) (the "Purchase Price"). 1.5 Payment of Purchase Price. The Purchase Price, as increased or ------------------------- decreased by prorations and adjustments as herein provided, less the principal amount outstanding on the Existing Loan as of the date of Closing, shall be payable in full at Closing in cash by wire transfer of immediately available federal funds to the closing escrow with Escrow Agent (hereinafter defined). 1.6 Earnest Money. Within two (2) business days of the execution and ------------- delivery of this Agreement, Purchaser shall deposit with Commonwealth Land Title Insurance Company (the "Escrow Agent"), the sum of One Million Dollars ($1,000,000) in good funds, either by certified bank or cashier's check or by federal wire transfer (the "Earnest Money"). Buyer shall have the right to provide, in lieu of cash, an irrevocable, unconditional letter of credit in form 2 reasonably satisfactory to Purchaser issued by a financial institution reasonably acceptable to Seller which may be presented in Chicago, Illinois. The Escrow Agent shall hold the Earnest Money in an interest-bearing account in accordance with the terms and conditions of an escrow agreement entered into among Seller, Purchaser and Escrow Agent simultaneously with the execution of this Agreement. All interest accruing on such sum shall become a part of the Earnest Money and shall be distributed as Earnest Money in accordance with the terms of this Agreement. 1.7 Existing Loan. ------------- (a) Assumption of Existing Loan. It shall be a condition to --------------------------- Purchaser's obligation to close the purchase of the Property that Lender (as defined below) consent to the sale of the Property to Purchaser subject to the mortgage securing the Existing Loan (as defined below) and the assumption by Purchaser of the Existing Loan, on the terms and conditions set forth in Section 1.7(b) below, prior to the expiration of the Inspection Period. The "Existing Loan" shall mean that certain loan in the original principal amount of $125,000,000 from New York Life Insurance Company ("Lender") to Seller, having an outstanding principal balance as of the Effective Date of approximately $122,438,176. (b) Approval by Lender. Seller and Purchaser, at Purchaser's sole ------------------ expense, shall together promptly endeavor to obtain (i) Lender's written consent to Purchaser's assumption of the Existing Loan, (ii) Lender's agreement to release Seller, Overseas Partners Capital Corp. ("OPCC") and Overseas Holding Company, Inc. ("OHC") from all obligations and liability relating to the Existing Loan relating to the period from and after the date of Closing, and (iii) an estoppel certificate from Lender concerning the Existing Loan confirming (A) that the Existing Loan is not in default, (B) the outstanding principal balance of the Existing Loan, (C) that the Existing Loan Documents are all of the documents in connection with the Existing Loan, and (D) such other facts regarding the Existing Loan as Purchaser may reasonably require. In connection with the request for Lender's approval, Purchaser shall promptly supply to Lender such information and documentation as is required by Lender and, if necessary, shall provide a credit-worthy entity to assume the obligations of the "Guarantor" under the Existing Loan Documents. Purchaser's assumption of the Existing Loan is subject to the aforesaid consent of Lender to such assumption and the release by Lender of Seller, OPCC and OHC. If such consent and release are not obtained and Purchaser does not terminate this Agreement prior to the end of the Inspection Period pursuant to Section 3.2 hereof, Seller and Purchaser shall each have the right to extend the date by which such consent and release are to be obtained by up to thirty (30) days by delivering written notice of such extension to the other party on or prior to the expiration of the Inspection Period. If such consent and release are not obtained by such extended date, this Agreement shall terminate and the Earnest Money shall be returned to Purchaser. The aforesaid consent shall not be deemed to have been given if it requires any modifications to the Existing Loan Documents which are adverse to Purchaser or requires the payment of any fees or costs not provided in the Existing Loan Documents which are not payable by Purchaser hereunder, unless Seller agrees to pay such fees or costs. 3 (c) Payment of Fees and Charges. Purchaser shall pay all fees and --------------------------- charges of Lender for the assumption of the Existing Loan as provided in the Existing Loan Documents, including, without limitation, the 0.75% assumption fee and any additional amounts that may be charged by Lender for transaction costs and attorney's fees. Purchaser shall also pay any servicing fee actually charged by Lender in connection with the request for consent to the assumption of the Existing Loan. ARTICLE II TITLE AND SURVEY 2.1 Title Examination; Commitment for Title Insurance. Purchaser shall ------------------------------------------------- have until the expiration of the Inspection Period (defined in Section 3.1 hereof) to examine title to the Property. Within five (5) business days following the execution and delivery of this Agreement, Seller shall deliver to Purchaser and the Surveyor (hereinafter defined), a current ALTA title insurance commitment (the "Title Commitment") covering the Land and Improvements from Commonwealth Land Title Insurance Company (the "Title Company"), showing all matters affecting title to the Property and binding the Title Company to issue at Closing an Owner's Policy of Title Insurance in the full amount of the Purchase Price pursuant to Section 2.4 hereof, together with copies of all instruments referenced in Schedule B thereof. 2.2 Survey. Seller has delivered to Purchaser a copy of the existing ------ survey of the Property dated May 7, 1998 (the "Existing Survey") prepared by Chicago Guaranty Survey Company (the "Surveyor"). Within ten (10) business days following the execution and delivery of this Agreement, Seller shall deliver to Purchaser and the Title Company an updated survey of the Property (the "Survey") dated after November 16, 2000, prepared by the Surveyor in accordance with the same ALTA standards as the Existing Survey and certified to Seller, Purchaser, Lender and the Title Company. 2.3 Title Objections; Cure of Title Objections. Purchaser shall have ------------------------------------------ until the expiration of the Inspection Period to notify Seller, in writing, of such objections as Purchaser may have to anything contained in the Title Commitment or the Survey. Any item contained in the Title Commitment or any matter shown on the Survey to which Purchaser does not object during the Inspection Period shall be deemed a Permitted Exception. In the event Purchaser shall notify Seller of objections to title or to matters shown on the Survey prior to the expiration of the Inspection Period, Seller shall have the right, but not the obligation, to cure such objections. Within five (5) business days after receipt of Purchaser's notice of objections, Seller shall notify Purchaser in writing whether Seller elects to cure such objections, provided, however, Seller must cure liens of a definite or ascertainable amount (other than the liens securing the Existing Loan). If Seller elects to cure, and provided that Purchaser shall not have terminated this Agreement in accordance with Section 3.2 hereof, Seller shall have until the date of Closing to remove, satisfy or cure the same and for this purpose Seller shall be entitled to a reasonable adjournment of the Closing if additional time is required, but in no event shall the adjournment exceed thirty (30) days after the date for Closing set forth in Section 4.1 hereof. If Seller elects 4 not to cure any objections specified in Purchaser's notice, other than those Seller is required to cure pursuant to this Section 2.3, Purchaser shall have the following options: (i) to accept a conveyance of the Property subject to the Permitted Exceptions, specifically including any matter objected to by Purchaser which Seller is unwilling or unable to cure, and without reduction of the Purchase Price; or (ii) to terminate this Agreement by sending written notice thereof to Seller, and upon delivery of such notice of termination, this Agreement shall terminate and the Earnest Money shall be returned to Purchaser, and thereafter neither party hereto shall have any further rights, obligations or liabilities hereunder except to the extent that any right, obligation or liability set forth herein expressly survives termination of this Agreement. If Seller notifies Purchaser that Seller does not intend to cure any title objection which it is not required to cure pursuant to this Section 2.3, Purchaser shall, within five (5) business days after such notice has been given, notify Seller in writing whether Purchaser shall elect to accept the conveyance under clause (i) or to terminate this Agreement under clause (ii). 2.4 Title Policy. It shall be a condition to Closing that Purchaser ------------ receive from the Title Company an ALTA Owner's Policy of Title Insurance (the "Title Policy") covering the Land and Improvements, in the full amount of the Purchase Price with "extended coverage", ALTA Form 3.1 zoning endorsement (including parking requirements) and such other endorsements as Purchaser may reasonably require, subject to the following matters, which shall be deemed to be Permitted Exceptions: (a) the rights of tenants, as tenants only, under the Leases and any new Leases entered into between the Effective Date and Closing and, where required, approved by Purchaser in accordance with the terms of this Agreement; (b) the lien of all ad valorem real estate taxes and assessments not yet due and payable as of the date of Closing; (c) local, state and federal laws, ordinances or governmental regulations, including but not limited to, building and zoning laws, ordinances and regulations, now or hereafter in effect relating to the Property; (d) the mortgage and other instruments securing the Existing Loan; and (e) items appearing of record or shown on the Survey and, in either case, not objected to by Purchaser or waived or deemed waived by Purchaser in accordance with Sections 2.3 or 2.5 hereof. 2.5 Pre-Closing "Gap" Title Defects. Whether or not Purchaser shall have ------------------------------- furnished to Seller any notice of title objections pursuant to the foregoing provisions of this Agreement, Purchaser may, at or prior to Closing, notify Seller in writing of any objections to title first raised by the Title Company or the Surveyor between (a) the effective date of the Title Commitment referred to above (as such Title Commitment may be amended no later than three (3) business days prior to the expiration of the Inspection Period), and (b) the date on which the transaction contemplated herein is scheduled to close. With respect to any objections to title set forth in such notice, Seller shall have the 5 same option or obligation to cure and Purchaser shall have the same option to accept title subject to such matters or to terminate this Agreement as those which apply to any notice of objections made by Purchaser before the expiration of the Inspection Period. In addition, Seller shall be obligated to cure any matters caused by the intentional acts of Seller which were not approved by Purchaser. If Seller elects to cure any such matters, the date for Closing shall be automatically extended by a reasonable additional time to effect such a cure, but in no event shall the extension exceed thirty (30) days after the date for Closing set forth in Section 4.1 hereof. ARTICLE III INSPECTION PERIOD 3.1 Right of Inspection. During the period which began on November 9, ------------------- 2000 and which ends at 5:00 p.m. (local time at the Property) on the earlier to occur of (a) the date which is thirty (30) days following the Effective Date, or (b) December 29, 2000 (hereinafter referred to as the "Inspection Period"), Purchaser shall have the right to make a physical inspection of the Property, to perform tests on the Property and to examine at such place or places at the Property, in the offices of the property manager or elsewhere as the same may be located, any operating files maintained by Seller or its property manager in connection with the leasing, maintenance and/or management of the Property, including, without limitation, the Leases, lease files, Operating Agreements, bills, invoices, receipts and other general records (including computer records) relating to the income and expenses of the Property, correspondence, surveys, plans and specifications, warranties for services and materials provided to the Property, engineering reports, physical inspection reports, licenses, permits, financial statements for the years 1998, 1999 and 2000 to date, environmental audits and similar materials, but excluding materials not directly related to the leasing, maintenance and/or management of the Property such as Seller's limited liability company agreement, internal memoranda, accounting records of Seller not related to the Property, income tax records and similar proprietary or confidential information. Purchaser shall also have the right to interview tenants at the Property provided Purchaser gives Seller reasonable prior written notice thereof, Seller approves the matters to be discussed with the tenant and Seller has a representative present at such interview. Seller shall deliver to Purchaser copies of the items listed on Exhibit 3.1 attached hereto. Purchaser ----------- understands and agrees that any on-site inspections or testing of the Property shall be conducted upon at least twenty-four (24) hours' prior written notice to Seller and in the presence of Seller or its representative. Any such inspections and testing shall be performed by companies selected by Purchaser and approved by Seller, which approval shall not be unreasonably withheld. Purchaser agrees to repair any damage to the Property and to indemnify Seller against and hold Seller harmless from any claim for liabilities, costs, expenses (including reasonable attorneys' fees actually incurred) damages or injuries arising out of or resulting from the inspection or testing of the Property by Purchaser or its consultants or agents, and notwithstanding anything to the contrary in this Agreement, such obligation to repair and to indemnify and hold harmless Seller shall survive Closing or any termination of this Agreement for a period of two hundred seventy (270) days. Purchaser shall maintain and shall ensure that Purchaser's consultants maintain public liability and property damage insurance in the amount of $1,000,000 and in form 6 and substance adequate to insure against liability of Purchaser and its consultants, respectively, and each of its agents, employees or contractors, arising out of the inspections or testing. All inspections and testing shall occur at reasonable times agreed upon by Seller and Purchaser and shall be conducted so as not to interfere unreasonably with use of the Property by Seller or its tenants. 3.2 Right of Termination. Seller agrees that in the event Purchaser -------------------- determines (such determination to be made in Purchaser's sole discretion) that the Property is not suitable for its purposes, Purchaser shall have the right to terminate this Agreement by giving written notice thereof to Seller prior to the expiration of the Inspection Period. If Purchaser gives such notice of termination within the Inspection Period, this Agreement shall terminate and the Earnest Money shall be returned to Purchaser. Time is of the essence with respect to the provisions of this Section 3.2. If Purchaser falls to give Seller a notice of termination prior to the expiration of the Inspection Period, Purchaser shall no longer have any right to terminate this Agreement under this Section 3.2 and shall be bound to proceed to Closing and consummate the transaction contemplated hereby pursuant to the terms of this Agreement. 3.3 Assumption of Operating Agreements. Prior to the expiration of the ---------------------------------- Inspection Period, Purchaser shall notify Seller of those Operating Agreements which Purchaser does not desire to assume which are either (a) terminable upon not more than thirty (30) days notice without cost to Seller, or (b) terminable with cost to Seller and Purchaser agrees to pay such cost. Seller shall use reasonable efforts to cause such Operating Agreements to be terminated effective as of Closing, provided however, if such Operating Agreements can not be terminated as of Closing, Purchaser shall assume such Operating Agreements for the period from Closing until termination. Except as specifically to the contrary provided herein, all management, leasing and brokerage agreements relating to the Property shall be terminated as of Closing. ARTICLE IV CLOSING 4.1 Time and Place. The consummation of the transaction contemplated -------------- hereby ("Closing") shall be held at the offices of the Escrow Agent in Chicago, Illinois at 10:00 a.m. on the date which is the later to occur of (a) five (5) business days following receipt by Seller and Purchaser of Lender's written consent to the assumption of the Existing Loan by Purchaser and the release of Seller, OPCC and OHC, or (b) January 12, 2001, or such earlier date mutually agreed to by Seller or Purchaser. At Closing, Seller and Purchaser shall perform the obligations set forth in, respectively, Section 4.2 and Section 4.3, the performance of which obligations shall be concurrent conditions. 4.2 Seller's Obligations at Closing. At Closing, Seller shall: ------------------------------- (a) deliver to Purchaser a duly executed special warranty deed (the "Deed") in the form attached hereto as Exhibit 4.2(a), conveying the Land -------------- and Improvements, subject only to the Permitted Exceptions; 7 (b) deliver to Purchaser a duly executed bill of sale conveying the Personal Property and assigning the Intangibles with warranty of title as to the Personal Property listed on Exhibit 1.1(c) (other than the sculpture -------------- located on the plaza), and without warranty, expressed or implied, as to merchantability and fitness for any purpose, in the form attached hereto as Exhibit 4.2(b); -------------- (c) assign to Purchaser, and Purchaser shall assume, the landlord/lessor interest in and to the Leases by duly executed assignment and assumption agreement in the form attached hereto as Exhibit 4.2(c) -------------- pursuant to which (i) Seller shall indemnify Purchaser and hold Purchaser harmless from and against any and all claims pertaining to the Leases relating to periods prior to Closing and (ii) Purchaser shall indemnify Seller and hold Seller harmless from and against any and all claims pertaining to the Leases relating to periods from and after the Closing, including without limitation, claims made by tenants with respect to tenants' security deposits to the extent paid, credited or assigned to Purchaser; (d) to the extent assignable, assign to Purchaser, and Purchaser shall assume, Seller's interest in the Operating Agreements which are not terminated in accordance with Section 3.3 hereof by duly executed assignment and assumption agreement in the form attached hereto as Exhibit ------- 4.2(d) pursuant to which (i) Seller shall indemnify Purchaser and hold ------ Purchaser harmless from and against any and all claims pertaining to such Operating Agreements relating to periods prior to Closing and (ii) Purchaser shall indemnify Seller and hold Seller harmless from and against any and all claims pertaining to such Operating Agreements relating to periods from and after the Closing; (e) deliver to Purchaser such Tenant Estoppels (as defined in Section 4.6(d) hereof) as are received by Seller and such Seller Estoppels (as defined in Section 4.6(d) hereof) as Seller is required to deliver pursuant to Section 4.6(d); (f) join with Purchaser to execute a notice in form and content reasonably satisfactory to Purchaser and Seller which Purchaser shall send to each tenant under each of the Leases informing such tenant of the sale of the Property and of the assignment to Purchaser of Seller's interest in, and obligations under, the Leases (including, if applicable any security deposits) and directing that all rent and other sums payable after the Closing under each such Lease shall be paid as set forth in the notice; (g) deliver to Purchaser a certificate, dated as of the date of Closing and executed on behalf of Seller by a duly authorized officer thereof, stating that the representations and warranties of Seller contained in this Agreement are true and correct in all material respects as of the date of Closing (with appropriate modifications of those representations and warranties made in Section 5.1 hereof which are necessary to reflect any changes therein including without limitation any changes resulting from actions permitted under Section 5.4 hereof and an updated Lease Schedule) or identifying any representation or warranty which is no longer true and correct and explaining the state of facts giving rise to the change. In no event shall Seller be liable to Purchaser for, or be deemed to be in default hereunder by reason of, any breach of representation or warranty 8 which results from any change that (i) occurs between the Effective Date and the date of Closing and (ii) is expressly permitted under the terms of this Agreement or is beyond the reasonable control of Seller to prevent (and is not caused by a breach of a covenant of Seller hereunder); provided, however, that the occurrence of a change which is permitted hereunder or is beyond the reasonable control of Seller to prevent shall, if materially adverse to Purchaser, constitute the non-fulfillment of the condition set forth in Section 4.6(b); if, despite changes or other matters described in such certificate, the Closing occurs, Seller's representations and warranties set forth in this Agreement shall be deemed to have been modified by all statements made in such certificate; (h) deliver to Purchaser such evidence as Purchaser's counsel and/or the Title Company may reasonably require as to the authority of the person or persons executing documents on behalf of Seller; (i) deliver to Purchaser an affidavit duly executed by Seller stating that Seller is not a "foreign person" as defined in the Federal Foreign Investment in Real Property Tax Act of 1980 and the 1984 Tax Reform Act; (j) deliver to Purchaser originals (if in Seller's possession) or copies of the Leases, Operating Agreements and licenses and permits, if any, in the possession of Seller or Seller's agents, together with such leasing and property files and records (including computer files) which are material in connection with the continued operation, leasing and maintenance of the Property. Provided Purchaser then owns the Property, Purchaser shall cooperate with Seller for a period of seven (7) years after Closing in case of Seller's need in response to any legal requirement, a tax audit, tax return preparation or litigation threatened or brought against Seller, by allowing Seller and its agents or representatives access, upon reasonable advance notice (which notice shall identify the nature of the information sought by Seller), at all reasonable times to examine and make copies of any and all instruments, files and records, which right shall survive the Closing; (k) deliver to Purchaser an assignment and assumption agreement relating to the Existing Loan pursuant to which Seller assigns the Existing Loan to Purchaser without recourse and Purchaser assumes all obligations of Seller under the Existing Loan; (l) deliver to Purchaser possession and occupancy of the Property, subject to the Permitted Exceptions; (m) deliver to the Title Company such documents as may be required by the Title Company to issue the Title Policy, including a gap undertaking and ALTA statement; and (n) deliver such additional documents as shall be reasonably required to consummate the transaction contemplated by this Agreement. 9 4.3 Purchaser's Obligations at Closing. At Closing, Purchaser shall: ---------------------------------- (a) pay to Seller the full amount of the Purchase Price, as increased or decreased by prorations and adjustments as herein provided, in immediately available wire transferred funds pursuant to Section 1.5 above, it being agreed that at Closing the Earnest Money shall be delivered to Seller and applied towards payment of the Purchase Price; (b) join Seller in execution of the instruments described in Sections 4.2(c), 4.2(d), 4.2(f) and 4.2(k) above; (c) deliver to Seller a certificate executed by Purchaser confirming that the representations and warranties of Purchaser set forth in Section 5.5 are true and correct on the date of Closing; (d) deliver a complete release of Seller, OPCC and OHC from all liability and obligations relating to the period from and after Closing in connection with the Existing Loan signed by Lender; (e) deliver to Seller such evidence as Seller's counsel and/or the Title Company may reasonably require as to the authority of the person or persons executing documents on behalf of Purchaser; and (f) deliver such additional documents as shall be reasonably required to consummate the transaction contemplated by this Agreement. 4.4 Credits and Prorations. ---------------------- (a) The following shall be apportioned with respect to the Property as of 12:01 a.m., on the day of Closing, as if Purchaser were vested with title to the Property during the entire day upon which Closing occurs: (i) rents, if any, as and when collected (the term "rents" as used in this Agreement includes all payments due and payable by tenants under the Leases); (ii) general real estate taxes and assessments ("Taxes") levied against the Property which are payable in the year of the Closing in accordance with Section 4.4(b)(ii) below; (iii) payments under the Operating Agreements being assumed by Purchaser; (iv) gas, electricity and other utility charges for which Seller is liable, if any, such charges to be apportioned at Closing on the basis of the most recent meter reading occurring prior to Closing; 10 (v) accrued and unpaid interest under the Existing Loan for the month in which the Closing occurs; and (vi) any other operating expenses or other items pertaining to the Property which are customarily prorated between a purchaser and a seller in the area in which the Property is located. (b) Notwithstanding anything contained in the foregoing provisions: (i) At Closing, (A) Seller shall, at Seller's option, either deliver to Purchaser any security deposits actually held by Seller pursuant to the Leases or credit to the account of Purchaser the amount of such security deposits (to the extent such security deposits are not applied against delinquent rents as shown on the Lease Schedule or otherwise as provided in the Leases), and (B) Purchaser shall credit to the account of Seller all refundable cash or other deposits posted with utility companies serving the Property, or, at Seller's option, Seller shall be entitled to receive and retain such refundable cash and deposits. (ii) Purchaser acknowledges that Taxes assessed in a calendar year are payable one year in arrears and in two installments. Seller shall be responsible for the payment of all Taxes due and payable up to the Closing. If the Closing occurs in the year 2000, Seller shall receive a credit for Taxes paid in the year 2000 for the period from the date of Closing to the end of the year. If the Closing occurs in the year 2001, Purchaser shall receive a credit for the period from January 1, 2001 to the day preceding the date of Closing based on the greater of (a) Seller's estimate of Taxes payable in year 2001 for purposes of collecting from tenants their proportionate share of such Taxes, and (b) the Taxes paid in the year 2000 (the "Tax Proration Credit"). Purchaser shall be responsible for the payment of the Taxes payable in 2001. To the extent that the actual Taxes paid in 2001 differs from the amount on which the proration was based, the parties agree to reprorate such Taxes within thirty (30) days of receipt of the actual tax bill applicable to such period. Seller shall pay all installments of special assessments due and payable prior to the date of Closing and Purchaser shall pay all installments of special assessments due and payable on and after the date of Closing. Notwithstanding the foregoing terms of this section, Seller shall have no obligation to pay (and Purchaser shall not receive a credit at Closing for) any Taxes to the extent that Purchaser is entitled after Closing to reimbursement of Taxes, or the recovery of any increase in Taxes, from the tenants under the Leases, regardless of whether Purchaser actually collects such reimbursement or increased taxes and assessments from such tenants, it being understood and agreed by Purchaser and Seller that (a) as between Purchaser and Seller, Purchaser shall be responsible for payment of all of such Taxes and (b) the burden of collecting such reimbursements shall be solely on Purchaser. (iii) As to gas, electricity and other utility charges referred to in Section 4.4(a)(iv) above, Seller may on notice to Purchaser elect to pay one or more of all 11 of said items accrued to the date hereinabove fixed for apportionment directly to the person or entity entitled thereto, and to the extent Seller so elects, such item shall not be apportioned hereunder, and Seller's obligation to pay such item directly in such case shall survive the Closing. (iv) Purchaser shall be responsible for the payment of (A) all Tenant Inducement Costs (as hereinafter defined) and leasing commissions which become due and payable (whether before or after Closing) as a result of any renewals or expansions of existing Leases or new Leases entered into between November 9, 2000 and the date of Closing (other than those which are the Seller's responsibility to pay as described below), (B) the unused portion of the tenant improvement allowance payable to National Futures Association in the amount of $162,450, and (C) all Tenant Inducement Costs and leasing commissions with respect to new Leases or renewals or expansions entered into by Purchaser after Closing (other than those which are Seller's responsibility to pay as described below), including leasing commissions payable to Overseas Management, Inc. with respect to new leases or renewals or expansions of existing Leases entered into by Purchaser within one hundred eighty (180) days after Closing with the parties shown on Exhibit 4.4(b)(iv)(A) attached hereto and such other ------------------ parties with whom substantive discussions have taken place and to whom lease proposals approved, in writing, by Seller's asset manager and Purchaser have been sent after the Effective Date. If, as of the date of Closing, Seller shall have paid any Tenant Inducement Costs or leasing commissions for which Purchaser is responsible pursuant to the foregoing provisions, Purchaser shall reimburse Seller therefor at Closing. Except as provided above, Seller shall be responsible for the payment of all Tenant Inducement Costs and leasing commissions which become due and payable with regard to (y) renewals, expansions and new leases entered into prior to November 9, 2000, and (z) the renewals, expansions and new leases described on Exhibit 4.4(b)(iv)(B) attached hereto, entered into on or after November 9, 2000 to the extent of the amounts set forth thereon. For purposes hereof, the term "Tenant Inducement Costs" shall mean reasonable attorneys' fees and costs incurred in connection with the preparation and negotiation of a new Lease or a renewal or expansion of an existing Lease and any out-of-pocket payments required under a Lease to be paid by the landlord thereunder to or for the benefit of the tenant thereunder which is in the nature of a tenant inducement, including specifically, without limitation, tenant improvement costs, space planning costs, construction management fees, lease buyout costs, and moving, design and refurbishment allowances. The term "Tenant Inducement Costs" shall not include any mid-term decorating or carpeting allowances or the loss of income resulting from any free rental period, it being agreed that Seller shall bear the loss resulting from any free rental period until the date of Closing and that Purchaser shall bear such loss from and after the date of Closing. (v) Unpaid and delinquent rent collected by Seller and Purchaser after the date of Closing shall be delivered as follows: (a) if Seller collects any unpaid or delinquent rent for the Property, Seller shall, promptly after the receipt thereof, 12 deliver to Purchaser any such rent which Purchaser is entitled to hereunder relating to the date of Closing and any period thereafter, and (b) if Purchaser collects any unpaid or delinquent rent from the Property, Purchaser shall, promptly after the receipt thereof, deliver to Seller any such rent which Seller is entitled to hereunder relating to the period prior to the date of Closing. Seller and Purchaser agree that all rent received by Seller or Purchaser after the date of Closing shall be applied first to current rentals and then to delinquent rentals, if any, in inverse order of maturity. Purchaser will make a good faith effort after Closing to collect all rents in the usual course of Purchaser's operation of the Property, but Purchaser will not be obligated to institute any lawsuit or other collection procedures to collect delinquent rents. In the event that there shall be any rents or other charges under any Leases which, although relating to a period prior to Closing, do not become due and payable until after Closing or are paid prior to Closing but are subject to adjustment after Closing (such as real estate tax escalations, year end operating expense reimbursements and the like), then any rents or charges of such type received by Purchaser or its agents or Seller or its agents subsequent to Closing (or any amounts overpaid by tenants) shall, to the extent applicable to a period extending through the Closing, be prorated between Seller and Purchaser as of Closing and Seller's portion thereof shall be remitted promptly to Seller by Purchaser or to Purchaser by Seller, as applicable. (c) If at any time following the Closing, the amount of an item listed in this section 4.4 shall prove to be incorrect (whether as a result in an error in calculation or a lack of complete and accurate information as of the date of Closing), the party in whose favor the error was made shall promptly pay to the other party the sum necessary to correct such error upon receipt of proof of such error, provided that such proof is delivered to the party from whom payment is requested on or before the date that is ninety (90) days following the end of the year in which the Closing occurs. Purchaser and Seller shall reasonably cooperate with each other in providing any applicable information necessary to determine whether such error exists. (d) The provisions of this Section 4.4 shall survive Closing. 4.5 Closing Costs. Seller shall pay (a) the fees of any counsel ------------- representing it in connection with this transaction, (b) the fee for the title examination and the Title Commitment and the premium for the Owner's Policy of Title Insurance (with extended coverage and ALTA 3.1 zoning endorsement with parking) to be issued to Purchaser by the Title Company at Closing, (c) the cost of the Survey, (d) the transfer tax imposed by the State of Illinois and the County of Cook, and (e) one-half (1/2) of any escrow or closing fees which may be charged by the Escrow Agent or Title Company. Purchaser shall pay (v) the fees of any counsel representing Purchaser in connection with this transaction; (w) the fees for recording the deed conveying the Property to Purchaser; (x) the fee for any other endorsements required by Purchaser to the Owner's Policy of Title Insurance to be issued to Purchaser by the Title Company at Closing; (y) the transfer tax imposed by the City of Chicago; and (z) one-half (1/2) of any escrow or closing fees charged by the Escrow Agent or Title Company. All other costs and expenses incident to this transaction and the closing thereof shall be paid by the party incurring same. 13 4.6 Conditions Precedent to Obligation of Purchaser. The obligation of ----------------------------------------------- Purchaser to consummate the transaction hereunder shall be subject to the fulfillment on or before the date of Closing of all of the following conditions, any or all of which may be waived by Purchaser in its sole discretion: (a) Seller shall have delivered to Purchaser all of the items required to be delivered to Purchaser pursuant to the terms of this Agreement, including but not limited to, those provided for in Section 4.2. (b) All of the representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects as of the date of Closing. (c) Seller shall have performed and observed, in all material respects, all covenants and agreements of this Agreement to be performed and observed by Seller as of the date of Closing. (d) Seller shall have received and provided to Purchaser estoppel certificates dated no earlier than December 13, 2000, substantially in the form attached hereto as Exhibit 4.6(d)(i) or the form attached to the ----------------- applicable Lease (a "Tenant Estoppel"), and reasonably acceptable to Purchaser, from the tenants listed on Exhibit 4.6(d)(ii) (the "Major ------------------ Tenants") and from other tenants which, together with the Major Tenants, in the aggregate lease at least eighty percent (80%) of the occupied rentable square footage of the Improvements. In the event that Seller is unable to deliver the applicable percentage of Tenant Estoppels as provided above, Seller shall execute and deliver to Purchaser at Closing, on behalf of any one or more tenants which shall have failed to provide the required Tenant Estoppel, other than a Major Tenant, estoppel certificates in substantially the form attached hereto as Exhibit 4.6(d)(iii) (a "Seller Estoppel") so ------------------- that the applicable percentage of estoppels set forth above is satisfied by Tenant Estoppels and Seller Estoppels and this condition shall be satisfied thereby. In the event Seller is unable to deliver a Tenant Estoppel for a Major Tenant, Purchaser shall have the right to require Seller to deliver at Closing a Seller Estoppel for such Major Tenant and the condition for delivery of a Tenant Estoppel for such Major Tenant shall be satisfied thereby. Seller's liability under any such Seller Estoppel so executed and delivered by Seller shall cease and terminate upon the receipt by Purchaser following the Closing of a duly executed Tenant Estoppel from the applicable tenant confirming the matters set forth in the Seller Estoppel. In the event any of the foregoing conditions are not fulfilled or waived by Purchaser by Closing, this Agreement shall terminate and the Earnest Money shall be returned to Purchaser. 4.7 Conditions Precedent to Obligation of Seller. The obligation of -------------------------------------------- Seller to consummate the transaction hereunder shall be subject to the fulfillment on or before the date of Closing of all of the following conditions, any or all of which may be waived by Seller in its sole discretion: 14 (a) Seller shall have received the Purchase Price as adjusted pursuant to and payable in the manner provided for in this Agreement. (b) Purchaser shall have delivered to Seller all of the items required to be delivered to Seller pursuant to the terms of this Agreement, including but not limited to, those provided for in Section 4.3. (c) All of the representations and warranties of Purchaser contained in this Agreement shall be true and correct in all material respects as of the date of Closing. (d) Purchaser shall have performed and observed, in all material respects, all covenants and agreements of this Agreement to be performed and observed by Purchaser as of the date of Closing. In the event any of the foregoing conditions are not fulfilled or waived by Seller by Closing, this Agreement shall terminate and the Earnest Money shall be retained by Seller as its sole and exclusive remedy. ARTICLE V REPRESENTATIONS, WARRANTIES AND COVENANTS 5.1 Representations and Warranties of Seller. Seller hereby makes the ---------------------------------------- following representations and warranties to Purchaser as of the Effective Date: (a) Organization and Authority. Seller has been duly organized and is -------------------------- validly existing under the laws of the State of Illinois. Seller has the full right and authority to enter into this Agreement and to transfer all of the Property to be conveyed by Seller pursuant hereto and to consummate or cause to be consummated the transactions contemplated herein to be made by Seller. The person signing this Agreement on behalf of Seller is authorized to do so. This Agreement and all documents executed by Seller at Closing are and will be the legal, valid and binding obligations of Seller and will not violate any provision of any agreement or judicial order to which Seller or the Property is subject. (b) Pending Actions. Except for personal injury actions which are --------------- covered by insurance, there is no action, suit, arbitration, unsatisfied order or judgment, governmental investigation or proceeding pending, or to Seller's knowledge, threatened, against the Property. (c) Leases. Seller is the lessor or landlord or the successor lessor ------ or landlord under the Leases. Except as set forth in the Lease Schedule, there are no other leases or occupancy agreements to which Seller is a party affecting the Property and no security deposits listed thereon has been applied by Seller against amounts owed by the applicable tenant. Except as otherwise set forth in the Leases, to Seller's knowledge, no presently 15 effective rent concessions have been given to any tenants and no rent has been paid in advance by any tenants respecting a period subsequent to the month of Closing. Except as set forth in the Lease Schedule, no tenants have asserted in writing any claims, defenses or offsets to rent accruing from and after the date of Closing. To Seller's knowledge, except as set forth in the Lease Schedule, no material default, delinquency or breach exists on the part of any tenant. There are no material defaults or breaches on the part of the landlord under any Lease. No tenant has any right of first refusal, option or other right to purchase the Property. In the event that any Tenant Estoppel delivered to Purchaser with respect to any Lease shall contain any statement of fact, information or other matter which is inconsistent with the matters stated in Seller's representations in this Section 5.1(c), the Tenant Estoppel shall control and Seller shall have no liability for any claim based upon a breach of representation regarding such statement of fact, information or other matter contained in the Tenant Estoppel. Notwithstanding anything to the contrary contained in this Agreement, Seller does not represent or warrant that any particular Lease will be in force or effect at Closing or that the tenants under the Leases will have performed their obligations thereunder. The termination of any Lease prior to Closing by reason of the tenant's default shall not affect the obligations of Purchaser under this Agreement in any manner or entitle Purchaser to an abatement of or credit against the Purchase Price or give rise to any other claim on the part of Purchaser provided Purchaser consented to such termination pursuant to Section 5.4(e) hereof. (d) Lease Brokerage. There are no lease brokerage agreements, leasing --------------- commission agreements or other agreements to which Seller is a party providing for payments of any amounts for leasing activities or procuring tenants with respect to the Property other than as disclosed in Exhibit ------- 1.1(e). ------ (e) No Violations. Seller has not received prior to the Effective ------------- Date any written notification from any governmental or public authority (i) that the Property is in violation of any applicable fire, health, building, use, occupancy or zoning laws where such violation remains outstanding and, to Seller's knowledge, no such violation exists (except that Seller makes no representation as to the existence of any violation of ADA), or (ii) that any work is required to be done upon or in connection with the Property, where such work remains outstanding. (f) Taxes and Assessments. True and complete copies of the most --------------------- recent real estate tax bills for the Property have been delivered to Purchaser. (g) Condemnation. No condemnation proceedings relating to the ------------ Property are pending or, to Seller's knowledge, threatened. (h) Insurance. Seller has not received any written notice from any --------- insurance company or board of fire underwriters of any defects or inadequacies in or on the Property or any part or component thereof that would materially and adversely affect the insurability of the Property or cause any material increase in the premiums for insurance for the Property that have not been cured or repaired. 16 (i) Environmental Matters. Except as set forth in any environmental --------------------- assessment reports in Seller's possession and delivered to Purchaser on or before the Effective Date, Seller has received no written notification that any governmental or quasi-governmental authority has alleged that there are any, and to Seller's knowledge there exist no, violations of environmental statutes, ordinances or regulations regarding Hazardous Substances at the Property. As used herein, "Hazardous Substances" means all hazardous or toxic materials, substances, pollutants, contaminants, or wastes currently identified as a hazardous substance or waste in the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (commonly known as "CERCLA"), as amended, the Superfund Amendments and Reauthorization Act (commonly known as "SARA"), the Resource Conservation and Recovery Act (commonly known as "RCRA"), or any other federal, state or local legislation or ordinances applicable to the Property. (j) Existing Loan. The documents evidencing and securing the Existing ------------- Loan (the "Existing Loan Documents") are listed on Exhibit 5.1(j). There -------------- are no documents evidencing or securing the Existing Loan other than the Existing Loan Documents. The Existing Loan Documents have not been amended or modified. Neither Seller nor OPCC has received any written notice of default in connection with the Existing Loan Documents that has not been cured, and Seller has no knowledge of any other uncured default by Seller, including, without limitation, an "Event of Default" under Section 3.01.C. of the Mortgage listed on Exhibit 5.1(j). Seller has paid all amounts -------------- currently due and payable under the Existing Loan Documents. Seller has not given any written notice of default under the Existing Loan Documents and has no knowledge of any material default by Lender under the Existing Loan Documents. Seller has not assigned any interest in the Existing Loan or the Existing Loan Documents. (k) ADA Compliance. Seller has not received prior to the Effective -------------- Date any written notice from any governmental or public authority, tenant or employee or invitee of any tenant alleging that the Property or any portion thereof is in violation of ADA. (l) Operating Agreements. To Seller's knowledge, the Operating -------------------- Agreements Schedule lists all contracts and agreements relating to the upkeep, repair, maintenance and operation of the Property which will extend beyond the date of Closing, including equipment leases. The Operating Agreements are in full force and effect and, to Seller's knowledge, neither Seller nor any other party to the Operating Agreements is in material default thereunder. (m) Personal Property. To Seller's knowledge, Exhibit 1.1(c) attached ----------------- -------------- hereto is a list of all material tangible personal property owned by Seller relating to and used exclusively in connection with the operation of the Property. (n) Exhibits and Due Diligence Materials. To Seller's knowledge, all ------------------------------------ exhibits attached hereto (including the Lease Schedule, but excluding Exhibit 5.1(p)), and all Leases, Operating Agreements, third party reports and financial statements relating to the Property delivered to Purchaser pursuant to the terms of this Agreement, are true and correct in all material respects. 17 (o) Licenses and Permits. To Seller's knowledge, all licenses and -------------------- permits necessary for the operation of the Property have been obtained by Seller and are in full force and effect. (p) Rent Roll. To Seller's knowledge, the information set forth in --------- the Rent Roll attached hereto as Exhibit 5.1(p) is true and correct in all material respects. The provisions of this Section 5.1(p) shall not survive the Closing. 5.2 Knowledge Defined. References to the "knowledge" of Seller shall ----------------- refer only to the actual knowledge of the Designated Employees (as hereinafter defined), and shall not be construed, by imputation or otherwise, to refer to the knowledge of Seller or any affiliate of either of them, to any property manager, or to any other officer, agent, manager, representative or employee of Seller or any affiliate thereof or to impose upon such Designated Employees any duty to investigate the matter to which such actual knowledge, or the absence thereof, pertains, except that one of the Designated Employees has discussed such matters with Donna L. Kline (the current property manager) and Ed Nemec (the current building engineer). As used herein, the term "Designated Employees" shall refer to Ignacio deQuesada, the asset manager of Seller, Michael Molletta, and Anne Marie Garavaglia. The foregoing persons are the persons currently employed by Seller or its property manager who would have knowledge of such matters. 5.3 Survival of Seller's Representations and Warranties. The --------------------------------------------------- representations and warranties of Seller set forth in Section 5.1 as updated by the certificate of Seller to be delivered to Purchaser at Closing in accordance with Section 4.2(g) hereof (other than the representation set forth in Section 5.1(p) which shall not survive Closing), shall survive Closing for a period of two hundred seventy (270) days. No claim for a breach of any representation or warranty of Seller shall be actionable or payable (a) if the breach in question results from or is based on a condition, state of facts or other matter which was known to Purchaser prior to Closing, (b) unless the valid claims for all such breaches collectively aggregate more than One Hundred Thousand Dollars ($100,000), in which event the full amount of such claims shall be actionable, and (c) unless written notice containing a description of the specific nature of such breach shall have been given by Purchaser to Seller prior to the expiration of said two hundred seventy (270) day period and an action shall have been commenced by Purchaser against Seller within one year of Closing. 5.4 Covenants of Seller. Seller hereby covenants with Purchaser as ------------------- follows: (a) From the Effective Date hereof until the Closing or earlier termination of this Agreement, Seller shall operate and maintain the Property in a manner generally consistent with the manner in which Seller has operated and maintained the Property prior to the date hereof. (b) Seller shall use reasonable efforts (but without obligation to incur any cost or expense) to obtain and deliver to Purchaser prior to Closing, a Tenant Estoppel from each tenant occupying space in the Improvements. 18 (c) A copy of any renewal or expansion of an existing Lease or of any new Lease which Seller wishes to execute between the Effective Date and the date of Closing will be submitted to Purchaser prior to execution by Seller. Purchaser agrees to notify Seller in writing within five (5) business days after its receipt thereof of either its approval or disapproval, including all Tenant Inducement Costs and leasing commissions to be incurred in connection therewith; provided, however, that Purchaser shall be deemed to have approved any extension of a lease term or expansion of premises demised under a Lease which expansion or extension is provided for in such Lease. In the event Purchaser informs Seller that Purchaser does not approve the renewal or expansion of the existing Lease or the new Lease, which approval shall not be unreasonably withheld, Seller shall not execute same. In the event Purchaser fails to notify Seller in writing of its approval or disapproval within the five (5) business day time period for such purpose set forth above, such failure shall be deemed the approval by Purchaser. (d) Seller shall have the right to continue to control the progress of and to make all decisions with respect to any contest of the real estate taxes for the Property assessed (i) during the calendar year 1999 (and payable in 2000), and (ii) all prior tax years. Seller shall from time to time, upon request by Purchaser, update Purchaser on the status of any such tax contest. Purchaser shall have the right to control the progress of and to make all decisions with respect to any tax contest of the real estate taxes for the Property due and payable during all tax years thereafter. All real estate tax refunds and credits received after Closing with respect to the Property shall be applied in the following order of priority: first, to ----- pay the out-of-pocket costs and expenses (including reasonable attorneys' fees and expenses) incurred in connection with obtaining such tax refund or credit; second, to pay any amounts due to any past or present tenant of the ------ Property as a result of such tax refund or credit to the extent required pursuant to the terms of the Leases or any prior leases not in effect on the date of the Closing; and third, apportioned between Purchaser and ----- Seller in the same manner as such taxes were prorated between Purchaser and Seller pursuant to Section 4.4 hereof. The provisions of this section 5.4(d) shall survive the Closing. (e) From the Effective Date until the Closing, Seller shall not terminate any Lease or apply any Security Deposit against amounts owed Seller by any tenant without the prior consent of Purchaser, which consent may not be unreasonably withheld, conditioned or delayed. (f) From the Effective Date until the Closing, Seller shall not extend, renew, replace or modify any Operating Agreement or enter into a new Operating Agreement which can not be terminated by the owner of the Property without penalty upon not more than thirty (30) days notice without the prior consent of Purchaser, which consent shall not be unreasonably withheld, conditioned or delayed. (g) From the Effective Date until the Closing or the earlier termination of this Agreement, Seller shall not enter into any contract for the sale of the Property with any other party or voluntarily encumber the Property. 19 (h) Seller shall file a notice of sale of assets with the Illinois Department of Revenue ("IDR") in connection with the requirements of the Illinois Income Tax Act, 35 ILCS 5/902(d) and the Retailers' Occupation Tax Act, 35ILCS 120/5j (the "Illinois Tax Acts") and with the City of Chicago Department of Revenue ("CDR"), in connection with the provisions of Section 3-4-140 of the Uniform Revenue Procedures Act (the "Chicago Act") and shall provide Purchaser with copies of same. Seller shall be responsible for delivering at or prior to the Closing a certificate from each of the IDR and the CDR stating that no assessed but unpaid tax, penalties or interest are due under the Illinois Tax Act or the Chicago Act. In the event Seller does not obtain such certificates, then Seller shall provide to Purchaser an indemnification agreement reasonably acceptable to Purchaser, whereby Seller shall indemnify, defend and hold Purchaser harmless of, from and against any and all claims, costs, damages, expenses, liabilities or losses which Purchaser may incur or suffer as a result of Seller's failure to comply with the provisions of the Illinois Tax Acts or the Chicago Act, as applicable. In the event the IDR or CDR delivers a notice of taxes due, Seller shall pay such taxes at Closing or if Seller disputes such taxes, Seller shall deposit with Escrow Agent the amount of taxes due as set forth in such notice. Upon resolution of such dispute the amount held in escrow shall be paid to Seller to the extent not used to pay any taxes which Seller and IDR or CDR agree are payable. (i) Seller shall perform the work described on Exhibit 5.4(i) -------------- attached hereto, at Seller's sole cost and expense, in a good and workmanlike manner substantially in accordance with any existing plans and specifications. Seller shall use reasonable efforts to complete such work prior to Closing, but in the event such work is not completed by Closing, Seller shall assign to Purchaser any contracts for such work and shall give Purchaser a credit at Closing for the unpaid amounts payable under the contracts for such work to complete such work. 5.5 Representations and Warranties of Purchaser. Purchaser hereby ------------------------------------------- represents and warrants to Seller: (a) Purchaser has the full right, power and authority to purchase the Property as provided in this Agreement and to carry out Purchaser's obligations hereunder, and all requisite action necessary to authorize Purchaser to enter into this Agreement and to carry out its obligations hereunder have been, or by the Closing will have been, taken. The person signing this Agreement on behalf of Purchaser is authorized to do so. This Agreement and all documents executed by Purchaser at Closing are and will be the legal, valid and binding obligations of Purchaser and will not violate any provision of any agreement or judicial order to which Purchaser is subject. (b) There is no action, suit, arbitration, unsatisfied order or judgment, government investigation or proceeding pending against Purchaser which, if adversely determined, could individually or in the aggregate materially interfere with the consummation of the transaction contemplated by this Agreement. 20 5.6 Survival of Purchaser's Representations and Warranties. The ------------------------------------------------------ representation and warranties of Purchaser set forth in Section 5.5 shall survive Closing for a period of two hundred seventy (270) days. 5.7 Covenants of Purchaser. Purchaser hereby covenants with Seller that ---------------------- Purchaser shall, in connection with its investigation of the Property during the Inspection Period, inspect the Property for the presence of Hazardous Substances (as defined in Section 5.1(i) hereof), and, if Purchaser terminates this Agreement for any reason, shall furnish to Seller copies of those reports received by Purchaser in connection with any such inspection. Purchaser hereby assumes full responsibility for the performance and payment of such inspections and, except for claims based on representations or warranties contained in Section 5.1(i), irrevocably waives any claim against Seller arising from the presence of Hazardous Substances on the Property. Purchaser shall also furnish to Seller copies of any other reports received by Purchaser relating to any other inspections of the Property conducted on Purchaser's behalf, if any (including, specifically, without limitation, any reports analyzing compliance of the Property with the provisions of the Americans with Disabilities Act ("ADA"), 42 U.S.C. (S)12101, et seq., if applicable). -- --- ARTICLE VI DEFAULT 6.1 Default by Purchaser. If Purchaser defaults for any reason other than -------------------- Seller's default or the permitted termination of this Agreement by either Seller or Purchaser as herein expressly provided, and such default continues for two (2) business days, Seller shall be entitled, as its sole remedy, to terminate this Agreement and receive the Earnest Money as liquidated damages for the breach of this Agreement, it being agreed between the parties hereto that the actual damages to Seller in the event of such breach are impractical to ascertain and the amount of the Earnest Money is a reasonable estimate thereof. 6.2 Default by Seller. In the event that Seller fails to consummate this ----------------- Agreement for any reason other than Purchaser's default or the permitted termination of this Agreement by Seller or Purchaser as herein expressly provided, and such failure continues for two (2) business days, Purchaser shall be entitled, as its sole remedy, either (a) to receive the return of the Earnest Money and the payment by Seller of all out-of-pocket third party costs and expenses actually incurred by Purchaser in connection with this Agreement (including, without limitation, costs incurred in the performance of tests, inspections and other due diligence and reasonable attorneys' fees incurred by Purchaser in connection with this Agreement) up to a maximum of $150,000, which return and payment shall operate to terminate this Agreement and release Seller from any and all liability hereunder, or (b) to enforce specific performance of Seller's obligations hereunder. Except as provided in clause (a) above, Purchaser expressly waives its rights to seek damages in the event of Seller's default hereunder and Seller's failure to consummate this Agreement. Purchaser shall be deemed to have elected to terminate this Agreement and receive back the Earnest Money if Purchaser fails to file suit for specific performance against Seller in a court having jurisdiction in the county and state in which the Property is located, on or before sixty (60) days following the date upon which Closing was to have occurred. 21 ARTICLE VII RISK OF LOSS 7.1 Minor Damage. In the event of loss or damage to the Property or any ------------ portion thereof which is not "major" (as hereinafter defined), this Agreement shall remain in full force and effect and Seller shall assign to Purchaser all of Seller's right, title and interest to any claims and proceeds Seller may have with respect to any casualty insurance policies (including rent loss insurance, to the extent assignable, relating to the period from and after Closing) or condemnation awards relating to the premises in question. The Purchase Price shall be reduced by an amount equal to the deductible amount under Seller's insurance policy. Upon Closing, full risk of loss with respect to the Property shall pass to Purchaser. 7.2 Major Damage. In the event of a "major" loss or damage, either Seller ------------ or Purchaser may terminate this Agreement by written notice to the other party, in which event the Earnest Money shall be returned to Purchaser. If neither Seller nor Purchaser elects to terminate this Agreement within ten (10) days after Seller sends Purchaser written notice of the occurrence of major loss or damage, then Seller and Purchaser shall be deemed to have elected to proceed with Closing, in which event Seller shall assign to Purchaser all of Seller's right, title and interest to any claims and proceeds Seller may have with respect to any casualty insurance policies (including rent loss insurance, to the extent assignable, relating to the period from and after Closing) or condemnation awards relating to the premises in question. The Purchase Price shall be reduced by an amount equal to the deductible amount under Seller's insurance policy. In the event of a "major" loss or damage pursuant to Section 7.3(ii) hereof, the Closing shall be delayed until such time as the material impairment of use of the Property is alleviated. Upon Closing, full risk of loss with respect to the Property shall pass to Purchaser. 7.3 Definition of "Major" Loss or Damage. For purposes of Sections 7.1 ------------------------------------ and 7.2, "major" loss or damage refers to the following: (i) loss or damage to the Property or any portion thereof such that the cost of repairing or restoring the premises in question to a condition substantially identical to that of the premises in question prior to the event of damage would be, in the opinion of an architect selected by Seller and reasonably approved by Purchaser, equal to or greater than Two Million and No/100 Dollars ($2,000,000.00), (ii) loss or damage to the Property or any portion thereof which materially impairs the use thereof for a period in excess of forty-five (45) days, and (iii) any loss due to a condemnation which permanently and materially impairs the current use of the Property. If Purchaser does not give notice to Seller of Purchaser's reasons for disapproving an architect within five (5) business days after receipt of notice of the proposed architect, Purchaser shall be deemed to have approved the architect selected by Seller. 22 ARTICLE VIII COMMISSIONS 8.1 Brokerage Commissions. Each party represents to the other that there --------------------- has been no broker or finder engaged in connection with the sale of the Property other than Eastdil Realty Company, L.L.C. (the "Broker"). Seller agrees to pay any fee payable to Broker pursuant to a separate written agreement between Seller and Broker. Each party agrees that should any claim be made for brokerage commissions or finder's fees by any broker or finder other than the Broker by, through or on account of any acts of said party or its representatives, said party will indemnify and hold the other party free and harmless from and against any and all loss, liability, cost, damage and expense in connection therewith. The provisions of this paragraph shall survive Closing. ARTICLE IX DISCLAIMERS AND WAIVERS 9.1 No Reliance on Documents. Except as expressly stated herein, Seller ------------------------ makes no representation or warranty as to the truth, accuracy or completeness of any materials, data or information delivered by Seller to Purchaser in connection with the transaction contemplated hereby. Purchaser acknowledges and agrees that all materials, data and information delivered by Seller to Purchaser in connection with the transaction contemplated hereby are provided to Purchaser as a convenience only and that any reliance on or use of such materials, data or information by Purchaser shall be at the sole risk of Purchaser, except as otherwise expressly stated herein. Without limiting the generality of the foregoing provisions, Purchaser acknowledges and agrees that (a) any environmental or other report with respect to the Property which is delivered by Seller to Purchaser shall be for general informational purposes only, (b) Purchaser shall not have any right to rely on any such report delivered by Seller to Purchaser, but rather will rely on its own inspections and investigations of the Property and any reports commissioned by Purchaser with respect thereto, and (c) neither Seller, any affiliate of Seller nor the person or entity which prepared any such report delivered by Seller to Purchaser shall have any liability to Purchaser for any inaccuracy in or omission from any such report. 9.2 DISCLAIMERS. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, IT IS ----------- UNDERSTOOD AND AGREED THAT SELLER IS NOT MAKING AND HAS NOT AT ANY TIME MADE ANY WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EXPRESSED OR IMPLIED, WITH RESPECT TO THE PROPERTY, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OR REPRESENTATIONS AS TO HABITABILITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, ZONING, TAX CONSEQUENCES, LATENT OR PATENT PHYSICAL OR ENVIRONMENTAL CONDITION, UTILITIES, OPERATING HISTORY OR PROJECTIONS, VALUATION, GOVERNMENTAL APPROVALS, THE COMPLIANCE OF THE PROPERTY WITH GOVERNMENTAL LAWS, THE TRUTH, ACCURACY OR COMPLETENESS OF THE PROPERTY DOCUMENTS OR ANY OTHER 23 INFORMATION PROVIDED BY OR ON BEHALF OF SELLER TO PURCHASER, OR ANY OTHER MATTER OR THING REGARDING THE PROPERTY. PURCHASER ACKNOWLEDGES AND AGREES THAT UPON CLOSING SELLER SHALL SELL AND CONVEY TO PURCHASER AND PURCHASER SHALL ACCEPT THE PROPERTY "AS IS, WHERE IS, WITH ALL FAULTS", EXCEPT TO THE EXTENT EXPRESSLY PROVIDED OTHERWISE IN THIS AGREEMENT. PURCHASER HAS NOT RELIED AND WILL NOT RELY ON, AND SELLER IS NOT LIABLE FOR OR BOUND BY, ANY EXPRESSED OR IMPLIED WARRANTIES, GUARANTIES, STATEMENTS, REPRESENTATIONS OR INFORMATION PERTAINING TO THE PROPERTY OR RELATING THERETO (INCLUDING SPECIFICALLY, WITHOUT LIMITATION, PROPERTY INFORMATION PACKAGES DISTRIBUTED WITH RESPECT TO THE PROPERTY) MADE OR FURNISHED BY SELLER, THE MANAGER OF THE PROPERTY, OR ANY REAL ESTATE BROKER OR AGENT REPRESENTING OR PURPORTING TO REPRESENT SELLER, TO WHOMEVER MADE OR GIVEN, DIRECTLY OR INDIRECTLY, ORALLY OR IN WRITING, UNLESS SPECIFICALLY SET FORTH IN THIS AGREEMENT. PURCHASER REPRESENTS TO SELLER THAT PURCHASER HAS CONDUCTED, OR WILL CONDUCT PRIOR TO CLOSING, SUCH INVESTIGATIONS OF THE PROPERTY, INCLUDING BUT NOT LIMITED TO, THE PHYSICAL AND ENVIRONMENTAL CONDITIONS THEREOF, AS PURCHASER DEEMS NECESSARY TO SATISFY ITSELF AS TO THE CONDITION OF THE PROPERTY AND THE EXISTENCE OR NONEXISTENCE OR CURATIVE ACTION TO BE TAKEN WITH RESPECT TO ANY HAZARDOUS OR TOXIC SUBSTANCES ON OR DISCHARGED FROM THE PROPERTY, AND WILL RELY SOLELY UPON SAME AND NOT UPON ANY INFORMATION PROVIDED BY OR ON BEHALF OF SELLER OR ITS AGENTS OR EMPLOYEES WITH RESPECT THERETO, OTHER THAN SUCH REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER AS ARE EXPRESSLY SET FORTH IN THIS AGREEMENT. UPON CLOSING, PURCHASER SHALL ASSUME THE RISK THAT ADVERSE MATTERS, INCLUDING BUT NOT LIMITED TO, CONSTRUCTION DEFECTS AND ADVERSE PHYSICAL AND ENVIRONMENTAL CONDITIONS, MAY NOT HAVE BEEN REVEALED BY PURCHASER'S INVESTIGATIONS, AND PURCHASER, UPON CLOSING, SHALL BE DEEMED TO HAVE WAIVED, RELINQUISHED AND RELEASED SELLER (AND SELLER'S PARTNERS AND THEIR RESPECTIVE OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES AND AGENTS) FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, CAUSES OF ACTION (INCLUDING CAUSES OF ACTION IN TORT), LOSSES, DAMAGES, LIABILITIES, COSTS AND EXPENSES (INCLUDING ATTORNEYS' FEES AND COURT COSTS) OF ANY AND EVERY KIND OR CHARACTER, KNOWN OR UNKNOWN, WHICH PURCHASER MIGHT HAVE ASSERTED OR ALLEGED AGAINST SELLER (AND SELLER'S PARTNERS AND THEIR RESPECTIVE OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES AND AGENTS) AT ANY TIME BY REASON OF OR ARISING OUT OF ANY LATENT OR PATENT CONSTRUCTION DEFECTS OR PHYSICAL CONDITIONS, VIOLATIONS OF ANY APPLICABLE LAWS (INCLUDING, WITHOUT LIMITATION, ANY ENVIRONMENTAL LAWS) AND ANY AND ALL OTHER ACTS, OMISSIONS, EVENTS, CIRCUMSTANCES OR MATTERS REGARDING THE PROPERTY. PURCHASER AGREES THAT SHOULD ANY CLEANUP, REMEDIATION OR REMOVAL OF HAZARDOUS SUBSTANCES OR OTHER ENVIRONMENTAL CONDITIONS ON THE PROPERTY BE REQUIRED AFTER 24 THE DATE OF CLOSING, SUCH CLEAN-UP, REMOVAL OR REMEDIATION SHALL BE THE RESPONSIBILITY OF AND SHALL BE PERFORMED AT THE SOLE COST AND EXPENSE OF PURCHASER, UNLESS SUCH CLAIM RESULTS FROM A BREACH OF ANY APPLICABLE REPRESENTATION OR WARRANTY OF SELLER HEREUNDER AND CLAIM IS MADE BY PURCHASER IN ACCORDANCE WITH THE PROVISIONS OF SECTION 5.3. 9.3 Survival of Disclaimers. Seller and Purchaser agree that the ----------------------- provisions of this Article IX shall survive Closing. ARTICLE X MISCELLANEOUS 10.1 Confidentiality. Purchaser shall maintain strict confidentiality --------------- with regard to all material provided to or made available to Purchaser and the knowledge which Purchaser acquires from its investigation of and other due diligence with respect to the Property; provided, however, Purchaser shall have the right to share such material and knowledge with its lender, attorneys, consultants in the acquisition of the Property, and other professionals employed in assisting in the acquisition of the Property; provided further, however, that all such lender, attorneys, consultants and other professionals shall likewise maintain such material and knowledge in strict confidentiality. If, for any reason, the sale of the Property is not consummated between Purchaser and Seller, Purchaser must return to Seller all documents and materials mentioned above immediately upon Seller's written request. The provisions of this Section 10.1 shall survive the termination of this Agreement. 10.2 Public Disclosure. Any release to the public of information with ----------------- respect to the sale contemplated herein will be made only in the form approved by Purchaser and Seller. 10.3 Discharge of Obligations. The acceptance of the Deed by Purchaser ------------------------ shall be deemed to be a full performance and discharge of every representation and warranty made by Seller and Purchaser herein and every agreement and obligation on the part of Seller and Purchaser to be performed pursuant to the provisions of this Agreement, except those which are herein specifically stated to survive Closing. 10.4 Assignment. Purchaser may not assign its rights under this Agreement ---------- without first obtaining Seller's written approval, which approval may be given or withheld in Seller's sole discretion. Any transfer, directly or indirectly, of any stock, partnership interest or other ownership interest in Purchaser without Seller's written approval, which approval may be given or withheld in Seller's sole discretion, shall constitute a default by Purchaser under this Agreement. Notwithstanding the foregoing, Purchaser may assign this Agreement to an entity directly or indirectly owned or controlled by, or in common control with, Tishman Speyer/Travelers Real Estate Venture IV, LLC, without the consent of, but upon delivery of notice thereof to Seller. 25 10.5 Notices. Any notice pursuant to this Agreement shall be given in ------- writing by (a) personal delivery, or (b) reputable overnight delivery service with proof of delivery, or (c) United States Mail, postage prepaid, registered or certified mail, return receipt requested, or (d) legible facsimile transmission sent to the intended addressee at the address set forth below, or to such other address or to the attention of such other person as the addressee shall have designated by written notice sent in accordance herewith, and shall be deemed to have been given either at the time of personal delivery if on a business day, or, in the case of expedited delivery service or mail, as of the date of first attempted delivery at the address and in the manner provided herein on a business day, or, in the case of facsimile transmission, as of the date of the facsimile transmission on a business day provided that an original of such facsimile is also sent to the intended addressee by means described in clauses (a), (b) or (c) above. Unless changed in accordance with the preceding sentence, the addresses for notices given pursuant to this Agreement shall be as follows: If to Seller: Overseas Partners (Madison Plaza) LLC 115 Perimeter Center Place Suite 940 Atlanta, Georgia 30346 Attn.: Michael Molletta TELECOPY: (770) 913-6756 and: Attn: Legal Department TELECOPY: (770) 913-6756 with a copy to: Katten Muchin Zavis 525 West Monroe Street Suite 1600 Chicago, Illinois 60661 Attn.: Ira J. Swidler, Esq. TELECOPY: (312) 902-1061 If to Purchaser: TST Madison Plaza, LLC c/o Tishman Speyer Properties 520 Madison Avenue New York, NY 10022 Attn.: Chief Financial Officer TELECOPY: and 26 Tishman Speyer Properties 500 West Monroe Street Suite 2700 Chicago, Illinois 60661 Attn.: Robert deLeeuw TELECOPY: (312) 207-1123 with a copy to: Gould & Ratner 222 North LaSalle Street Suite 800 Chicago, Illinois 60601 Attn: Stephen P. Sandler, Esq. TELECOPY: (312) 236-3241 10.6 Modifications. This Agreement cannot be changed orally, and no ------------- executory agreement shall be effective to waive, change, modify or discharge it in whole or in part unless such executory agreement is in writing and is signed by the parties against whom enforcement of any waiver, change, modification or discharge is sought. 10.7 Intentionally Omitted. --------------------- 10.8 Calculation of Time Periods. Unless otherwise specified, in --------------------------- computing any period of time described in this Agreement, the day of the act or event after which the designated period of time begins to run is not to be included and the last day of the period so computed is to be included, unless such last day is a Saturday, Sunday or legal holiday under the laws of the State in which the Property is located, in which event the period shall run until the end of the next day which is neither a Saturday, Sunday or legal holiday. The final day of any such period shall be deemed to end at 5 p.m., Eastern time. 10.9 Successors and Assigns. The terms and provisions of this Agreement ---------------------- are to apply to and bind the permitted successors and assigns of the parties hereto. 10.10 Entire Agreement. This Agreement, including the Exhibits, contains ---------------- the entire agreement between the parties pertaining to the subject matter hereof and fully supersedes all prior written or oral agreements and understandings between the parties pertaining to such subject matter. 10.11 Further Assurances. Each party agrees that it will without further ------------------ consideration execute and deliver such other documents and take such other action, whether prior or subsequent to Closing, as may be reasonably requested by the other party to consummate more effectively the purposes or subject matter of this Agreement. Without limiting the generality of the foregoing, Purchaser shall, if requested by Seller, execute acknowledgments of receipt with 27 respect to any materials delivered by Seller to Purchaser with respect to the Property. The provisions of this Section 10.11 shall survive Closing. 10.12 Counterparts. This Agreement may be executed in counterparts, and ------------ all such executed counterparts shall constitute the same agreement. It shall be necessary to account for only one such counterpart in proving this Agreement. 10.13 Severability. If any provision of this Agreement is determined by a ------------ court of competent jurisdiction to be invalid or unenforceable, the remainder of this Agreement shall nonetheless remain in full force and effect. 10.14 Applicable Law. This Agreement is performable in the state and -------------- county in which the Property is located and shall in all respects be governed by, and construed in accordance with, the substantive federal laws of the United States and the laws of such state. Seller and Purchaser hereby irrevocably submit to the jurisdiction of any state or federal court sitting in the state in which the Property is located in any action or proceeding arising out of or relating to this Agreement and hereby irrevocably agree that all claims in respect of such action or proceeding shall be heard and determined in a state or federal court sitting in the state and county in which the Property is located. Purchaser and Seller agree that the provisions of this section 10.14 shall survive the Closing of the transaction contemplated by this Agreement. 10.15 No Third Party Beneficiary. The provisions of this Agreement and of -------------------------- the documents to be executed and delivered at Closing are and will be for the benefit of Seller and Purchaser only and are not for the benefit of any third party, and accordingly, no third party shall have the right to enforce the provisions of this Agreement or of the documents to be executed and delivered at Closing. 10.16 Exhibits and Schedules. The following schedules or exhibits ---------------------- attached hereto shall be deemed to be an integral part of this Agreement: (a) Exhibit 1.1(a) - Legal Description of the Land (b) Exhibit 1.1(c) - Personal Property (c) Exhibit 1.1(d) - Lease Schedule (d) Exhibit 1.1(e) - Operating Agreements Schedule (e) Exhibit 3.1 - Due Diligence Items (f) Exhibit 4.2(a) - Deed (g) Exhibit 4.2(b) - Bill of Sale (h) Exhibit 4.2(c) - Assignment and Assumption of Leases (i) Exhibit 4.2(d) - Assignment and Assumption of Operating Agreements (j) Exhibit 4.4(b)(iv)(A) - Protected Tenant List (k) Exhibit 4.4(b)(iv)(B) - Tenant Inducement Costs and Leasing Commissions Payable by Seller 28 (l) Exhibit 4.6(d)(i) - Tenant Estoppel Form (m) Exhibit 4.6(d)(ii) - Major Tenants (n) Exhibit 4.6(d)(iii) - Seller Estoppel Form (o) Exhibit 5.1(j) - Existing Loan Documents (p) Exhibit 5.1(p) - Rent Roll (q) Exhibit 5.4(i) - Seller's Work 10.17 Captions. The section headings appearing in this Agreement are for -------- convenience of reference only and are not intended, to any extent and for any purpose, to limit or define the text of any section or any subsection hereof. 10.18 Construction. The parties acknowledge that the parties and their ------------ counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any exhibits or amendments hereto. 10.19 Termination of Agreement. It is understood and agreed that if ------------------------ either Purchaser or Seller terminates this Agreement pursuant to a right of termination granted hereunder, such termination shall operate to relieve Seller and Purchaser from all obligations under this Agreement, except for such obligations as are specifically stated herein to survive the termination of this Agreement. 10.20 Survival. The provisions of the following Sections of this -------- Agreement shall survive Closing and shall not be merged into the execution and delivery of the Deed: 3.1; 4.2(j); 4.4; 5.1 (other than 5.1(p)); 5.3; 5.4(d); 5.4(h); 5.6; 8.1; 9.3; 10.2; 10.11; and 10.14. 10.21 Non-Recourse. It is expressly understood and agreed that the ------------ liability of Purchaser under this Agreement is limited to, and shall be realized against, the assets of Purchaser and no direct or indirect partner, member, shareholder, or other equity holder of Purchaser, or any director, officer, or agent of any of them shall have any liability for the performance of any covenant, express or implied, contained herein, all such personal liability, if any, being expressly waived by each and every person now or hereinafter claiming any right or interest in this Agreement. For purposes of the foregoing, a negative capital account of any such member shall not be considered an asset of Purchaser. 29 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the Effective Date. SELLER: OVERSEAS PARTNERS (MADISON PLAZA) LLC, an Illinois limited liability company By: Overseas Partners (333), Inc., an Illinois corporation, its manager By: /s/ Michael J. Molletta ---------------------------------- Name: Michael J. Molletta Its: Vice President PURCHASER: TST MADISON PLAZA, LLC, a Delaware limited liability company By: /s/ Andrew J. Nathan ---------------------------------- Name: Andrew J. Nathan Title: Vice President 30 FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT ---------------------------------------------- THIS FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT (this "Amendment"), is made and entered into this 27th day of December, 2000 by and between OVERSEAS PARTNERS (MADISON PLAZA) LLC, an Illinois limited liability company ("Seller"), and TST MADISON PLAZA, LLC, a Delaware limited liability company ("Purchaser"). RECITALS -------- WHEREAS, Seller and Purchaser are parties to that certain Purchase and Sale Agreement, dated as of November 27, 2000 (the "Agreement"), respecting the sale of certain real property and improvements located in Chicago, Illinois; and WHEREAS, Seller and Purchaser have agreed to modify and amend the Agreement as herein provided. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the adequacy and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Defined Terms. All capitalized items used herein and not otherwise ------------- defined herein shall have the meanings ascribed to such terms in the Purchase Agreement. 2. Purchase Price. The Purchase Price is hereby reduced by $200,000.00 to -------------- an amount equal to ONE HUNDRED FIFTY-NINE MILLION EIGHT HUNDRED THOUSAND DOLLARS ($159,800,000). 3. Waiver of Right of Termination. Purchaser hereby waives its right to ------------------------------ terminate the Agreement prior to the end of the Inspection Period pursuant to Section 3.2 of the Agreement. Purchaser shall be bound to proceed to Closing and consummate the transaction contemplated by the Agreement pursuant to the terms of the Agreement as modified by this Amendment. 4. Approval by Lender. As of the date hereof, Lender has not consented to ------------------ the assumption by Purchaser of the Existing Loan and the release of Seller, OPCC and OHC from all obligations and liability relating to the Existing Loan, relating to the period from and after the date of Closing. In addition, Purchaser desires to have made (the "Loan Modifications"). Accordingly, pursuant to Section 1.7(b) of the Agreement, Seller and Purchaser agree to extend the date by which such consent and release must be obtained to January 12, 2001. In addition, in the event Purchaser does not obtain Lender's agreement to the Loan Modifications by such date, Purchaser shall have the right to terminate the Agreement by giving Seller notice thereof prior to 5:00pm (Eastern Standard Time) on January 12, 2001. If Purchaser gives such notice to Seller on or before such date, this Agreement shall terminate and the Earnest Money shall be returned to Purchaser. 5. Ratification. Except as amended hereby, the Agreement shall continue in ------------ full force and effect and is hereby ratified and confirmed. 6. Counterparts. This Amendment may be executed in counterparts, and all ------------ such executed counterparts shall constitute the same agreement. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed on their behalf as of the day and year first above written. SELLER OVERSEAS PARTNERS (MADISON PLAZA) LLC, an Illinois limited liability company By: Overseas Partners (333), Inc., an Illinois corporation, its manager By: /s/ Michael J. Molletta ----------------------------- Name: Michael J. Molletta Its: Vice President PURCHASER TST MADISON PLAZA, LLC, a Delaware limited liability company By: /s/ Andrew J. Nathan ------------------------------ Name: Andrew J. Nathan Its: Vice President SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT ----------------------------------------------- THIS SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT (this "Second Amendment"), is made and entered into this 12th day of January, 2001 by and between OVERSEAS PARTNERS (MADISON PLAZA) LLC, an Illinois limited liability company ("Seller"), and TST MADISON PLAZA, LLC, a Delaware limited liability company ("Purchaser"). RECITALS -------- WHEREAS, Seller and Purchaser are parties to that certain Purchase and Sale Agreement, dated as of November 27, 2000, as amended by the First Amendment to Purchase and Sale Agreement (the "First Amendment") dated as of December 27, 2000 (the "Agreement"), respecting the sale of certain real property and improvements located in Chicago, Illinois; and WHEREAS, Seller and Purchaser have agreed to modify and amend the Agreement as herein provided. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the adequacy and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Defined Terms. All capitalized items used herein and not otherwise ------------- defined herein shall have the meanings ascribed to such terms in the Agreement. 2. Closing. The Closing shall occur on February 1, 2001, or such earlier ------- date mutually agreed to by Seller and Purchaser. 3. Ratification. Except as amended hereby, the Agreement shall continue ------------ in full force and effect and is hereby ratified and confirmed. 4. Counterparts. This Second Amendment may be executed in counterparts, ------------ and all such executed counterparts shall constitute the same agreement. [REST OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed on their behalf as of the day and year first above written. SELLER: OVERSEAS PARTNERS (MADISON PLAZA) LLC, an Illinois limited liability company By: Overseas Partners (333), Inc., an Illinois corporation, its manager By: /s/ Michael J. Molletta ---------------------------- Name: Michael J. Molletta Its: Vice President PURCHASER: TST MADISON PLAZA, LLC, a Delaware limited liability company By: /s/ Andrew J. Nathan ----------------------- Name: Andrew J. Nathan Its: Vice President THIRD AMENDMENT TO PURCHASE AND SALE AGREEMENT ---------------------------------------------- THIS THIRD AMENDMENT TO PURCHASE AND SALE AGREEMENT (this "Third Amendment"), is made and entered into this 26th day of January, 2001 by and between OVERSEAS PARTNERS (MADISON PLAZA) LLC, an Illinois limited liability company ("Seller"), and TST MADISON PLAZA, LLC, a Delaware limited liability company ("Purchaser"). RECITALS -------- WHEREAS, Seller and Purchaser are parties to that certain Purchase and Sale Agreement dated as of November 27, 2000 (the "Main Agreement"), as amended by a First Amendment to Purchase and Sale Agreement dated as of December 27, 2000 (the "First Amendment") and as amended by a Second Amendment to Purchase and Sale Agreement dated as of January 12, 2001 (the "Second Amendment") (the Main Agreement, the First Amendment and Second Amendment are herein together referred to collectively as the "Agreement"), respecting the sale of certain real property and improvements located in Chicago, Illinois; and WHEREAS, Seller and Purchaser have agreed to modify and amend the Agreement as herein provided. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the adequacy and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Defined Terms. All capitalized items used herein and not otherwise ------------- defined herein shall have the meanings ascribed to such terms in the Agreement. 2. Closing. The Closing shall occur on February 9, 2001, or such earlier ------- date mutually agreed to by Seller and Purchaser. 3. Approval by Lender. As of the date hereof, (a) Lender has not ------------------ consented to the assumption by Purchaser of the Existing Loan and the release of Seller, OPCC and OHC from all obligations and liability relating to the Existing Loan, relating to the period from and after the date of Closing and (b) Purchaser and Lender have not agreed on the Loan Modifications (as defined in the First Amendment). Accordingly, Seller and Purchaser agree to extend the date by which such consent and release must be obtained and the date by which Purchaser may terminate the Agreement pursuant to Paragraph 4 of the First Amendment, to February 2, 2001. 4. Ratification. Except as amended hereby, the Agreement shall continue ------------ in full force and effect and is hereby ratified and confirmed. 5. Counterparts. This Third Amendment may be executed in counterparts, ------------ and all such executed counterparts shall constitute the same agreement. IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be duly executed on their behalf as of the day and year first above written. SELLER: OVERSEAS PARTNERS (MADISON PLAZA) LLC, an Illinois limited liability company By: Overseas Partners (333), Inc., an Illinois corporation, its manager By: /s/ Michael J. Molletta -------------------------- Name: Michael J. Molletta Its: Vice President PURCHASER: TST MADISON PLAZA, LLC, a Delaware limited liability company By: /s/ Andrew J. Nathan ------------------------ Name: Andrew J. Nathan Its: Vice President FOURTH AMENDMENT TO PURCHASE AND SALE AGREEMENT ----------------------------------------------- THIS FOURTH AMENDMENT TO PURCHASE AND SALE AGREEMENT (this "Fourth Amendment"), is made and entered into this 2/nd/ day of February, 2001 by and between OVERSEAS PARTNERS (MADISON PLAZA), LLC, an Illinois limited liability company ("Seller"), and TST MADISON PLAZA, LLC, a Delaware limited liability company ("Purchaser"). RECITALS -------- WHEREAS, Seller and Purchaser are parties to that certain Purchase and Sale Agreement dated as of November 27, 2000, (the "Main Agreement"), as amended by a First Amendment to Purchase and Sale Agreement dated as of December 27, 2000 (the "First Amendment"), as amended by a Second Amendment to Purchase and Sale Agreement dated as of January 12, 2001 (the "Second Amendment") and as amended by a Third Amendment to Purchase and Sale Agreement dated as of January 26, 2001 (the "Third Amendment") (the Main Agreement, First Amendment, Second Amendment and Third Amendment are herein together referred to collectively as the "Agreement"), respecting the sale of certain real property and improvements located in Chicago, Illinois; and WHEREAS, Seller and Purchaser have agreed to modify and amend the Agreement as herein provided. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the adequacy and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Defined Terms. All capitalized items used herein and not otherwise ------------- defined herein shall have the meanings ascribed to such terms in the Agreement. 2. Closing. The Closing shall occur on February 9, 2001, or such earlier ------- date mutually agreed to by Seller and Purchaser. 3. Approval by Lender. As of the date hereof, (a) Lender has not ------------------ consented to the assumption by Purchaser of the Existing Loan and the release of Seller, OPCC and OHC from all obligations and liability relating to the Existing Loan, relating to the period from and after the date of Closing and (b) Purchaser and Lender have not agreed on the Loan Modifications (as defined in the First Amendment). Accordingly, Seller and Purchaser agree to extend the date by which such consent and release must be obtained and the date by which Purchaser may terminate the Agreement pursuant to Paragraph 4 of the First Amendment, to February 6, 2001. 4. Ratification. Except as amended hereby, the Agreement shall continue ------------ in full force and effect and is hereby ratified and confirmed. 5. Counterparts. This Fourth Amendment may be executed in counterparts, ------------ and all such executed counterparts shall constitute the same agreement. IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment to be duly executed on their behalf as of the day and year first above written. SELLER: OVERSEAS PARTNERS (MADISON PLAZA), LLC, an Illinois limited liability company By: Overseas Partners (333), Inc., an Illinois corporation, its manager By: /s/ Michael J. Molletta ----------------------------- Name: Michael J. Molletta Its: Vice President PURCHASER: TST MADISON PLAZA, LLC, a Delaware limited liability company By: /s/ Andrew J. Nathan -------------------------- Name: Andrew J. Nathan Its: Vice President FIFTH AMENDMENT TO PURCHASE AND SALE AGREEMENT ---------------------------------------------- THIS FIFTH AMENDMENT TO PURCHASE AND SALE AGREEMENT (this "Fourth Amendment"), is made and entered into this 6th day of February, 2001 by and between OVERSEAS PARTNERS (MADISON PLAZA), LLC, an Illinois limited liability company ("Seller"), and TST MADISON PLAZA, LLC, a Delaware limited liability company ("Purchaser"). RECITALS -------- WHEREAS, Seller and Purchaser are parties to that certain Purchase and Sale Agreement dated as of November 27, 2000, (the "Main Agreement"), as amended by a First Amendment to Purchase and Sale Agreement dated as of December 27, 2000 (the "First Amendment"), a Second Amendment to Purchase and Sale Agreement dated as of January 12, 2001 (the "Second Amendment"), a Third Amendment to Purchase and Sale Agreement dated as of January 26, 2001 (the "Third Amendment") and a Fourth Amendment to Purchase and Sale Agreement dated as of February 2, 2001 (the "Fourth Amendment") (the Main Agreement, First Amendment, Second Amendment, Third Amendment and fourth Amendment are herein together referred to collectively as the "Agreement"), respecting the sale of certain real property and improvements located in Chicago, Illinois; and WHEREAS, Seller and Purchaser have agreed to modify and amend the Agreement as herein provided. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the adequacy and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Defined Terms. All capitalized items used herein and not otherwise ------------- defined herein shall have the meanings ascribed to such terms in the Agreement. 2. Closing. The Closing shall occur on February 16, 2001, or such earlier ------- date mutually agreed to by Seller and Purchaser. 3. Approval by Lender. As of the dare hereof, (a) Lender has not ------------------ consented to the assumption by Purchaser of the Existing Loan and the release of Seller, OPCC and OHC from all obligations and liability relating to the Existing Loan, relating to the period from and after the date of Closing and (b) Purchaser and Lender have not agreed on the Loan Modifications (as defined in the First Amendment). Accordingly, Seller and Purchaser agree to extend the date by which such consent and release must be obtained and the date by which Purchaser may terminate the Agreement pursuant to Paragraph 4 of the First Amendment, to February 9, 2001. 4. Additional Earnest Money Deposit. On February 7, 2001, Purchaser shall -------------------------------- deposit with the escrow Agent as additional Earnest Money, the sum of Five Hundred Thousand Dollars ($500,000.00) in good funds, either by certified bank or cashier's check or by federal wire transfer. 5. Ratification. Except as amended hereby, the Agreement shall continue ------------ in full force and effect and is hereby ratified and confirmed. 6. Counterparts. This Fifth Amendment may be executed in counterparts, ------------ and all such executed counterparts shall constitute the same agreement. IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment to be duly executed on their behalf as of the day and year first above written. SELLER: OVERSEAS PARTNERS (MADISON PLAZA), LLC, an Illinois limited liability company By: Overseas Partners (333), Inc., an Illinois corporation, its manager By: /s/ Michael J. Molletta ---------------------------- Name: Michael J. Molletta Its: Vice President PURCHASER: TST MADISON PLAZA, LLC, a Delaware limited liability company By: /s/ Andrew J. Nathan ---------------------------- Name: Andrew J. Nathan Its: Vice President EX-21 7 0007.txt SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES OF OVERSEAS PARTNERS LTD. - --------------------------------------
Corporation Jurisdiction of Incorporation - ----------- ----------------------------- Overseas Partners Re Ltd. Bermuda Overseas Partners Cat Ltd. Bermuda Overseas Partners Assurance Ltd. Bermuda OPL Group Investment Ltd Bermuda Overseas Partners Credit, Inc. Cayman Islands Overseas Partners (Cayman) Ltd Cayman Islands Overseas Partners Capital Corp. Delaware Copley One LLC. Massachusetts Copley Place Associates, LLC. Massachusetts Copley Place Corp., Inc. Delaware KMS II Realty Limited Partnership Delaware OPL Funding Corp. Delaware Overseas Alliance Insurance Agency, Inc. Delaware Overseas Capital Co. Delaware Overseas Management, Inc. Massachusetts Overseas Partners (333), Inc. Illinois Overseas Partners (AFC), Inc. Georgia Overseas Partners Capital (Illinois), Inc. Delaware Overseas Partners Capital (Massachusetts), Inc. Massachusetts Overseas Partners (Madison Plaza), Inc. Delaware Overseas Partners (Madison Plaza) LLC Illinois Parcel Insurance Plan, Inc. Delaware Overseas Partners US Holding Company Delaware Overseas Partners US Reinsurance Company Delaware
EX-23 8 0008.txt CONSENT OF DELOITTE & TOUCHE EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 333- 69681 (on Form S-3), 333-21571 (on Form S-3) and 333-20545 (on Form S-3) of Overseas Partners Ltd. of our report dated January 15, 2001 appearing in this Annual Report on Form 10-K of Overseas Partners Ltd. for the year ended December 31, 2000. DELOITTE & TOUCHE Hamilton, Bermuda March 30, 2001 -----END PRIVACY-ENHANCED MESSAGE-----