<PAGE>
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, 1998; OR
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
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Commission File No. 0-11538
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OVERSEAS PARTNERS LTD.
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(Exact name of registrant as specified in its charter)
Islands of Bermuda N/A
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(State or other jurisdiction of incorporation (I.R.S. Employer Id. No.)
or organization)
Mintflower Place, 8 Par-la-Ville Road, Hamilton, HM GX, Bermuda
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(Address of principal executive offices)
441-295-0788
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(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
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
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(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 .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S)299.405 of this chapter) 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 $19.84, the price per share as of
January 8, 1999, at which the Registrant has rights of first refusal for the
purchase of its shares offered for sale by shareowners, was $2,496,195,918 as of
February 28, 1999.
The number of shares of Registrant's Common Stock outstanding as of
February 28, 1999 was 127,500,000.
<PAGE>
OVERSEAS PARTNERS LTD.
INDEX 10-K
PART I
Item 1 Business.................................................. 1
Item 2 Properties................................................ 14
Item 3 Legal Proceedings......................................... 14
Item 4 Submission of Matters to a Vote of Security Holders....... 14
Item 5 Market for Registrant's Common Equity and
Related Stockholder Matters............................... 15
PART II
Item 6 Selected Financial Data................................... 18
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operation.............. 19
Item 7a Market Risk Disclosures................................... 26
Item 8 Financial Statements and Supplementary Data............... 30
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 30
PART III
Item 10 Directors and Executive Officers of the Registrant........ 31
Item 11 Executive Compensation.................................... 34
Item 12 Security Ownership of Certain Beneficial
Owners and Management..................................... 38
Item 13 Certain Relationships and Related Transactions............ 40
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K....................................... 42
<PAGE>
PART I
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Item 1. Business
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GENERAL
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Overseas Partners Ltd. (OPL) is a multi-line treaty 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 UPS paid a special dividend 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 91,000
shareowners and is available for purchase by employees of UPS and OPL.
OPL's primary business segment is reinsurance. Its largest single
reinsurance program is the reinsurance of shipper's risk insurance provided by
United States based insurance companies covering loss or damage to packages
carried by subsidiaries of UPS. The Company's wholly-owned subsidiary, Overseas
Partners Re Ltd. (OP Re), has expanded the lines of reinsurance offered to
include accident and health, automobile, aviation, financial reinsurance,
marine, property, workers' compensation, and other specialty reinsurance
products.
OPL established another wholly-owned subsidiary, Overseas Partners
Assurance Ltd. (OPAL), during 1998 to further enhance and broaden its
reinsurance relationships. OPAL will provide rent-a-captive facilities to
reinsurance clients, allowing them to participate in the underwriting and
investment profits associated with their programs.
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's other business segment is U.S. real estate 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 and
leasing assets located in major centers such as Atlanta, Boston and Chicago.
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 1998, 1997 and 1996 can be found in Note 9 of the
Notes to the Consolidated Financial Statements included in "Item 8--Financial
Statements and Supplementary Data".
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
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<S> <C> <C> <C>
Reinsurance:
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Revenue $ 992,093 $ 865,883 $ 677,534
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Assets $2,849,246 $2,249,045 $1,769,144
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Net underwriting income $ 468,409 $ 447,416 $ 380,432
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Real estate and leasing:
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Revenue $ 265,969 $ 269,694 $ 170,276
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Assets $1,507,772 $1,418,624 $1,423,027
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Operating income $ 30,797 $ 46,509 $ 31,595
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</TABLE>
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REINSURANCE SEGMENT
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Reinsurance Overview
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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, 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.
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. UPS is engaged in
the transportation of packages in more than 200 countries and territories
throughout the world. Customers of UPS may insure their packages for amounts
greater than $100 by paying excess value charges, which are currently $0.35 per
$100 of declared value, with similar arrangements internationally. Insured
values are typically limited to a maximum of $25,000 per occurrence.
2
<PAGE>
OPL receives premiums equal to the excess value charges received by primary
insurers, less appropriate ceding commissions, brokerage and taxes. OPL
reimburses the primary insurers for the losses they pay on the package
insurance. The primary shipper's risk insurers are subsidiaries of American
International Group (AIG), one of the world's largest reinsurers.
The shipper's risk reinsurance described above has historically been OPL's
largest source of revenue, generating $371.8 million, $366.7 million and $381.5
million of premiums earned for 1998, 1997 and 1996, respectively. However,
there can be no assurance that UPS or its subsidiaries will continue to offer
the shipper's risk insurance to its customers, or if so offered that the primary
insurers will continue to reinsure with OPL. UPS regularly reviews its package
insurance programs, and its relationships with primary insurers, in view of
cost, competition and other factors, and may make changes in such programs at
its discretion.
An adverse resolution of the federal income tax matter referred to in Note
3 in Notes to the Consolidated Financial Statements included in "Item 8 --
Financial Statements and Supplementary Data and Item 1 -- Business -- Taxation",
could also impact UPS's package insurance practices.
Over the years, the Company has diversified into a number of lines of
reinsurance business. Indeed, the property, aviation, workers' compensation,
automobile and auto warranty, marine, accident and health and financial
reinsurance programs have been the primary contributors to the recent growth in
revenues. The following table provides an analysis of gross premiums written
for each of the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
(in thousands except for percentages) 1998 1997 1996
- ------------------------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Gross reinsurance premiums written:
Shipper's risk $371,768 40% $366,654 51% $381,493 68%
Property 146,749 16% 130,308 18% 22,166 4%
Aviation 121,482 13% 6,403 1% -- --
Workers' compensation 110,997 12% 102,627 14% 64,982 12%
Automobile and auto warranty 39,278 4% 63,875 9% 87,051 16%
Marine 66,513 7% 31,300 4% -- --
Accident and health 56,979 6% 5,000 1% -- --
Financial reinsurance and other 9,857 1% 14,368 2% 5,694 1%
- -------------------------------------------------------------------------------------------------------------
$923,623 100% $720,535 100% $561,386 100%
=============================================================================================================
</TABLE>
OPL, and its wholly-owned subsidiary, OP Re, underwrite such reinsurance on
a treaty and facultative basis for insurance and reinsurance companies in the
United States and selected international markets. In 1998, 99% of gross premiums
were written on a treaty basis, the majority of which was proportional business.
The Company receives 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 80% of the
total. The Company's underwriting team builds relationships with key brokers
and cedants by explaining its underwriting approach and demonstrating
responsiveness to customer needs.
3
<PAGE>
In 1998, the Company received business from approximately 20 brokers with
one broker providing 13% of premiums, excluding shipper's risk. The Company is
not committed 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.
All business written must meet strict, Board-approved, underwriting
standards and minimum risk and return criteria. The Company continues to
emphasize those programs with high-frequency, but low-severity loss exposures
and stable and predictable underwriting results over a market cycle. The Company
will also participate in treaties or facultative contracts with higher claim
severity, such as aviation, satellite and financial reinsurance lines, that may
expose the Company to significant loss on a program in any particular year. Such
programs provide diversification from the rest of the reinsurance portfolio and
provide for attractive returns in the long term.
The Company may or may not act as "lead" reinsurer in the reinsurance
treaties it underwrites. The lead reinsurer on a treaty generally accepts one of
the largest percentage shares of the treaty and is in a stronger position to
negotiate price, terms and conditions than the other reinsurers under the
treaty, which take smaller positions. In some cases, the Company may suggest
changes to any aspect of the treaty even if it does not lead the treaty. The
Company may decline to participate in a treaty based upon its assessment of all
relevant factors.
The Company does not separately evaluate each of the individual risks
assumed under its treaties and is therefore largely dependent on the original
risk underwriting decisions made by the ceding company. Such 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. In addition, the Company is obligated to pay the ceding company
the amount at which claims are settled without participating in the settlement
process.
To mitigate such risks, the Company tries to focus on those ceding
companies that effectively manage the underwriting cycle through proper analysis
and pricing of underlying risks and whose underwriting guidelines and
performance are compatible with the Company's profitability objectives.
Treaties are reviewed for compliance with the Company's general underwriting
standards and certain larger treaties are evaluated 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. The Company, when appropriate, conducts
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. Claims audits, when
appropriate, are also performed in order to evaluate the client's claims
handling abilities and practices.
For both treaty and facultative business, the Company also considers 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.
OPL's reinsurance contracts may include sliding scale and profit commission
features to motivate the ceding companies to maintain disciplined underwriting
standards. Depending on the risk, the Company 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. Reinsurance
premiums ceded by the Company totalled $14.6 million, $0.5 million and $0.8
million for the years ended December 31, 1998, 1997 and 1996.
4
<PAGE>
Ratings
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OPL and its reinsurance subsidiaries currently have a rating of "A+"
(Superior) from A.M. Best, an independent insurance industry rating organization
which rates companies on factors of concern to policyholders. A.M. Best states
that the "A+" (Superior) rating is assigned to those companies which, in its
opinion, have, on balance, achieved superior financial strength, operating
performance and market profile when compared to the standards established by
A.M. Best and have demonstrated a very strong ability to meet their ongoing
obligations to policyholders. The "A+" (Superior) rating is the second highest
of fifteen ratings assigned by A.M. Best, which range from "A++" (Superior) to
"F" (In liquidation).
This rating is based upon factors relevant to policyholders and brokers and
is not directed toward the protection of investors. The rating is not a
recommendation to buy, sell or hold securities.
Claims
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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 $461.9 million and $338.4
million at December 31, 1998 and 1997, respectively. Losses recoverable from
reinsurers totalled $6.4 million and $0.5 million as of December 31, 1998 and
1997, respectively. The increase in the liability of $123.5 million during 1998
was due to the growth in the Company's reinsurance business. The gross
liability for losses and loss expenses was based on the Company's analysis of
reports and individual case estimates received from ceding companies. The
liability includes an estimated amount for losses and loss expenses incurred but
not reported (IBNR). The adequacy of such reserves is evaluated continuously by
management and periodically by independent consulting actuaries. Any resulting
adjustments are included in income in the period in which they become known.
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.
To date, the Company has not experienced any material adjustments to
reserve estimates for prior periods. However, 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
<PAGE>
Investments
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The Company maintains cash and a trading portfolio 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 provide a significant amount of investment income due to the time lag
between receiving premiums and paying claims. Net investment income, including
realized and unrealized gains (losses), from the trading portfolio constituted
19%, 22% and 20% of the Company's revenues for the years ending December 31,
1998, 1997 and 1996, respectively.
The reinsurance investments include global bonds, United States equities
(primarily S&P 500 Index), emerging market equities and an investment in a
strategic income mutual fund. The fair value of such cash and investments was
approximately $2.2 billion at December 31, 1998.
The Company's investment objective for the trading portfolio 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 portfolio as of December 31, 1998, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
Asset Class 1998 1997 1996
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<S> <C> <C> <C>
U.S. Equities 46% 50% 37%
U.S. bonds -- -- 21%
Global bonds 25% 39% --
Strategic income mutual fund 19% -- --
Emerging market equities 10% 11% 5%
EAFE -- -- 6%
Cash -- -- 31%
- -------------------------------------------------------------------------------------------------
100% 100% 100%
=================================================================================================
</TABLE>
The trading portfolio returned 12.2%, 13.9% and 10.9% for the years ended
December 31, 1998, 1997 and 1996, respectively.
Most of the Company's reinsurance agreements call for reinsurance premiums
and settlements to be paid in United States dollars. In addition, its
investments are primarily made in United States dollar denominated securities.
OPL and its reinsurance subsidiaries are exempt from Bermuda's currency exchange
controls. Their assets are located and their operations are conducted in
countries in which, in their 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 -- Market Risk Disclosures".
Competition
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The international property and casualty reinsurance markets are highly
competitive, and in those markets, there are many reinsurance companies, none of
which dominates the industry. Premium rates on certain reinsurance lines of
business have been declining as a result of intense competition and the recent
oversupply of available capital.
6
<PAGE>
Competition with respect to the types of reinsurance 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, have been operating for longer than OPL,
have licenses to conduct reinsurance business in the United States and key
international countries and have established long-term and continuing business
relationships throughout the industry, which can be a significant competitive
advantage. However, OPL's financial strength and stability put it in a position
to compete with these companies. OPL was ranked as the 23rd largest
reinsurance company in the world, based on premiums written, according to a
recent survey published by Standard & Poor's.
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, new, 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 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 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 or 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
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Reinsurance companies are generally regulated by the jurisdictions in which
they operate.
The Company's reinsurance entities OPL, OP Re and OPAL 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, OPL, OP Re and OPAL are all
considered to be engaged in general business; OPL is the only entity considered
to be engaged in long-term business. The minimum paid up share capital to be
maintained by OPL, OP Re and OPAL under Bermuda insurance law and regulations is
$370,000, $120,000 and $120,000, respectively. These entities 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 the loss reserves of the insurer on an annual basis.
7
<PAGE>
In addition, OPL, OP Re and OPAL 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. Minimum statutory capital and surplus for OPL, OP Re and
OPAL is approximately $60 million, $77 million and $1 million, respectively. As
of December 31, 1998, OPL, OP Re and OPAL had approximately $2 billion, $506
million and $25 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%.
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 to OPL, OP Re and OPAL's
general business activities. The exclusion of these types of assets from the
definition of relevant assets does not materially affect their ability to
satisfy the minimum liquidity ratio. OPL, OP Re and OPAL met these requirements
for the years ended December 31, 1998, 1997 and 1996.
OPL, OPRe, and OPAL 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 which regulate the companies to
which OPL, OPRe, and OPAL provide life, property and casualty and other
reinsurance affect OPL, OPRe, and OPAL indirectly. OPL, OPRe, and OPAL record
such 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 alien reinsurers. 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 the Company 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 the Company 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, it would be compliant with such laws.
8
<PAGE>
REAL ESTATE AND LEASING SEGMENT
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An important aspect of the Company's strategy is the ownership of income-
producing real estate and leasing assets through subsidiaries of OPCC. Over the
past five years, OPCC has assembled a portfolio of Class A properties in three
key U.S. markets: Atlanta, Boston and Chicago. At present, the portfolio
consists 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.
An OPCC subsidiary, Overseas Partners Leasing, Inc. (OPLI) 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.
Until July 8, 1998, OPLI 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 is a fixed component and a
variable component to the rent received on the aircraft lease based on the
extent to which the assets have been utilized by UPS. The fixed and variable
components of the aircraft lease for 1998, 1997 and 1996 are set forth below.
Lease revenue:
- --------------
(in millions) 1998 1997 1996
- --------------------------------------------------------------------------
Fixed component $ 9.9 $17.2 $17.1
Variable component 2.5 5.3 6.2
- --------------------------------------------------------------------------
$12.4 $22.5 $23.3
- --------------------------------------------------------------------------
OPLI leases its Ramapo Ridge Facility to United Parcel Service General
Services Co. (GSC), a subsidiary of UPS, for data processing, telecommunications
and 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
562,000 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. In 1995,
OPLI completed construction of a 27,000 square foot addition to the Facility,
which accommodates future expansions of up to 54,000 square feet. OPLI is
responsible, at its own cost and expense, for the maintenance of the grounds on
which the Facility is located and of the outside walls, roof and structural
components of all buildings comprising the facility. GSC is responsible for all
other maintenance at the Facility. OPLI 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 it is utilized by UPS. The fixed and variable components of
the Facility lease for 1998, 1997 and 1996 are set forth below. For further
information regarding the fixed component of rent see Note 6 of the Notes to the
Consolidated Financial Statements included in "Item 8 -- Financial Statements
and Supplementary Data."
Lease revenue:
- --------------
(in millions) 1998 1997 1996
- --------------------------------------------------------------------------
Fixed component $ 7.3 $ 7.3 $ 7.3
Variable component 7.4 12.5 12.7
- --------------------------------------------------------------------------
$14.7 $19.8 $20.0
- --------------------------------------------------------------------------
The variable component of lease revenues for the Facility decreased from
1997 due to a toll adjustment 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."
9
<PAGE>
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), a United States special purpose subsidiary of OPCC
incorporated in Delaware. One series, in the principal amount of $171.6
million, is due in 2012; (Series A Bonds) the other, in the principal amount of
$73.4 million, is due in 2019. (Series B Bonds) The principal of these bonds is
guaranteed by Overseas Partners Credit, Inc. (Overseas Credit), a special
purpose subsidiary of OPL incorporated in the Cayman Islands. Overseas Credit's
obligations are secured by United States zero coupon treasury notes owned by it
and pledged as security to the Trustee for the bondholders. On or prior to the
scheduled maturity date of each series of bonds, the zero coupon securities 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.
OPLI also owns the Marriott Copley Place Hotel in Boston, Massachusetts.
This is 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 with Metropolitan Life Insurance Company, the
principal amount of which was approximately $105.4 million as of December 31,
1998.
OPLI also owns One Buckhead Plaza, a 20-story office and specialty retail
tower located in Buckhead, Atlanta, Georgia's prestigious business community.
The building, acquired in November 1995, has 401,104 square feet of rentable
office space, 41,825 square feet of rentable retail space, 1,230 parking spaces
and 7,830 square feet of storage. As of December 31, 1998, the building was
approximately 95% leased. OPLI also has a purchase option on adjacent tracts of
land totalling almost 14 acres that expires in November 2000 and a right of
first refusal that expires in November 2005. The purchase was financed, in
part, with a $35.0 million, 10-year, non-recourse loan with Metropolitan Life
Insurance Company, the principal amount of which was approximately $33.3 million
as of December 31, 1998.
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 is currently 96% leased 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 $78.2 million as of December 31, 1998.
In December 1996, a subsidiary of OPCC acquired 333 West Wacker Drive
situated in the heart of Chicago's West Loop. This 36-story tower with 826,632
square feet is a defining feature of the Chicago skyline and is currently 84%
leased. It was acquired for cash and in 1997 was refinanced in part with a
$65.0 million, 15-year, non-recourse loan from The Prudential Insurance Company
of America, the principal which was approximately $63.9 million as of December
31, 1998.
Also 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. Occupancy rates on the retail and office
spaces are currently 99% and 100%, 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 $192.5 million as of December 31,
1998.
In July 1998, OPCC, through one of its subsidiaries, acquired Madison Plaza
located in the West Loop of Chicago's downtown business district. This 45-story
Class A office building has 930,075 square feet of rentable space. It was
acquired for cash and was refinanced in December 1998 with a $125.0 million, 12-
year, non-recourse loan from New York Life Insurance Company.
10
<PAGE>
OPCC has its own real estate property management company, 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 properties and zero coupon and corporate
bonds held to collateralize the obligations discussed above, 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 1998, 1997 and 1996 can be
found in Notes 6 and 9 of the Notes to the Consolidated Financial Statements
included in "Item 8 -- Financial Statements and Supplementary Data".
Real Estate and Leasing Industry
- --------------------------------
The commercial real estate industry offers an interested purchaser a wide
array of opportunities depending on the location and type of property they are
interested in. OPCC's credit standing and today's attractive interest rates
permit OPCC to consider various opportunities in the U.S. real estate market.
However, OPCC may become subject to strong competition when demonstrating an
interest in a property depending on market conditions and the property OPCC
chooses to acquire. OPCC also risks devaluation of real estate currently held
if the market takes a sudden downward turn. In consideration of the foregoing,
OPCC, through its professional staff and outside consultants, monitors the real
estate market closely to ensure that all acquisitions continue to meet the
Company's criteria.
The leasing industry offers users an alternative to the purchase of nearly
every type of property and equipment, with varying payment conditions, depending
on the type of property and the nature of the user. Depending upon the extent
and segment of the leasing market OPCC decides to enter, OPCC may become subject
to intense competition. Manufacturers and other leasing companies may provide
certain ancillary services which OPCC cannot offer or may offer lease terms
which OPCC is unwilling to offer. Demand for leasing also depends upon the
availability of and terms by which the acquisition of property can be financed
through other means.
11
<PAGE>
TAXATION
- --------
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
(other than withholding taxes on dividend income). Certain of OPL's
subsidiaries engage in business in the U.S., primarily OPCC, and as a result,
it, but not OPL, is 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) issued a Notice of
Deficiency with respect to the Company's 1984 taxable year in which it asserted
that the Company was subject to U.S. taxation in the amount of approximately $53
million, plus additions to tax and interest, for that year. The Company filed a
Petition in the United States Tax Court contesting the proposed assessment of
tax in the Notice of Deficiency. A trial was held before the United States Tax
Court during the fall of 1997. On February 13, 1998, the IRS indicated that it
no longer intended to pursue its position against the Company for 1984. On
January 21, 1999, the Court decided and ordered that there is no deficiency in
income tax and no additional tax due from the Company for 1984. The IRS also
asserted that the Company was subject to U.S. taxation for its 1985 through 1987
taxable years and proposed an aggregate assessment of $240 million of tax, plus
additions to tax and interest, for those years. 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. The IRS has not proposed an assessment for years subsequent to
1990. 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 will
vigorously contest the Notice of Deficiency for 1988 through 1990 and will
vigorously contest proposed assessments or any future assessments.
OPL and its subsidiaries, other than OPCC and its subsidiaries, conduct,
and intend to conduct their activities so that they will not do business in the
United States or otherwise cause any portion of their undistributed earnings and
profits to be subject to United States federal and state taxation of income
under present law. If OPL were, nevertheless, determined to be engaged in
business in the United States, it would be subject to United States corporate
taxes on income considered to be derived from that portion of its trade or
business deemed to be conducted in the United States.
Various provisions of the Internal Revenue Code of 1986 (the Code) provides
rules designed to approximate current taxation at the shareholder level of
certain kinds of income earned by foreign enterprises owned in whole or part by
United States residents. Among such provisions are those in Subpart F of the
Code, concerned with "controlled foreign corporations," and those concerned with
"passive foreign investment companies." If OPL were to be subject to one or
more of these provisions, some or all, depending upon the applicable provisions,
of the United States 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. Such
liability is referred to herein as "current taxation."
12
<PAGE>
Under Subpart F of the Code, the United States shareowners of OPL would be
subject to current taxation on income of OPL derived from insuring or reinsuring
the risks of its United States shareowners and persons related thereto, but only
if (i) such insured or reinsured United States shareowners and related persons
were to own at least 20% of the Common Stock of OPL and (ii) such income from
the insurance or reinsurance of the risks of its United States shareowners and
related persons were to represent at least 20% of OPL's reinsurance income. The
reinsurance underwritten by OPL does not currently exceed these limits and
management does not expect that these limits will be exceeded in the future.
Furthermore, any United States person owning directly or indirectly 10% of the
Common Stock of OPL (a United States 10% Shareowner) would be subject to current
taxation on their proportionate share of the Subpart F insurance income of OPL
if United States 10% Shareholders were to own, in the aggregate, more than 25%
of the Common Stock of OPL. Finally, a United States 10% Shareowner would be
subject to current taxation on his proportionate share of all Subpart F income
of OPL, and of certain other items, if United States 10% Shareowners were to
own, in the aggregate, more than 50% of the common stock of OPL. OPL does not
believe that any OPL shareowner is currently subject to any of the tax
provisions described in this paragraph.
Under the passive foreign investment company rules, all United States
shareowners of OPL would be subject to rules designed to approximate current
taxation of the earnings of OPL if at least 75% of the gross income of OPL were
"passive income", or if at least 50% (calculated by value) of the average assets
of OPL were to produce, or were held for the production of, "passive income".
Except as may be provided in future regulations promulgated by the Secretary of
the Treasury, income derived by OPL in the active conduct of its reinsurance
business does not constitute "passive income", and assets held by OPL that
produce solely or are held solely for the production of such income do not
constitute "passive assets". Further, under the Subsidiary Look-Through Rules,
because OPL owns 100% of the stock of OPCC, OPL is treated as if it held the
assets of OPCC and received directly the income of OPCC earned from those
assets.
It should be noted that Congress has historically sought to broaden the
taxation of foreign enterprises owned by United States residents, and future
legislation could affect the United States federal tax treatment of OPL and its
shareowners.
There is imposed on foreign insurers a United States federal excise tax on
the reinsurance of United States risks equal to 1% of the reinsurance premiums,
payable by the United States company ceding the reinsurance. Under OPL's
reinsurance agreements, OPL reimburses the ceding company for such tax, as well
as for premium taxes payable under state law, if any.
Bermuda does not have a corporate income tax or a tax on insurance
premiums.
EMPLOYEES
- ---------
OPL, directly and through its subsidiaries, has 74 employees, 32 in
Bermuda, 15 in Atlanta, 21 in St. Louis and 6 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" below.
13
<PAGE>
Item 2. Properties
- ------- ----------
The Company conducts its business from leased office premises in Bermuda,
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 1990.
The IRS is currently subjecting OPL to a tax audit for the years 1991 through
1994. Information regarding the tax audit is included in Note 3 of the Notes to
Consolidated Financial Statements of "Item 8--Financial Statements and
Supplementary Data" below. See also "Item 1--Business--Taxation" for a
description of the outcome of past IRS assessments and proposed IRS assessments
against 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, 1998.
14
<PAGE>
PART II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- ------- ---------------------------------------------------------------------
Market Information of OPL Common Stock
- --------------------------------------
OPL's Common Stock is not listed on a securities exchange and is not traded
in the organized over-the-counter markets. OPL shares are purchased primarily
by employees of OPL and UPS with cash realized from compensation awards and from
direct purchases by such employees. OPL repurchases its shares from such
employees over prescribed periods following the death, retirement or termination
of employment with UPS and OPL as discussed further below.
The net book value per share of OPL Common Stock is used in determining the
price at which OPL will purchase shares from its shareowners. The net book
value is determined from OPL's most recently audited balance sheet as reported
in its annual report to shareowners.
Net book value per share since January 9, 1997 has been as follows:
Date Price
---------------------------------- ------
January 9, 1997 to January 7, 1998 $14.24
January 8, 1998 to January 7, 1999 $17.00
January 8, 1999 to January 7, 2000 $19.84
There were approximately 91,000 record holders of OPL Common Stock as of
February 28, 1999.
Dividend Policy
- ---------------
The declaration and payment of future dividends by the Company will be at
the discretion of the Board of Directors and will depend on many factors,
including the Company's earnings, financial condition, business needs, capital
and surplus requirements of the Company's operating subsidiaries and legal and
regulatory considerations. The ability of the reinsurance subsidiaries to pay
dividends to the Company and the Company's ability to pay dividends to its
shareowners are subject to the maintenance of minimum solvency and liquidity
margins as required by Bermuda insurance law. (see "Item 1-- Business --
Regulation" for further discussion). At December 31, 1998 the Company could
have legally paid dividends in the amount of approximately $1.7 billion.
It is the intent of the Board to consider the payment of an annual dividend
in an amount to be determined on the basis of OPL's earnings, financial
condition and capital needs. OPL declared and paid cash dividends in 1998 and
1997 of $1.04 and $0.90 respectively.
Dividends paid by OPL on shares of Common Stock to persons residing in the
United States will be subject to United States federal income taxes to the same
extent that such dividends would be taxable to such persons 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 which would impact on payment or remittance of dividends, require
withholding for tax purposes or restrict the export or import of capital.
Description of Registrant's Securities
- --------------------------------------
OPL is authorized to issue 900,000,000 shares of Capital Stock, $0.10 par
value per share (Common Stock), of which 127,500,000 were issued and outstanding
as of February 28, 1999. It is also authorized to issue 200,000,000 shares of
Preference Stock, $0.10 par value per share. At present no shares of Preference
Stock have been issued or are outstanding nor are there any plans to issue any
such shares.
15
<PAGE>
Transferability of Common Stock
- -------------------------------
OPL's Bye-Laws provide that no outstanding shares of Common Stock may be
transferred, except by a bona fide gift or inheritance, unless such shares shall
have first been offered, by written notice, for sale to OPL at the lower of
their net book 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 the
Treasurer of OPL, must set forth the number of shares proposed to be sold, the
proposed price per share, the name and address of the proposed transferee, 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.
OPL has the option, within 30 days after receipt of the notice, to purchase all
or a portion of the shares. If OPL chooses to exercise its right of first
refusal with respect to only a portion of the shares designated for sale, the
shareowner may sell the remaining portion of such shares for the price and on
the terms described in the notice. If OPL fails to exercise or waives the
option, the shareowner may, within a period of 20 days thereafter, sell to the
proposed transferee all, but not part, of the shares which were previously
offered to OPL, and not purchased by it pursuant to its 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 OPL but not transferred within the
20-day period remain subject to the initial restrictions. Shares of Common
Stock may be pledged but they may not be transferred upon foreclosure unless
they have first been offered to OPL in the manner described above.
Voting Rights
- -------------
Each share of Common Stock is entitled to one vote in the election of
directors and other matters except that any "Substantial Stockholder", as
defined in OPL's Bye-Law 28A, is entitled to only one one-hundredth of a vote
with respect to each share held by such shareowner which is in excess of 10
percent of OPL's outstanding voting stock. The term Substantial Stockholder is
defined to mean any shareowner, other than UPS or any employee benefit plan of
OPL or UPS, who is the beneficial owner of more than 10 percent of the voting
power of the outstanding shares of OPL entitled to vote generally in the
election of directors. There are no limitations imposed by foreign law, or by
OPL's Memorandum of Association and Bye-Laws, or by any agreement or other
instrument to which OPL is a party or to which it is subject, on the right of
shareowners, solely by reason of their citizenship or domicile, to vote Common
Stock. Owners of Common Stock are entitled to receive ratably such dividends as
are declared by the Board of Directors. Upon liquidation, OPL's shareowners are
entitled to share on a pro rata basis in the assets of OPL legally available for
distribution to shareowners.
OPL's Purchase Rights
- ---------------------
OPL has the right under its Bye-Laws to purchase, at the Company's option,
voting shares distributed by UPS or OPL under the Offering by United Parcel
Service of America, Inc. and Overseas Partners Ltd. governed by the UPS 1997
Managers and Employees Stock Purchase Plans (the Purchase Plans). UPS held this
right from June 1986 to August 7, 1996. Common Stock distributed to employees
of UPS and its subsidiaries as incentive awards (including awards under the UPS
Managers Incentive Plan and shares distributed pursuant to certain UPS Stock
Option Plans) are also subject to purchase at the Company's option following the
member's retirement, death or other termination of employment.
OPL may exercise this right to purchase all or a portion of such shares of
a former employee at any time within a period of three years following such
termination (if the shareowner owns less than 500 shares of UPS's common stock)
or thirteen years (if the shareowner owns 500 or more shares of UPS's common
stock). The purchase price will be the net book value of the shares at the time
of purchase as described in the market information on OPL Common Stock above.
Any transferee of shares of Common Stock owned by recipients of OPL shares will
hold the shares subject to this right of purchase by OPL.
16
<PAGE>
Under OPL's Bye-Laws, OPL has the right to purchase shares of Common Stock
which may be issued as stock dividends, or in stock splits, recapitalizations or
reorganizations of OPL similar to the rights that it has to purchase the shares
on which the dividend, split, recapitalization or reorganization shares were
issued. OPL also has the right to purchase Common Stock in a number of other
circumstances under OPL's Bye-Laws.
During 1998, OPL repurchased 4,868,876 shares from eligible members for
approximately $82.8 million.
OPL's Willingness to Purchase Shares
- ------------------------------------
OPL has been willing to purchase, for net book value per share, a limited
number of shares of OPL Common Stock offered to it.
During 1998, OPL purchased 2,582,808 shares from shareowners at an
aggregate price of approximately $43.9 million. The Company distributed on
February 1, 1999 1,677,158 shares of OPL Common Stock, subject to the UPS
Managers Stock Trust, under the UPS Managers Incentive Plan to employees of UPS
for 1998 Management Incentive Awards.
Although OPL has indicated its willingness to continue purchasing its stock
at the current book value, there can be no assurance of the continuation of this
policy. The feasibility of purchase is subject to the continued maintenance by
OPL of satisfactory earning and financial condition and of UPS's need for OPL
shares for awards under its stock based compensation programs.
Custody Arrangements for Certificates of OPL Common Stock
- ---------------------------------------------------------
Each shareowner may elect to have First Union National Bank (FUNB) hold his
or her certificates as custodian without cost to the shareowner. FUNB's
Employee Shareholder Service Department is located in Philadelphia, PA 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
If the shareowner elects to have FUNB hold the shares of Common Stock in
custody, FUNB 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 OPL's Bye-Laws. Dividends and other distributions on Common
Stock held in custody will be promptly remitted by FUNB to the shareowner.
Shareowners will receive periodic statements of the number of shares held by
FUNB for their account and of dividends paid on those shares. Notice of any
regular or special meeting of shareowners of OPL will be forwarded to
shareowners by FUNB, 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.
17
<PAGE>
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, except per share amounts)
<TABLE>
<CAPTION>
Income Statement Data:
- ---------------------
Years Ended December 31,
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Gross reinsurance premiums written $ 923,623 $ 720,535 $ 561,386 $ 502,527 $ 450,627
Premiums earned 746,918 639,071 531,088 463,910 432,323
Reinsurance commission income 6,124 495 -- -- --
Real estate and leasing 266,870 248,580 150,741 125,450 121,758
Investments 238,150 247,431 165,981 150,700 (5,138)
- ------------------------------------------------------------------------------------------------------------------------------
Total revenue $1,258,062 $1,135,577 $ 847,810 $ 740,060 $ 548,943
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 488,297 $ 477,115 $ 401,225 $ 370,799 $ 222,444
- ------------------------------------------------------------------------------------------------------------------------------
Basic and diluted net income per Share $ 3.87 $ 3.64 $ 2.97 $ 2.73 $ 1.60
- ------------------------------------------------------------------------------------------------------------------------------
Cash dividends per share $ 1.04 $ 0.90 $ 0.72 $ 0.60 $ 0.48
Balance Sheet Data:
- ------------------
December 31,
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash and investments $2,609,444 $2,176,893 $1,873,028 $1,650,291 $1,388,697
- ------------------------------------------------------------------------------------------------------------------------------
Assets:
Reinsurance $2,849,246 $2,249,045 $1,769,144 $1,649,222 $1,371,311
Real estate and leasing $1,507,772 $1,418,624 $1,423,027 $ 770,089 $ 714,579
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $4,357,018 $3,667,669 $3,192,169 $2,419,311 $2,085,890
- ------------------------------------------------------------------------------------------------------------------------------
Long-term debt $ 875,684 $ 758,416 $ 713,790 $ 436,674 $ 402,943
- ------------------------------------------------------------------------------------------------------------------------------
Members' equity $2,524,669 $2,227,162 $1,922,797 $1,631,492 $1,373,931
- ------------------------------------------------------------------------------------------------------------------------------
Net book value per share $ 19.84 $ 17.00 $ 14.24 $ 12.00 $ 9.88
</TABLE>
18
<PAGE>
Item 7. Management's Discussion and Analysis of
- --------- ---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
1998 Compared to 1997
- ---------------------
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Gross premiums written $ 923,623 $ 720,535
Premiums ceded (14,628) (451)
- -------------------------------------------------------------------------------------------
Net premiums written 908,995 720,084
Change in unearned premiums (162,077) (81,013)
- -------------------------------------------------------------------------------------------
Premiums earned 746,918 639,071
Commission income 6,124 495
- -------------------------------------------------------------------------------------------
753,042 639,566
- -------------------------------------------------------------------------------------------
Losses and loss expenses (404,328) (331,879)
Commissions, taxes and other (108,944) (80,435)
- -------------------------------------------------------------------------------------------
(513,272) (412,314)
- -------------------------------------------------------------------------------------------
Underwriting income $ 239,770 $ 227,252
- -------------------------------------------------------------------------------------------
</TABLE>
Gross reinsurance premiums written increased by $203.1 million for the year
ended December 31, 1998. The Company's accident and health, aviation, marine,
property, workers' compensation and automobile programs were the largest
contributors to this increase with premiums from new programs totalling $345.4
million. Premiums on renewed programs decreased by $5.1 million while programs
in run-off contributed $66.0 million less premiums than in 1997. Premiums also
decreased by $35.4 million due to the Company's decision not to renew two
programs in 1998. Premiums from the Company's shipper's risk program increased
by $5.1 million over the same period last year primarily due to the 15-day
strike against UPS in August 1997. However, the strike continues to have an
impact on premium volume for the shipper's risk program as evidenced by a
decline in premium per-UPS workday from $1.48 million in 1997 to $1.44 million
in 1998.
Reinsurance premiums earned increased by $107.8 million for the year ended
December 31, 1998. Of this increase, $124.1 million is attributed to 48 new
programs written in 1998 offset by a $44.3 million decrease on programs in run-
off. An increase of $5.1 million in shipper's risk premiums also contributed to
the increase in premiums earned for the period.
Net underwriting income increased by 5.5% for the year ended December 31,
1998. While the Company's premiums earned increased by 16.9%, the overall
combined ratio has also increased from 64.5% to 68.7% as a result of the
expansion into new lines of business and the increasingly competitive
reinsurance market. Our combined ratio will increase further in future years to
the extent that the premiums from our other lines of reinsurance, which have
lower margins, continue to grow at a faster rate than the premiums from
shipper's risk.
19
<PAGE>
Real Estate and Leasing
- -----------------------
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- ----------------------------------------------------------------------------------------
REVENUE:
<S> <C> <C>
Office buildings $130,209 $110,995
Hotel 93,886 91,361
Leasing 30,980 46,224
Gain on sale of Boeing 757 aircraft 11,795 --
- ----------------------------------------------------------------------------------------
266,870 248,580
- ----------------------------------------------------------------------------------------
EXPENSES:
Operating expenses 138,386 126,826
Interest expense 58,572 62,442
Depreciation 35,392 32,596
Minority interest in earnings 2,822 1,321
- ----------------------------------------------------------------------------------------
235,172 223,185
- ----------------------------------------------------------------------------------------
Real estate and leasing income $ 31,698 $ 25,395
- ----------------------------------------------------------------------------------------
</TABLE>
Office building revenue increased by 17.3% for the year ended December 31,
1998 from $111.0 million for 1997. This increase of $19.2 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. Improvements over 1997
occupancy rates at Copley Place also contributed to the increase in office
building revenue. Hotel revenue increased $2.5 million due to an increase in
room rates and occupancy rates over 1997. Leasing revenue has decreased from
$46.2 million in 1997 to $31.0 million in 1998 due to the sale of five Boeing
757 aircraft to United Parcel Service Co. in July 1998, as well as a $5.1
million decrease in variable toll revenue on the data processing facility lease.
Operating expenses have increased by $11.6 million due to the purchase of
Madison Plaza and an increase in operating costs at the hotel and Copley Place.
Interest expense decreased by $3.9 million from 1997. The purchase of Madison
Plaza led to additional interest expense in 1998, however, the savings resulting
from the sale of the 757s more than offset this increase. Real estate and
leasing income for the year ended December 31, 1998 increased by $6.3 million
over 1997, as a result of the sale of the 757s and improvements in the
profitability of the hotel and Copley Place offset by a decrease in the data
processing facility's variable toll revenue.
Investments
- -----------
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
U.S. equities $209,172 $192,576
Emerging markets (57,127) (20,910)
Fixed income 83,561 49,363
Real estate investment trust certificates (12,641) 15,208
Strategic income mutual fund 6,495 --
Other 8,690 11,194
Expenses (10,412) (6,153)
- -----------------------------------------------------------------------------------------
Investment income $227,738 $241,278
- -----------------------------------------------------------------------------------------
</TABLE>
Investment income for the year ended December 31, 1998 decreased by $13.5
million. Despite considerable volatility in equity markets throughout 1998,
Standard & Poor's S&P 500 Index generated an unprecedented fourth year of 20%+
returns. Income earned on OPL's U.S. equity portfolio reflected this outcome as
investment income increase by $16.6 million from $192.6 million in 1997 to
$209.2 million in 1998. Losses from emerging markets grew by $36.2 million
compared to 1997 as Asian and Latin American economies experienced deterioration
and instability. Global bonds generated $40.7 million more income than in 1997
as investors shifted to government and corporate fixed income securities such as
those held by the Company. OPL's real estate investment trusts were similarly
impacted by the uncertainty in the capital markets. Investment expenses
increased by $4.3 million in 1998 primarily due to the increase in assets under
management.
20
<PAGE>
Net Income
- ----------
Net income for the year ended December 31, 1998 increased by $11.1 million
over 1997 primarily due to the increase in underwriting income. While real
estate and leasing continued to show modest growth, investment income declined
slightly. Net income per share was $3.87, a $0.23 per share increase over 1997.
1997 Compared to 1996
- ---------------------
Reinsurance
- -----------
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Gross premiums written $ 720,535 $ 561,386
Premiums ceded (451) (825)
- -------------------------------------------------------------------------------------------
Net premiums written 720,084 560,561
Change in unearned premiums (81,013) (29,473)
- -------------------------------------------------------------------------------------------
Premiums earned 639,071 531,088
Commission income 495 --
- -------------------------------------------------------------------------------------------
639,566 531,088
- -------------------------------------------------------------------------------------------
Losses and loss expenses (331,879) (236,293)
Commissions, taxes and other (80,435) (56,941)
- -------------------------------------------------------------------------------------------
(412,314) (293,234)
- -------------------------------------------------------------------------------------------
Underwriting income $ 227,252 $ 237,854
- -------------------------------------------------------------------------------------------
</TABLE>
Gross reinsurance premiums written increased to $720.5 million in the year
ended December 31, 1997, from $561.4 million in 1996. The increase of $159.1
million was primarily due to an increase in property premiums of $108.9 million,
an increase in workers' compensation premiums of $37.6 million and an increase
in automobile reinsurance premiums of $13.9 million. These increases were
offset by a decrease of $14.8 million in shipper's risk premiums due to the 15-
day strike against UPS in August 1997 and a decrease of $41.8 million from
reinsurance programs which were discontinued and are currently in run-off. Two
new lines of business introduced in 1997 contributed $42.7 million to gross
reinsurance premiums written - aviation and marine programs amounted to $37.7
million and accident and health totalled $5.0 million. The significant increase
in property premiums can be attributed primarily to the writing of eight new
property programs, which provided $98.7 million in gross premiums written.
Workers' compensation premiums increased as a result of one program having a
policy period of only eight months in 1996 compared to 12 months in 1997.
Net underwriting income decreased by $10.6 million over last year since the
increases in underwriting income from other reinsurance programs were not
sufficient to completely offset the decreased underwriting income from shipper's
risk reinsurance.
Real Estate and Leasing
- -----------------------
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- ----------------------------------------------------------------------------------------
REVENUE:
<S> <C> <C>
Office buildings $110,995 $ 17,115
Hotel 91,361 86,175
Leasing 46,224 47,451
- ----------------------------------------------------------------------------------------
248,580 150,741
- ----------------------------------------------------------------------------------------
EXPENSES:
Operating expenses 126,826 79,028
Interest expense 62,442 42,156
Depreciation 32,596 17,497
Minority interest in earnings 1,321 --
- ----------------------------------------------------------------------------------------
223,185 138,681
- ----------------------------------------------------------------------------------------
Real estate and leasing income $ 25,395 $ 12,060
- ----------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
Real estate and leasing revenue increased by $97.8 million over 1996.
Office buildings purchased in August and December 1996 generated rents of $97.3
million for 1997 compared to $6.6 million in 1996. Hotel sales increased $5.2
million due to higher room rates and slightly higher occupancy rates. Operating
lease rents with UPS decreased $1.2 million due to a reduction in the toll rate
structure, consistent with a reduction in the cost of operating the facility, as
well as a decrease in operating activity at the data processing facility
following the strike against UPS. Operating expenses increased due to increased
operating costs for new buildings and increased hotel operating expenses. The
acquisition of a two-thirds partnership interest in a retail and office complex,
Copley Place, in December 1996 led to minority interest in earnings in 1997 of
$1.3 million. Real estate and leasing operating income increased from $12.1
million to $25.4 million in 1997.
Investments
- -----------
<TABLE>
<CAPTION>
(In thousands) 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
U.S. equities $192,576 $ 98,634
Emerging markets (20,910) 9,886
Fixed income 49,363 29,779
Real estate investment trust certificates 15,208 13,816
Other 11,194 13,866
Expenses (6,153) (3,868)
- -----------------------------------------------------------------------------------------
Investment income $241,278 $162,113
- -----------------------------------------------------------------------------------------
</TABLE>
Investment income increased by $79.2 million to $241.3 million in 1997 from
$162.1 million in 1996. Income from U.S. equities increased by 95% over 1996
due to the S&P 500 Index returning more than 30% in 1997. However, the
International Finance Corporation (IFC) Regional Investable Composite Index
returned (15)% leading to losses in emerging markets of $20.9 million compared
to income of $9.9 million in 1996. Global bonds generated $19.6 million more
income than in 1996 despite a lower allocation of investments in fixed income
securities.
Net Income
- ----------
Net income increased by $75.9 million over 1996 due to the performance of
our investment portfolio. The effects of the decreased shipper's risk
reinsurance premiums and underwriting income from the 15-day strike against UPS
in August 1997, were offset by improvements in other reinsurance underwriting
income and real estate and leasing income. Net income per share was $3.64, a
$0.67 per share increase over 1996.
Liquidity and Capital Resources
- -------------------------------
OPL believes that its investments and cash flow from operations are
adequate sources of capital and liquidity for the payment of claims, operating
expenses and dividends and for its share repurchases. OPL further believes that
its strong capital position will permit continued expansion of its reinsurance
business, should appropriate opportunities arise. In the event OPL decides to
purchase additional capital assets, it may, as demonstrated by its existing
portfolio of assets, finance such purchases from internally generated funds or
from outside borrowing which OPL believes would be readily available to it.
OPL's investment policies are designed to achieve enhanced returns to
shareowners, measured over conventional medium- to long-term market cycle
periods. OPL's fixed income portfolio comprises highly liquid debt securities
of governments, supranationals, government agencies, financial institutions and
utilities. OPL's U.S. and emerging markets equity portfolios are comprised of
stocks drawn mainly from within the S&P 500 Index and the IFC Index.
22
<PAGE>
Because the liquidity of OPL's investments permits OPL to respond quickly
to changing market conditions, OPL's 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. OPL will, on
the other hand, earn income on the funds retained for a period of time until
eventual payment of a claim.
OPL believes that its borrowing capabilities and cash flows from
reinsurance, investments and real estate and leasing operations will be a
sufficient source of capital for its ongoing operations. On a long-term basis,
OPL believes that its resources and available credit capability will continue to
be adequate to meet any obligations likely to arise under its existing lines of
business. OPL also believes that its resources are sufficient to allow it to
underwrite additional reinsurance business as well as to acquire additional
capital assets in the future.
Credit Risk
- -----------
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.
Controlling duration 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.
Impact of the Year 2000 Issue
- -----------------------------
The Year 2000 issue is the result of the inability of computers, software
and other equipment utilizing microprocessors to recognize and properly process
data fields using two digits rather than four to define the applicable year.
Time-sensitive systems and software may recognize a date using "00" as the year
1900 rather than the year 2000.
OPL formed a Year 2000 Committee in May 1998 to evaluate the potential
effects of this issue and to ensure that the Company is Year 2000 ready. The
Committee is led by a senior member of management and comprises representatives
from each of the Company's locations and functional areas. The Committee has
developed a formal, written plan, which outlines the required action steps that
must be completed prior to the Company's targeted project completion date of
June 30, 1999. The Committee makes periodic reports of progress against the
plan to the Chief Executive Officer and the Board of Directors.
The Company has completed inventories of its information technology assets
such as computers and software and assessed each item for Year 2000 compliance
(that is, the ability of software, systems and equipment to properly handle date
data within and between the twentieth and twenty-first centuries). The Company
does not believe that it has significant exposure to non-compliant internal
information technology systems or assets. The Company has minimal exposure to
legacy systems and most hardware and software has either been purchased or
upgraded to Year 2000 Compliant technology within the last year. A small number
of non-critical systems and assets will be replaced, repaired or retired as part
of the Year 2000 initiative.
The Company's real estate properties and office premises include systems
that rely on date sensitive computer programs or embedded chip microprocessors.
These systems include controlled access to the premises, elevators and
escalators, fire detection and safety systems and telecommunication systems. The
Company's worst case scenario is widespread disruption in building operations
should programmed systems not correctly recognize the Year 2000. In addition to
the potential for lost productivity, any failure of such systems could result in
additional claims against the Company from its tenants and other third parties.
The Company has identified and contacted all key equipment manufacturers and
service providers to assess whether such systems and equipment are Year 2000
compliant. Some assurances have been received from these manufacturers and
service providers and the rest are followed up on a regular basis. The Company
has identified those items that require repair, remediation or replacement and
expects to complete the process of repair, remediation and replacement by June
1999.
23
<PAGE>
The Company has significant business relationships with investment
managers, banks, custodians, reinsurance companies, reinsurance intermediaries
and utility companies that provide services and financial reports that are
critical to the Company operations. Enquiries have been made, and in most cases
assurances received, of the Company's significant business partners to determine
their state of readiness for the Year 2000. The Company intends to have
additional communication with its key business partners in the 1st half of 1999.
There is no assurance that such business partners will not suffer a year 2000
business disruption. Such failures could have a material adverse effect on the
Company's financial condition and results of operations.
The Company's investment portfolio also has exposure to the impact of Year
2000 failures. OPL's fixed income portfolio comprises highly liquid debt
securities of governments, government agencies, financial institutions and
utilities. OPL's U.S. and emerging markets equity portfolios are comprised of
stocks drawn mainly from within the S&P 500 Index and the IFC Index. A global
economic crisis could have a material impact on the Company's investment
earnings, however, the likelihood or magnitude of such an event cannot be
determined at this point.
Reinsurance contracts that commence in 1999 may expose the Company to
increases in the frequency and severity of claims as a direct result of Year
2000 failures relating to the insureds. Unfavorable outcomes to these claims,
particularly for property, aviation and marine exposures, could have a material
impact on the Company's financial condition and operations. It is not possible
at this time to determine how the Year 2000 issue will impact future claim
experience. The Company will continue to exercise underwriting discretion and
explore opportunities that may help to reduce this exposure, including the use
of policy exclusions, where possible.
The assessment and remediation phases of its project were complete by
December 31, 1998. The Company has not commenced significant testing activity
but expects testing of mission critical systems to be completed by June 1999.
The Company has developed contingency plans for each of its mission critical
systems and functions. For the most part such contingency plans require
collation of hard copy audit trail or frequent reviews prior to the year 2000 in
order to minimize loss of historical information. In the event that there are
computer hardware or software problems that are not revealed until the year 2000
the Company will implement manual procedures and processes. However, the Company
realizes that any reasonable contingency plan cannot accurately account for all
possible scenarios which may arise as a result of Year 2000 related computer
problems.
The Company retained an independent legal firm to assess the risks of
liability associated with the Company's Year 2000 plan. The legal firm
continues to monitor the Company's progress with respect to the plan.
Any costs incurred by the Company's business partners in connection with
their Year 2000 efforts will be borne by those business partners. Any costs
incurred in preparing OPL's internal systems and equipment for Year 2000
Compliance are not expected to be material. The costs did not exceed $100,000
for the year ended December 31, 1998.
24
<PAGE>
Safe Harbour Disclosure
- -----------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbour" for forward-looking statements. This Annual Report on Form 10K
contains forward looking statements made by management that reflect the views
and beliefs of the Company with respect to future events and financial
performance. The words "expect", "anticipate", "intend", "plan", "believe",
"seek", "estimate" and other similar expressions are intended to identify such
forward-looking statements; however, this Form 10K also contains other forward-
looking statements in addition to historical information. The Company cautions
that there are various important factors that could cause actual results to
differ materially from those indicated in the forward-looking statements;
accordingly, there can be no assurance that such indicated results will be
realized. Among the important factors that could cause actual results to differ
materially from those indicated by such forward-looking statements are: (i)
uncertainties relating to government and regulatory policies (such as subjecting
the Company to insurance regulation or taxation in additional jurisdictions),
(ii) the occurrence of catastrophic events with a frequency or severity
exceeding the Company's estimates, (iii) the legal environment, (iv) the
uncertainties of the reserving process, (v) loss of the services of any of the
Company's executive officers (vi) losses due to foreign currency exchange rate
fluctuations, (vii) ability to collect reinsurance recoverables, (viii) strikes
or similar disruptions in the business of UPS or other insureds, (ix) the
competitive environment in which the Company operates, (x) the impact of mergers
and acquisitions, (xi) the impact of Year 2000 related issues, (xii)
developments in global financial markets which could affect the Company's
investment portfolio, (xiii) risks associated with the introduction of lines of
business, and (xiv) the resolution of any proposed or future tax assessments by
the IRS against the Company. By making these forward-looking statements, the
Company does not undertake to update them in any manner except as may be
required by the Company's disclosure obligations in filings it makes with the
Securities and Exchange Commission under the Federal securities laws.
25
<PAGE>
Item 7a. Market Risk Disclosures
- -------- -----------------------
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 mitigate 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, 1998 are:
<TABLE>
<CAPTION>
(In thousands) FAIR VALUE
- ----------------------------------------------------------------------------------
<S> <C>
Trading portfolio:
Investment in equity securities:
United States $ 964,648
Emerging markets 215,200
Strategic income mutual fund 406,080
Real estate investment trust certificates 71,755
Investment in global fixed income securities 534,992
- ----------------------------------------------------------------------------------
2,192,675
Cash and cash equivalents 171,948
- ----------------------------------------------------------------------------------
Total trading portfolio $2,364,623
- ----------------------------------------------------------------------------------
</TABLE>
The Company also maintains a non-trading portfolio, comprising United
States zero coupon treasury notes and corporate bonds which collateralize
certain of the Company's debt obligations. The Company's non-trading securities
are carried at an amortized cost of $244.8 million. The non-trading portfolio
also includes $875.7 million of long-term debt issued in connection with the
purchase of real estate properties, operating leases and finance leases. The
non-trading portfolio does not expose the Company to material market risk.
Although the zero coupon securities 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 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 long-
term 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 United States and
foreign governments, supranationals and government agencies. The Company's
fixed income portfolio correlates closely with the Solomon Brothers World
Government Bond Index (excluding Japan, unhedged).
. The Company invests in equity markets in both the United States and emerging
market countries. The United States equity portfolio is highly correlated
with the Standard & Poor's S&P 500 index, while the emerging market equity
portfolio is highly correlated with the IFC Index.
. The Company's equity securities include an investment in a strategic income
mutual fund. The mutual 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 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.
26
<PAGE>
The Company uses financial modelling 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, 1998.
Interest Rate Risk
- -------------------
The primary exposure to interest rate risk in the trading portfolio relates
to fixed income investments. The investment in a strategic income mutual fund
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 United States and internationally. Additionally, the credit worthiness
of the issuer, relative values of alternative investments, liquidity and general
market 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 approximately six years. The Company believes that this duration optimizes
the 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 as the Company presently generates sufficient
monthly cash flows from operations to meet such obligations.
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 mutual 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, 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 acceleration of correlations and an
accumulation of significant losses such as those incurred in the third quarter
of 1998.
In general, equity securities have more year-to-year price volatility than
intermediate high-grade fixed income securities. However, returns over longer
time frames have been consistently higher. As such, OPL is not necessarily
concerned with short-term price volatility, providing that the underlying
economic characteristics remain favorable. The Company has adequate capital to
absorb short-term equity price volatility.
27
<PAGE>
Foreign Currency Risk
- ---------------------
OPL is exposed to foreign currency risk arising from foreign exchange rate
fluctuations against the United States dollar on both its global fixed income
portfolio and the IFC emerging markets equity portfolio. The principal
currencies creating foreign exchange rate risk are the German mark, French franc
and United Kingdom pound sterling. 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 German mark. 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 given a certain probability. 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 shown in the following table 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
ending December 31, 1998 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, an 11% return on equity securities and a 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;
. 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.
28
<PAGE>
The VaR for each component of the Company's market risk in the trading
portfolio as of December 31, 1998 was (in millions):
Trading portfolio:
Interest rate risk $ 16.8
Equity price risk 147.4
Foreign exchange rate risk 51.6
Diversification benefit (76.2)
- ------------------------------------------------------------------------
$139.6
- ------------------------------------------------------------------------
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.
29
<PAGE>
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-17] which are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants
- ------- ---------------------------------------------
on Accounting and Financial Disclosure
--------------------------------------
Not applicable.
30
<PAGE>
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 55 Director since 1994
Prior to becoming a director, Bob served as Vice President of OPL from June
1990 to August 1994. He has been Senior Vice President, Treasurer and Chief
Financial Officer of UPS since 1994. Bob joined UPS in 1971. In 1979 he was
named Wisconsin District Controller and Southwest Region Controller in 1987. He
had served as Treasury Manager and then Finance Manager since 1989, prior to
assuming his present responsibilities.
- -------------------------------------------------------------------------------
D. Scott Davis Age 47 Director since 1999
Scott was elected President and Chief Executive Officer, and appointed to
the Board of Directors of OPL on January 7, 1999. Scott also serves as
President of Overseas Partners Capital Corp. (OPCC). Before taking the helm at
Overseas Partners Ltd., Scott served as Vice President Finance and Accounting
for UPS, where his responsibilities for several years included banking,
investments, financial reporting and shareowner relations. A Certified Public
Accountant, he was also a trustee for the UPS Retirement Plan and was
instrumental in the formation of UPINSCO, the UPS insurance company
headquartered in the U.S. Virgin Islands. Prior to joining UPS, Scott was chief
financial officer and then chief executive officer of II Morrow, Inc., a
technology company based in Salem, Oregon that was acquired by UPS in 1986.
- -------------------------------------------------------------------------------
Joseph M. Pyne Age 51 Director since 1995
Joe is Senior Vice President - Corporate Marketing for UPS. In this
capacity, he directs UPS's worldwide marketing efforts in the U.S. and in more
than 200 countries and territories served by UPS. Previously, he served as Vice
President - U.S. Marketing at UPS. He began his UPS career in 1969 and was
promoted to North Central region Business Development Manager in 1984. In 1989
he became National Marketing Planning Manager, and later he headed Marketing for
U.S. ground and air delivery services.
- -------------------------------------------------------------------------------
Cyril E. Rance Age 64 Director since 1995
Cyril 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 Exel Limited, an insurance holding company, and
of several international companies registered in Bermuda.
31
<PAGE>
- -------------------------------------------------------------------------------
Edwin H. Reitman Age 56 Director since 1991
Ed became non-executive Chairman of the Board of Directors in 1995.
Previously, he had served as President and Chief Executive Officer since 1991.
Ed held the position of Vice President -- Corporate Marketing for UPS from May,
1997 until January 1999, when he announced his retirement from UPS. Previously,
he had been President of UPS Europe since April 1995. In that capacity, he had
overall responsibility for UPS's operations in Europe, Africa and the Middle
East. Ed was Manager of the UPS Legal Department from 1989 until 1995. Ed
began serving as legal counsel for the law firm of King & Spalding in February
1999.
- -------------------------------------------------------------------------------
Walter A. Scott Age 61 Director since 1995
Prior to his retirement in September 1994, Walter served as Chairman,
President and Chief Executive Officer of ACE Limited, an insurer based in
Bermuda. He has served as a director of ACE since 1989 and was a consultant to
the Company after his retirement until September 1996. Prior to 1989, Walter
served in various senior positions with Primerica Corporation, (now Travelers
Corporation), a major publicly owned diversified financial services company. He
is also a director of Annuity and Life Re Holdings Ltd., an insurer based in
Bermuda.
Executive Officers
- ------------------
Listed below is certain information relating to the executive officers
of OPL.
<TABLE>
<CAPTION>
Name Age Officers
- --------------------- --- -----------------------------------------------
<S> <C> <C>
Bruce M. Barone 49 President and Chief Executive Officer (1)
Mark R. Bridges 39 Vice President and Treasurer
Thomas E. Butler 54 Vice President and Secretary
D. Scott Davis 47 President and Chief Executive Officer (2)
Michael J. Molletta 43 Vice President, Overseas Partners Capital Corp.
Leopold A. Schmidt 55 Vice President
Joe E. Strawn 55 President of Parcel Insurance Plan, Inc.
</TABLE>
(1) Mr. Barone resigned for personal reasons on December 3, 1998. Bruce served
as President and Chief Executive Officer of OPL from December 20, 1995 to
December 3, 1998. Previously, he served as Senior Vice President and Chief
Operating Officer since 1991, and as Vice President and member of the
Executive Committee since before 1990. Bruce had been associated with OPL
since its incorporation in 1983. He became an employee of OPL on January 1,
1995. Previously, he had held various senior executive positions at United
Parcel Service of America, Inc. since before 1990. He holds an MBA from the
Graduate School of Business of Columbia University and is a Certified
Public Accountant.
(2) Mr. Davis was appointed President and Chief Executive Officer and director
of OPL on January 7, 1999.
32
<PAGE>
Executive Officer Biographical Information
- ------------------------------------------
Mr. Bridges serves as Vice President -- Finance and Treasurer. He also
serves as Vice President and director of OPCC. He joined OPL in May 1998 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. Butler serves as Vice President -- Law and Secretary of OPL. Mr. Butler
has served as Vice President of OPL since June 1990 and Secretary of OPL since
August 1994. Mr. Butler has also served as Vice President and Secretary of OPCC,
a wholly owned subsidiary of OPL, since 1995 as well as a director. Prior to his
OPL service, Mr. Butler had been a member of the UPS Legal Department since
before 1990.
For biographical information on Mr. Scott Davis, see above section on
"Directors".
Mr. Molletta serves as Vice President of OPCC, a wholly-owned subsidiary of
OPL, since December 7, 1994. He also has served as President of OMI since
January 13, 1998. Prior to Mr. Molletta's OPCC duties, he was a member of the
UPS Finance and Accounting Department since before 1990.
Mr. Schmidt serves as Vice President -- Underwriting of OPL. He has also
served as Vice President and director of OPCC since 1994. Prior to Mr.
Schmidt's OPL duties, he had been a member of the UPS Financial Planning
Department since before 1990.
Mr. Strawn served as President of Parcel Insurance Plan, Inc., a wholly-
owned subsidiary of OPL from December 1, 1997. He retired on February 1, 1999
ending an eight year tenure with the company. Before joining PIP as head of
sales and marketing, Joe worked for the Fireman's Fund Insurance Company for 24
years.
The officers of OPL serve at the pleasure of the Board of Directors.
33
<PAGE>
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 1998, 1997 and 1996 to the following Named Executive
Officers in all capacities in which they served:
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
- ---------------------------------------------------------------------------------------------------------------------------------
Stock Appreciation
Other Annual Rights (6) All Other
Name and Principal Position Year Salary Bonus Compensation (4) Compensation (5)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bruce M. Barone 1998 $274,125 $63,180 $234,757 18,791 $285,659
President and Chief 1997 $243,750 $71,740 $234,035 13,870 $ --
Executive Officer (1) 1996 $212,500 $57,300 $ 54,001 13,267 $ --
Thomas E. Butler 1998 $132,500 $35,586 $153,702 5,474 $ --
Vice President and Secretary 1997 $126,250 $40,512 $132,851 3,832 $ --
1996 $120,000 $34,762 $ -- 3,996 $ --
Mark R. Bridges 1998 $104,000 $ -- $ 84,375 -- $ --
Vice President and Treasurer (2)
D. Scott Davis 1998 $ -- $ -- $ -- $ -- $ --
President and Chief Executive
Officer (3)
Michael J. Molletta 1998 $126,250 $29,160 $ -- 4,013 $ --
Vice President 1997 $112,500 $34,604 $ -- 2,561 $ --
1996 $102,500 $29,701 $ -- 2,561 $ --
Leopold A. Schmidt 1998 $142,500 $37,098 $151,260 5,888 $ --
Vice President 1997 $131,250 $37,980 $165,675 3,983 $ --
1996 $112,500 $30,560 $ 27,905 3,747 $ --
Joe E. Strawn 1998 $168,750 $ -- $ -- -- $ --
President of Parcel Insurance 1997 $ 13,500 $ -- $ -- -- $ --
Plan, Inc.
</TABLE>
(1) Mr. Barone resigned for personal reasons on December 3, 1998.
(2) Mr. Bridges commenced employment with OPL in May 1998.
(3) Mr. Davis was appointed President and CEO on January 7, 1999.
(4) Other annual compensation consists of cost of living allowances, and for
Messrs. Barone, Butler, Schmidt and Davis, reimbursement of additional U.S.
income taxes paid as a result of the foreign assignment. These allowances
are intended to permit such executives to maintain comparable living
standards. Mr. Barone and Mr. Schmidt became Bermuda residents in
September and November of 1996, respectively. Mr. Butler became a Bermuda
resident in January 1997.
(5) These payments were made in connection with Mr. Barone's agreement, dated
December 18, 1998, and included $85,625 for reimbursement of relocation
expenses, $137,286 for his bonus paid before December 31, 1998, generally
paid in January of 1999, $48,000 for rent and $14,748 paid for
reimbursement of reasonable attorney's fees.
(6) Number of shares underlying Stock Appreciation Rights granted.
34
<PAGE>
Stock Appreciation Rights - Grants
- ----------------------------------
The following table sets forth information concerning grants of Stock
Appreciation Rights to the Named Executive Officers in 1998:
<TABLE>
<CAPTION>
% of Total Potential Realizable Value at Assumed Annual Rates
Rights Granted of OPL Stock Appreciation for Rights Term (3)
Rights to Appreciation Expiration --------------------------------------------------
Name Granted Employees Base (1) Date (2) 5% 10%
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bruce M. Barone 18,791 39% $17.00 9/30/03 $88,257 $195,026
Mark R. Bridges -- -- $ -- -- $ -- $ --
Thomas E. Butler 5,474 11% $17.00 9/30/03 $25,710 $ 56,813
D. Scott Davis -- -- $ -- -- $ -- $ --
Michael J. Molletta 4,013 8% $17.00 9/30/03 $18,848 $ 41,650
Joe E. Strawn -- -- $ -- -- $ -- $ --
Leopold A. Schmidt 5,888 12% $17.00 9/30/03 $27,655 $ 61,110
</TABLE>
(1) Represents the price of OPL Common Stock on the date of grant.
(2) Generally, Rights may not be exercised until the expiration of five years
from the date of grant, and then only during a 30-day period following the
mailing date of OPL's Annual Report on Form 10-K for the prior year.
(3) Based on actual term of Stock Appreciation Right 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 Stock Appreciation
Rights exercised in 1998 by the Named Executive Officers and the value of their
unexercised Rights on December 31, 1998.
<TABLE>
<CAPTION>
Aggregated Stock Appreciation Rights Exercised in 1998 and Year-End Rights Value
--------------------------------------------------------------------------------
Number of Number of Unexercised Value of Unexercised
Shares Rights at 12/31/98 Rights at 12/31/98
Underlying Value Realized ----------------------------------------------------------
Name Rights Exercised Upon Exercise Exercisable Unexercisable Exercisable Unexercisable (1)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bruce M. Barone 6,799 $ 65,270 -- 58,162 $ -- $ 363,858
Mark R. Bridges -- $ -- -- -- $ -- $ --
Thomas E. Butler 4,420 $ 42,432 -- 21,582 $ -- $ 155,364
D. Scott Davis -- $ -- -- -- $ -- $ --
Michael J. Molletta 1,877 $ 18,019 -- 13,532 $ -- $ 91,552
Joe E. Strawn -- $ -- -- -- $ -- $ --
Leopold A. Schmidt 1,785 $ 17,136 -- 19,754 $ -- $ 132,287
</TABLE>
(1) Based on net book value per share of OPL Common Stock as of December 31,
1998 minus exercise price.
35
<PAGE>
Retirement Plans
- ----------------
The following table shows the estimated annual retirement benefit payable
under OPL's Retirement Plan and Coordinating Benefit Plan (the Plans) at age 65
on a single life only annuity basis to participating employees, including the
Named Executive Officers, who are also entitled to receive $16,008 per year
(maximum currently payable) in primary Social Security benefits:
Pension Plan Table
- ------------------
<TABLE>
<CAPTION>
Estimated Annual Retirement Benefits (as of 12/31/98)
For Years of Service (1) (2) (3) (4)
---------------------------------------------------------------------------------
Average Remuneration 15 Years 20 Years 25 Years 30 Years
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 125,000 $ 27,248 $ 36,327 $ 45,417 $ 54,596
$ 150,000 $ 33,498 $ 44,659 $ 55,834 $ 66,996
$ 175,000 $ 39,748 $ 52,992 $ 66,252 $ 79,496
$ 200,000 $ 45,998 $ 61,324 $ 76,669 $ 91,996
$ 225,000 $ 52,248 $ 69,657 $ 87,087 $104,496
$ 250,000 $ 58,498 $ 77,989 $ 97,504 $116,996
$ 300,000 $ 70,998 $ 94,654 $118,339 $141,996
$ 400,000 $ 95,998 $127,984 $160,009 $191,996
$ 450,000 $108,498 $144,649 $180,844 $216,996
$ 500,000 $120,998 $161,314 $201,679 $241,996
</TABLE>
(1) Under the OPL Retirement Plan, participants receive credit for prior
service with UPS. In the case of participants with UPS deferred vested
benefits, OPL is responsible for the difference between the amounts shown
above and the amounts such participants receive from UPS at retirement.
(2) Amounts exceeding $130,000 would be paid pursuant to OPCC's Coordinating
Benefit Plan.
(3) For 1998, no more than $160,000 (which is adjusted from time to time by the
Internal Revenue Service) of cash compensation could be taken into account
in calculating benefits payable under OPL Retirement Plan.
(4) Participants who elect payment forms with survivor options will receive
lesser monthly amounts than those shown in the above table.
The compensation covered by the Plans whose benefits are summarized in the
table above includes salary plus bonus. The Covered Compensation for each
participant in the Plans is the average Covered Compensation of the participant
during the five highest consecutive years out of the last ten full calendar
years of service.
Estimated or actual credited years of service under the Plans to the Named
Executive Officers was as follows: Barone - 22 years, Butler - 30 years,
Molletta - 21 years, Schmidt - 30 years and Strawn - 1 year.
The Plans permit participants with 25 or more years of benefit service to
retire as early as age 55 with no or only a limited reduction in the amount of
their monthly benefits.
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 an annual fee of $40,000. Members of the
Audit, Compensation, Nominating, and Underwriting Committees who are not
employees of OPL receive an additional fee of $1,250 for each Committee meeting
they attend.
36
<PAGE>
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
Two members of the Compensation Committee of the Board of Directors of OPL
were officers of OPL prior to 1998. Robert J. Clanin served as Vice President
of OPL from 1990 until 1994, and Edwin H. Reitman served as President and Chief
Executive Officer of OPL from 1991 until 1995. Mr. Reitman serves as legal
counsel for the law firm King & Spalding, which has been retained by OPL to
provide legal services.
Employment Contracts and Termination of Employment and Change-in-Control
- ------------------------------------------------------------------------
Arrangements
- ------------
Bruce M. Barone resigned from OPL as President, Chief Executive Officer and
Director, as of December 3, 1998. On December 18, 1998, OPL entered into an
agreement with Mr. Barone. The agreement contained non-competition provisions
and provided for certain payments and benefits, including those set forth in the
Compensation Table at page 34. In addition, Mr. Barone will receive monthly
consulting fees through December 2001, continued payment of health insurance
premiums until Mr. Barone becomes covered under another group medical plan, and
cash payments equal to the payments Mr. Barone would have received under his
stock appreciation rights had he remained with OPL for the term of the rights.
As in prior years, Mr. Barone will also receive a tax equalization payment with
respect to his 1998 income. Under the agreement, Mr. Barone will also receive
retirement benefits when he becomes eligible, as if he had been 55 years old
when he resigned (but without credit for service during the intervening years).
37
<PAGE>
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 the Company.
<TABLE>
<CAPTION>
Common Stock Held as of February 28, 1999(1)
-----------------------------------------------------------------------------
Additional Shares in
which the Director or
Nominee has, or
Participates in the
Shares Beneficially Voting or Investment Total Shares and Percent
Name Owned (2) Power (3) of Class
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bruce M. Barone
54 Atkinson Lane
Sudbury, MA 01776 32,610 -- 32,610 (0.03%)
Mark R. Bridges
Mintflower Place
8 Par-la-Ville Road
P.O. Box 1581
Hamilton, HM GX, Bermuda 3,560 -- 3,560 (0.00%)
Thomas E. Butler
Mintflower Place
8 Par-la-Ville Road
P.O. Box 1581
Hamilton, HM GX, Bermuda 16,186 -- 16,186 (0.01%)
Robert J. Clanin
55 Glenlake Parkway, NE
Atlanta, GA 30328 38,693 5,649,355 5,688,048 (4.46%)
D. Scott Davis
Mintflower Place
8 Par-la-Ville Road
P.O. Box 1581
Hamilton, HM GX, Bermuda 13,119 -- 13,119 (0.01%)
Michael J. Molletta
115 Perimeter Center Place
Suite 940 -- 9,577 (0.01%)
Atlanta, GA 30346 9,577
Joseph M. Pyne
55 Glenlake Parkway, NE
Atlanta, GA 30328 21,304 -- 21,304 (0.02%)
Cyril E. Rance
Blue Anchorage
No. 6 Agars Hill - Point Shares
Pembroke, HM 05, Bermuda 1,500 -- 1,500 (0.00%)
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Common Stock Held as of February 28, 1999(1)
-----------------------------------------------------------------------------
Additional Shares in
which the Director or
Nominee has, or
Participates in the
Shares Beneficially Voting or Investment Total Shares and Percent
Name Owned (2) Power (3) of Class
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Edwin H. Reitman
6304 Alexander Circle
Atlanta, GA 30326 37,391 -- 37,391 (0.03%)
Leopold A. Schmidt
Mintflower Place
8 Par-la-Ville Road
P.O. Box 1581
Hamilton, HM GX, Bermuda 36,783 -- 36,783 (0.03%)
Walter A. Scott
c/o Tempest Re
Par-la-Ville Place
14 Par-la-Ville Road
Hamilton, HM 08, Bermuda 1,500 -- 1,500 (0.00%)
Joe E. Strawn
556 Conway Village Dr.
St. Louis, MO 63141 5,220 -- 5,220 (0.00%)
All directors and executive officers
as a group (10 persons) (4) 179,613 5,649,355 5,828,968 (4.57%)
</TABLE>
(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 27,871 shares
owned by or held in trust for members of the families of Messrs. Barone,
Butler, Clanin, and Schmidt to which they disclaim beneficial ownership.
(3) Neither the directors, nominees, other officers nor members of their
families, have any ownership rights in the shares listed in this column. Of
the shares 5,312,193 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.
(4) All directors and officers as a group are totalled as of February 28, 1999.
As such, Mr. Barone and Mr. Strawn have been excluded from the total as Mr.
Barone resigned from the Company as of December 3, 1998 and Mr. Strawn
retired from Parcel Insurance Plan, Inc. as of February 1, 1999.
39
<PAGE>
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 has been reinsuring
insurance issued by United States-based insurance companies unaffiliated with
UPS or OPL. This reinsurance covers the risk of loss or damage to shippers'
packages carried by UPS's subsidiaries and unaffiliated foreign common carriers
whose declared value exceeds $100 or equivalent in foreign currency. The
reinsurance of shipper's risk insurance does not involve transactions conducted
between UPS and OPL. Various subsidiaries of American International Group, Inc.,
(an insurance company unaffiliated with OPL or UPS) insure customer packages in
return for premiums paid by the customers. OPL reinsures these primary insurers,
whose premium payments constitute OPL's largest source of revenues and profits.
Reinsurance premiums earned by OPL for reinsuring these risks from January 1,
1998 to December 31, 1998 were $371.8 million or 29.6% of OPL's 1998 revenues, a
reduction from 32.3% in 1997. 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.
Several members of OPL's Board of Directors served as officers of UPS
during 1998. Mr. Robert J. Clanin has served as Vice President, Treasurer and
Chief Financial Officer of UPS since 1994; Mr. Joseph M. Pyne serves as Senior
Vice President -- Corporate Marketing of UPS; Mr. Edwin H. Reitman served as
Vice President -- Corporate Marketing at UPS from May 1997 until December 1998
and Mr. D. Scott Davis served as Vice President -- Finance and Accounting for
UPS. As such these individuals had an interest in transactions occurring between
the Company and UPS in 1998. 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. Nevertheless, in connection with the
reinsurance by OPL of risks related to the business of UPS, OPL believes that
the rates charged by the primary insurers reinsured by OPL are competitive with
those charged to shippers utilizing other carriers.
OPL's business has included leasing certain aircraft and real property to
subsidiaries of UPS through OPLI. OPLI is a wholly owned subsidiary of OPL and
OPL has guaranteed OPLI's performance of the leasing arrangements described
below. In December 1989, OPLI 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.
In December 1989, OPLI acquired from UPS for approximately $67.9 million its
rights to purchase from the Boeing Company five 757 aircraft which were then
being manufactured. The aircraft were delivered to OPLI in 1990 and were leased
to UPS until July 8, 1998. On that date, the aircraft were sold pursuant to the
terms of a purchase option granted to United Parcel Service Co. in a May 31,
1990 Aircraft Lease Agreement between the parties. The sales price was
calculated according to a Termination Value as specified in the Aircraft Lease
Agreement. Proceeds from the sale were approximately $202 million, yielding a
gain on sale before income taxes of approximately $12 million.
40
<PAGE>
OPLI has irrevocably assigned the right to receive the fixed component of
rentals on the Facility lease to its subsidiary, OPL Funding Corp. (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 OPLI
fails to pay certain income taxes, UPS is obligated to pay additional rentals to
provide for such taxes. OPLI is required to reimburse UPS the amount of any
such termination or tax payments.
At the conclusion of the lease, UPS may purchase the Facility at fair
market value. UPS has an option to purchase the land on which the Facility is
located, but not the buildings, from OPCC in 2050 for approximately $63.7
million, subject to certain adjustments for increases in the fair market value
of the land. In 1998, OPCC and its subsidiary received rental payments of
approximately $27.1 million in the aggregate from UPS pursuant to the leases
described above.
Other Transactions
- ------------------
OPL retained the services of the law firm King & Spalding in 1998. Mr.
Edwin H. Reitman, a director of OPL, began serving as legal counsel for this
firm in February 1999.
Section 16(a) Filings
- ---------------------
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.
41
<PAGE>
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, 1998.
(c) Exhibits required by Item 601 of Regulation S-K.
- See Exhibit Index at page E-1
42
<PAGE>
OVERSEAS PARTNERS LTD.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULES COMPRISING ITEMS 8
AND 14(a) OF THE ANNUAL REPORT
ON FORM 10-K TO THE SECURITIES
AND EXCHANGE COMMISSION
<PAGE>
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
December 31, 1998 and 1997 F-3
Consolidated Statements of Income
years ended December 31, 1998, 1997, and 1996 F-4
Consolidated Statements of Members'
Equity years ended December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows
years ended December 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements
years ended December 31, 1998, 1997 and 1996 F-7
to
F-17
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
<PAGE>
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, 1998 and 1997, and the
related statements of consolidated income, members' equity, and cash flows for
each of the years in the 3 year-period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998 in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE
Hamilton, Bermuda
January 7, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
(In thousands, except share and per share amounts)
- --------------------------------------------------
1998 1997
----------- ----------
<S> <C> <C>
ASSETS:
Investments:
Trading, at fair value-
Debt securities (amortized cost 1998-$507,776, 1997-$644,863) $ 534,992 $ 642,002
Equity securities (cost 1998-$1,353,253, 1997-$882,177) 1,657,683 1,099,234
Short-term investments (cost 1998-$0, 1997-$20,854) -- 21,519
Held to maturity, at amortized cost-
Restricted (fair value 1998-$292,236, 1997-$91,093) 244,821 59,082
- ------------------------------------------------------------------------------------------------------------------
2,437,496 1,821,837
Cash and cash equivalents 171,948 355,056
Interest and premiums receivable 347,056 144,869
Rentals receivable 28,054 14,929
Deposits with insurers 119,164 74,162
Deferred acquisition costs 79,450 47,701
Real estate and leasing:
Operating leases with UPS 101,340 297,708
Finance leases 46,779 48,035
Hotel 164,601 167,333
Office buildings 810,033 621,346
Other assets:
Common stock held for stock plans -- 24,859
Goodwill 22,242 24,756
Other 28,855 25,078
- ------------------------------------------------------------------------------------------------------------------
Total assets $4,357,018 $3,667,669
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND MEMBERS' EQUITY:
Liabilities:
Accrued losses and loss expenses $ 461,891 $ 338,425
Unearned premiums 347,503 185,425
Accounts payable and other accruals 83,695 48,225
Deferred income taxes 18,565 64,478
Long-term debt 875,684 758,416
Minority interest 45,011 45,538
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 1,832,349 $1,440,507
- ------------------------------------------------------------------------------------------------------------------
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 and
outstanding, 127.5 million shares in 1998 and 131 million shares in 1997 12,750 13,100
Contributed surplus 39,757 26,642
Retained earnings 2,476,865 2,187,420
Treasury stock (276,662 shares), at cost (4,703) --
- ------------------------------------------------------------------------------------------------------------------
Total members' equity 2,524,669 2,227,162
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and members' equity $4,357,018 $3,667,669
- ------------------------------------------------------------------------------------------------------------------
Net book value per share $ 19.84 $ 17.00
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended December 31, 1998, 1997 and 1996
(In thousands, except per share amounts)
- ----------------------------------------
1998 1997 1996
----------- ----------- ----------
<S> <C> <C> <C>
Revenues:
Gross reinsurance premiums written $ 923,623 $ 720,535 $ 561,386
Reinsurance premiums ceded (14,628) (451) (825)
- -----------------------------------------------------------------------------------------------
Net reinsurance premiums written 908,995 720,084 560,561
Change in unearned premiums (162,077) (81,013) (29,473)
- -----------------------------------------------------------------------------------------------
Reinsurance premiums earned 746,918 639,071 531,088
Commission income 6,124 495 --
Operating leases with UPS 27,079 42,233 43,359
Finance leases 3,901 3,991 4,092
Hotel 93,886 91,361 86,175
Office buildings 130,209 110,995 17,115
Gain on sale of Boeing 757 aircraft 11,795 -- --
Interest 45,865 53,109 55,538
Net holding gain on trading securities 166,938 187,139 91,758
Amortization of fixed income securities 9,215 4,887 4,483
Dividends 16,132 2,296 14,202
- -----------------------------------------------------------------------------------------------
1,258,062 1,135,577 847,810
- -----------------------------------------------------------------------------------------------
Expenses:
Reinsurance losses and loss expenses 404,328 331,879 236,293
Reinsurance commissions, taxes and other 108,944 80,435 56,941
Depreciation 35,392 32,596 17,497
Real estate and leasing operating expenses 138,386 126,826 79,028
Interest 58,572 62,442 42,156
Minority interest in earnings 2,822 1,321 --
Other 10,412 6,153 3,868
- -----------------------------------------------------------------------------------------------
758,856 641,652 435,783
- -----------------------------------------------------------------------------------------------
Income before taxes 499,206 493,925 412,027
- -----------------------------------------------------------------------------------------------
Income taxes - current (56,822) -- --
- deferred 45,913 (16,810) (10,802)
- -----------------------------------------------------------------------------------------------
(10,909) (16,810) (10,802)
- -----------------------------------------------------------------------------------------------
Net income $ 488,297 $ 477,115 $ 401,225
- -----------------------------------------------------------------------------------------------
Basic and diluted net income per share $ 3.87 $ 3.64 $ 2.97
- -----------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 126,000 131,000 135,000
- -----------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
Consolidated Statements of Members' Equity
Years Ended December 31, 1998, 1997 and 1996
(In thousands, except per share amounts)
- ----------------------------------------
Common Stock Treasury Stock Total
Preference ------------------- -------------------- Contributed Retained Members'
Stock Shares Amount Shares Amount Surplus Earnings Equity
---------- -------- -------- -------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $ -- 136,000 $13,600 -- $ -- $25,331 $1,592,561 $1,631,492
Net income -- -- -- -- -- -- 401,225 401,225
Dividends paid ($0.72 per -- -- -- -- -- -- (97,920) (97,920)
share)
Retirement of Common Stock -- (1,000) (100) -- -- -- (11,900) (12,000)
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 -- 135,000 $13,500 -- $ -- $25,331 $1,883,966 $1,922,797
Net income -- -- -- -- -- -- 477,115 477,115
Dividends paid ($0.90 per -- -- -- -- -- -- (117,101) (117,101)
share)
Gain on issuance of Common
Stock held for stock -- -- -- -- -- 1,311 -- 1,311
plans
Retirement of Common Stock -- (4,000) (400) -- -- -- (56,560) (56,960)
- ----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $ -- 131,000 $13,100 -- $ -- $26,642 $2,187,420 $2,227,162
Net income -- -- -- -- -- -- 488,297 488,297
Dividends paid ($1.04 per -- -- -- -- -- -- (131,252) (131,252)
share)
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
8,450
Issuance of Common Stock -- 500 50 (500) (8,500) -- --
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
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1998, 1997 and 1996
(In thousands)
- --------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 488,297 $ 477,115 $ 401,225
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes (45,913) 16,810 10,802
Depreciation 35,392 32,596 17,497
Minority interest in earnings 2,822 1,321 --
Net holding gain on trading securities (166,938) (187,139) (91,758)
Amortization of fixed income securities (9,215) (4,887) (4,483)
Gain on sale of Boeing 757 aircraft (11,795) -- --
Other 354 1,429 (7,905)
Changes in assets and liabilities:
Interest and premiums receivable (202,187) (64,556) (3,537)
Rentals receivable (13,125) (9,072) (1,710)
Deposits with insurers (45,002) (39,173) 28,103
Deferred acquisition costs (31,749) (20,597) (10,772)
Other assets (3,777) (4,267) (12,758)
Accrued losses and loss expenses 123,466 73,259 50,959
Unearned premiums 162,078 81,013 29,473
Accounts payable and other accruals 35,470 (51,811) (1,697)
Proceeds from sale of traded investments 1,733,510 1,635,416 1,153,594
Purchase of traded investments (1,987,277) (1,780,944) (1,204,950)
- --------------------------------------------------------------------------------------------------
Net cash flow provided by operating activities 64,411 156,513 352,083
- --------------------------------------------------------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of restricted investments (185,739) -- --
Proceeds on sale of Boeing 757 aircraft 202,220 -- --
Acquisition of office buildings (199,308) -- (232,969)
Acquisition of business, net of cash -- (24,756) --
Additions to fixed assets (15,973) (25,061) (2,225)
- --------------------------------------------------------------------------------------------------
Net cash flow used by investing activities (198,800) (49,817) (235,194)
- --------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Purchases of Common Stock -- (93,590) (18,944)
Proceeds from sale of Common Stock held for stock plans -- 20,026 --
Purchases of treasury stock (126,682) -- --
Proceeds from sale of treasury stock 92,003 -- --
Repayment of debt (7,788) (215,318) (122,641)
Borrowings 125,000 260,000 189,700
Dividends paid (131,252) (117,101) (97,920)
- --------------------------------------------------------------------------------------------------
Net cash flow used by financing activities (48,719) (145,983) (49,805)
- --------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (183,108) (39,287) 67,084
Cash and cash equivalents:
Beginning of year 355,056 394,343 327,259
- --------------------------------------------------------------------------------------------------
End of year $ 171,948 $ 355,056 $ 394,343
- --------------------------------------------------------------------------------------------------
Amounts paid for:
U.S. income taxes $ 61,928 $ 814 $ 168
- --------------------------------------------------------------------------------------------------
Interest $ 58,572 $ 63,661 $ 49,923
- --------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
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 and life reinsurance business and in
the real estate and leasing business.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
The accounts 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.
Intercompany balances and transactions have been eliminated in consolidation.
A statement of comprehensive income is not included as OPL's net income equals
comprehensive income.
In June 1997, the FASB issued SFAS 131 "Disclosures About Segments of an
Enterprise and Related Information." SFAS 131 redefines how operating segments
are determined and requires disclosure of certain financial and descriptive
information about a company's operating segments. The Company adopted
provisions of this statement in 1998 and all prior periods have been restated.
This statement relates to presentation of information and had no impact on the
Company's results of operations or financial condition.
Premiums written and ceded are recognized as earned on a pro-rata basis over
the period the coverage is provided. Written premiums not reported by the
ceding companies are estimated and accrued. Unearned premiums and acquisition
costs, primarily commissions and taxes applicable to the unexpired periods of
the policies in force, are deferred.
At December 31, 1998 and 1997, there were no amounts due from any individual
reinsurer in excess of 10% of OPL's members' equity.
Losses and loss expenses include outstanding losses, as reported by the ceding
companies, and a provision for losses incurred but not reported which is based
on estimates of the ultimate liability for losses. Although OPL believes this
provision is adequate, actual losses may vary from such estimates. Any such
variances will be recorded in periods in which they become known. The Company
recognizes reinsurance recoveries when the associated loss is booked. Losses
recoverable from reinsurers of $6.4 million and $0.5 million at December 31,
1998 and 1997, respectively are included in receivables in the consolidated
balance sheets.
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 net holding gains and
losses included in net income. The cost of securities sold is calculated using
the specific identification method. OPL has the ability and intent to hold its
non-trading investments to maturity. Held-to-maturity investments are carried
at amortized cost. 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 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.
F-7
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
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. Goodwill arising from the 1997
acquisition of a managing general agent is being amortized on a straight-line
basis over 10 years.
OPL has the right of first refusal and the right to purchase its shares in
certain circumstances. Effective January 1, 1998, the Company adopted the
recommendations of EITF 97-14 on a prospective basis and records treasury stock
at cost as a reduction in members' equity. Prior to 1998, the Company recorded
this stock at cost as the asset Common Stock held for stock plans.
Net book value per share is based on 127.2 million shares outstanding (net of
treasury) at December 31, 1998 and 131.0 million shares at December 31, 1997.
Net income per share is computed based on weighted average shares outstanding of
126 million in 1998, 131 million in 1997 and 135 million in 1996.
Real estate and leasing activities include finance leases, operating leases
with UPS and the operation of a hotel and five office buildings. 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 building 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
Aircraft 35 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
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 2000 and is not
expected to have a material impact on the Company's financial position. OPL has
no exposure to, or plans to participate in, derivative instruments and hedging
activities.
3. 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., primarily
Overseas Partners Capital Corp. (OPCC), and as a result, it, but not OPL, is
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.
F-8
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
3. TAXES (continued)
-----
The United States Internal Revenue Service (IRS) issued a Notice of Deficiency
with respect to the Company's 1984 taxable year in which it asserted that the
Company was subject to U.S. taxation in the amount of approximately $53 million,
plus additions to tax and interest, for that year. The Company filed a Petition
in the United States Tax Court contesting the proposed assessment of tax in the
Notice of Deficiency. A trial was held before the United States Tax Court
during the fall of 1997. On February 13, 1998, the IRS indicated that it no
longer intended to pursue its position against the Company for 1984. On January
21, 1999, the Court decided and ordered that there is no deficiency in income
tax and no additional tax due from the Company for 1984. The IRS also asserted
that the Company was subject to U.S. taxation for its 1985 through 1987 taxable
years and proposed an aggregate assessment of $240 million of tax, plus
additions to tax and interest, for those years. 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. The IRS has not proposed an assessment for years subsequent to
1990. 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 has
vigorously contested the Notice of Deficiency for 1988 through 1990 and will
vigorously contest proposed assessments or any future assessments.
The components of income tax expense (benefit) related to earnings for those
subsidiaries engaged in business in the United States, as indicated above, were
as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 50,837 $ -- $ --
State 5,985 -- --
- -------------------------------------------------------------------------------------
56,822 -- --
- -------------------------------------------------------------------------------------
Deferred:
Federal (40,842) 14,679 9,452
State (5,071) 2,131 1,350
- -------------------------------------------------------------------------------------
(45,913) 16,810 10,802
- -------------------------------------------------------------------------------------
$ 10,909 $16,810 $10,802
- -------------------------------------------------------------------------------------
The income tax rate on earnings differed from the U.S. Federal statutory rate as follows:
1998 1997 1996
- -------------------------------------------------------------------------------------
U.S. Federal statutory rate 35.0% 35.0% 35.0%
Bermuda operations not subject to U.S. taxation (33.1) (32.0) (32.7)
State taxes 0.3 0.4 0.3
- -------------------------------------------------------------------------------------
Effective tax rate 2.2% 3.4% 2.6%
- -------------------------------------------------------------------------------------
</TABLE>
The subsidiaries engaged in business in the United States had net operating
loss carryovers and alternative minimum tax credits of approximately $93.5
million and $1.1 million, respectively, at December 31, 1997. These carryovers
and credits were fully utilized in the year ended December 31, 1998.
F-9
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
3. TAXES (continued)
-----
The components of deferred income taxes as of December 31, 1998 and 1997 are
as follows:
(In thousands) 1998 1997
- --------------------------------------------------------------------------
Benefit of operating loss carryovers $ -- $ 32,444
Other accrued expenses not currently deductible 591 2,810
Other -- 1,083
- --------------------------------------------------------------------------
Total deferred tax assets 591 36,337
- --------------------------------------------------------------------------
Excess of tax over book depreciation 6,871 85,115
Unrealized securities holding gain 9,038 13,536
Other 3,247 2,164
- --------------------------------------------------------------------------
Total deferred tax liabilities 19,156 100,815
- --------------------------------------------------------------------------
Deferred income taxes $18,565 $ 64,478
- --------------------------------------------------------------------------
4. INVESTMENTS
-----------
Investments consist of:
(In thousands) 1998 1997
- --------------------------------------------------------------------------
Trading, at fair value $2,192,675 $1,762,755
Held-to-maturity, at amortized cost 244,821 59,082
- --------------------------------------------------------------------------
$2,437,496 $1,821,837
- --------------------------------------------------------------------------
Amortized cost and fair value of investments in trading securities are as
follows:
<TABLE>
<CAPTION>
(In thousands) UNREALIZED UNREALIZED
December 31, 1998: AMORTIZED COST GAINS LOSSES FAIR VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed income:
U.S. government bonds $ 203,926 $ 5,581 $ (280) $ 209,227
Foreign government bonds 254,007 18,885 (963) 271,929
Corporate and other bonds 49,843 4,001 (8) 53,836
- --------------------------------------------------------------------------------------------
507,776 28,467 (1,251) 534,992
- --------------------------------------------------------------------------------------------
Equities:
U.S. equities 626,952 346,231 (8,532) 964,651
Emerging markets 277,560 11,131 (73,493) 215,198
Strategic income mutual fund 399,440 6,640 -- 406,080
Real estate investment trust
certificates 49,301 22,848 (395) 71,754
- --------------------------------------------------------------------------------------------
1,353,253 386,850 (82,420) 1,657,683
- --------------------------------------------------------------------------------------------
$1,861,029 $415,317 $(83,671) $2,192,675
- --------------------------------------------------------------------------------------------
</TABLE>
F-10
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
4. INVESTMENTS (continued)
-----------
<TABLE>
<CAPTION>
(In thousands) UNREALIZED UNREALIZED
December 31, 1997: AMORTIZED COST GAINS LOSSES FAIR VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short term investments $ 20,854 $ 846 $ (181) $ 21,519
- --------------------------------------------------------------------------------------------------
Fixed income:
U.S. government bonds 311,963 505 (15) 312,453
Foreign government bonds 314,361 379 (4,366) 310,374
Corporate and other bonds 18,539 665 (29) 19,175
- --------------------------------------------------------------------------------------------------
644,863 1,549 (4,410) 642,002
- --------------------------------------------------------------------------------------------------
Equities:
U.S. equities 585,664 208,045 (4,695) 789,014
Emerging markets 247,212 11,915 (36,853) 222,274
Real estate investment trust
certificates 49,301 38,645 -- 87,946
- --------------------------------------------------------------------------------------------------
882,177 258,605 (41,548) 1,099,234
- --------------------------------------------------------------------------------------------------
$1,547,894 $261,000 $(46,139) $1,762,755
- --------------------------------------------------------------------------------------------------
</TABLE>
A portion of the equity portfolio is invested in a strategic income mutual
fund listed on the Irish and Caymanian Stock Exchanges. The underlying
securities of the fund include U.S. high yield bonds, convertible securities and
floating rate loans.
Included in net holding gain on trading securities of $166.9 million, $187.1
million and $91.8 million in 1998, 1997 and 1996, were $116.7 million, $69.4
million and $93.6 million of unrealized holding 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 $292.2 million as of December 31, 1998 and $91.1 million as of December 31,
1997. The investments are held by a trustee 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 6).
The maturities of held-to-maturity securities are as follows:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------------------
AMORTIZED AMORTIZED
(In thousands) COST FAIR VALUE COST FAIR VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Within 1 year $ 19,884 $ 19,971 $ -- $ --
After 1 year through 5 years 82,891 84,932 -- --
After 5 years through 10 years 52,752 55,894 -- --
After 10 years 89,294 131,439 59,082 91,093
- -------------------------------------------------------------------------------------------------------------
$244,821 $292,236 $59,082 $91,093
- -------------------------------------------------------------------------------------------------------------
</TABLE>
F-11
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
4. INVESTMENTS (continued)
-----------
The components of investment income were as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. equities $209,172 $192,576 $ 98,634
Emerging markets (57,127) (20,910) 9,886
Fixed income 83,561 49,363 29,779
Real estate investment trust certificates (12,641) 15,208 13,816
Strategic income mutual fund 6,495 -- --
Other 8,690 11,194 13,866
Expenses (10,412) (6,153) (3,868)
- -------------------------------------------------------------------------------------------------------------
$227,738 $241,278 $162,113
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The components of realized gains (losses) were as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. equities $ 65,458 $ 89,769 $(2,309)
Emerging markets (25,833) 21,892 3,798
Fixed income 8,735 2,709 (5,214)
Real estate investment trust certificates -- 2,651 1,607
Other 1,848 674 305
- ------------------------------------------------------------------------------------------------------------
$ 50,208 $117,695 $(1,813)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
Fair value of financial instruments is as follows:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------------------
CARRYING CARRYING
(In thousands) VALUE FAIR VALUE VALUE FAIR VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments (Note 4) $2,437,496 $2,484,910 1,821,837 1,853,849
- -------------------------------------------------------------------------------------------------------------
Long-term debt (Note 8) $ 875,684 $ 989,492 $ 758,416 $ 859,750
- -------------------------------------------------------------------------------------------------------------
</TABLE>
6. REAL ESTATE AND LEASING
-----------------------
In July 1998, the Company purchased Madison Plaza, a 45-story class A office
building located in Chicago, for $199.3 million.
Also in July 1998, the Company sold its five Boeing 757 aircraft to United
Parcel Service Co. 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-12
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
6. REAL ESTATE AND LEASING (continued)
-----------------------
Real estate and leasing assets consist of the following:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Operating Leases with UPS:
Boeing 757 aircraft $ -- $ 237,543
Data processing facility 118,125 118,001
- -----------------------------------------------------------------------------------------
118,125 355,544
Accumulated depreciation (16,785) (57,836)
- -----------------------------------------------------------------------------------------
101,340 297,708
- -----------------------------------------------------------------------------------------
Finance leases:
Lease rents receivable 93,384 98,543
Estimated residual value 6,744 6,740
Unearned and deferred income (53,349) (57,248)
- -----------------------------------------------------------------------------------------
46,779 48,035
- -----------------------------------------------------------------------------------------
Hotel:
Building and improvements 152,076 152,076
Furniture, fixtures and equipment 21,329 17,940
Air rights, leasehold interest 18,128 18,128
- -----------------------------------------------------------------------------------------
191,533 188,144
Accumulated depreciation (26,932) (20,811)
- -----------------------------------------------------------------------------------------
164,601 167,333
- -----------------------------------------------------------------------------------------
Office buildings:
Building and improvements 769,239 609,769
Furniture, fixtures and equipment 3,797 3,938
Tenant improvements 47,496 7,945
Land 34,328 21,900
- -----------------------------------------------------------------------------------------
854,860 643,552
Accumulated depreciation (44,827) (22,206)
- -----------------------------------------------------------------------------------------
810,033 621,346
- -----------------------------------------------------------------------------------------
Total $1,122,753 $1,134,422
- -----------------------------------------------------------------------------------------
</TABLE>
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 1998, 1997 and 1996 were $9.85 million, $17.8
million and $18.9 million, respectively. Total aggregate fixed minimum rentals
are as follows:
<TABLE>
<CAPTION>
OPERATING FINANCE OFFICE
(In thousands) LEASES LEASES BUILDINGS TOTAL
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 $ 7,321 $ 5,157 $ 81,714 $ 94,192
2000 7,321 5,157 72,983 85,461
2001 7,321 4,476 62,853 74,650
2002 7,321 4,248 54,213 65,782
2003 7,321 4,248 48,211 59,780
After 2003 117,130 70,098 130,559 317,787
- ------------------------------------------------------------------------------------------
$153,735 $93,384 $450,533 $697,652
- ------------------------------------------------------------------------------------------
</TABLE>
F-13
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
7. ACCRUED LOSSES AND LOSS EXPENSES
--------------------------------
Activity in accrued losses and loss expenses is summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, $ 338,425 $ 265,166 $ 214,207
- ----------------------------------------------------------------------------------------------------------------
Incurred related to:
Current year 409,860 318,807 233,919
Prior years (5,532) 13,072 2,374
- ----------------------------------------------------------------------------------------------------------------
Total incurred 404,328 331,879 236,293
- ----------------------------------------------------------------------------------------------------------------
Paid related to:
Current year (134,613) (120,788) (132,480)
Prior years (139,219) (130,802) (94,811)
- ----------------------------------------------------------------------------------------------------------------
Total paid (273,832) (251,590) (227,291)
- ----------------------------------------------------------------------------------------------------------------
Loss portfolio assumed -- -- 70,837
Amortization of life and annuity reserve--net (7,030) (7,030) (28,880)
- ----------------------------------------------------------------------------------------------------------------
Balance at December 31, $ 461,891 $ 338,425 $ 265,166
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
8. LONG-TERM DEBT AND COMMITMENTS
------------------------------
In connection with the acquisition of real estate and leasing assets, Overseas
has issued or assumed certain debt obligations, as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
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 (900) (955)
- ------------------------------------------------------------------------------
244,100 244,045
- ------------------------------------------------------------------------------
Finance leases:
7.53% non-recourse note through 2008 23,233 24,840
8.10% non-recourse note through 2011 10,070 10,070
- ------------------------------------------------------------------------------
33,303 34,910
- ------------------------------------------------------------------------------
Hotel:
8.39% non-recourse note due through 2006 105,357 107,396
- ------------------------------------------------------------------------------
Office buildings:
6.90% non-recourse note due through 2011 125,000 --
7.246% non-recourse note due through 2005 33,335 33,930
7.44% non-recourse note due through 2007 192,544 194,409
7.57% non-recourse note due through 2012 63,851 64,779
7.80% non-recourse note due through 2006 78,194 78,947
- ------------------------------------------------------------------------------
492,924 372,065
- ------------------------------------------------------------------------------
$875,684 $758,416
- ------------------------------------------------------------------------------
</TABLE>
F-14
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
8. LONG-TERM DEBT AND COMMITMENTS (continued)
------------------------------
Principal payments under debt obligations are as follows: (In thousands)
1999 $ 9,596
2000 10,466
2001 11,294
2002 12,188
2003 13,152
After 2003 819,888
-------------------------------------
876,584
Unamortized discount (900)
-------------------------------------
$875,684
-------------------------------------
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.
Letters of credit of $388.8 million and $371.1 million as of December 31, 1998
and 1997, respectively, in favor of certain reinsureds, were established and are
amended annually based upon the reinsureds' actual experience.
9. 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 office and underwrites shipper's risk, accident and health,
automobile, aviation, marine, property and workers compensation reinsurance.
Real estate and leasing activities are owned and managed through subsidiaries of
Overseas Partners Capital Corp., a wholly owned subsidiary of OPL. There were
no intersegment revenues earned for the years ended December 31, 1998, 1997 and
1996. Intersegment expenses, such as corporate overhead, were allocated based
on estimated utilization for the years ended December 31, 1998, 1997 and 1996.
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 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 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-15
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
9. BUSINESS SEGMENTS (continued)
-----------------
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Reinsurance:
Premiums earned $ 746,918 $ 639,071 $ 531,088
Commission income 6,124 495 --
Investment income 239,051 226,317 146,446
- -------------------------------------------------------------------------------------------------------------
992,093 865,883 677,534
- -------------------------------------------------------------------------------------------------------------
Real estate and leasing:
Rentals 255,075 248,580 150,741
Gain on sale of Boeing 757 aircraft 11,795 -- --
Investment income (loss) (901) 21,114 19,535
- -------------------------------------------------------------------------------------------------------------
265,969 269,694 170,276
- -------------------------------------------------------------------------------------------------------------
Consolidated $1,258,062 $1,135,577 $ 847,810
- -------------------------------------------------------------------------------------------------------------
NET INCOME BEFORE TAXES
Reinsurance $ 468,409 $ 447,416 $ 380,432
Real estate and leasing 30,797 46,509 31,595
- -------------------------------------------------------------------------------------------------------------
Consolidated $ 499,206 $ 493,925 $ 412,027
- -------------------------------------------------------------------------------------------------------------
ASSETS
Reinsurance
Cash and investments $2,287,605 $1,944,385 $1,624,970
Other 561,641 304,660 144,174
- -------------------------------------------------------------------------------------------------------------
2,849,246 2,249,045 1,769,144
- -------------------------------------------------------------------------------------------------------------
Real estate and leasing
Cash and investments 336,110 253,224 257,295
Other 1,171,662 1,165,400 1,165,732
- -------------------------------------------------------------------------------------------------------------
1,507,772 1,418,624 1,423,027
- -------------------------------------------------------------------------------------------------------------
Consolidated $4,357,018 $3,667,669 $3,192,171
- -------------------------------------------------------------------------------------------------------------
</TABLE>
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.
Greater than 85% of the Company's revenues for 1998, 1997 and 1996 were
derived primarily from sources located in the United States. Other revenues
were derived from customers located primarily in European countries. For 1998,
1997 and 1996, all of the Company's long-lived assets were located in the United
States.
The shipper's risk program represents a major source of premiums for OPL's
reinsurance business. OPL reinsures shipper's risk insurance issued by U.S.
based companies covering loss or damage to packages carried by subsidiaries of
UPS. OPL expects that package reinsurance will continue to be a significant
part of its reinsurance business. Earned premiums on shipper's risk reinsurance
were $371.8 million, $366.7 million and $381.5 million in 1998, 1997 and 1996,
respectively. OPL earned premiums of $50.6 million, $67.6 million and $52.6
million in 1998, 1997 and 1996, respectively for the reinsurance of workers'
compensation insurance 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 $27.1 million,
$42.2 million and $43.3 million in 1998, 1997 and 1996, respectively.
F-16
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
10. THE BERMUDA INSURANCE REGULATIONS
---------------------------------
The Bermuda Insurance Act of 1978 and related regulations require OPL and its
wholly-owned subsidiary, Overseas Partners Re Ltd. (OP Re), to each maintain a
minimum solvency margin and a liquidity ratio. For the years ended December 31,
1998 and 1997, OPL and OP Re each met these requirements.
11. YEAR 2000
---------
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or
after January 1, 2000, and, if not addressed, the impact on operations and
financial reporting may range from minor errors to significant systems failure,
which could affect OPL's ability to conduct normal business operations. It is
not possible to gain absolute assurance that OPL's business partners will not
suffer a year 2000 business disruption. Also, it is not possible to determine
how the Year 2000 Issue will impact the Company's reinsurance business and its
real estate assets.
12. SUPPLEMENTARY INFORMATION
-------------------------
Amortization of acquisition costs included in reinsurance commissions, taxes
and other for 1998, 1997 and 1996 were $95.9 million, $72.7 million and $50.3
million, respectively. Underwriting expenses for 1998, 1997 and 1996 were $13.0
million, $7.7 million and $6.6 million, respectively.
13. COMPARATIVE FIGURES
-------------------
Certain prior year amounts have been reclassified to conform with the current
year presentation.
F-17
<PAGE>
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 31, 1999 By: /s/ D. Scott Davis
-----------------------------------------
President, Chief Executive Officer
By: /s/ Mark R. Bridges
-----------------------------------------
Vice President and Treasurer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ D. Scott Davis President, Chief Executive Officer March 31, 1999
------------------ (Principal Executive Officer) and Director
/s/ Robert J. Clanin Director March 31, 1999
--------------------
(Robert J. Clanin)
/s/ Joseph M. Pyne Director March 31, 1999
------------------
(Joseph M. Pyne)
/s/ Cyril E. Rance Director March 31, 1999
------------------
(Cyril E. Rance)
/s/ Edwin H. Reitman Chairman March 31, 1999
-------------------- of the Board of Directors and
(Edwin H. Reitman) Director
/s/ Walter A. Scott Director March 31, 1999
-------------------
(Walter A. Scott)
/s/ Michael J. Molletta Authorized Representative in the March 31, 1999
----------------------- United States
(Michael J. Molletta)
</TABLE>
<PAGE>
EXHIBITS
--------
TO
OVERSEAS PARTNERS LTD.
REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1998
<PAGE>
EXHIBIT INDEX
-------------
(3) Articles of Incorporation and Bye-Laws.
<TABLE>
<CAPTION>
<S> <C> <C>
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 Filed herewith (restated pursuant to Rule 102 (c) of
Regulation S-T)
</TABLE>
(4) Instruments defining the rights of security holders, including indentures.
<TABLE>
<CAPTION>
<S> <C> <C>
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 on Incorporated by Reference of Exhibit 4(b) of Registration
transfer and rights to purchase Statement (on Form S-1), No. 2-95460.
executed by recipients of shares
4(c) Subscription Agreement Incorporated by Reference of Exhibit 4(c) of Registration
Statement (on Form S-1), No. 33-0009.
4(d) Subscription Agreement Incorporated by Reference to Exhibit 4(d) to OPL's Annual
Report on Form 10-K for the year ended December 31, 1990,
Commission File # 0-11538
</TABLE>
(10) Material Contracts.
<TABLE>
<CAPTION>
<S> <C> <C>
10(a) Facultative Reinsurance Agreement Incorporated by Reference to Exhibit 10(b) of OPL's
between OPL and Liberty Mutual Fire Registration Statement (on Form S-1) No. 2-95460.
Insurance Company and Amendments.
10(b) Facultative Reinsurance Agreement with Incorporated by Reference to Exhibit 10(g) of OPL's
New Hampshire Insurance Company of Registration Statement (on Form S-2) No. 33-19672.
Manchester, New Hampshire.
10(c) Facultative Reinsurance Agreement Incorporated by Reference to Exhibit 10(a) of OPL's
among OPL and National Union Fire Post-Effective Amendment No. 1 to Registration Statement
Insurance Company of Pittsburgh, PA (on Form S-2) No. 33-30944.
and New Hampshire Insurance Company.
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10(d) 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(e) Security Agreement between OPL Funding Incorporated by Reference to Exhibit 10(p) of OPL's Post
and OPCC dated November 6, 1990. Effective Amendment No. 1 to Registration Statement (on
Form S-2) No. 33-30944.
10(f) 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(g) 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(h) Amended and Restated Trust Indenture Incorporated by Reference to Exhibit 10(x) of OPL's
and Security Agreement among OPL Post-Effective Amendment No. 1 to Registration Statement
Funding, Overseas Partners Credit, (on Form S-2) No. 33-30944.
Inc. ("OPL Credit") and Continental
Bank N.A. as trustee, dated November
6, 1990.
10(i) Bond Purchase Agreement among OPL Incorporated by Reference to Exhibit 10(y) of OPL's
Funding, UPS, OPL and Salomon Brothers Post-Effective Amendment No. 1 to Registration Statement
Inc. dated November 6, 1990. (on Form S-2) No. 33-30944.
10(j) Letter Agreement from OPL Funding, UPS Incorporated by Reference to Exhibit 10(z) of OPL's
and OPL to each Purchaser of the Bonds Post-Effective Amendment No. 1 to Registration Statement
dated November 9, 1990. (on Form S-2) No. 33-30944.
10(k) Indemnification Agreement among OPL, Incorporated by Reference to Exhibit 10(aa) of OPL's
OPL Funding, OPCC and Continental Bank Post-Effective Amendment No. 1 to Registration Statement
N.A., as Trustee, dated November 6, (on Form S-2) No. 33-30944.
1990.
10(l) Agreement dated as of December 22, Incorporated by Reference to Exhibit 99.1 of OPL's Current
1993, among Host Marriott Corporation, Report on Form 8-K dated January 12, 1994.
Urban Investment and Development Co.
and OPCC.
10(m) Agreement dated as of December 31, Incorporated by Reference to Exhibit 99.2 of OPL's Current
1993 between Mascester Company and OPCC Report on Form 8-K dated January 12, 1994.
10(n) OPCC 1995 Stock Appreciation Rights Incorporated by Reference to Exhibit 10 (oo) of OPL's
Plan. Annual Report on Form 10-K for the Year Ended December 31,
1994
</TABLE>
E-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10(o) 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 31,
Company of New York dated August 9, 1996
1996.
10(p) Bill of Sale and Assignment by and Incorporated by Reference to Exhibit 10 (qq) of OPL's
between The Mutual Life Insurance Annual Report on Form 10-K for the Year Ended December 31,
Company of New York and Overseas 1996
Partners (AFC), Inc. dated August 30,
1996.
10(q) Assignment and Assumption of Leases by Incorporated by Reference to Exhibit 10 (rr) of OPL's
and between The Mutual Life Insurance Annual Report on Form 10-K for the Year Ended December 31,
Company of New York and Overseas 1996
Partners (AFC), Inc. dated August 30,
1996.
10(r) Assignment and Assumption of Contracts Incorporated by Reference to Exhibit 10 (ss) of OPL's
by and between The Mutual Life Annual Report on Form 10-K for the Year Ended December 31,
Insurance Company of New York and 1996
Overseas Partners (AFC), Inc. dated
August 30, 1996.
10(s) Promissory Note from Overseas Partners Incorporated by Reference to Exhibit 10 (tt) of OPL's
(AFC), Inc. to The Mutual Life Annual Report on Form 10-K for the Year Ended December 31,
Insurance Company of New York dated 1996
October 23, 1996.
10(t) 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 31,
Agreement from Overseas Partners 1996
(AFC), Inc. to The Mutual Life
Insurance Company of New York dated
October 23, 1996.
10(u) 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 31,
Mutual Life Insurance Company of New 1996
York dated October 23, 1996.
10(v) 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 31,
Life Insurance Company of New York to 1996
Overseas Partners (AFC), Inc. dated
October 23, 1996.
10(w) 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 31,
Insurance Company of New York to 1996
Overseas Partners (AFC), Inc. dated
October 23, 1996.
</TABLE>
E-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10(x) 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 31,
York to Overseas Partners (AFC), Inc. 1996
dated October 23, 1996.
10(y) 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 31,
Insurance Company of New York to 1996
Overseas Partners (AFC), Inc. dated
October 23, 1996.
10(z) 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 31,
Partnership dated December 24, 1996. 1996
10(aa) Assignment and Assumption of Leases Incorporated by Reference to Exhibit 10 (bbb) of OPL's
between Overseas Partners (333), Inc. Annual Report on Form 10-K for the Year Ended December 31,
and 333 Wacker Drive Limited 1996
Partnership dated December 31, 1996.
10(bb) Assignment and Assumption of Contracts Incorporated by Reference to Exhibit 10 (ccc) of OPL's
between Overseas Partners (333), Inc. Annual Report on Form 10-K for the Year Ended December 31,
and 333 Wacker Drive Limited 1996
Partnership dated December 31, 1996.
10(cc) Bill of Sale and Assignment by 333 Incorporated by Reference to Exhibit 10 (ddd) of OPL's
Wacker Drive Limited Partnership for Annual Report on Form 10-K for the Year Ended December 31,
benefit of Overseas Partners (333), 1996
Inc. dated December 31, 1996.
10(dd) 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 31,
Real Estate Limited Partnership - 1996
XIII, Urban Investment and Development
Co. and OPCC dated December 31, 1996.
10(ee) 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 31,
Corporation, Carlyle Real Estate 1996
Limited Partnership - XIII, Urban
Investment and Development Co. and
OPCC dated January 23, 1997.
10(ff) Assignment and Assumption of Incorporated by Reference to Exhibit 10 (ggg) of OPL's
Membership Interest by JMB Realty Annual Report on Form 10-K for the Year Ended December 31,
Corporation to OPCC dated January 23, 1996
1997.
</TABLE>
E-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10(gg) Assignment and Assumption of Incorporated by Reference to Exhibit 10 (hhh) of OPL's
Membership Interest by Urban Annual Report on Form 10-K for the Year Ended December 31,
Investment and Development Co. to OPCC 1996
dated January 23, 1997.
10(hh) Assignment and Assumption of Incorporated by Reference to Exhibit 10 (iii) of OPL's
Membership Interest by Carlyle Real Annual Report on Form 10-K for the Year Ended December 31,
Estate Limited Partnership - XIII to 1996
OPCC dated January 23, 1997.
10(ii) Confirmatory Assumption and Incorporated by Reference to Exhibit 10 (jjj) of OPL's
Reaffirmation Agreement by and among Annual Report on Form 10-K for the Year Ended December 31,
Copley Place Associates, LLC, Copley 1996
Place Associates Nominee Corporation,
Copley Funding Corporation, Copley
Financing Corporation and The Aetna
Casualty and Surety Company dated
January 23, 1997.
10(jj) Certificate of Borrower dated January Incorporated by Reference to Exhibit 10 (kkk) of OPL's
23, 1997. Annual Report on Form 10-K for the Year Ended December 31,
1996
10(kk) Central Area Bill of Sale, Assignment Incorporated by Reference to Exhibit 10 (lll) of OPL's
and Assumption Agreement by JMB Realty Annual Report on Form 10-K for the Year Ended December 31,
Corporation, Carlyle Real Estate 1996
Limited Partnership - XIII, Urban
Investment and Development Co. to
Copley Place Associates LLC dated
January 23, 1997.
10(ll) Amended and Restated Limited Liability Incorporated by Reference to Exhibit 10 (mmm) of OPL's
Company Agreement of Copley Place Annual Report on Form 10-K for the Year Ended December 31,
Associates, LLC dated January 23, 1997. 1996
10(mm) 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 31,
Associates, LLC dated January 23, 1997. 1996
10(nn) 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 31,
Overseas Management, Inc. dated 1996
January 23, 1997.
10(oo) 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 31,
Copley Place Associates, LLC, Copley 1996
Funding Corporation, Copley Financing
Corporation, The Aetna Casualty and
Surety Company and Overseas
Management, Inc. dated January 23,
1997.
</TABLE>
E-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10(pp) 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 31,
Overseas Management, Inc. and Urban 1996
Retail Property Co. dated January 23,
1997.
10(qq) 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 31,
LLC, Copley Funding Corporation, 1996
Copley Financing Corporation, The
Aetna Casualty and Surety Company and
Urban Retail Properties Co. dated
January 23, 1997.
10(rr) 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 31,
Investment and Development Co. to the 1997
Metropolitan Life Insurance Company
dated July 30, 1997.
10(ss) 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 31,
Investment and Development Co. to the 1997
Metropolitan Life Insurance Company
dated July 30, 1997.
10(tt) Leasehold Mortgage, Security Agreement Incorporated by Reference to Exhibit 10 (uuu) of OPL's
and Fixture Financing Statement by Annual Report on Form 10-K for the Year Ended December 31,
Copley Place Associates, LLC and Urban 1997
Investment and Development Co. to
Metropolitan Life Insurance Company
dated July 30, 1997.
10(uu) Assignment of Lessor's Interest in Incorporated by Reference to Exhibit 10 (vvv) of OPL's
Leases by Copley Place Associates, LLC Annual Report on Form 10-K for the Year Ended December 31,
to Metropolitan Life Insurance Company 1997
dated July 30, 1997.
10(vv) 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 31,
Licenses, Permits, Agreements, 1997
Warranties and Approvals, to
Metropolitan Life Insurance Company
dated July 30, 1997.
10(ww) 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 31,
Corporation in favor of Metropolitan 1997
Life Insurance Company dated July 30,
1997.
</TABLE>
E-6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10(xx) 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 31,
Place Associates, LLC by Overseas 1997
Partners Capital Corp., JMB Realty
Corporation and Copley Place Corp.,
Inc. dated July 30, 1997.
10(yy) Notice of Direct Lease by Copley Place Incorporated by Reference to Exhibit 10 (zzz) of OPL's
Associates, LLC to Urban Investment Annual Report on Form 10-K for the Year Ended December 31,
and Development Co. and Massachusetts 1997
Turnpike Authority dated July 30, 1997.
10(zz) 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 31,
Associates, LLC, Urban Investment and 1997
Development Co. and Metropolitan Life
Insurance Company dated July 30, 1997.
10(aaa) 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 31,
among Overseas Partners Leasing, Inc., 1997
United Parcel Services General
Services Co. and United Parcel Service
of America, Inc. Affecting 340
MacArthur Boulevard.
10(bbb) 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 31,
(333), Inc. and The Prudential 1997
Insurance Company of America, Inc.
dated August 27, 1997.
10(ccc) Promissory Note from Overseas Partners Incorporated by Reference to Exhibit 10 (dddd) of OPL's
(333), Inc. to The Prudential Annual Report on Form 10-K for the Year Ended December 31,
Insurance Company of America, Inc. 1997
dated August 28, 1997.
10(ddd) Dartmouth Street Garage Assignment and Incorporated by Reference to Exhibit 10 (eeee) of OPL's
Assumption of Ground Lease by and Annual Report on Form 10-K for the Year Ended December 31,
between Urban Investment and 1997
Development Co. and Copley Place
Associates, LLC dated January 23, 1997.
10(eee) Assignment of Agreements by Overseas Incorporated by Reference to Exhibit 10 (ffff) of OPL's
Partners (333), Inc. to The Prudential Annual Report on Form 10-K for the Year Ended December 31,
Insurance Company of America, Inc. 1997
dated August 28, 1997.
</TABLE>
E-7
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10(fff) 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 31,
The Prudential Insurance Company of 1997
America, Inc. dated August 27, 1997.
10(ggg) 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 31,
Amended and Restated Generally 1997
Effective January 1, 1997
10(hhh) Agreement of General Partnership of Incorporated by Reference to Exhibit 10 (iiii) of OPL's
OPL Group Investment Partnership dated Annual Report on Form 10-K for the Year Ended December 31,
as of December 1, 1997. 1997
10(iii) Purchase and Sale Agreement by and Incorporated by Reference to Exhibit 10 (jjjj) of OPL's
between Madison Plaza Venture and OPCC Quarterly Report on Form 10-Q for the Quarter Ended
dated June 30, 1998 September 30, 1998
10(jjj) Assignment and Assumption of Contract Incorporated by Reference to Exhibit 10 (kkkk) of OPL's
Rights by and between OPCC and Quarterly Report on Form 10-Q for the Quarter Ended
Overseas Partners (Madison Plaza) LLC September 30, 1998
10(kkk) Deed and Money Escrow Trust Agreement Incorporated by Reference to Exhibit 10 (llll) of OPL's
from Overseas Partners (Madison Plaza) Quarterly Report on Form 10-Q for the Quarter Ended
LLC September 30, 1998
10(lll) Bill of Sale and Assignment by and Incorporated by Reference to Exhibit 10 (mmmm) of OPL's
between Madison Plaza Venture and Quarterly Report on Form 10-Q for the Quarter Ended
Overseas Partners (Madison Plaza) LLC September 30, 1998
10(mmm) Assignment and Assumption of Leases by Incorporated by Reference to Exhibit 10 (nnnn) of OPL's
and between Madison Plaza Venture and Quarterly Report on Form 10-Q for the Quarter Ended
Overseas Partners (Madison Plaza) LLC September 30, 1998
10(nnn) Assignment and Assumption of Contracts Incorporated by Reference to Exhibit 10 (oooo) of OPL's
by and between Madison Plaza Venture Quarterly Report on Form 10-Q for the Quarter Ended
and Overseas Partners (Madison Plaza) September 30, 1998
LLC
10(ooo) Certificate of Seller by Madison Plaza Incorporated by Reference to Exhibit 10 (pppp) of OPL's
Venture in favor of Overseas Partners Quarterly Report on Form 10-Q for the Quarter Ended
(Madison Plaza) LLC September 30, 1998
10(ppp) Purchaser's Certificate Regarding Incorporated by Reference to Exhibit 10 (qqqq) of OPL's
Representations and Warranties made by Quarterly Report on Form 10-Q for the Quarter Ended
Overseas Partners (Madison Plaza) LLC September 30, 1998
to and for the benefit of Madison
Plaza Venture
</TABLE>
E-8
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10(qqq) 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(rrr) 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(sss) Aircraft Purchase Agreement dated as Incorporated by Reference to Exhibit 10 (tttt) of OPL's
of July 6, 1998 between OPCC and Quarterly Report on Form 10-Q for the Quarter Ended
United Parcel Service Co. September 30, 1998
10(ttt) 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(uuu) Mortgage, Assignment of Leases and Filed herewith.
Rents and Security Agreement by
Overseas Partners (Madison Plaza), LLC
and New York Life Insurance Company
dated December 15, 1998
10(vvv) Guaranty Agreement made by Overseas Filed herewith.
Partners (Madison Plaza), LLC in favor
of New York Life Insurance Company
dated December 15, 1998.
10(www) Promissory Note from Overseas Partners Filed herewith.
(Madison Plaza), LLC to the New York
Life Insurance Company dated December
15, 1998.
10(xxx) Agreement and Release between Filed herewith.
Bruce M. Barone and Overseas
Partners Ltd.
(21) Subsidiaries Filed herewith.
(23) Consent of Deloitte & Touche Filed herewith.
(27) Financial Data Schedule Filed herewith.
(99) Additional exhibits
(99a) UPS Custody Arrangements for OPL Incorporated by Reference to Exhibit 28(c) of OPL's
Common 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
</TABLE>
E-9
<PAGE>
Exhibit 3(b)
AMENDED AND RESTATED
BYE-LAWS
of
OVERSEAS PARTNERS LTD.
Effective as of August 7, 1996
INDEX
<TABLE>
<CAPTION>
Subject Bye-law No.
- ------- -----------
ACCOUNTS
<S> <C>
Balance sheet and income account 55
Requirement to be kept 53
AUDIT
Access to Company books 60
Appointment of Auditor 56
Remuneration of Auditor 58
Requirement for annual audit 57
Vacation of office of Auditor 59
BYE-LAWS
Alteration of Bye-laws 68
CAPITALISATION
Issue of bonus shares 52
DIRECTORS
Alternate Directors 4(4), 4A
Appointment of Chairman 14A
Contracts with the Company 10(1)
Disclosure of interest 10(2)
Election of first Directors 4(1)
Election of subsequent Directors 4(2)
Meetings of the Board 6
Notice of Directors Meetings 7
Notice of Member Nominees 4A
Number of Directors 4(1)
Power of Directors to fill vacancies 4(3), (6)
Quorum 8(1)
Register of Directors and Officers 18A
Removal of Directors 4(5)
Conference Telephone Meeting 8(2)
Vacation of office 4(7)
Validity of acts 11
POWERS OF DIRECTORS
Power to appoint attorney 12(6)
Power to appoint managing director, etc 12(3)
Power to appoint manager 12(4)
Power to authorize specific actions 12(5)
Power to delegate to a committee 13(1)
Power to appoint and dismiss servants 13(2)
Power to enter into contracts 12(2)
Power to manage and pay expenses 12(1)
</TABLE>
A-1
<PAGE>
<TABLE>
<S> <C>
DIVIDENDS
Declaration by Directors 49(1)
Deductions from dividends 51
Other distributions 49(2)
Reserve fund 50
FINANCIAL YEAR
Resolution of Directors to determine 54
INDEMNITY
Of Officers of the Company 66(1)
Waiver of claim by Member 66(2)
MEETINGS
Adjournment of Meetings 26(2)
Annual General Meeting -- business conducted at 24A
Annual General Meeting -- notice of 21
Annual General Meeting -- requirement for 21
Authorization of corporate representative 31(2)
Ballot paper on poll 29
Casting vote 28(8)
Decision of Chairman 28(4)
Defect or failure to give notice 23
Demand for a poll 28(5)
Instrument of proxy 31(1)
Members requisition 24, 24A
Resolutions and votes 28(2)
Postponement of Meetings 25(3)
Quorum for General Meeting 26(1)
Seniority of joint holders voting 30
Special General Meeting 22
Voting at Meetings 28(1)
Voting procedure 28(3), 28A
Waiver of notice 25
Written resolution 27
MEMBERS
Contents of Register 37
Determination of Members 39
Inspection of Register 38
Requirement for Register of Members 37
MINUTES
Obligation of Directors to keep 20
NOTICES
Time for Annual General Meeting 21
Time for Special General Meeting 22
Time of delivery 64
To any Member of the Company 62
To joint Member 63
OFFICERS
Appointment of Secretary 16
Chairman 17
Duties of Secretary 18
Duties of Officers 19
Requirement for 15
Appointment of 15
SEAL
Affixation -- requirements for 65
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C>
SHARES -- General
Alteration of share capital 32(6)
Death of one joint shareholder 33(2)
Finance for purchase of shares 32(5)
Power of Directors to issue shares 32(1)
Power of Company to purchase its shares 12(7)
Registered holder 32(4)
Redeemable preference shares 32(2)
Share certificates 34
Variation of share rights 32(3)
CALLS ON SHARES
Discretion of Directors on calls 36
Interest on calls 35
Power of Directors to make calls 35
TRANSFER OF SHARES
Directors may require further evidence 42
Instrument of transfer 40
Joint shareholders 44
Power of Directors to refuse to register 41
TRANSMISSION OF SHARES
Executors or administrators -- position of 45
Registration of Member or nominee 46
FORFEITURE OF SHARES
Continuing liability of Member 48
Notice of forfeiture 47
WINDING-UP
Distribution by Liquidator 67
</TABLE>
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<PAGE>
INTERPRETATION
1. In these Bye-laws the following words and expressions shall, where not
inconsistent with the context, have the following meanings respectively:
(1) "Member" means the person registered in the Register of Members as the
holder of shares in the Company and, when two or more persons are so
registered as joint holders of shares, means the person whose name stands
first in the Register of Members as one of such joint holders or all of such
persons as the context so requires;
(2) "Notice" means written notice unless otherwise specifically stated;
(3) "The Act" means "The Companies Act of 1981" and every statutory
modification thereof;
(4) "The Company" means the Company for which these Bye-laws are approved
and confirmed;
(5) "Secretary" means the person appointed to perform the duties of
Secretary of the Company and includes any Assistant or Acting Secretary;
(6) "Auditor" includes any individual or partnership;
(7) "Register of Directors and Officers" means the Register of Directors
and Officers described in Bye-law 18A.
(8) "Registered Address" means the address of a Member as shown in the
Register of Members;
(9) "Mailing" includes posting or forwarding by courier service or
transmitting by cable, telex, telecopier, facsimile or other such methods of
transmitting written communications.
2. In these Bye-laws, unless there be something in the subject or context
inconsistent with such construction:
(1) words denoting the plural number shall be deemed to include the
singular number and words importing the singular number shall be deemed to
include the plural number;
(2) words denoting the masculine gender also include the feminine gender;
(3) words denoting persons include companies, associations or bodies of
persons whether corporate or not;
(4) the word:
(a) "may" shall be construed as permissive; and
(b) "shall" shall be construed as imperative;
(5) unless the context otherwise requires words or expressions contained in
these Bye-laws shall bear the same meaning as in the Act;
(6) unless the context otherwise requires the word "Director" for the
purposes of these Bye-laws, should be read as including any Alternate
Director.
3. Expressions referring to writing shall, unless the contrary intention
appears, be construed as including printing, lithography, photography and other
modes of representing words in a visible form.
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<PAGE>
DIRECTORS
4. (1) The business of the Company shall be managed and conducted by a Board
of Directors consisting of not less than two Directors or such number in excess
of two as the Members may from time to time determine at a General Meeting. The
Directors may elect or appoint individuals to act as additional directors up to
the maximum number determined by the Members. Directors shall be elected in the
first place at the Statutory Meeting and shall hold office until the next Annual
General Meeting or until their successors are elected or appointed, and so long
as a quorum of Directors remains in office the Board of Directors may fill any
vacancy on the Board of Directors left unfilled at a General Meeting.
(2) After the election of the first Board of Directors the Directors shall
be chosen or elected at the Annual General meeting of the Members and notice of
such Meeting shall be given in such manner as these Bye-laws shall prescribe.
(3) The Directors shall have the power from time to time and at any time to
appoint any qualified person to fill a vacancy on the Board occurring as the
result of the death, disability, disqualification or resignation of any
Director.
(4) Any General Meeting of the Company may elect a qualified person or
persons to act as Directors in the alternative to the Directors of the Company
or may authorize the Board of Directors to appoint such Alternate Directors; any
person so appointed shall have all the rights and powers of the Director for
whom he is appointed in the alternative.
An Alternate Director shall, subject to his giving the Company an address
at which notices may be served upon him, be entitled to receive notices of all
Board Meetings and to attend and vote as a Director at any such Meeting at which
the Director for whom he was appointed is not personally present and generally
to perform at such Meeting all the functions of the Director for whom he was
appointed in the absence of that Director.
An Alternate Director shall immediately cease to be such if the Director
for whom he was appointed ceases for any reason to be a Director but may be re-
appointed by the Board as alternate to the person appointed to fill the vacancy
in accordance with subparagraph (3). An Alternate Director may be removed at any
time by the body which appointed him. The removal of an Alternate Director shall
be effected by notice left with the Secretary and given to the Alternate
Director concerned.
(5) Subject to any provision to the contrary in these Bye-laws the Members
may, at any Special General Meeting convened and held in accordance with these
Bye-laws, remove a Director at any time, provided that the notice of any such
Meeting convened for the purpose of removing a Director shall contain a
statement of the intention so to do and be served on such Director 14 days
before the Meeting and at such Meeting such Director shall be entitled to be
heard on the motion for his removal.
(6) A vacancy on the Board of Directors created by the removal of a
Director under the provisions of subparagraph (5) may be filled by the election
or choice of the Members at the Meeting at which such Director is removed or, in
the absence of such election or choice, may be filled by the Directors with a
qualified person who shall hold office until the next election of Directors.
(7) The continuing Directors may act notwithstanding any vacancy in their
number but, if and so long as their number is reduced below the number fixed by
or pursuant to Bye-law 8 as the necessary quorum of Directors, the continuing
Directors or Director may act for the purpose of (i) summoning a general meeting
of the Company or (ii) preserving the assets of the Company.
(8) The office of Director shall be vacated if the Director:
(a) is removed from office pursuant to these Bye-law or is prohibited
from being a Director under any provision of law;
A-5
<PAGE>
(b) becomes bankrupt or makes any arrangement or composition with his
creditors generally;
(c) becomes of unsound mind or dies;
(d) resigns his office by notice in writing to the Company.
4A. Only persons who are nominated in accordance with the procedures set forth
in the Bye-laws shall be eligible for election as Directors. Nominations of
persons for election to the Board of Directors of the Company may be made at a
General Meeting of Members (a) by or at the direction of the Board of Directors
or (b) by any Member of the Company entitled to vote for the election of
directors at the General Meeting who complies with the notice procedures set
forth in this Bye-law. Nominations by Members shall be made pursuant to timely
notice in writing to the Secretary of the Company. To be timely, a Member's
notice shall be delivered to or mailed and received at the principal executive
offices of the Company not less than 30 days nor more than 60 days prior to the
General Meeting; provided, however, that in the event that less than 40 days
notice or prior public disclosure of the date of the General Meeting is given or
made to Members, notice by the Member to be timely must be so received not later
than the close of business on the 10th day following the day on which such
notice of the date of the General Meeting was mailed or such public disclosure
was made. Such Member's notice shall set forth (a) as to each person whom the
Member proposes to nominate for election or reelection as a Director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934
of the United States of America, as amended (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
Director if elected); and (b) as to the Member giving the notice (i) the name
and address, as they appear on the Company's books, of such Member and (ii) the
class and number of shares of the Company which are beneficially owned by such
Member. At the request of the Board of Directors any person nominated by the
Board of Directors for election as a Director shall furnish to the Secretary of
the Company that information required to be set forth in a Member's notice of
nomination which pertains to the nominee. No person shall be eligible for
election as a Director of the Company unless nominated in accordance with the
procedures set forth in the Bye-laws.
The Chairman of the General Meeting shall, if the facts warrant, determine
and declare to the General Meeting that a nomination was not made in accordance
with the procedures prescribed in this Bye-law, and if he should so determine,
he shall so declare to the General Meeting and the defective nomination shall be
disregarded.
5. [Deleted]
6. The Directors may meet for the transaction of business, adjourn and
otherwise regulate their Meetings as they see fit.
7. A Meeting of the Directors may be convened by the Secretary or by any
two Directors. The Secretary shall convene a Meeting of the Directors of which
notice may be given by telephone or otherwise whenever he shall be required so
to do by the President, Vice President or any two Directors. Any Director may
waive notice of any Meeting either prospectively or retrospectively.
8. (1) The quorum necessary for a Meeting for the transaction of business
at a Meeting of the Directors may be fixed by the Directors and, unless so
fixed, shall be two.
(2) Directors may participate in any Meeting of the Board by means of
conference telephone or other communications equipment through which all persons
participating in the Meeting can communicate with each other and such
participation shall constitute presence at a Meeting as if those participating
were present in person.
(3) A resolution put to the vote at a Meeting of the Directors shall be
carried by the affirmative votes of a majority of the votes cast and in the case
of an equality of votes the resolution shall pass only if the Chairman shall
have cast a vote in favor of the resolution, otherwise the resolution shall
fail.
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<PAGE>
9. A resolution in writing signed by all the Directors shall be as valid
and effectual as if it had been passed at a Meeting of the Board of the
Directors duly called and constituted.
10. (1) Any individual who is a Director or his firm, partner or company
may act in a professional capacity for the Company and he or his firm, partner
or company shall be entitled to remuneration for professional services as if he
were not a Director, provided that nothing herein contained shall authorize a
Director or the firm, partner or company of such Director to act as auditor of
the Company.
(2) A Director who is in any way, whether directly or indirectly,
interested in a contract or proposed contract with the Company shall declare the
nature of his interest as required by the Act.
(3) Unless disqualified by the Chairman of the relevant meeting, a Director
may vote in respect of any contract or arrangement in which he is interested and
may constitute part of a quorum. The determination by the Chairman that a
particular Director is disqualified and may not vote on a matter shall be final
unless such determination is overruled by the affirmative votes of at least two-
thirds of the Directors. Matters which shall be the basis for disqualification
by the Chairman are matters in which the Director has a substantial personal
interest, such as, securities transactions and employment arrangements between
the Company and a Director and a contract between the Company and a Director in
his individual capacity.
11. All acts done bona fide by any Meeting of the Directors or by a
Committee of Directors or by any person acting as a Director shall,
notwithstanding that it be afterwards discovered that there was some defect in
the appointment of any such Director or person acting as aforesaid, or that they
or any of them were disqualified, be as valid as if every such person had been
duly appointed and was qualified to be a Director.
GENERAL POWERS OF DIRECTORS
12. (1) In managing the business of the Company the Directors may pay all
expenses incurred in promoting and incorporating the Company and may exercise
all such powers of the Company as are not, by statute or by these Bye-laws,
required to be exercised by the Company in General Meeting, subject,
nevertheless, to any of these Bye-laws, to the provisions of any statute and to
such regulations, being not inconsistent with the aforesaid Bye-laws or
provisions, as may be prescribed by the Company in General Meeting; but no
regulation made by the Company in General Meeting shall invalidate any prior act
of the Directors which would have been valid if that regulation had not been
made.
(2) The Directors may from time to time appoint one or more of their body
to the office of managing director or chief executive officer of the Company
who, subject to the control of the Board, shall in general supervise and
administer all of the business and affairs of the Company. The Directors may
entrust to and confer upon such managing director or chief executive officer any
of the powers exercisable by them upon such terms and conditions and with such
restrictions as they may think fit and either collaterally with or to the
exclusion of their own powers and may from time to time revoke, withdraw, alter
or vary all or any of such powers.
(3) The Directors may appoint some person or persons to act as manager of
the Company's day to day business and may entrust to and confer upon such
manager or chief executive officer such powers and duties as they deem
appropriate for all the transaction or conduct of such business and the
Directors shall not be liable for the negligence or default of any such person
if employed in good faith.
(4) The Directors may from time to time and at any time authorize any
Director or Officer to act on behalf of the Company for any specific purpose and
in connection therewith to execute any agreement, document or instrument on
behalf of the Company.
(5) The Directors may from time to time and at any time by power of
attorney appoint any company, firm, or person or body of persons, whether
nominated directly or indirectly by the Directors, to be the attorney or
attorneys of the Company for such purposes and with such powers, authorities and
discretions (not exceeding those vested in or exercisable by the Directors under
these Bye-laws) and for such period and subject to such conditions as they
A-7
<PAGE>
may think fit; and any such powers of attorney may contain such provisions for
the protection and convenience of persons dealing with any such attorney as the
Directors may think fit and may also authorize any such attorney to sub-delegate
all or any of the powers, authorities and discretions so vested in the attorney.
Such attorney or attorneys may, if so authorized under the seal of the Company,
execute any deed or instrument under their personal seal with the same effect as
the affixation of the Company Seal.
(6) The Directors may from time to time and at any time cause the Company
to purchase all or any part of its own shares whether or not such purchase has
been approved by the Members, pursuant to Section 42A of the Act.
13. (1) The Directors may delegate any of their powers to a committee
consisting of two or more of the Directors together with such other persons as
the Board may appoint, but every such committee shall conform to such directions
as the Directors shall impose on them.
(2) The Directors may appoint, suspend or remove any manager, secretary,
clerk, agent or employee of the Company and may fix their remuneration and
determine their duties.
14. The Directors may exercise all the powers of the Company to borrow
money and to mortgage or charge its undertaking, property and uncalled capital,
or any part thereof, and may issue debentures, debenture stock and other
securities whether outright or as security for any debt, liability or obligation
of the Company or any third party.
14A. The Directors may from time to time appoint one of their number as
Chairman of the Board of Directors, who shall not be as such an Officer of the
Company. The only responsibilities of the Chairman of the Board of Directors
shall be to act as Chairman of Meetings of the Board of Directors when he is
present and as such, to exercise the vote described in Bye-law 8(3) and Bye-law
28(3), and to act as Chairman of Meetings of Members when he is present.
OFFICERS
15. The Officers of the Company shall consist of a President, Vice
President, Secretary and such additional Officers as the Directors may from time
to time determine all of whom shall be deemed to be Officers for the purposes of
the Act and these Bye-laws.
The Directors of the Company shall as soon as possible after the statutory
meeting of Members and after each General Meeting at which the Directors are
elected, elect one of their number to be President of the Company and another of
their number to be Vice President; and, if more than one Director is proposed
for either of these offices, the election to such office shall take place in
such manner as the Directors may determine.
16. The Secretary and additional Officers, if any, shall be appointed by
the Directors and shall hold office at the pleasure of the Directors.
17. The Chairman, if there be one, and if not the President shall act as
Chairman at all Meetings of the Members or of the Directors at which he is
present. In their absence the Vice President, if present, shall be chairman and
in the absence of all of them a chairman shall be appointed or elected by those
present at the Meeting.
18. The Secretary shall attend all Meetings of the Members and of the
Directors and shall keep correct minutes of such Meetings and enter the same in
the proper books provided for the purpose. He shall perform such other duties as
are prescribed by the Directors. The Secretary shall receive such remuneration
as the Directors may from time to time determine.
18A. (1) The Board of Directors shall cause to be kept in one or more books
at its registered office a Register of Directors and Officers and shall enter
therein the following particulars with respect to each Director and the
President, Vice President, Chairman and Secretary:
(a) first name and surname; and
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<PAGE>
(b) address.
(2) The Board shall, within the period of fourteen days from the occurrence of
(a) any change among its Directors, the President, any Vice President, the
Chairman and the Secretary; or
(b) any change in the particulars contained in the Register of Directors
and Officers,
cause to be entered in the Register of Directors and Officers the particulars of
such change and the date on which such change occurred.
(3) The Register of Directors and Officers shall be open to inspection at the
office of the Company on every business day, subject to reasonable restrictions
as the Board may impose, so that not less than two hours in each business day be
allowed for inspection.
19. The Officers of the Company shall have such powers and perform such duties
in the management, business and affairs of the Company as may be delegated to
them by the Directors from time to time.
MINUTES
20. Directors shall cause Minutes to be duly entered in books provided for the
purpose:
(a) of all elections and appointments of Officers;
(b) of the names of the Directors present at each Meeting of the Directors
and of any Committee of the Directors;
(c) of all resolutions and proceedings of each General Meeting of the
Members, and Meetings of the Directors.
MEETINGS
21. The Annual General Meeting of the Company shall be held in each year other
than the year of incorporation at such time and place as the President or Vice
President or, them failing, the Directors shall designate and notice of such
Meeting shall be given by the Secretary mailing to each Member a notice at his
registered address at least five days before the Meeting takes place stating the
date, place and time at which the Meeting is to be held, that the election of
Directors will take place thereat, and as far as practicable, the other objects
of the Meeting.
22. The Directors may convene a Special General Meeting of the Company
whenever in their judgment such a Meeting is necessary, upon not less than five
days notice in writing to each of the Members mailed to each Member at his
registered address and such notice shall state the time, place and the general
nature of the business to be considered at the Meeting.
23. The accidental omission to give notice of a Meeting to, or the non-receipt
of notice of a Meeting by, any person entitled to receive notice shall not
invalidate the proceedings at that Meeting.
24. Notwithstanding anything herein, the Board shall, on the proper
requisition of Members holding at the date of the deposit of the requisition not
less than one-tenth of such of the paid-up share capital of the Company as at
the date of the deposit carries the right to vote at General Meetings of the
Company, forthwith proceed to convene a Special General Meeting of the Company
and the provisions of Section 74 of the Act shall apply.
24A. At an Annual General Meeting of the Members, only such business shall be
conducted as shall have been brought before the meeting (a) by or at the
direction of the Board of Directors or (b) by any Member of the
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Company who complies with the notice procedures set forth in this Bye-law. For
business to be properly brought before an Annual General Meeting by a Member,
the Member must have given timely notice thereof in writing to the Secretary of
the Company. To be timely, a Member's notice must be delivered to or mailed and
received at the principal executive offices of the Company, not less than 30
days nor more than 60 days prior to the Annual General Meeting; provided,
however, that in the event that less than 40 days' notice or prior public
disclosure of the date of the General Meeting is given or made to the Members,
notice by the Member to be timely must be received not later than the close of
business on the 10th day following the day on which such notice of the date of
the Annual General Meeting was mailed or such public disclosure was made. A
Member's notice to the Secretary shall set forth as to each matter the Member
proposes to bring before the Annual General Meeting (a) a brief description of
the business desired to be brought before the Annual General Meeting and the
reasons for conducting such business at the Annual General Meeting (b) the name
and address, as they appear on the Company's books, of the Member proposing such
business, (c) the class and number of shares of the Company which are
beneficially owned by the Member and (d) any material interest of the Member in
such business. Notwithstanding anything in the Bye-laws to the contrary, no
business shall be conducted at an Annual General Meeting except in accordance
with the procedures set forth in this Bye-law. The Chairman of an Annual General
Meeting shall, if the facts warrant, determine and declare to the General
Meeting that business was not properly brought before the Meeting and in
accordance with the provisions of this Bye-law, and if he should so determine,
he shall so declare to the Meeting and any such business not properly brought
before the Meeting shall not be transacted.
25. (1) A Meeting of the Company shall, notwithstanding that it is called by
shorter notice than that specified in these Bye-laws, be deemed to have been
properly called if it is so agreed by (i) all the Members entitled to attend and
vote thereat in the case of an Annual General Meeting; and (ii) by 95% of the
Members entitled to attend and vote thereat in the case of any other Meeting.
(2) If any Member shall, in person or by duly authorized attorney, waive
notice of any Meeting, whether before or after such Meeting, notices shall not
be required as to such Member.
(3) The Directors may postpone any General Meeting called in accordance with
the provisions of Bye-laws 21 or 22 provided that notice of postponement is
given to each Member not less than 48 hours before the time for such Meeting;
and provided further that fresh notice of the date, time and place for the
postponed Meeting shall be given to each Member in accordance with the
provisions of these Bye-laws.
26. (1) At any General Meeting of the Company two Members present in person
and representing in person or by proxy in excess of 50% of the outstanding
voting shares of the capital stock of the Company throughout the Meeting shall
form a quorum for the transaction of business; if within half an hour from the
time appointed for the Meeting a quorum is not present, the Meeting shall stand
adjourned to the same day two weeks later, at the same time and place or to such
other day and some other time or place as the President, Vice President or any
Director attending at the appointed time may determine.
(2) The Chairman may, with the consent of any Meeting at which a quorum is
present (and shall if so directed by the Meeting), adjourn the Meeting from time
to time and from place to place, but no business shall be transacted at any
adjourned Meeting other than the business left unfinished at the Meeting from
which the adjournment took place unless notice of such new business and of the
adjourned Meeting has been given as in the case of an original meeting. Save as
aforesaid it shall not be necessary to give any notice of the adjourned Meeting
or of the business to be transacted at the adjourned Meeting, save and except
for a Meeting adjourned sine die, in which case notice of the adjourned Meeting
shall be given as in the case of an original Meeting.
27. (1) Subject to subparagraph (6), anything which may be done by resolution
of the Company in General Meeting or by resolution of a meeting of any class of
the Members of the Company, may, without a Meeting and without any previous
notice being required, be done by resolution in writing signed by, or, in the
case of a Member that is a corporation whether or not a company within the
meaning of the Act, on behalf of, all the Members who at the date of the
resolution would be entitled to attend the Meeting and vote on the resolution.
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(2) A resolution in writing may be signed by, or, in the case of a Member that
is a corporation whether or not a company within the meaning of the Act, on
behalf of, all the Members, or any class thereof, in as many counterparts as may
be necessary.
(3) For the purposes of this Bye-law, the date of the resolution is the date
when the resolution is signed by, or, in the case of a Member that is a
corporation whether or not a company within the meaning of the Act, on behalf
of, the last Member to sign and any reference in any Bye-law to the date of
passing of a resolution is, in relation to a resolution made in accordance with
this Bye-law, a reference to such date.
(4) A resolution in writing made in accordance with this Bye-law is as valid
as if it had been passed by the Company in General Meeting or by a Meeting of
the relevant class of Members, as the case may be; and any reference in any Bye-
law to a Meeting at which a resolution is passed or to Members voting in favour
of a resolution shall be construed accordingly.
(5) A resolution in writing made in accordance with this Bye-law shall
constitute minutes for the purposes of sections 81 and 82 of the Act.
(6) This Bye-law shall not apply to:
(a) a resolution passed pursuant to section 89(5) of the Act; or
(b) a resolution passed for the purpose of removing a Director before the
expiration of his term of office under these Bye-laws.
28. (1) Subject to any rights or restrictions lawfully attached to any class
of shares, including the provisions of Bye-law 28A hereof, at any General
Meeting of the Company each registered Member shall be entitled to one vote for
each share held by him and such votes may be given in person, or in the case of
a company by a duly authorized company representative, or by proxy, but no
Member shall be entitled to vote at any General Meeting unless he has paid all
the calls on all shares held by him.
(2) Subject to the provisions of the Act at any General Meeting of the Company
any question proposed for the consideration of the Members shall be decided on a
simple majority of the votes cast in accordance with the provisions of these
Bye-laws.
(3) In the case of an equality of votes the Chairman of the Meeting shall be
entitled to a second or casting vote.
(4) The Directors of the Company shall be entitled to receive notice of and to
attend and be heard at any General Meeting.
28A. (1) So long as any person (as defined in this Bye-law 28A) is the
beneficial owner (as defined in this Bye-law 28A) of more than ten percent of
the voting power of the then outstanding shares of the stock of the Company
entitled to vote generally in the election of directors (the "Voting Stock")
(determined without giving effect to the provisions of this Bye-law 28A), the
record holders of such shares so beneficially owned by such person (hereinafter
a "Substantial Stockholder") shall have limited voting rights on any matter
requiring their vote or consent as set forth in this Bye-law 28A; provided,
however, that the voting restrictions of this Bye-law 28A shall not apply to (i)
United Parcel Service of America Inc., or any corporation or corporations which
succeed United Parcel Service of America Inc., by way of consolidation, merger,
reorganisation or otherwise (collectively, "UPS") or (ii) any employee benefit
plan of the Company, UPS or any Subsidiary of UPS or of the Company, or any
entity or person, in such capacity, holding Voting Stock for or pursuant to the
terms of any such plan, and such plan, entity or person shall not be deemed to
be a Substantial Stockholder as defined herein with respect to such shares held
pursuant to such plan. With respect to each vote in excess of ten percent of the
voting power of the then outstanding shares of Voting Stock which such record
holders would be entitled to cast without giving effect to this Bye-law 28A, the
record holders in the aggregate shall be entitled to cast only one-hundredth
(1/100) of a vote, and the
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aggregate voting power of such record holders, so limited, for all shares of
Voting Stock beneficially owned by the Substantial Stockholder shall be
allocated proportionately among such record holders.
For each such record holder, this allocation shall be accomplished by
multiplying the aggregate voting power, as so limited, of the outstanding shares
of Voting Stock beneficially owned by the Substantial Stockholder by a fraction
whose numerator is the number of votes represented by the shares of Voting Stock
owned of record by such record holder (and which are beneficially owned by the
Substantial Stockholder) and whose denominator is the total number of votes
represented by the shares of Voting Stock beneficially owned by the Substantial
Stockholder, in each case before giving effect to the limitation on voting power
provided by this Bye-law 28A. A person who is a record holder of shares of
Voting Stock that are beneficially owned simultaneously by more than one person
shall have, with respect to such shares, the right to cast the least number of
votes that such person would be entitled to cast under this Bye-law 28A by
virtue of such shares being so beneficially owned by any of such persons.
(2) The Board of Directors shall have the power to construe and apply the
provisions of this Bye-law 28A and to make all determinations necessary or
desirable to implement such provisions, including but not limited to matters
with respect to (i) the number of shares of Voting Stock beneficially owned by
any person, (ii) whether a person is an Affiliate or Associate of another, (iii)
whether a person has an agreement, arrangement, or understanding with another as
to the matters referred to in the definition of beneficial ownership, (iv) the
application of any other definition or operative provisions of this Bye-law 28A
to the given facts, or (v) any other matter relating to the applicability or
effect of this Bye-law 28A.
(3) The Board of Directors shall have the right to demand that any person who
after reasonable inquiry is believed to be a Substantial Stockholder supply the
as to (i) the record holder(s) of all shares beneficially owned by such person
who is so believed to be a Substantial Stockholder, (ii) the number of, and
class or series of shares beneficially owned by such person who is so believed
to be a Substantial Stockholder and held of record by each record holder and the
the stock certificate(s) evidencing such shares, and (iii) any other factual
matter relating to the applicability or effect of this Bye-law 28A as may
reasonably be requested of such person, and such person shall furnish such
information within 10 days after the receipt of such demand. If the Board of
Directors reasonably believes the shares of Voting Stock held of record by any
person or represented by a proxy holder are beneficially owned by a Substantial
Stockholder, it may demand that the record holder of such shares, or the proxy
holder thereof, provide to the Company a list of (i) names and addresses of the
beneficial owners of all shares of Voting Stock held by such record holder or
represented by such proxy holder, (ii) the number of, and class or series of,
shares of Voting Stock held by such record holder or represented by such proxy
holder on behalf of each beneficial owner and (iii) any other factual matter
relating to applicability or effect of this Bye-law 28A and such record holder
or proxy holder shall furnish such information within 10 days (or such longer
period as is required by law or regulation) after the receipt of such demand;
provided, however, that any such request shall be made in accordance with the
requirements of applicable law and regulation. If as of the date of any member
vote or consent, a demand made pursuant to this paragraph has not been timely
responded to, the Company shall, to the extent permitted by law, treat such
votes as are reasonably believed by the Board of Directors to have been cast
with respect to the shares of Voting Stock beneficially owned by a Substantial
Stockholder as subject to the limitation provided by this Bye-law 28A.
(4) Except as otherwise provided by law or expressly provided in this
subparagraph (4) of Bye-law 28A, the presence, in person or by proxy, of the
holders of record of shares of stock of the Company entitling the holders
thereof to cast a majority of the votes (after giving effect, if applicable, to
the provisions of this Bye-law 28A) entitled to be cast by the holders of shares
of stock of the Company entitled to vote shall constitute a quorum at all
General Meetings of the Members, and every reference in the Bye-laws to a
majority or other proportion of stock (or the holders thereof) for the purposes
of determining any quorum requirement or any requirement for Member consent or
approval shall be deemed to refer to such majority or other proportion of the
votes (or the holder thereof) then entitled to be cast in respect to such stock.
(5) Any construction, application or determination made by the Board of
Directors pursuant to this Bye-law 28A in good faith and on the basis of such
information and assistance as was then reasonably available for such purpose
shall be conclusive and binding upon the Company and its members including any
Substantial Stockholder.
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(6) Nothing contained in this Bye-law 28A shall be construed to relieve any
Substantial Stockholder from any fiduciary obligation imposed by law.
(7) Notwithstanding any other provisions of the Bye-laws or any provision of
law which might otherwise permit a lesser vote or no vote, but in addition to
any affirmative vote of the holders of any particular class or series of the
stock required by law, the Bye-laws or any Preference Stock resolution, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the Voting Stock (after giving effect to
the provisions of Section 1 of this Bye-law 28A), voting together as a single
class, shall be required to alter, amend or repeal this Bye-law 28A.
(8) In the event any Section (or portion thereof) of this Bye-law 28A shall be
found to be invalid, prohibited or unenforceable for any reason, the remaining
provisions (or portions thereof) of this Bye-law 28A shall remain in full force
and effect, and shall be construed as if such invalid, prohibited or
unenforceable provision had been stricken herefrom or otherwise rendered
inapplicable, it being the intent of this Company and its members that each such
remaining provision (or portion thereof) of this Bye-law 28A remain, to the
fullest extent permitted by law, applicable and enforceable as to all Members,
including any Substantial Stockholder, notwithstanding any such finding.
(9) For the purposes of this Bye-law 28A:
(a) A "Person" means any individual, limited partnership. corporation,
company or other firm or entity.
(b) Except as expressly provided by this Bye-law 28A, a person shall be a
"beneficial owner" of all of the outstanding shares of Voting Stock, other
than shares held in the Company's treasury:
(i) which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directory or indirectly; or
(ii) which such person or any of its Affiliates or Associates has (a) the
right to acquire (whether such right is exercisable immediately or only
after the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options or otherwise, or (b) the right to vote pursuant to any
agreement, arrangement or understanding (but shall not be deemed to be the
beneficial owner of any shares of Voting Stock solely by reason of a
revocable proxy granted for a particular General Meeting of Members,
pursuant to a public solicitation of proxies for such General Meeting, and
with respect to which shares neither such person nor any such Affiliate or
Associate is otherwise deemed the beneficial owner); and
(iii)which are beneficially owned, directly or indirectly, by any other
person with which such person or any of its Affiliates or Associates has
any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of Voting Stock.
Notwithstanding the foregoing; (x) no Director, Officer or employee of the
Company, UPS or any Subsidiary of UPS or of the Company (nor any Affiliate or
Associate of any such Director, Officer or employee) shall, solely by reason of
his capacity as such or by reason of the Board of Directors determination to
oppose any proxy solicitation or any other offer or attempt to cause a change in
control of the Company or the public disclosure of such determination by the
Board of Directors, be deemed, for any purpose hereof, to be the beneficial
owner of any Voting Stock beneficially owned by any other Director, Officer or
employee (or any Affiliate or Associate thereof); (y) no director, trustee, or
officer of the Annie E. Casey Foundation, Inc. (or any corporate successor
thereto) (the "Foundation") shall be deemed for any purpose hereof to be the
beneficial owner of shares of Voting Stock beneficially owned by the Foundation,
nor shall the Foundation be deemed for any purposes hereof to be the beneficial
owner of any Voting Stock beneficially owned by its directors, trustees or
officers; and (z) in the case of any employee stock ownership or similar
employee benefit plan of the Company, UPS or of any Subsidiary of UPS or of the
Company, no such plan or any trustee or any member of an administrative
committee or other
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representative with respect thereto (nor any Affiliate or Associate of such
trustee or other representative), solely by reason of such capacity of such
trustee or other representative shall be deemed, for any purposes hereof, to
beneficially own any shares of Voting Stock held under any such plan, provided,
however, that the beneficiaries of any such plan under which the beneficiaries
have the right to request a proxy to vote shares of Voting Stock held thereby or
to instruct the trustee or other representative thereof regarding how shares of
Voting Stock should be voted shall be deemed to be the beneficial owners of such
shares held by such plan or the trustee or other representative thereof for the
purposes of applying the provisions of this Section, and the number of votes
that shall be cast by such plan or the trustee or other representative thereof
or its nominee on behalf of any such beneficiary (whether or not pursuant to
instructions), or by a beneficiary pursuant to a proxy furnished by such plan or
trustee or other representative, shall be determined in accordance with this
Bye-law 28A.
(c) "Affiliate" or "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934 of the United States of America, as in effect
on February 26, 1987.
(d) "Subsidiary" means any corporation or company of which a majority of
any class or equity security is owned, directly or indirectly, by the Company
or UPS.
29. Where a vote is taken each Member entitled to vote shall be furnished with
a ballot paper on which he shall record his vote in such manner as shall be
determined at the Meeting having regard to the nature of the question on which
the vote is taken; and each ballot paper shall be signed or initialled or
otherwise marked so as to identify the voter. At the conclusion of the poll the
ballot papers shall be examined by a committee of not less than two Members
appointed for the purpose and the result of the poll shall be declared by the
Chairman.
30. In the case of joint holders the vote of the senior who tenders a vote,
whether in person or by proxy, shall be accepted to the exclusion of the votes
of the other joint holders; and for this purpose seniority shall be determined
by the order in which the names stand in the Register of Members.
31. (1) The instrument appointing a proxy shall be in writing under the hand
of the appointor or of his attorney duly authorized in writing, or if the
appointor is a corporation, either under its seal, or under the hand of a duly
authorized officer or attorney. A proxy must be a Member of the Company. The
decision of the Chairman of any General Meeting as to the validity of any
instrument of proxy shall be final.
(2) A corporation which is a Member of the Company may by resolution of its
Directors authorize such person as it thinks fit to act as its representative at
any Meeting of the Members of the Company and the person so authorized shall be
entitled to exercise the same powers on behalf of the corporation which he
represents as that corporation could exercise if it were an individual Member of
the Company.
SHARE CAPITAL AND SHARES
32. (1) Subject to any resolution of the Members to the contrary and without
prejudice to any special rights previously conferred on the holders of any
existing shares or class of shares, the Directors shall have power to issue any
unissued shares of the Company on such terms and conditions as they may
determine and any shares or class of shares may be issued with such preferred,
deferred or other special rights or such restrictions, whether in regard to
dividend, voting, return of capital or otherwise as the Company may from time to
time by resolution of the Members prescribe.
(2) Subject to the provisions of Sections 42 and 43 of the Act any preference
shares may be issued or converted into shares that, at a determinable date or at
the option of the Company, are liable to be redeemed on such terms and in such
manner as the Company before the issue or conversion may by resolution of the
Members determine.
(3) If at any time the share capital is divided into different classes of
shares, the rights attached to any class (unless otherwise provided by the terms
of issue of the shares of that class) may, whether or not the Company is being
wound-up, be varied with the consent in writing of the holders of three-fourths
of the issued shares of that
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class or with the sanction of a resolution passed by a majority of the votes
cast at a separate General Meeting of the holders of the shares of the class in
accordance with Section 47 (7) of the Act. The rights conferred upon the holders
of the shares of any class issued with preferred other rights shall not, unless
otherwise expressly provided by the terms of issue of the shares of that class,
be deemed to be varied by the creation or issue of further shares ranking pari
passu therewith.
(4) The Company shall be entitled to treat the registered holder of any share
as the absolute owner thereof and accordingly shall not be bound to recognize
any equitable or other claim to, or interest in, such share on the part of any
other person.
(5) The Company shall not give, whether directly or indirectly, whether by
means of loan, guarantee, provision of security or otherwise, any financial
assistance for the purpose of or in connection with a purchase or subscription
made or to be made by any person of or for any shares in the Company; but
nothing in this Bye-law shall prohibit transactions mentioned in Sections 39A,
39B or 39C of the Act.
(6) The Company may from time to time by resolution of the Members increase,
alter or reduce its capital in accordance with the provisions of Sections 45 and
46 of the Act.
(7) The Company may from time to time purchase its own shares in accordance
with the provisions of Section 42A of the Act.
33. (1) Any dividend, interest or other moneys payable in cash in respect of
shares may be paid by cheque or draft sent through the post directed to the
registered address of the holder or, in the case of joint holders, to the
registered address of the holder first named in the Register of Members, or to
such person and to such address as the holder or joint holders may in writing
direct. If two or more persons are registered as joint holders of any shares any
one can give an effectual receipt for any dividend payable in respect of such
shares.
(2) Where two or more persons are registered as joint holders of a share or
shares then in the event of the death of any joint holder or holders the
remaining joint holder or holders shall be absolutely entitled to the said
shares and the Company shall recognize no claim in respect of the estate of any
joint holder except in the case of the last survivor of such joint holders.
34. (1) Unless otherwise determined by the Board of Directors the shares of
the Company shall not have distinguishing numbers.
(2) Every Member shall be entitled to a certificate under the Seal of the
Company (or a facsimile thereof) specifying the shares held by him and whether
the same are fully paid up and, if not, how much has been paid thereon. If any
such certificate shall be proved to the satisfaction of the Directors to have
been worn out, lost, mislaid or destroyed the Directors may cause a new
certificate to be issued and request an indemnity for the lost certificate if
they see fit.
CALL ON SHARES
35. The Directors may from time to time make such calls as they think fit upon
the Members in respect of all moneys unpaid on the shares allotted to or held by
them and, if a call is not paid on or before the day appointed for payment
thereof, the Member may at the discretion of the Board of Directors be liable to
pay the Company interest on the amount of such call at such rate of interest as
the Directors may determine, from the date when such call was payable up to the
actual date of payment. The joint holders of a share shall be jointly and
severally liable to pay all calls in respect thereof.
36. The Directors may, on the issue of shares, differentiate between the
holders as to the amount of calls to be paid and the times of payment of such
calls.
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REGISTER OF MEMBERS
37. The Company shall keep in one or more books a Register of its Members and
shall enter therein the following particulars, that is to say:
(a) the name and address of each Member, the number of shares held by him
and the amount paid or agreed to be considered as paid on such shares;
(b) the date on which each person was entered in the Register of Members;
and
(c) the date on which any person ceased to be a Member.
38. The Register of Members shall be open to inspection at the office of the
Company between 10 a.m. and 12 noon on every business day. The Register of
Members may, after notice has been given by advertisement in an appointed
newspaper to that effect, be closed for any time or times not exceeding in the
whole 30 days in each year.
39. Notwithstanding any other provision of these Bye-laws the Directors may
fix any date as the record date for:
(a) determining the Members entitled to receive any dividend and such
record date may be on, or not more than 30 days before or after, any date on
which such dividend is declared;
(b) determining the Members entitled to receive notice of and to vote at
any General Meeting of the Company.
TRANSFER OF SHARES
40. The instrument of transfer shall be in the form or as near thereto as
circumstances permit of Form "A" in the Schedule hereto. The transferor shall be
deemed to remain the holder of each share until the same has been transferred to
the transferee in the Register of Members. The following conditions shall apply
to the transfer of shares:
(1) No shares in the Company entitled to vote generally in the election of
directors ("voting shares"), or an interest in said shares, shall be
transferred to any person, firm or corporation, unless said shares shall have
been offered for sale, as provided in this Bye-law, to the Company, or any
corporation or corporations which shall succeed the Company by way of
consolidation, merger, reorganisation or otherwise. (For exceptions relating
to bona fide gifts, inheritance and certain other transfers see paragraph
(8)).
(2) A Member who in good faith desires to transfer to a transferee, other
than the Company, all or any of his voting shares in the Company shall deliver
to the treasurer of the Company at its principal place of business as
designated by the Company, written notice of his intention to make such
transfer, stating the number of voting shares to be transferred, the name and
address of the proposed transferee and the price and terms upon which such
also bear a statement signed by the proposed transferee representing that the
information therein set forth is true and correct.
(3) For a period of thirty days after receipt of such notice of intention
by the treasurer of the Company, the Company shall have the exclusive option
to purchase all, or a part, of said voting shares at the price and on the
terms set forth in this Bye-law. The Company shall exercise its option to
purchase any such voting shares by mailing, registered or certified mail,
postage prepaid, prior to the expiration of the thirty-day period, to the
Member at his last known address, written notice by the Company, signed by the
treasurer or an assistant treasurer of the Company of the decision by the
Company to exercise its option. The Company shall be free to transfer shares
of the Company without compliance with this Bye-law, but any transferee shall
transfer shares so obtained from the Company only in accordance with this Bye-
law.
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(4) If the Company shall fail to exercise its option as set forth above
with respect to all voting shares set forth in the Member's notice of
intention, or if the Company shall by a writing, signed by its treasurer or
assistant treasurer, elect either not to exercise such option or to waive such
option prior to receipt of formal notice of a proposed transfer, then the
Member may, within a period of twenty days after either the expiration of the
thirty-day period of the Company option or the execution of written election
or waiver by the treasurer or assistant treasurer of the Company, as the case
may be, sell pursuant to the notice of intention given by him or the written
waiver, as the case may be, all, but not a part, of the shares, therein
described which the Company elected not to purchase pursuant to its option as
above set forth, for the price and on the terms therein described.
(5) If the Company fails to exercise, elects not to exercise, or waives its
options hereunder with respect to all voting shares set forth in the Member's
notice of intention, and the transfer of any such shares as proposed is made
within such twenty-day period provided for such transfer, the transferee shall
thereafter hold said shares subject to all the restrictions herein provided.
If the Company fails to exercise, elects not to exercise, or waives its option
hereunder with respect to all voting shares set forth in the Member's notice
of intention, and the proposed transfer of any such shares is not made within
said twenty-day period provided for such transfer, no future proposed transfer
by the Member, whether to the same or to a different proposed transferee or
whether on the same or different terms, may be made until and unless the
procedure hereinabove set forth has been again followed.
(6) The closing of any purchase by the Company pursuant to this Bye-law
shall take place at the principal place of business of the Company, at a time
agreed upon by the parties but no later than thirty days from the date notice
of the Company's intention to purchase is mailed to the Member. If the Member
fails to deliver the certificates or other evidence of the Member's interest
therein at the time of the closing of such sale, the Company may deposit the
purchase price in any bank or trust company in a special account with
instructions to pay the same to such Member upon receipt of the certificates
for the Company's voting shares duly endorsed. From and after the date of such
deposit, all rights and interest of such Member, and all persons claiming by,
through and under him, in and to such shares shall cease, and he shall have no
further rights or interest with respect to such shares other than to receive
the purchase price without interest; and, if the Company shall record the
transfer of such shares to the Company, it shall cancel the Member's
certificate or certificates on its books.
(7) (a) Voting shares of the Company distributed by UPS as dividends upon
the Capital Stock of UPS, which shares of Capital Stock of UPS are or were
held in the UPS Managers Stock Trust ("Trust") for the account of a member of
such Trust, shall be subject to purchase by the Company, at the Company's
option, upon the termination, by death or otherwise, of the Member's
employment with Overseas, UPS or any of their respective subsidiaries, or upon
the termination of the Trust. If the Member beneficially owns less than 500
shares of the Capital Stock of UPS in the Trust, then for a period of three
years from termination of the Member's employment the Company shall have the
right to purchase all or part of the voting shares of the Company described in
this subparagraph (a) held by such Member. If the Member beneficially owns 500
or more shares of UPS Capital Stock in the Trust, then for a period of
Thirteen years from the termination of the Member's employment the Company
shall have the right to purchase a cumulative annual maximum of ten percent of
the voting shares of the Company described in this subparagraph (a) held by
such Member. All heirs, legatees and personal representatives who receive such
shares of the Company distributed as dividends as described in this
subparagraph (a) shall hold such shares subject to this subparagraph (a). If
the Trust terminates the Company shall have the right to purchase voting
shares of the Company described in this subparagraph (a) in accordance with
subparagraph (b) below.
(b) Voting shares of the Company distributed by UPS as dividends upon the
Capital Stock of UPS, which shares of Capital Stock of UPS are or were held
pursuant to the UPS Managers Stock Plan, shall be subject to purchase by the
Company when the Member serves notice of his desire to terminate the option
which allows UPS to purchase UPS Capital Stock distributed under UPS Managers
Stock Plan and held by such Member. The Company shall have the exclusive
option to purchase voting shares of this Company within sixty days from
receipt of such notice.
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If the Member does not serve notice on the Company, then for three years
after the termination of such Member's employment the Company shall have the
option to purchase any or all of the voting shares of the Company described in
this subparagraph (b). If a Member transfers voting shares of the Company
described in this subparagraph (b) to anyone other than the Company, then the
transferee of such Member shall hold such shares of the Company subject to
this subparagraph (b).
(c) Voting shares of the Company distributed as dividends upon the Capital
Stock of UPS, which shares of Capital Stock of UPS are held pursuant to the
UPS Stock Plan, shall be subject to purchase by the Company whenever the
Member requests the Company to purchase such voting shares of the Company. If
the Member requests such purchase by the Company then the Company is obligated
to purchase annually ten percent of the voting shares of the Company held by
the Member until all of such shares are purchased by the Company or the Member
transfers such shares to a third party. If the Member transfers such shares of
the Company to a third party, the Company shall have the option at any time to
purchase any or all of the shares so transferred for one year after the
transfer.
(d) Voting shares of the Company distributed by UPS as dividends upon the
Capital Stock of UPS, which shares of Capital Stock of UPS are or were held by
the UPS Thrift Plan Trust or the UPS Retirement Trust, shall be subject to
purchase by the Company, at the Company's option, at any time within three
years of the transfer of the Company shares or voting shares of the Company by
the trustee of the UPS Thrift Plan Trust or the trustee of the UPS Retirement
Trust.
(e) Voting shares of the Company distributed by UPS as dividends upon the
Capital Stock of UPS, which shares of Capital Stock of UPS were issued
pursuant to any of the Agreements and Plans of Reorganisation dated as of
December 4, 1979, between UPS on the one hand, and Parmac Corporation,
Nuparmac Corporation or Parco Managers Corporation, on the other, or as the
result of any stock dividend, stock split, recapitalisation or other similar
event in respect of shares of the Company's Capital Stock shall be subject to
purchase by the Company, at the Company's option, at any time after January
10, 1985, upon the Company giving the Member ninety days prior notice of the
Company's intent to purchase such shares. Any transferee who receives voting
shares of the Company described in this subparagraph (e) shall hold such
shares subject to this subparagraph (e).
(f) Voting shares of the Company distributed by UPS as dividends upon the
Book Value Shares issued pursuant to the 1981 Stock Option Plan shall be
subject to purchase by the Company, at the Company's option, at any time in
accordance with the provisions of subparagraph (a) of this paragraph (7).
(g) Voting shares of the Company issued as incentive awards to employees of
the Company or UPS, or any of their respective subsidiaries shall be subject
to purchase by the Company in the same manner and at the same times as such
shares would be subject to purchase if they had been issued as dividends upon
the Capital Stock of UPS held in the Trust pursuant to subparagraph (a) of
this paragraph 7.
(h) If a Member executes an Option Extension Agreement under the UPS
Managers Stock Trust or the UPS Managers Stock Plan then the Company shall
retain the right to purchase voting shares of the Company, held by such
Member, in accordance with subparagraphs (a) and (b), except that the longer
period of time stipulated in the duly executed Option Extension Agreement
shall apply.
(8) A transfer of voting shares, or interest therein, by way of a bona fide
gift or by way of inheritance, and a transfer of voting shares by the Trustee
of the UPS Managers Stock Trust to the member of such Trust for whose account
the Trustee has received such shares, shall not require a prior offering to
the Company as herein provided, but the donee, legatee, or other recipient
thereof shall hold such shares subject to the restrictions provided in this
Bye-law. A transfer of voting shares, or interest therein, by operation of
law, which includes, but is not limited to, bankruptcy and descent or
distribution, shall not require a prior offering to the Company as provided in
this Bye-law, but the trustee, heir or other recipient thereof shall hold said
shares subject to the restrictions provided in this Bye-law. A transfer of a
security interest in voting shares of the Company, whether by lien, pledge,
mortgage, deposit or otherwise shall not require a prior offering to the
Company, but no
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<PAGE>
purchaser at any sale, private or judicial, upon foreclosure or execution
shall become the owner of said shares or have said shares registered in his
name until he shall have first offered said shares to the Company for purchase
in accordance with this Bye-law.
(9) The restrictions upon the sale or transfer of voting shares of the
Company provided in this Bye-law shall apply to all voting shares in the hands
of all holders or owners, whether original Members or subsequent purchasers or
transferees, and whether acquired through the voluntary or involuntary act of
a Member or by operation of law, and whether part of the first authorised
issue or by any subsequent or increased issue.
(10) Any transfer in violation of this Bye-law shall be null and void and
of no force or effect whatsoever. No voting shares of the Company shall be
transferred on the books of the Company until the Member intending such
transfer shall have complied with the provisions of this Bye-law.
(11) A legend referring to the provisions of this Bye-law shall be printed,
stamped, written or endorsed upon each and every share certificate issued
after the effective date of this revised Bye-law 40(11) by the Company. Such
legend shall read as follows:
"The sale or other transfer of shares of the Company, or any interest
therein, as represented by this certificate, whether voluntary or
involuntary or by operation of law, is subject to a right to purchase by
the Company as more fully provided for in the Bye-laws of the Company. The
holder of this certificate is hereby put on notice that any transfer or
sale of the shares represented by this certificate in violation of said
right of purchase will be null and void and of no force or effect
whatsoever. Copies of the Bye-laws of the Company are available for
inspection during business hours at the Company's principal place of
business."
Any legend referring to the right of UPS to purchase the shares of the
Company, or any interest therein, appearing on share certificates issued prior
to the effective date of this revised Bye-law 40(11) shall be deemed, from and
after the effective date of this revised Bye-law 40(11), to refer to the right
of the Company to purchase the shares represented by such share certificate
pursuant to the provisions of this revised Bye-law 40.
(12) In addition to the legend described in paragraph (11) hereof, a legend
specifically referring to the provisions of paragraph (7) hereof shall be
printed, stamped, written or endorsed upon each and every share certificate
issued by the Company. Such legend shall read as follows:
"In addition to the right of purchase in connection with the sale or
transfer of the shares of the Company or any interest therein stated above,
the Company has the right to purchase the shares of the Company represented
by this certificate in certain circumstances. Any transferee of these
shares shall hold them subject to such rights. Copies of the Bye-laws of
the Company are available for inspection during business hours at the
Company's principal place of business."
Any legend referring to the right of UPS to purchase the shares of the
Company, or any interest therein, appearing on share certificates issued prior
to the effective date of this revised Bye-law 40(12) shall be deemed, from and
after the effective date of this revised Bye-law 40(12) to refer to the right
of the Company to purchase the shares represented by such share certificate
pursuant to the provisions of this revised Bye-law 40.
(13) The purchase price per share to be paid by the Company upon the
exercise of the options provided by this Bye-law shall be the net book value
of each such share as determined from the Company's most recent audited
balance sheet as reported in its annual report to Members and mailed to its
Members or otherwise generally made available as of the date of the closing of
such sale, or, if purchased by the Company pursuant to the right described in
paragraph (3) of this Bye-law, the lesser of: (a) such net book value of such
share; or (b) the price at which such shares are proposed to be sold as set
forth in paragraph (2) of this Bye-law 40. Net book value shall be determined
in accordance with generally accepted accounting principles as applied in the
United States of America. The aforementioned purchase price shall be paid in
United States dollars.
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(14) Notwithstanding anything contained in the Bye-laws to the contrary,
any amendment to or deletion of this Bye-law 40 shall require the affirmative
vote of the holders of at least 80% of the voting power of all outstanding
shares of stock of the Company entitled to vote generally in the election of
Directors.
40A. Voting shares of the Company subscribed for (on or after the effective
date of these Amended and Restated Bye-laws) by a Member pursuant to stock
purchase plans maintained by the Company or UPS from time to time, and any
voting shares distributed by UPS or the Company as dividends on such shares or
in stock splits or reclassifications of the Company's voting shares and any
other securities or property delivered as a distribution on the Company's voting
shares (all of which are referred to collectively as "Resulting Securities")
shall be subject to purchase by the Company following the retirement, death or
other termination of employment of the Member with Overseas, UPS or any of their
respective Subsidiaries. If at the time of the Member's retirement, death or
other termination of employment with Overseas, UPS or any of their respective
Subsidiaries, the Member beneficially owns less than 500 shares of the Capital
Stock of UPS, then the Company may exercise its right to repurchase all or a
portion of the Company's voting shares and any Resulting Securities at any time
within a period of three years following such termination. If at the time of the
Member's retirement, death or other termination of employment with Overseas, UPS
or any of their respective Subsidiaries, the Member beneficially owns 500 or
more shares of the Capital Stock of UPS, then for a period of thirteen years
from such termination the Company may exercise its right to repurchase a
cumulative annual amount of ten percent of the Company's voting shares and any
Resulting Securities. The purchase price per share to be paid by the Company
upon the exercise of the foregoing right to purchase shall be that provided in
Bye-law 40(13) hereof. Any transferee of the Company's voting shares and any
Resulting Securities including, without limitation, purchasers, donees, heirs,
legatees and personal representatives and any subsequent transferee thereof,
will acquire and hold such voting shares and Resulting Securities subject to the
rights of the Company described in this Bye-law 40A.
Notwithstanding anything contained in these Bye-laws to the contrary, any
amendment to or deletion of this Bye-law 40A shall require the affirmative vote
of the holders of at least 80% of the voting power of all outstanding shares of
stock of the Company entitled to vote generally in the election of Directors.
40B. Any and all shares of the Company distributed on or after the effective
date of these Amended and Restated Bye-laws that for any reason are not subject
to the provisions of Bye-law 40 or Bye-law 40A shall be subject to purchase by
the Company, at the Company's option, following the retirement, death or other
termination of the Member's employment with Overseas, UPS, or any of their
respective subsidiaries. If, at the time of the Member's retirement, death or
other termination of employment with the Company, UPS, or any of their
respective subsidiaries, the Member beneficially owns less than 500 shares of
the Capital Stock of the Company then for a period of three years from such
termination of the Member's employment the Company shall have the right to
purchase all or part of such voting shares of the Company held by such Member.
If, at the time of the Member's retirement, death or other termination of
employment with the Company, UPS, or any of their respective subsidiaries, the
Member beneficially owns 500 or more shares of the Capital Stock of the Company
then for a period of thirteen years from such termination of the Member's
employment the Company shall have the right to purchase a cumulative annual
maximum of ten percent of the voting shares of the Company held by such member.
The purchase price per share to be paid by the Company upon the exercise of the
foregoing right to purchase shall be that provided in Bye-law 40(13) hereof.
Any transferee of the Company's voting shares including, without limitation,
purchasers, donees, heirs, legatees and personal representatives and any
subsequent transferee thereof, will acquire and hold such voting shares and
Resulting Securities (as defined in Bye-law 40A) subject to the rights of the
Company described in this Bye-law.
Notwithstanding anything contained in the Bye-laws to the contrary, any
amendment to or deletion of this Bye-law 40B shall require the affirmative vote
of the holders of at least 80% of the voting power of all outstanding shares of
stock of the Company entitled to vote generally in the election of Directors.
Bye-law 40, Bye-law 40A and Bye-law 40B set forth herein shall become
effective on August 7, 1996 (the "Effective Date") and shall apply to all of the
voting shares of the Company issued and outstanding on such Effective Date and
to any and all voting shares of the Company thereafter issued. If for any reason
the amendments
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to Bye-law 40 made as of such Effective Date, or the additional provisions of
Bye-law 40A and Bye-law 40B shall be determined by a final judicial decree to be
invalid or unenforceable, then the provisions of Bye-law 40 as in effect
immediately prior to the Effective Date shall be deemed to have been continued
in full force and effect from and after the Effective Date with respect to all
voting shares of the Company issued prior to, on or after the Effective Date.
41. The Directors may in their absolute discretion and without assigning any
reason refuse to register the transfer of a share.
42. If the Directors refuse to register a transfer of any share the Company
shall, within three months after the date on which the transfer was lodged with
the Company, send to the transferor and transferee notice of the refusal.
43. The Directors may refuse to recognize any instrument of transfer unless it
is accompanied by the certificate of the shares to which it relates and by such
other evidence as the Directors may reasonably require to show the right of the
transferor to make the transfer.
44. The joint holders of a share may transfer such share to any one or more of
such joint holders; the joint holders of two or more shares may transfer such
shares of any or either of them to one or more of such joint holders; and the
surviving holder or holders of any share or shares previously held by them
jointly with a deceased Member may transfer any such share to the executors or
administrators of such deceased Member.
TRANSMISSION OF SHARES
45. The executors or administrators of a deceased Member shall, except as
provided hereafter, be the only persons recognized by the Company as having any
title to his shares; but this shall not apply in the case of one or more joint
holders of a share or shares, except in the case of the last survivor of such
joint holders. On production of evidence of the death of a joint holder of a
share or shares the remaining holder or holders shall automatically become
entitled to the issue of a new certificate in the name of the remaining holder
or holders.
46. Any person becoming entitled to a share in consequence of the death or
bankruptcy of any Member may be registered as a Member upon such evidence as the
Directors may deem sufficient or may, instead of being registered himself, elect
to have some person named by him registered as a transferee of such share, and
in such case the person becoming entitled shall execute to his nominee an
instrument of transfer in the form or as near thereto as circumstances admit of
Form "B" in the Schedule hereto; and on the presentation thereof to the
Directors, accompanied by such evidence as they may require to prove the title
of the transferor, the transferee shall be registered as a Member but the
Directors shall, in either case, have the same right to decline or suspend
registration as they would have had in the case of a transfer of the share by
that Member before his death or bankruptcy, as the case may be.
FORFEITURE OF SHARES
47. If any Member fails to pay on the day appointed for payment thereof any
call in respect of any share allotted to or held by him the Directors may, at
any time thereafter during such time as the call remains unpaid, direct the
Secretary to forward to such Member a notice similar to the Form "C" in the
Schedule hereto and, if the requirements of such notice are not complied with,
any such share may at any time thereafter before the payment of such call and
the interest due in respect thereof (at a rate determined by the Directors) be
forfeited by a resolution of the Directors to that effect, and such share shall
thereupon become the property of the Company and be disposed of as the Directors
shall determine.
48. A Member whose share or shares have been forfeited as aforesaid shall,
notwithstanding such forfeiture, be liable to pay to the Company all calls owing
on such share or shares at the time of the forfeiture and all interest due
thereon.
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DIVIDENDS
49. (1) The Directors may, subject to these Bye-laws and in accordance with
Section 54 of the Act, declare a dividend to be paid to the Members, in
proportion to the number of shares held by them, and such dividend may be paid
in cash or wholly or partly in specie in which case the Directors may fix the
value for distribution in specie of any assets.
(2) The Company in General Meeting may declare or may authorize the
Directors to make such other distributions (in cash or in specie) to the Members
as may be lawfully made but no such distributions shall exceed the amount
recommended by the Directors.
50. The Directors may from time to time before declaring a dividend set aside
out of the surplus or profits of the Company such sum as they think proper as a
reserve fund to be used to meet contingencies or for equalizing dividends or for
any other special purpose.
51. The Directors may deduct from the dividends or distributions payable to
any Member all money due by him to the Company on account of calls or otherwise.
CAPITALISATION
52. The Company in General Meeting may, on the recommendation of the
Directors, resolve that it is desirable to capitalize any part of the amount for
the time being standing to the credit of any of the Company's share premium or
other reserve accounts or to the credit of the profit and loss account or
otherwise available for distribution by applying such sum in paying up unissued
shares, to be allotted as fully paid bonus shares pro rata to the Members of the
Company and the Directors shall give effect to such resolution.
Additionally the Company may capitalize any sum on reserve account or sums
otherwise available for distribution by applying such amounts in paying up in
full partly paid shares of those Members who would have been entitled to such
sums if they were distributed by way of dividend or such distribution.
ACCOUNTS AND FINANCIAL STATEMENTS
53. The Company shall cause to be kept proper records of account with respect
to all transactions of the Company in such manner as to show the assets and
liabilities of the Company for the time being and such records of account shall
be kept at the registered office of the Company or, subject to Section 83(2) of
the Act, at such other place as the Directors think fit and shall be open to the
inspection of the Directors during normal business hours.
54. The financial year end of the Company may be determined by resolution of
the Directors and failing such resolution shall be the 31st day of December in
each year.
55. Subject to Section 88 of the Act a balance sheet made up to the financial
year end containing a summary of the assets and liabilities of the Company under
convenient heads and a statement of income and expenditure for the period
commencing with the first day of such financial year, or for such period as the
Directors may agree, shall be laid before the Members in General Meeting.
AUDIT
56. Subject to Section 88 of the Act, at the Annual General Meeting or at a
subsequent Special General Meeting in each year, an independent representative
of the Members shall be appointed by them as Auditor of the accounts of the
Company and such Auditor shall hold office until the Members appoint another
Auditor. Such Auditor may be a Member but no Director or Officer or employee of
the Company shall, during his continuance in office, be eligible to act as an
Auditor of the Company.
57. Subject to Section 88 of the Act the accounts of the Company shall be
audited at least once in every year.
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58. The remuneration of the Auditor shall be fixed by the Company in General
Meeting or in such manner as the Members may determine.
59. If the office of Auditor becomes vacant by the resignation or death of the
Auditor, or by his becoming incapable of acting by reason of illness or other
disability at a time when his services are required, the Directors shall as soon
as practicable convene a Special General Meeting to fill the vacancy.
60. The Auditor shall at all reasonable times have access to all books kept by
the Company and to all accounts and vouchers relating thereto; and he may call
on the Directors or Officers of the Company for any information in their
possession relating to the books or affairs of the Company.
61. (1) The statement of income and expenditure and the balance sheet provided
for by Bye-law 55 shall be audited by the Auditor in accordance with generally
accepted auditing standards and compared by him with the books, accounts and
vouchers relating thereto; and he shall make a written report thereon in
accordance with generally accepted auditing standard stating whether such
statement and balance sheet are drawn up so as to present fairly the financial
position of the Company and the results of its operations for the period under
review and, in case information shall have been called for from Directors of
Officers of the Company, whether the same has been furnished and has been
satisfactory. The report of the Auditor shall be submitted to the Members in
General Meeting.
(2) The generally accepted auditing standards referred to in subparagraph (1)
of this Bye-law may be those of a country or jurisdiction other than Bermuda. If
so, the statement of income and expenditure and the balance sheet and the report
of the auditor must disclose this fact and name such country or jurisdiction.
NOTICES
62. A notice may be given by the Company to any Member either personally or by
mailing it to him or to his registered address.
63. Any notice required to be given to the Members shall, with respect to any
shares held jointly by two or more persons, be given to whichever of such
persons is named first in the Register of Members and notice so given shall be
sufficient notice to all the holders of such shares.
64. Any notice shall be deemed to have been served at the time when the same
would be delivered in the ordinary course of transmission and, in proving such
service, it shall be sufficient to prove that the notice was properly addressed
and prepaid, if posted, and the time when it was posted, or delivered to the
courier or to the cable company or transmitted by telex or facsimile as the case
may be.
SEAL OF THE COMPANY
65. The Seal of the Company shall not be affixed to any instrument except over
the signature of a Director and the Secretary or any two Directors or the
signature of some person appointed by the Directors for the purpose; provided
that the Secretary may affix the Seal of the Company over his signature only to
any authenticated copies of these Bye-laws, the incorporating documents of the
Company, the minutes of any meetings or any other documents required to be
authenticated by him and to any instrument which a Meeting of the Directors has
specifically approved beforehand.
INDEMNITY
66. (1) The Directors, Secretary and other Officers for the time being of the
Company and the Liquidator or Trustees (if any) for the time being acting in
relation to any of the affairs of the Company and everyone of them, and everyone
of their heirs, executors and administrators, shall be indemnified and secured
harmless out of the assets and profits of the Company from and against all
actions, costs, charges, losses, damages and expenses which
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they or any of them, their or any of their heirs, executors or administrators,
shall or may incur or sustain by or by reason of any act done, concurred in or
omitted in or about the execution of their duty, or supposed duty, in their
respective offices or trusts, and none of them shall be answerable for the acts,
receipts, neglects or defaults of the other or others of them or for joining in
any receipts for the sake of conformity, or for any bankers or other persons
with whom any moneys or effects belonging to the Company shall or may be lodged
or deposited for safe custody, or for insufficiency or deficiency or any
security upon which any moneys of or belonging to the Company shall be placed
out on or invested, or for any other loss, misfortune or damages which may
happen in the execution of their respective offices or trusts, or in relation
thereto, provided that this indemnity shall not extend to any matter in respect
of any wilful negligence, wilful default, fraud or dishonesty which may attach
to any of said persons.
(2) Each Member agrees to waive any claim or right of action he might have,
whether individually or by or in the right of the Company, against any Director
on account of any action taken by such Director, or the failure of such Director
to take any action in the performance of his duties with or for the Company
provided, however, that such waiver shall not extend to any matter in respect of
any wilful negligence, wilful default, fraud or dishonesty which may attach to
any such Director.
WINDING-UP
67. If the Company shall be wound up the Liquidator may, with the sanction of
a resolution of the Members, divide amongst the Members in specie or in kind the
whole or any part of the assets of the Company (whether they shall consist of
property of the same kind or not) and may, for such purpose, set such value as
he deems fair upon any property to be divided as aforesaid and may determine how
such division shall be carried out as between the Members or different classes
of Members. The Liquidator may, with the like sanction, vest the whole or any
part of such assets in trustees upon such trusts for the benefit of the Members
as the Liquidator, with the like sanction, shall think fit, but so that no
Member shall be compelled to accept any shares or other securities or assets
whereon there is any liability.
ALTERATION OF BYE-LAWS
68. No Bye-law shall be rescinded, altered or amended and no new Bye-law shall
be made until the same has been approved by a resolution of the Directors and
confirmed by a resolution of the Members.
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<PAGE>
Exhibit 10(UUU)
-1-
<PAGE>
MORTGAGE, ASSIGNMENT OF LEASES AND RENTS
AND SECURITY AGREEMENT
OVERSEAS PARTNERS (MADISON PLAZA), LLC
Mortgagor
with
NEW YORK LIFE INSURANCE COMPANY,
Mortgagee
Dated: December __, 1998
Premises: Madison Plaza
200 West Madison
Chicago, Illinois
Prepared By and
Record And Return To:
Sonnenschein Nath & Rosenthal
8000 Sears Tower
Chicago, Illinois 60606-6404
Attn: Scott B. Toban, Esq.
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<PAGE>
TABLE OF CONTENTS*
<TABLE>
<S> <C>
RECITALS:................................................................ 1
- --------
GRANTING CLAUSE.......................................................... 1
DEFINITIONS.............................................................. 5
ARTICLE I - COVENANTS AND AGREEMENTS..................................... 7
1.01 Payment of Obligations.................................... 7
1.02 Payment of Taxes, Assessments, Etc........................ 7
A. Impositions.......................................... 7
B. Installments......................................... 7
C. Receipts............................................. 7
D. Evidence of Payment.................................. 8
E. Payment by Mortgagee................................. 8
F. Change in Law........................................ 8
G. Permitted Contest.................................... 8
H. No Lease Default..................................... 9
I. Joint Assessment..................................... 9
J. Tax Service Fee...................................... 9
1.03 Insurance................................................. 9
A. Extended Coverage.................................... 9
B. Additional Coverage.................................. 9
C. Separate Insurance................................... 10
D. Insurers; Policies................................... 10
E. Mortgagee's Right to Provide Coverage................ 11
F. Damage or Destruction................................ 11
G. Mortgagor's Use of Proceeds.......................... 12
H. Transfer of Interest in Policies..................... 14
1.04 Escrow Deposits........................................... 14
1.05 Care and Use of Premises.................................. 15
A. Maintenance and Repairs.............................. 15
B. Standard of Repairs.................................. 15
C. Notice to Mortgagee.................................. 15
D. Removal of Equipment................................. 15
E. Compliance With Laws and Insurance................... 15
F. Hazardous Materials.................................. 16
G. Intentionally Omitted................................ 18
H. Compliance With Instruments of Record................ 18
I. Alteration of Secured Property....................... 18
J. Parking.............................................. 19
K. Entry on Secured Property............................ 19
L. No Consent to Alterations or Repairs................. 19
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
M. Mechanics Liens........................................................ 19
N. Use of Secured Property by Mortgagor................................... 19
O. Use of Secured Property by Mortgagor................................... 19
P. Management............................................................. 20
1.06 Financial Information....................................................... 20
A. Audit.................................................................. 20
B. Right to Inspect Books and Records..................................... 21
1.07 Condemnation................................................................ 21
A. Mortgagee's Right to Participate in Proceedings........................ 21
B. Application of Condemnation Award...................................... 21
C. Reimbursement of Costs................................................. 21
D. Existing Obligations................................................... 21
E. Application of Award................................................... 22
1.08 Leases...................................................................... 22
A. Performance of Lessor's Covenants...................................... 22
B. Notice of Default...................................................... 23
C. Representations Regarding Leases....................................... 23
D. Manager................................................................ 23
E. Covenants Regarding Leases............................................. 23
F. Approval of Leases..................................................... 24
G. Application of Rents................................................... 26
1.09 Assignment of Leases, Rents, Income, Profits and Cash Collateral............ 26
A. Assignment; Discharge of Obligations................................... 26
B. Entry Onto Secured Property; Lease of Secured Property................. 26
C. License to Manage Secured Property..................................... 27
D. Delivery of Assignments................................................ 27
E. Indemnity.............................................................. 27
1.10 Further Assurances.......................................................... 27
A. General; Appointment of Attorney-in-Fact............................... 27
B. Statement Regarding Obligations........................................ 28
C. Additional Security Instruments........................................ 28
D. Security Agreement and Fixture Filing.................................. 28
E. Preservation of Mortgagor's Existence.................................. 29
F. Further Indemnities.................................................... 29
G. Absence of Insurance................................................... 30
1.11 Further Sales or Encumbrances............................................... 30
A. Continuing Ownership and Management.................................... 30
B. Transfer or Encumbrance of Secured Property............................ 30
C. Acceleration of Obligations............................................ 31
D. Subordinate, Wrap-Around and Other Financing........................... 31
1.12 Intentionally Omitted....................................................... 32
1.13 Expenses.................................................................... 32
ARTICLE II - REPRESENTATIONS AND WARRANTIES................................................ 32
2.01 Warranty of Title........................................................... 32
2.02 Ownership Of Improvements And Personal Property............................. 32
2.03 No Pending Material Litigation or Proceeding; No Hazardous Materials........ 33
A. Proceedings Affecting Mortgagor........................................ 33
</TABLE>
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<TABLE>
<S> <C>
B. Proceedings Affecting Secured Property................................. 33
C. No Hazardous Materials................................................. 33
D. No Litigation Regarding Hazardous Materials............................ 34
2.04 Valid Organization, Good Standing and Qualification of Mortgagor............ 34
2.05 Authorization; No Legal Restrictions on Performance......................... 34
2.06 Compliance With Laws........................................................ 35
2.07 Tax Status.................................................................. 35
2.08 Absence of Foreign or Enemy Status.......................................... 35
2.09 Federal Reserve Board Regulations........................................... 35
2.10 Investment Company Act and Public Utility Holding Company Act............... 36
2.11 Exempt Status of Transactions Under Securities Act
and Representations Relating Thereto........................................ 36
2.12 Employee Benefit Plans...................................................... 36
ARTICLE III - DEFAULTS..................................................................... 37
3.01 Events of Default........................................................... 37
ARTICLE IV - REMEDIES...................................................................... 38
4.01 Acceleration, Foreclosure, etc.............................................. 38
A. Foreclosure............................................................ 38
B. Partial Foreclosure.................................................... 39
C. Entry.................................................................. 39
D. Collection of Rents, etc............................................... 40
E. Receivership........................................................... 40
F. Specific Performance................................................... 40
G. Illinois Mortgage Foreclosure and Remedies............................. 40
4.02 No Election of Remedies..................................................... 45
4.03 Mortgagee's Right to Release, etc........................................... 45
4.04 Mortgagee's Right to Remedy Defaults, etc................................... 45
4.05 Waivers..................................................................... 45
4.06 Prepayment Charge........................................................... 46
ARTICLE V - MISCELLANEOUS.................................................................. 47
5.01 Non-Waiver.................................................................. 47
5.02 Sole Discretion of Mortgagee................................................ 48
5.03 Recovery of Sums Required To Be Paid........................................ 48
5.04 Legal Tender................................................................ 48
5.05 No Merger................................................................... 48
5.06 Discontinuance of Actions................................................... 49
5.07 Headings.................................................................... 49
5.08 Notice to Parties........................................................... 49
5.09 Non-Recourse................................................................ 50
5.10 Successors and Assigns Included In Parties.................................. 51
5.11 Number and Gender........................................................... 51
5.12 Changes and Modifications................................................... 51
5.13 Applicable Law.............................................................. 51
5.14 Invalid Provisions to Affect No Others...................................... 51
5.15 Usury Savings Clause........................................................ 52
5.16 No Statute of Limitations................................................... 52
5.17 Late Charges................................................................ 52
5.18 Waiver of Jury Trial........................................................ 52
5.19 Continuing Effectiveness.................................................... 52
</TABLE>
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<PAGE>
MORTGAGE, ASSIGNMENT OF LEASES AND RENTS
----------------------------------------
AND SECURITY AGREEMENT
----------------------
MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND SECURITY AGREEMENT (this
"Mortgage") made as of the ____ day of December, 1998 by and between OVERSEAS
--------
PARTNERS (MADISON PLAZA), LLC, an Illinois limited liability company, having an
office at 115 Perimeter Center Place, Suite 940, Atlanta, Georgia 30346
("Mortgagor"), and NEW YORK LIFE INSURANCE COMPANY, a New York mutual insurance
---------
company, having an office at 51 Madison Avenue, New York, New York 10010
("Mortgagee").
---------
RECITALS:
--------
Mortgagor has executed and delivered to Mortgagee that certain Promissory
Note (the "Note") dated the date hereof made by Mortgagor and payable to
----
Mortgagee in the original principal amount of One Hundred Twenty-Five Million
and 00/100 Dollars ($125,000,000.00) in lawful money of the United States, which
Note is secured by this Mortgage and the terms, covenants and conditions of
which Note are hereby incorporated herein and made a part hereof;
NOW, THEREFORE, THIS MORTGAGE WITNESSETH, that in consideration of the sum
of One Dollar ($1.00) this day paid and other good and lawful consideration, the
receipt and sufficiency of which are hereby acknowledged and in order to secure
the Obligations (as hereinafter defined), Mortgagor hereby MORTGAGES, CONVEYS,
WARRANTS, grants, assigns, releases, transfers, pledges and sets over unto
Mortgagee, and confirms that this Mortgage constitutes a valid first lien upon
the following property:
GRANTING CLAUSE ONE
All that tract or parcel of land more particularly described in Exhibit A
---------
hereto and made a part hereof (the "Land").
----
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<PAGE>
GRANTING CLAUSE TWO
TOGETHER WITH, any and all buildings and improvements now or hereafter located
or erected on the Land, including, without limitation, any and all machinery,
apparatus, equipment and fixtures now or hereafter attached to, or used or
procured for use in connection with the operation and/or maintenance of, any
building, structure or other improvement (including, without limitation, all
refrigerators, shades, awnings, venetian blinds, screens, screen doors, storm
doors and windows, stoves and ranges, curtain fixtures, partitions, attached
floor coverings and fixtures, apparatus, equipment or articles used to supply
sprinkler protection and waste removal, laundry equipment, furniture,
furnishings, appliances, office equipment, elevators, escalators, tanks,
dynamos, motors, generators, switchboards, communications equipment, electrical
equipment, television and radio systems, heating, plumbing, lifting and
ventilating apparatus, air-cooling and air conditioning apparatus, gas and
electric fixtures, fittings and machinery and all other equipment of every kind
and description but excluding trade fixtures and personal property of tenants
under Leases (as hereinafter defined) which do not become the property of
Mortgagor upon expiration or termination of the term of such Leases), and all
renewals and replacements thereof and articles in substitution therefor used or
procured for use in the operation of any and all such buildings, structures and
improvements, provided, in all cases, that, whether or not any of the foregoing
--------
are attached to said buildings, structures or other improvements in any manner,
all such items shall be deemed to be fixtures, part of the real estate and
security for the Obligations (collectively, the "Improvements", and the Land and
------------
Improvements are herein collectively called the "Premises"). To the extent any
--------
of the Improvements are not deemed real estate under the laws of the State of
Illinois they shall be deemed personal property ("Personal Property") and this
-----------------
Mortgage is and shall be deemed to be a Security Agreement for the purposes of
creating hereby a security interest under the Uniform Commercial Code as adopted
in the State of Illinois in Mortgagee as Secured Party in the Personal Property
as hereinafter provided.
GRANTING CLAUSE THREE
TOGETHER WITH, all easements, rights-of-way, strips and gores of land,
streets, ways, alleys, passages, sewer rights, waters, water courses, water
rights and powers, and all estates, rights, titles, interests, privileges,
liberties, tenements, hereditaments, air rights, development rights and credits
and appurtenances of any nature whatsoever, in any way belonging, relating or
pertaining to, or above or below the Premises.
GRANTING CLAUSE FOUR
TOGETHER WITH, all right, title and interest of Mortgagor, now owned or
hereafter acquired, in and to any land lying within the right-of-way of any
street, opened or proposed, adjoining the Premises, and in and to any and all
sidewalks, alleys and strips and gores of land adjacent to or used in connection
with the Premises.
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<PAGE>
GRANTING CLAUSE FIVE
TOGETHER WITH, all right, title and interest of Mortgagor in and to all
options to purchase or lease the Premises or any portion thereof or interest
therein, and any greater estate in the Premises owned or hereafter acquired by
Mortgagor.
GRANTING CLAUSE SIX
TOGETHER WITH, all accounts receivable, insurance policies, licenses,
franchises, permits, service contracts, management agreements, trade names
(including without limitation all right, title and interest of Borrower in the
name of "Madison Plaza"), trademarks, service marks, logos, general intangibles,
contract rights, interests, estates and other claims, both in law and in equity,
which Mortgagor now has or may hereafter acquire in the Premises.
GRANTING CLAUSE SEVEN
TOGETHER WITH, all the estate, interest, right, title and other claim or
demand which Mortgagor now has or may hereafter acquire in any and all awards or
payments made for the taking by eminent domain, or by any proceeding or purchase
in lieu thereof, of the whole or any part of the Premises, including, without
limitation, any awards resulting from a change of grade of streets and awards
for severance damages together, in all cases, with any interest thereon.
GRANTING CLAUSE EIGHT
TOGETHER WITH, all proceeds of and any unearned premiums on any insurance
policies covering the Premises, including, without limitation, the right to
receive and apply the proceeds of any insurance or judgments, or settlements
made in lieu thereof, for damage to the Premises.
GRANTING CLAUSE NINE
TOGETHER WITH, all the estate, interest, right, title and other claim or
demand which Mortgagor now has or may hereafter acquire against anyone with
respect to any damage to all or any part of the Premises, including, without
limitation, damage arising or resulting from any defect in or with respect to
the design or construction of all or any part of the Improvements.
GRANTING CLAUSE TEN
TOGETHER WITH, all deposits or other security or advance payments, including
rental payments, made by or on behalf of Mortgagor to others in connection with
the ownership or operation of all or any part of the Premises including, without
limitation, any such deposits or
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<PAGE>
payments made with respect to (i) insurance policies, (ii) utility service,
(iii) cleaning, maintenance, repair or similar services, (iv) refuse removal or
sewer service, (v) rental of equipment, if any, used by or on behalf of
Mortgagor, and (vi) parking or similar services or rights.
GRANTING CLAUSE ELEVEN
TOGETHER WITH, all remainders, reversions, leasehold estate, other estate,
right, title, interest and other claim or demand of Mortgagor in and to all
leases or subleases covering the Premises or any portion thereof now or
hereafter existing or entered into, and all right, title and interest of
Mortgagor thereunder, including, without limitation, all cash or security
deposits, advance rentals and deposits or payments of similar nature.
GRANTING CLAUSE TWELVE
TOGETHER WITH, absolutely and presently, all rents, issues, profits, cash
collateral, royalties, income and other benefits, including, without limitation,
benefits accruing from all present and future oil, gas and mineral leases and
agreements derived from the Premises (collectively, the "Rents"), subject to the
-----
right, power and authority hereinafter given to Mortgagor as a licensee to
collect and apply such Rents prior to the occurrence of a default hereunder.
The foregoing Premises, Personal Property and rights therein, hereinabove
described or mentioned are hereinafter collectively referred to as the "Secured
-------
Property".
- --------
TO HAVE AND TO HOLD the Premises unto the said Mortgagee, its successors and
assigns, forever, for the purposes and uses herein set forth.
Upon full satisfaction of the Obligations (defined herein), Mortgagor shall
request Mortgagee to release this Mortgage and the lien hereof and upon payment
by Mortgagor to Mortgagee of any filing fee due any third party in order to
record and cause such release of public record, Mortgagee shall so release this
Mortgage and the lien hereof as a matter of public record.
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<PAGE>
DEFINITIONS
As used in this Mortgage, the following terms shall have the meanings
specified below (such meanings to be equally applicable to both the singular and
plural forms of the terms defined:
"Assignment" shall mean the Assignment of Leases, Rents, Income and Cash
----------
Collateral dated the date hereof from Mortgagor, as assignor, to Mortgagee, as
assignee.
"Code" shall mean the Uniform Commercial Code of the State of Illinois.
----
"Condemnation Proceedings" shall have the meaning set forth in Subsection
------------------------ ----------
1.07A hereof.
- -----
"Debt Coverage Ratio" shall mean for any period, a fraction, the numerator of
-------------------
which shall equal the projected net operating income of the Premises for such
period, and the denominator of which shall equal the aggregate of the principal,
interest and any other amounts payable for such period with respect to the
Obligations.
"Employee Benefit Plans" shall mean any employee benefit plans (as defined in
----------------------
ERISA) maintained at any time by Mortgagor.
"ERISA" shall mean Internal Revenue Code Section 4975 and the Employee
-----
Retirement Income Security Act of 1974 and the regulations thereunder.
"Event of Default" shall have the meaning set forth in Section 3.01 hereof.
---------------- ------------
"Governmental Agency" shall mean any governmental department, commission,
-------------------
board, regulatory authority, bureau, agency or instrumentality, domestic,
foreign, federal, state or municipal.
"Hazardous Material" shall mean and include any oil, flammable explosives,
------------------
radioactive materials, asbestos in any form, underground fuel tanks, hazardous,
toxic or dangerous waste, chemical, substance or related material, urea
formaldehyde foam insulation, polychlorinated biphenyls, or radon gas including,
but not limited to, substances defined as such in (or for purposes of) or which
may give rise to liability under any Hazardous Materials Laws.
"Hazardous Materials Laws" shall mean and include (i) the Comprehensive
------------------------
Environmental Response, Compensation, and Liability Act, as amended, 42 U.S.C.
Section 9601, et seq.; (ii) the Hazardous Materials Transportation Act, as
-- ---
amended 49 U.S.C. Section 1801, et seq.; (iii) the Resource Conservation and
-- ---
Recovery Act, as amended, 42 U.S.C. Section 6901, et seq.; (iv) the Clean Water
-- ---
Act of 1977, 33 U.S.C. Section 1251, et seq.; (v) the Federal Safe Drinking
-- ---
Water Act, 42 U.S.C. Section 300(f) et seq.; (vi) the Federal Toxic Substances
-- ---
Control Act, 15 U.S.C. Sections 2601, et seq.; (vii) the Federal Clean Air Act,
-- ---
42 U.S.C. Section 7401 et seq.; (viii) the Illinois Clean Indoor Air Act, 410
-- ---
ILCS 80/1 et seq.; (ix) the Illinois Environmental Protection Act, 415 ILCS 5/1
-- ---
et seq. and all regulations issued pursuant thereto and any so-called
- -- ---
"Superfund" or "Superlien" law, or any other federal, state or local statute,
law,
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<PAGE>
ordinance, code, rule, regulation, order or decree regulating, relating to, or
imposing liability or standards of conduct concerning, any hazardous, toxic or
dangerous waste, substance or material, as now or at any time hereafter in
effect.
"Hazardous Materials Claims" shall have the meaning set forth in Subsection
-------------------------- ----------
1.05F(4) hereof.
- --------
"Impositions" shall have the meaning set forth in Subsection 1.02A hereof.
----------- ----------------
"Improvements" shall have the meaning set forth in Granting Clause Two hereof.
------------
"Increased Rate" shall mean the rate of twelve and ninety hundredths percent
--------------
(12.90%) per annum.
"Land" shall have the meaning set forth in Granting Clause One hereof.
----
"Lease" shall have the meaning set forth in Subsection 1.08A hereof.
----- ----------------
"Lessee" shall have the meaning set forth in Subsection 1.08A hereof.
------ ----------------
"Loan Documents" shall mean the Note, this Mortgage, the Assignment and any
--------------
other instrument now or hereafter given to evidence, secure or guaranty the
Obligations.
"Mortgagee's Architect" shall mean an architect or registered engineer
---------------------
approved by Mortgagee.
"Net Rental Rate" shall equal: (i) for a net Lease, the then-current base
---------------
annual rental rate per square foot as identified in such Lease; or (ii) for a
gross Lease, the then-current base annual rental rate per square foot less: (a)
the applicable expense stop, if any, or (b) if an expense stop is not stated,
the then current good faith estimate of expenses that are typically recoverable
----------
from the Lessee; however, under no circumstances shall such estimate be less
than 95% of the preceding calendar year's actual expenses generally recoverable
from Lessees in the Building on a pro rata basis.
"Obligations" shall mean the full and prompt payment and performance of all of
-----------
the indebtedness, obligations, covenants, agreements and liabilities of
Mortgagor to Mortgagee, together with all interest and other charges thereon,
whether direct or indirect, existing, future, contingent or otherwise, due or to
become due, under or arising out of or in connection with the Note, this
Mortgage, the Assignment or any other Loan Document, any and all modifications,
extensions and renewals of any of the foregoing; and any and all expenses and
costs of collection or enforcement, including, without limitation, attorneys'
fees incurred by Mortgagee in the collection or enforcement of any of the
foregoing, or in the exercise of any of the rights or remedies under the Loan
Documents or applicable law.
"Partial Foreclosure" shall have the meaning set forth in Subsection 4.01B
------------------- ----------------
hereof.
"Personal Property" shall have the meaning set forth in Granting Clause Two
-----------------
hereof.
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<PAGE>
"Premises" shall have the meaning set forth in Granting Clause Two hereof.
--------
"Rents" shall have the meaning set forth in Granting Clause Twelve hereof.
-----
"Secured Property" shall have the meaning set forth in Granting Clause
----------------
Twelve hereof.
"Transfer" shall have the meaning set forth in Subsection 1.11B hereof.
-------- ----------------
ARTICLE I
COVENANTS AND AGREEMENTS
------------------------
Mortgagor hereby covenants and agrees as follows:
1.01 Payment of Obligations. Mortgagor shall pay when due the principal
----------------------
of, and the interest on, the indebtedness evidenced by the Note, any future
advances necessary to protect the Secured Property and all other charges, fees
and all other Obligations as provided in the Loan Documents.
1.02 Payment of Taxes, Assessments, Etc.
----------------------------------
A. Impositions. Mortgagor shall pay when due and payable, without
-----------
notice or demand before any fine, penalty, interest or cost for the non-payment
thereof may be added thereto, all taxes, assessments, water and sewer rents,
rates and charges, transit taxes, county taxes, charges for public utilities,
excises, levies, vault and all other license and permit fees and other
governmental charges, general and special, ordinary and extraordinary,
unforeseen and foreseen, of any kind and nature whatsoever (including penalties,
interest, costs and charges accrued or accumulated thereon) which at any time
may be assessed, levied, confirmed, imposed upon or become due and payable out
of or in respect to, or become a lien on, the Secured Property or any part
thereof or any appurtenance thereto, as the case may be (all such taxes,
assessments, water and sewer rents, rates and charges, transit taxes, county
taxes, charges for public utilities, excises, levies, vault and all other
license and permit fees and other governmental charges including all interest,
penalties, costs and charges accrued or accumulated thereon, are herein
collectively called "Impositions", and individually, an "Imposition").
B. Installments. Notwithstanding anything to the contrary contained in
------------
Subsection 1.02A above, if by law any Impositions may at the option of the
- ----------------
taxpayer be paid in installments (whether or not interest shall accrue on the
unpaid balance of such Impositions), Mortgagor may exercise the option to pay
the same (and any accrued interest on the unpaid balance of such Impositions) in
installments and, in such event, shall pay such installments as the same
respectively become due and before any fine, penalty, further interest or cost
may be added thereto.
C. Receipts. Mortgagor, upon request of Mortgagee, will furnish to
--------
Mortgagee within five (5) days before the date when any Imposition would become
delinquent, official receipts of the appropriate taxing authority, or other
evidence reasonably satisfactory to
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<PAGE>
Mortgagee evidencing the payment thereof.
D. Evidence of Payment. The certificate, advice or bill issued by
-------------------
the appropriate official (designated by law either to make or issue the same or
to receive payment of any Imposition) of non-payment of an Imposition shall be
prima facie evidence that such Imposition is due and unpaid at the time of the
making or issuance of such certificate, advice or bill. Mortgagor agrees to pay
Mortgagee, on demand, all charges, costs and expenses of every kind incurred by
Mortgagee in connection with obtaining evidence satisfactory to Mortgagee that
the payment of all Impositions is current and that there is no Imposition due
and owing or which has become or given rise to a lien on the Secured Property or
any part thereof or any appurtenance thereto.
E. Payment by Mortgagee. Subject to Subsection G of this Section
-------------------- ------------ -------
1.02, if Mortgagor shall fail to pay any Imposition in accordance with the
- ----
provisions of this Section 1.02, Mortgagee may, at its option (but shall be
------------
under no obligation to do so), pay such Imposition and Mortgagor will repay to
Mortgagee on demand any amount so paid by Mortgagee, with interest thereon at
the Increased Rate to the date of repayment and all such amounts shall be
secured by this Mortgage. In no event shall the Increased Rate be greater than
the highest interest rate permissible by law.
F. Change in Law. In the event of the passage after the date of
-------------
this Mortgage of any law of the State of Illinois deducting the Obligations from
the value of the Secured Property or any part thereof for the purpose or with
the result of taxes being assessed against the Obligations payable by the holder
thereof or resulting in any lien thereon, or changing in any way the laws now in
force for the taxation of this Mortgage or the Obligations for state or local
purposes, or the manner of the operation of any such taxes so as to affect the
interest of Mortgagee, then, and in such event, Mortgagor shall bear and pay the
full amount of such taxes, provided that if for any reason payment by Mortgagor
of any such new or additional taxes would be unlawful or if the payment thereof
would constitute usury or render the loan secured hereby or the Obligations
wholly or partially usurious under any of the terms or provisions of the Note,
this Mortgage or otherwise, Mortgagee may, at its option, declare the whole sum
secured by this Mortgage with interest thereon to be immediately due and payable
without a prepayment premium, or Mortgagee may, at its option, pay that amount
or portion of such taxes as renders the loan or Obligations unlawful or
usurious, in which event Mortgagor shall concurrently therewith pay the
remaining lawful and non-usurious portion or balance of said taxes.
G. Permitted Contest. Provided that Mortgagor shall not be in
-----------------
default under any of the Loan Documents, Mortgagor shall have the right to
contest the amount or the validity, in whole or in part, of any Imposition by
appropriate proceedings diligently conducted in good faith. To prevent default
hereunder, Mortgagor shall pay in full under protest, in the manner provided by
statute, any Impositions which Mortgagor may decide to contest. Upon the
conclusion of the proceedings pursuant to which Mortgagor shall have contested
the amount or validity of an Imposition, any refund shall be paid to Mortgagor,
unless Mortgagor shall be in default under any of the Loan Documents, in which
case Mortgagor shall apply such refund to cure such default, and the remainder
of such refund, if any, shall be repaid to Mortgagor.
H. No Lease Default. If contesting the validity or amount of any
----------------
Imposition
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<PAGE>
shall cause a breach of any of the terms, conditions or covenants required to be
performed by Mortgagor as lessor under any Lease (as hereinafter defined), then
Mortgagor shall not have the right to contest the same as provided in Subsection
----------
1.02G, and payment of such Imposition shall be made pursuant to Subsection 1.02A
- ----- ----------------
above.
I. Joint Assessment. Mortgagor covenants and agrees, to the extent
----------------
permitted by applicable law, not to suffer, permit or initiate the joint
assessment of the Premises and Personal Property, or any other procedure, unless
required by applicable law, whereby the lien of the personal property taxes
shall be assessed or levied or charged to the Secured Property together with
real property taxes.
J. Tax Service Fee. Mortgagor covenants and agrees to pay to
---------------
Mortgagee on demand all charges, costs and expenses of every kind including,
without limitation, a tax service search fee or charge, incurred by Mortgagee at
any time or times during the term of this Mortgage in connection with obtaining
evidence satisfactory to Mortgagee that the payment of any and all real estate,
ad valorem, and other taxes and/or assessments is current and that there are no
such taxes or assessments due or owing which have become or given rise to a lien
on the Premises or any part thereof. The Premises consist of two parcels of land
for tax identification purposes, and the amount of the real estate tax search
service charge shall not exceed $5,000 throughout the term of this Mortgage.
1.03 Insurance.
---------
A. Extended Coverage. Mortgagor, at its sole cost and expense,
-----------------
shall keep the Personal Property and the Improvements insured during the term of
this Mortgage against loss or damage by fire and against loss or damage by other
risks now embraced by "All Risk Replacement Cost Coverage," so called with an
agreed amount endorsement, in amounts and from carriers acceptable to Mortgagee
which have a minimum A.M. Best rating of B+, or comparable, and otherwise in
amounts, forms and substance satisfactory to Mortgagee in its sole discretion,
but in no event shall the amounts be less than the greater of (1) 100% of the
full replacement cost of the Personal Property and the Improvements, including
work performed for tenants, without deduction for depreciation; (2) the amounts
required to prevent any insured from becoming a co-insurer under the terms of
such insurance; or (3) $125,000,000.
B. Additional Coverage. Mortgagor, at its sole cost and expense,
-------------------
shall at all times also maintain:
(1) Personal injury and property damage liability insurance
against claims for bodily injury, death or property damage, occurring on, in or
about the Secured Property or in or about the adjoining streets, sidewalks and
passageways; such insurance to afford protection, during the term of this
Mortgage, in amounts and in form and substance satisfactory to Mortgagee;
(2) Rent or business interruption insurance in an amount not
less than the greater of (a) $15,447,223, or (b) one year's aggregate rentals
(including, without limitation, minimum rentals, escalation charges, percentage
rents, based on sales projections acceptable to Mortgagee, and other additional
rentals, and any other amounts payable by tenants or other occupants under
Leases or otherwise) payable by all tenants and other occupants at the
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<PAGE>
Premises, which amount shall be increased from time to time upon the leasing of
space at the Premises or upon the increase in aggregate rentals (including the
other items referred to above);
(3) War risk insurance upon the building and other Improvements
as and when such insurance is obtainable from the United States of America or
any agency or instrumentality thereof for the maximum amount of insurance
obtainable, not to exceed the outstanding principal amount of the Note;
(4) Such other insurance, including, without limitation, all
risk in such amounts and in form and substance as may from time to time be
required by Mortgagee against other insurable hazards, including, but not
limited to, malicious mischief, vandalism, windstorm, earthquake, nuclear
reaction or radioactive contamination, which at the time are commonly insured
against and generally available in the case of premises similarly situated, due
regard being or to be given to the height and type of Improvement, its location,
construction, use and occupancy;
(5) If the Improvements are located in a flood hazard area,
flood insurance on the Improvements in an amount equal to the lesser of "full
replacement cost" thereof or the maximum amount of insurance obtainable; and
(6) Insurance against loss or damage from (a) leakage of
sprinkler systems and (b) explosion of steam boilers, air conditioning
equipment, pressure vessels or similar apparatus now or hereafter installed in
or on the Premises in such amounts as Mortgagee shall from time to time require.
C. Separate Insurance. Mortgagor shall not carry separate
------------------
insurance, concurrent in kind or form, and contributing, in the event of loss,
with any insurance required hereunder. Mortgagor may, however, effect for its
own account any insurance not required under the provisions of this Mortgage but
any such insurance effected by Mortgagor on the Secured Property whether or not
required under this Section 1.03 shall be for the mutual benefit of Mortgagor
------------
and Mortgagee, as their respective interests may appear, and shall be subject to
all other provisions of this Section 1.03.
------------
D. Insurers; Policies. All insurance provided for in this Section
------------------ -------
1.03 shall be effected under valid and enforceable policies issued by
- ----
financially responsible insurers authorized to do business in the State of
Illinois, which policies and insurers are approved in writing by Mortgagee. The
proceeds of all such policies shall be deposited with and held by Mortgagee. All
casualty insurance policies and rent insurance policies shall be payable to
Mortgagee pursuant to a standard non-contributory first mortgage endorsement in
favor of Mortgagee, and such policies shall contain a waiver of subrogation
endorsement, and shall name Mortgagee as loss payee or mortgagee (and additional
insured, as appropriate) all in form and content satisfactory to Mortgagee. All
original policies shall contain a provision that such policies will not be
canceled or materially amended, which term shall include any reduction in the
scope or limits of coverage, without at least thirty (30) days' prior written
notice to Mortgagee. Not less than thirty (30) days prior to the expiration
dates of the policies theretofore furnished pursuant to this Mortgage,
originals, or copies certified as true and correct by the issuer of the
policies, bearing notations evidencing the payment of premiums or accompanied by
other evidence satisfactory to Mortgagee of such payment, shall be delivered by
Mortgagor to Mortgagee. In the
-8-
<PAGE>
event of a change in ownership of the Secured Property immediate notice thereof
shall be delivered to all insurers by Mortgagor.
E. Mortgagee's Right to Provide Coverage. If Mortgagor fails to
-------------------------------------
provide, maintain, keep in force or deliver and furnish to Mortgagee the
original or certified copies of policies of insurance required by this Section
-------
1.03, Mortgagee may, at its sole option, procure such insurance and Mortgagor
- ----
will reimburse Mortgagee for all premiums thereon promptly upon demand by
Mortgagee with interest thereon at the Increased Rate to the date of
reimbursement and all such amounts shall be secured by this Mortgage.
F. Damage or Destruction. After the happening of any casualty to
---------------------
the Secured Property or any part thereof, Mortgagor shall give prompt written
notice thereof to Mortgagee or its authorized representative and the following
shall apply:
(1) In the event of any damage or destruction of all or any part
of the Secured Property, all proceeds of insurance shall be payable to
Mortgagee, and Mortgagor hereby authorizes and directs any affected insurance
company to make payment of such proceeds directly to Mortgagee. Insurance
proceeds held by Mortgagee may be commingled with other funds in Mortgagee's or
its authorized representative's possession, shall constitute additional security
for the Obligations and Mortgagor shall not be entitled to the payment of
interest thereon; provided, however, that in the event such insurance proceeds
exceed $100,000 and such funds will be used for restoration or repair as
provided below, such funds shall constitute additional security for the
Obligations, but at Mortgagor's written request, such proceeds shall be
deposited into an interest-bearing account at a bank or other financial
institution satisfactory to Mortgagee, and held in accordance with a written
escrow agreement satisfactory to Mortgagee and its legal counsel. Interest on
such escrowed funds shall be added to, become a part of, and be disbursed as
part of such insurance proceeds. Until said escrow agreement is executed and
delivered, such monthly deposits shall not be held in an interest-bearing
account and shall be held by Mortgagee as provided above. Any and all escrow
fees and other costs associated with establishing such third-party escrow shall
be borne by Mortgagor. Mortgagee by itself or through its authorized
representative is hereby authorized and empowered by Mortgagor to participate in
any settlement, adjustment or compromise of any claims for loss, damage or
destruction under any policy or policies of insurance. Mortgagor may not settle,
adjust or compromise any claim without Mortgagee's consent, not to be
unreasonably withheld; provided, however, that Mortgagor may, without
Mortgagee's consent, settle, adjust or compromise any claim if the resulting
settlement, adjustment or compromise is in an amount sufficient to satisfy the
Obligations in full, and such Obligations are actually paid in full.
(2) In the event of any such damage or destruction, subject to
Subsection 1.03G, Mortgagee shall have the option in its sole and absolute
- ----------------
discretion and without regard to the adequacy of its security hereunder, of
applying all or part of the insurance proceeds (a) to the Obligations, whether
or not then due, in the inverse order of maturity, or (b) to the repair or
restoration of the Secured Property, or (c) to cure any then current default
under any of the Loan Documents, or (d) to reimburse the Mortgagee and its
authorized representative for its reasonable costs and expenses in connection
with the recovery of such insurance proceeds, or (e) any combination of the
foregoing.
(3) Nothing herein contained shall be deemed to excuse
Mortgagor
-9-
<PAGE>
from repairing or maintaining the Secured Property as provided in Section 1.05
------------
hereof or restoring all damage or destruction to the Secured Property,
regardless of whether there are insurance proceeds available or whether such
proceeds are sufficient in amount, and the application or release by Mortgagee
of any insurance proceeds shall not cure or waive any Event of Default (as
hereinafter defined) or notice of default under this Mortgage or invalidate any
act done pursuant to such notice.
G. Mortgagor's Use of Proceeds.
---------------------------
(1) Notwithstanding any provision herein to the contrary, in the
event of any destruction to the Premises by fire or other casualty (except for
any destruction which occurs during the last twelve (12) months of the loan
term), the insurance proceeds shall be made available to Mortgagor for repair
and restoration of the property so damaged or destroyed, after deducting and
payment to Mortgagee of Mortgagee's reasonable costs of collection and
disbursement of such proceeds, subject to each and all of the following
conditions:
(a) that Mortgagor is not then in default under any of the
terms, covenants and conditions of the Note, this Mortgage, any other agreement
securing repayment of the indebtedness evidenced by the Note, and at all times
while restoration work progresses no such default shall occur;
(b) that, except as provided in (h) below, Mortgagee shall
be satisfied that by the expenditure of such proceeds the Improvements will be
fully restored within a reasonable period of time to not less than their value
immediately preceding the loss or damage, free and clear of all liens, except
the lien and security title of this Mortgage, a lien for property taxes and such
other liens as are specifically approved by Mortgagee in writing or otherwise
permitted under the terms of this Mortgage;
(c) that in the event such proceeds shall be insufficient
to restore or rebuild the Improvements, Mortgagor shall deposit promptly with
Mortgagee funds which, together with such proceeds, shall be sufficient in
Mortgagee's reasonable judgment to restore and rebuild the Secured Property;
(d) that Mortgagor shall use its best efforts to obtain a
waiver of the right of subrogation from any insurer under such policies of
insurance who, at that time, claims that no liability exists as to Mortgagor or
the then owner or the assured under such policies;
(e) that the excess of the proceeds above the amount
necessary to complete such restoration and compensate Mortgagor for all other
losses shall be applied at Mortgagee's option on account of the indebtedness or
obligation hereby secured (in inverse order of maturity and without payment of
any prepayment premium);
(f) Mortgagor shall have delivered to Mortgagee and
Mortgagee shall have reviewed and approved in writing the plans and
specifications for the restoration worked signed by Mortgagor and describing the
nature and type of expenses and amounts thereof estimated by Mortgagor for said
restoration work, including, but not limited to, the cost of material and
supplies, architect and designer fees, general contractor's fees and the
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<PAGE>
anticipated monthly disbursement schedule, and Mortgagee shall have given to
Mortgagor written approval of such budget and the cost breakdown (if Mortgagor
determines that its actual expenses do or will differ from its estimated budget,
it will so advise Mortgagee promptly) which approval will not be unreasonably
withheld, delayed or conditioned;
(g) Mortgagor has delivered to Mortgagee evidence
reasonably satisfactory to Mortgagee, and Mortgagee has determined in its sole
reasonable discretion, that sufficient leases of the property existing at the
time of the loss or damage will remain in full force and effect through the
projected period of repair and restoration, without abatement of rent during
such period (except for rent during the period of repair and restoration for
which rental loss insurance proceeds are available), which, together with rental
loss insurance proceeds available due to the casualty, produce rental income to
Mortgagor of at least 110% of the debt service on the Obligations for such
period; and
(h) in Mortgagee's reasonable judgment, such restoration
work can be completed prior to the maturity of the Note.
In the event any of the conditions described above are not or cannot be
satisfied, then such proceeds shall be disposed of as otherwise provided in
Subsection F(2). Under no circumstances shall Mortgagee become obligated to
- ---------------
take any action to restore the premises.
(2) Disbursement of the proceeds during the course of
reconstruction shall be upon the certification of Mortgagee's Architect as to
the cost of the work done and the conformity of the work to plans and
specifications approved by Mortgagee, and evidence supplied by a title insurance
company acceptable to Mortgagee that there are no liens arising out of the
reconstruction or otherwise, except those liens for which Mortgagor holds funds
for disbursement in amounts adequate to pay the lienor in full. Notwithstanding
the above, a portion of the proceeds may be released prior to the commencement
of reconstruction to pay for items approved by Mortgagee in its sole discretion.
Disbursements shall be made within ten (10) business days after a request by
Mortgagor. No payment made prior to the final completion of work shall exceed
ninety percent (90%) of the value of the work performed from time to time, and
at all times the undisbursed balance of said proceeds remaining with the
Mortgagee must be at least sufficient to pay for the cost of completion of the
work free and clear of liens. Final payment shall be upon a certification of
Mortgagee's Architect as to completion in accordance with plans and
specifications approved by Mortgagee.
(3) At such time as Mortgagee's Architect shall certify to
Mortgagee that the damaged or destroyed portion of the Secured Property has been
completed in accordance with plans and specifications approved by Mortgagee, the
work shall be deemed completed. With Mortgagee's prior written consent, which
may be granted or withheld in Mortgagee's sole discretion, any certification
required to be made by an architect or registered engineer may be made by a
reputable contractor approved by Mortgagee. The balance of the insurance
proceeds so deposited after full disbursement in accordance with Subsection
----------
1.03G, at the sole option of Mortgagee, shall be either (a) returned to
- -----
Mortgagor, it being understood that such obligation of reimbursement shall not
exceed the amount of insurance proceeds for such restoration and/or repair, or
(b) applied to the payment of installments of the Obligations in inverse order
of maturity whether or not such installments shall be due and payable (without
payment of any prepayment premium by Mortgagor).
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<PAGE>
(4) In all cases where any destruction to the Secured Property
by fire or other casualty occurs during the last twelve (12) months of the loan
term, or Mortgagor is not proceeding with the repair or restoration in a manner
that would entitle Mortgagor to have the proceeds disbursed to it, or for any
other reason Mortgagor shall not be entitled to such proceeds pursuant to the
terms of this Mortgage, Mortgagee shall have the options set forth in Subsection
----------
F(2) above.
- ----
(5) Under no circumstances shall Mortgagee become personally
liable for the fulfillment of the terms, covenants and conditions contained in
any of the Leases or obligated to take any action to restore the Secured
Property.
H. Transfer of Interest in Policies. In the event of foreclosure of
--------------------------------
this Mortgage or other transfer of title or assignment of the Secured Property
in extinguishment, in whole or in part, of the Obligations, all right, title and
interest of Mortgagor in and to all policies of insurance required by this
Section 1.03 shall inure to the benefit of and pass to the successor in interest
- ------------
to Mortgagor or the purchaser or grantee of the Secured Property. If any claim
under any insurance policy shall be paid after the extinguishment of the
Obligations, and if such foreclosure of this Mortgage, or other transfer of
title to or assignment of the Secured Property, shall have resulted in
extinguishing the Obligations for an amount (the "Consideration") less than the
-------------
amount (the "Debt") equal to the unpaid Obligations, with interest thereon at
----
the Increased Rate, plus counsel fees, costs and other disbursements incurred by
Mortgagee at the time of the extinguishment of the Obligations, then the portion
of the payment in satisfaction of the claim which is equal to the difference
between the Consideration and the Debt shall belong to and be the property of
Mortgagee and shall be paid to Mortgagee, and Mortgagor hereby assigns,
transfers and sets over to Mortgagee all of Mortgagor's right, title and
interest in and to said sum. The balance, if any, shall be paid to Mortgagor.
1.04 Escrow Deposits. To further secure the payment of the Impositions
---------------
and the premiums for the insurance required by this Mortgage, Mortgagor will
deposit with Mortgagee, or its designee, on the due date of each monthly
installment of principal and interest under the Note, a sum which shall be equal
to one-twelfth (1/12) of the annual total of the Impositions and such insurance
premiums, one month prior to the date when such Impositions and such insurance
premiums shall become due and payable. Such deposits shall be held by Mortgagee,
or its designee, without obligation for the payment of interest thereon to
Mortgagor, free of any liens or claims on the part of creditors of Mortgagor and
as a part of the security of Mortgagee, and shall be used by Mortgagee, or its
designee, to pay current Impositions and insurance premiums as the same shall
become payable. Said deposits shall not be, nor be deemed to be, trust funds but
may be commingled with general funds of Mortgagee, or its designee. If at any
time and for any reason Mortgagee determines that said deposits are insufficient
to pay the Impositions and insurance premiums in full as they become payable,
Mortgagor will deposit with Mortgagee, or its designee, within ten (10) days
after demand therefor, such additional sum or sums as may be required in order
for Mortgagee, or its designee, to pay such Impositions and insurance premiums
in full. It shall be the responsibility of Mortgagor to furnish bills to
Mortgagee in sufficient time for Mortgagee to pay the Impositions and insurance
premiums before any penalty attaches and before the policies lapse. Upon any
Event of Default, Mortgagee may, at its option, in its sole and absolute
discretion and without regard to the adequacy of its security hereunder, apply
any such deposits to the payment of the Obligations in such manner as it may
elect.
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<PAGE>
1.05 Care and Use of Premises.
------------------------
A. Maintenance and Repairs. Mortgagor, at its sole cost and
-----------------------
expense, will take good care of the Secured Property and the sidewalks and curbs
adjoining the Secured Property and will keep the same in good order and
condition, and make all necessary repairs thereto, interior and exterior,
structural and nonstructural, ordinary and extraordinary, unforeseen and
foreseen, and will not commit or suffer to be committed any waste of the Secured
Property and will not do or suffer to be done anything which will increase the
risk of fire or other hazard to the Secured Property or any part thereof.
B. Standard of Repairs. The necessity for and adequacy of repairs
-------------------
to the Improvements pursuant to Subsection 1.05A shall be measured by the
----------------
standard which is appropriate for a first-class office building and related
facilities of similar construction and class, and similarly situated, provided
that Mortgagor shall in any event make all repairs necessary to avoid any
structural damage to the Improvements and to keep the Improvements in a proper
condition for their intended use. When used in this Section 1.05, the terms
------------
"repair" and "repairs" shall include all necessary renewals and replacements.
All repairs made by Mortgagor shall be made with new first-class materials and
in a good, substantial and workmanlike manner and shall be equal or better in
quality and class to the original work.
C. Notice to Mortgagee. Mortgagor will notify Mortgagee promptly of
-------------------
any damage to the Secured Property the cost of which to repair is in excess of
$100,000.
D. Removal of Equipment. Mortgagor shall have the right, at any
--------------------
time and from time to time, to remove and dispose of equipment which may have
become obsolete or unfit for use or which is no longer useful in the operation
of the Secured Property. Mortgagor will promptly replace any such equipment so
disposed of or removed with other equipment of a value and serviceability equal
to or greater than the original value and serviceability of the equipment so
disposed of or removed, free of superior title, liens and claims; except that,
if by reasons of technological or other developments in the operation and
maintenance of buildings of the general character of the Improvements, no
replacement of the building equipment so removed or disposed of is necessary or
desirable in the proper operation or maintenance of said Improvements, Mortgagor
shall not be required to replace same. All such replacements or additional
equipment shall be covered by the security interest herein granted.
E. Compliance With Laws and Insurance. Mortgagor shall promptly
----------------------------------
comply with all present and future laws, ordinances, orders, rules, regulations
and requirements of all federal, state and municipal governments, courts,
departments, commissions, boards and officers, any national or local Board of
Fire Underwriters, including, without limitation, all zoning, building code,
environmental protection and equal employment opportunity statutes, ordinances,
regulations, orders and restrictions, foreseen or unforeseen, ordinary as well
as extraordinary, which may be applicable to the Secured Property and the
sidewalks and curbs adjoining the Secured Property or to the use or manner of
use of the Secured Property whether or not such law, ordinance, order, rule,
regulation or requirement shall necessitate structural changes or improvements.
Mortgagor shall not bring or keep any article upon any of the Secured Property
or cause or permit any condition to exist thereon which would be prohibited by
or could invalidate any insurance coverage maintained, or required hereunder to
be maintained, by
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<PAGE>
Mortgagor on or with respect to any part of the Secured Property, and further
shall do all other acts which from the character or use of the Secured Property
may be necessary to protect the security hereof, the specific enumerations
herein not excluding the general. Mortgagor covenants and agrees to take all
reasonable steps necessary to cause the Improvements to comply with the
Americans with Disabilities Act of 1990, as amended (42 U.S.C. (S) 12101, et
--
seq.) and regulations promulgated thereunder; Mortgagor shall commence such
- ---
actions within a year from the date hereof and shall diligently pursue the same,
except that as to tenant spaces occupied by tenants, Mortgagor shall bring such
spaces into compliance after vacation by the tenant.
F. Hazardous Materials.
-------------------
(1) Mortgagor hereby indemnifies and agrees to defend, protect
and hold Mortgagee its directors, officers, employees or agents, and any
successor or successors to Mortgagee's interest in the chain of title to the
Secured Property, harmless from and against any and all losses, liabilities,
fines, charges, damages, injuries, penalties, response costs, costs, expenses
and claims of any and every kind whatsoever paid, incurred or suffered by, or
asserted against, Mortgagee, including, without limitation,
(a) all foreseeable consequential damages;
(b) the costs of any required or necessary repair, cleanup
or detoxification of the Secured Property, and the
preparation and implementation of any closure, remedial
or other required plans; and
(c) all reasonable costs and expenses incurred by Mortgagee
in connection with clauses (a) and (b) above,
including, but not limited to, attorneys' fees and
expenses,
(i) for, with respect to, or as a direct or indirect
result of (A) the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission, or release from, the Secured Property or any
other property legally or beneficially owned (or any interest or estate which is
owned) by Mortgagor of any Hazardous Material (including, without limitation,
any losses, liabilities, damages, injuries, costs, expenses or claims asserted
or arising under Hazardous Materials Laws to the extent such Hazardous Materials
were present, escaped, seeped, leaked, spilled, discharged, emitted or released
during or prior to Mortgagor's ownership of the Secured Property, but regardless
of whether or not caused by, or within the control of, Mortgagor or any
predecessor in title or any employees, agents, contractors or subcontractors of
Mortgagor, or any third persons at any time, occupying or present on or
otherwise affecting the Secured Property; or (B) the transport, treatment,
storage or disposal of Hazardous Materials to or at any location by Mortgagor or
by any other party directly or indirectly affiliated with it, or at the
direction or on behalf of any of them;
(ii) arising out of or related to any breach of
Mortgagor's obligations under this Subsection 1.05F or any inaccuracy,
----------------
incompleteness or misrepresentation under Subsections 2.03C and D below,
-----------------------
irrespective of whether any of such actions or circumstances were or will be in
compliance with applicable laws, regulations, codes or ordinances; or
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<PAGE>
(iii) arising out of the enforcement or attempted
enforcement of this indemnity.
Such indemnification and hold harmless agreement shall survive (i) the repayment
of all sums due under the Note; (ii) the release of the Secured Property or any
portion thereof; (iii) the reconveyance of or foreclosure under this Mortgage
(notwithstanding that all or a portion of the obligations secured by this
Mortgage shall have been discharged thereby); (iv) the acquisition of the
Secured Property by Mortgagee; and/or (v) the transfer of all of Mortgagee's
rights in and to the Note and/or the Secured Property.
(2) Mortgagor shall keep and maintain the Secured Property in
compliance with, and shall not cause or permit the Secured Property to be in
violation of, any federal, state or local laws, ordinances or regulations
relating to industrial hygiene or to the environmental conditions on, under or
about the Secured Property including, but not limited to, soil and ground water
conditions. Mortgagor shall not use, generate, manufacture, store, dispose of or
permit to exist in, on, under or about the Secured Property any Hazardous
Material except in such quantities or concentrations as would not constitute a
violation of any Hazardous Materials Laws and which would not otherwise create
an environmentally unsafe or unsound condition. Mortgagor hereby agrees at all
times to comply fully and in a timely manner with, and to cause all of its
employees, agents, contractors and subcontractors and any other persons
occupying or present on the Secured Property to so comply with, all Hazardous
Materials Laws.
(3) If Mortgagor or Mortgagee receive notice from any
Governmental Agency or any Lessee that Mortgagor is in violation of any
Hazardous Materials Laws, then if Mortgagor does not initiate the following
action on its own within thirty (30) days of Mortgagor's receipt of such notice
(or receipt of a copy of such notice), promptly, upon the written request of
Mortgagee, but not more frequently than once every three (3) years, Mortgagor
shall provide Mortgagee, at Mortgagor's expense, with an environmental site
assessment or environmental audit report prepared by an environmental
engineering firm acceptable to Mortgagee, to assess, the presence or absence of
any Hazardous Material and the potential costs in connection with abatement,
cleanup or removal of any Hazardous Material found on, under, at or within the
Secured Property and Mortgagor shall cooperate in the conduct of such
environmental audit.
(4) Mortgagor represents and warrants that, to the best of its
knowledge, (a) no enforcement, cleanup, removal or other governmental or
regulatory actions have, at any time, been instituted, contemplated or
threatened against the Secured Property, or against Mortgagor with respect to
the Secured Property, pursuant to any Hazardous Materials Laws; (b) no violation
or non-compliance with Hazardous Materials Laws has occurred with respect to the
Secured Property at any time; and (c) no claims have, at any time, been made or
threatened by any third party against the Secured Property or against Mortgagor
with respect to the Secured Property, relating to damage, contribution, cost
recovery, compensation, loss or injury resulting from any Hazardous Materials
(the matters set forth in clauses (a), (b) and (c) above are hereinafter
referred to as "Hazardous Materials Claims"). Mortgagor shall promptly advise
Mortgagee in writing if any Hazardous Materials Claims are hereafter asserted,
or if Mortgagor obtains knowledge of any discharge, release, or disposal of any
Hazardous Materials in, on, under or about the Secured Property, [or that any of
the conditions described in clause (d)
-15-
<PAGE>
above has occurred].
(5) Without Mortgagee's prior written consent, Mortgagor
shall not take any remedial action in response to the presence of any
Hazardous Materials on, under or about the Secured Property, nor enter into
any settlement agreement, consent decree, or other compromise in respect to
any Hazardous Materials Claims, which remedial action, settlement, consent
or compromise might, in Mortgagee's reasonable judgment, impair the value
of Mortgagee's security hereunder; provided, however, that Mortgagee's
prior consent shall not be necessary in the event that the presence of any
Hazardous Material on, under, or about the Secured Property either poses an
immediate threat to the health, safety or welfare of any individual or is
of such a nature that an immediate remedial response is necessary and it is
not possible to obtain Mortgagee's consent before taking such action,
provided that in such event Mortgagor shall notify Mortgagee as soon as
practicable of any action so taken. Mortgagee agrees not to withhold its
consent, where such consent is required hereunder, if either (i) a
particular remedial action is ordered by a court of competent jurisdiction,
or (ii) Mortgagor establishes to the reasonable satisfaction of Mortgagee
that there is no reasonable alternative to such remedial action which would
result in less impairment of Mortgagee's security hereunder.
(6) Mortgagee shall have the right to join and participate
in, as a party if it so elects, any legal proceedings or actions initiated
by any person or entity in connection with any Hazardous Materials Claims
and, in such case, to have its reasonable attorneys' fees and costs
incurred in connection therewith paid by Mortgagor.
G. Intentionally Omitted
---------------------
H. Compliance With Instruments of Record. Mortgagor will
-------------------------------------
promptly perform and observe, or cause to be performed and observed, all of the
terms, covenants and conditions of all instruments of record affecting the
Secured Property, non-compliance with which may affect the priority of the lien
of this Mortgage, or which may impose any duty or obligation upon Mortgagor or
any lessee or other occupant of the Secured Property or any part thereof, and
Mortgagor shall do or cause to be done all things necessary to preserve intact
and unimpaired any and all easements, appurtenances and other interests and
rights in favor of or constituting any portion of the Secured Property.
I. Alteration of Secured Property. Mortgagor will not
------------------------------
demolish, remove, construct, restore, add to or alter any Improvement or any
extension thereof, nor consent to or permit any such demolition, removal,
construction, restoration, addition or alteration without Mortgagee's prior
written consent (which consent will not be unreasonably withheld), except for
(1) tenant improvement work and tenant alterations provided for in any Lease in
effect on the date hereof and any other Lease approved by Mortgagee in writing,
any Lease for which Mortgagee's approval is not required, or any Lease for which
Mortgagee is deemed to have given its approval under the provisions of Section
1.08(F) of this Mortgage, but such deemed approval shall be sufficient for
purposes of this Section 1.05(I) ONLY if the written request for approval of
----
such Lease specifies that the request includes a request for approval of
alterations of the Secured Property not otherwise permitted and describes the
estimated cost thereof and attaches the work letter or refers to the work letter
attached to the lease, and (2) ordinary, non-structural maintenance work, and
(3) structural repairs and restorations having a cost of less than $100,000.
-16-
<PAGE>
J. Parking. Mortgagor will grant no parking rights in the Secured
-------
Property other than those provided for in existing Leases and Leases otherwise
approved by Mortgagee or Leases otherwise permitted without Mortgagee's consent,
except with Mortgagee's prior written consent. Subject to casualty and
condemnation the Secured Property shall contain at all times not less than
eighty-nine (89) on-site parking spaces of the sizes presently located therein,
or such lesser number of parking spaces as shall comply with applicable law and
the Leases, said parking spaces to be located in an underground garage. If any
part of the automobile parking areas included within said Secured Property is
taken by condemnation or said areas are otherwise reduced, Mortgagor will
provide parking facilities in kind, size and location to comply with all Leases,
and before making any contract therefor will furnish to Mortgagee satisfactory
assurance of completion thereof free of liens and in conformity with all
governmental zoning ordinances and regulations.
K. Entry on Secured Property. Mortgagee or its representative is
-------------------------
hereby authorized, subject to the rights of tenants at the Secured Property to
enter upon and inspect the Secured Property at all reasonable times and as often
as Mortgagee deems necessary or appropriate.
L. No Consent to Alterations or Repairs. Nothing contained in this
------------------------------------
Mortgage shall be deemed or construed in any way as constituting the consent or
request of Mortgagee, express or implied by inference or otherwise to any
contractor, subcontractor, laborer or materialman for the performance of any
labor or the furnishing of any materials for any specific improvement,
alteration to or repair of the Secured Property or any part thereof.
M. Mechanics Liens. Mortgagor will discharge, pay, or bond, or
---------------
cause to be discharged, paid or bonded, from time to time when the same shall
become due, all lawful claims and demands of mechanics, materialmen, laborers
and others which, if unpaid, might result in, or permit the creation of, a lien
on the Secured Property or any part thereof, or on the revenues, rents, issues,
income and profits arising therefrom, and Mortgagor will do or cause to be done
everything necessary so that the lien of this Mortgage shall be fully preserved,
at the cost of Mortgagor without expense to Mortgagee.
N. Use of Secured Property by Mortgagor. Mortgagor will use, or cause
------------------------------------
to be used, the Secured Property principally and continuously as and for a first
class office building with related commercial facilities. Mortgagor shall not
use, or permit the use of the Secured Property or any part thereof for any other
principal use without the prior written consent of Mortgagee.
O. Use of Secured Property by Mortgagor. Mortgagor shall not suffer
------------------------------------
or permit the Secured Property, or any portion thereof, to be used by the public
as such, without restriction or in such manner as might impair Mortgagor's title
to the Secured Property or any portion thereof, or in such manner as might make
possible a claim or claims of adverse usage or adverse possession by the public,
or of implied dedication of the Secured Property or any portion thereof.
P. Management. Management of the Premises shall be satisfactory to
----------
Mortgagee (and shall be deemed satisfactory if same is in compliance with
Section 1.08(D)
- ---------------
-17-
<PAGE>
hereof) and shall be performed by Mortgagor or a management company approved in
writing by Mortgagee and under a management contract satisfactory to Mortgagee
(approval of such management company and/or management contract not to be
unreasonably withheld by Mortgagee), which management contract shall be subject
and subordinate to the rights and title of Mortgagee under this Mortgage.
1.06 Financial Information.
---------------------
A. Audit. Mortgagor will keep and maintain complete and accurate
-----
books and records of the earnings and expenses of the Secured Property and,
without expense to Mortgagee, furnish to Mortgagee, within one hundred twenty
(120) days after the end of each fiscal year of Mortgagor, an annual audit
prepared and certified by an independent certified public accountant reasonably
satisfactory to Mortgagee, in accordance with generally accepted accounting
principles relating to real estate consistently applied, which shall include:
(1) a statement of financial position by Mortgagor with respect to the Secured
Property, (2) a statement of funds cash flows by Mortgagor with respect to the
Secured Property, (3) a detailed statement summary of operations relating to the
ownership and operation of the Secured Property, including, without limitation,
all rents and other income derived therefrom and all expenses paid or incurred
in connection therewith, and (4) such interim summary of operations statements
of financial position as may be required by Mortgagee. Mortgagor shall also
provide to Mortgagee, within one hundred twenty (120) days after the end of each
fiscal year of Mortgagor, such financial information sufficient for Mortgagee to
determine the net worth of Overseas Partners Capital Corp. ("OPCC") and Overseas
Holding Company, Inc. ("Holding") (such entity to be renamed Overseas Partners
Capital Corp. in the future); provided, however, that if all outstanding stock
in OPCC is transferred to Holding and OPCC transfers to Holding all of the
outstanding stock in all OPCC subsidiaries owned as of the date hereof by OPCC,
then from and after the occurrence of such transfer, Mortgagor shall only
provide such information as relates to Holding.
B. Right to Inspect Books and Records. Mortgagee or its
----------------------------------
representative shall have the right to examine and make copies of such books and
records and all supporting vouchers and data at the Premises or at Mortgagor's
principal place of business at Mortgagor's expense (excluding the cost of
travel, lodging and meals); provided that Mortgagee shall exercise such rights
no more often than one (1) time per calendar year.
1.07 Condemnation.
------------
A. Mortgagee's Right to Participate in Proceedings. If the Secured
-----------------------------------------------
Property, or any part thereof, shall be taken in condemnation proceedings or by
exercise of any right of eminent domain (collectively, "Condemnation
Proceedings"), Mortgagee shall have the right to participate in any such
Condemnation Proceedings and the award or payment that may be made in any such
Condemnation Proceedings is hereby assigned to Mortgagee and shall be deposited
with Mortgagee and disbursed in the manner set forth in this Section 1.07.
------------
Mortgagor will give Mortgagee immediate notice of the actual or threatened
commencement of any Condemnation Proceedings affecting all or any part of the
Secured Property, including severance and consequential damage and change in
grade in streets, and will deliver to Mortgagee copies of any and all papers
served in connection with any such proceedings. Notwithstanding the foregoing,
Mortgagee is hereby authorized, at its option, to commence, appear in and
prosecute with Mortgagor, in its own or Mortgagor's name, any action or
proceeding relating to any such
-18-
<PAGE>
condemnation. No settlement for the damages sustained thereby shall be made by
Mortgagor without Mortgagee's prior written approval thereof (such approval not
to be unreasonably withheld, delayed or conditioned), except that Mortgagee's
consent or approval is not required when the Obligations would be paid in full
and are actually paid in full from the proceeds of such settlement. Mortgagor
agrees to execute any and all further documents that may be required in order to
facilitate the collection of any award or awards and the making of any such
deposit.
B. Application of Condemnation Award. If at any time title or
---------------------------------
temporary title to the whole or any part of the Secured Property shall be taken
in Condemnation Proceedings or pursuant to any agreement between Mortgagor,
Mortgagee and those authorized to exercise the right to condemnation, Mortgagee,
at its option in its sole and absolute discretion and without regard to the
adequacy of its security hereunder, shall have the right to apply such award or
proceeds which it receives to payment of the Obligations in inverse order of
maturity. In the event that all or substantially all of the Secured Property is
taken and the amount of the award or proceeds received by Mortgagee shall not be
sufficient to pay the then unpaid balance of the Obligations, then the balance
of the Obligations shall, at the option of Mortgagee, become immediately due and
payable and Mortgagor shall, within thirty (30) days after the application of
the award or proceeds as aforesaid, pay such deficiency to Mortgagee.
"Substantially all of the Secured Property" shall be deemed to have been taken
if the remainder of the Secured Property (1) in the sole opinion of Mortgagee's
Architect, cannot be capable of being restored to a self-contained and
architecturally complete unit or units or (2) in the sole reasonable opinion of
Mortgagee, the balance of the Secured Property as restored will not be
economically viable and capable of supporting all carrying charges and operation
and maintenance expenses.
C. Reimbursement of Costs. In the case of any taking covered by the
----------------------
provisions of this Section 1.07, Mortgagee (to the extent that Mortgagee has not
------------
been reimbursed therefor by Mortgagor) shall be entitled, as a first priority,
to the reimbursement out of any award or awards for all reasonable costs, fees,
reimbursements to Mortgagee and expenses incurred in the determination and
collection of any such awards.
D. Existing Obligations. Notwithstanding any taking by Condemnation
--------------------
Proceedings, Mortgagor shall continue to pay the monthly installments due under
the Note as well as all other sums secured by this Mortgage at the rate provided
therein until any such award or payment shall have been actually received by
Mortgagee and applied to the Obligations. Any reduction in the Obligations
resulting from Mortgagee's application of such award or payment as hereinabove
set forth shall be deemed to take effect only on the date of receipt by
Mortgagee. If prior to Mortgagee's receipt of such award or payment the Secured
Property shall have been sold on foreclosure of this Mortgage, Mortgagee shall
have the right to receive said award or payment to the extent of any portion of
the Obligations still unpaid after application of the proceeds of the
foreclosure sale, with interest thereon at the Increased Rate, plus attorneys'
fees at such attorneys' standard rates and other costs and disbursements
actually incurred by Mortgagee in connection with the collection of such award
or payment and in establishing the deficiency. The application of condemnation
proceeds to the Obligations, whether or not then due or not then due or payable,
shall not postpone, abate or reduce any of the periodic installments of
principal and/or interest thereafter to become due under this Mortgage until the
Obligations are paid in full.
-19-
<PAGE>
E. Application of Award. Notwithstanding any provision contained
--------------------
herein to the contrary, if all or any part of the Premises shall be taken in a
Condemnation Proceeding (except for a taking which occurs during the last twelve
(12) months of the loan term), Mortgagee shall, after deducting Mortgagee's
costs in connection with the disbursement of funds, apply the award or payment
to the cost to restore, repair or alter the remaining portion of the Secured
Property, subject to the provisions of Subsection 1.03(G) (which shall apply in
------------------
all respects except that any reference therein to insurance proceeds shall be
deemed to refer to the award or payment in the taking and Mortgagor shall
likewise have the right to request that the award be deposited in an interest-
bearing account if the award is in excess of $100,000, in accordance with the
provisions of Section 1.03(F)(1) hereof), and Mortgagor will promptly restore,
------------------
repair or alter the remaining Secured Property. The provisions of this
Subsection 1.07E shall not apply unless (1) the balance of the Improvements
- ----------------
shall, in the opinion of Mortgagee's Architect, be capable of being restored to
a self-contained and architecturally complete unit or units, (2) the balance of
the Improvements after restoration to a self-contained and architecturally
complete unit or units shall, in the opinion of Mortgagee, be economically
viable and capable of supporting all carrying charges and operating and
maintenance expenses of the Secured Property, after reduction, if any, of the
Obligations in accordance with the following sentence, and (3) Mortgagor shall
furnish to Mortgagee evidence satisfactory to Mortgagee that the Improvements so
restored or reconstructed and their use would fully comply with all zoning and
building laws, ordinances and regulations, and with all other applicable
federal, state and municipal laws and requirements. The balance of the
condemnation award or payment so deposited with Mortgagee, after disbursement in
accordance with this Subsection 1.07E, shall be applied to the Obligations in
----------------
inverse order of maturity, whether or not the same shall then be due and
payable. All awards and payments and other sums deposited with Mortgagee, until
expended or applied as provided in this subsection, may be commingled with the
general funds of Mortgagee and shall constitute additional security for the
Obligations and shall not bear interest. In all cases where a taking occurs
during the last twelve (12) months of the loan term, or if Mortgagee has
determined in its sole reasonable discretion that leases remaining in effect
after the taking do not produce rental income of at least 110% of the debt
service on the Obligations for such period (taking into account any rent loss
insurance proceeds available with respect to such taking), or where any of the
conditions set forth in Section 1.03G(1)(a), (b), (c), (e) and (f) are not
satisfied, or in Mortgagee's sole reasonable judgment Mortgagor is not
proceeding with the repair or restoration in a manner that would entitle
Mortgagor to have the awards or payments disbursed to it, Mortgagee, at its
option in its sole and absolute discretion and without regard to the adequacy of
its security hereunder, shall have the right to apply such award or proceeds
which it receives to payment of the Obligations in the inverse order of
maturity, whether or not the same shall then be due and payable.
-20-
<PAGE>
1.08 Leases.
------
A. Performance of Lessor's Covenants. Mortgagor, as lessor, has
---------------------------------
entered and will enter into leases with space tenants, as lessees, for parts or
all of the Secured Property (all such leases for parts or all of the Secured
Property are hereinafter referred to individually as a "Lease" and collectively
-----
as "Leases" and the lessees under such Leases are hereinafter referred to
------
individually as a "Lessee" and collectively as "Lessees"). Mortgagor shall
------ -------
faithfully perform the lessor's covenants under any subsisting and future Leases
affecting the Secured Property or any part thereof, and neither do, nor neglect
to do, nor permit to be done (other than enforce the terms of such Leases and
exercise the lessor's remedies thereunder following a default or event of
default on the part of any Lessee in the performance of its prescribed
obligations), anything which may cause the modification or termination of any of
said Leases, or of the obligations of any Lessee or any other person claiming
through such Lessee, or which may diminish or impair the value of any Lease or
the rents provided for therein, or the interest of the lessor or of Mortgagee
therein or thereunder.
B. Notice of Default. Mortgagor will give Mortgagee prompt notice, by
-----------------
certified mail, of any notice of default, Event of Default, extension, renewal,
expansion or cancellation given to or received from (i) any Lessee having a
Lease of more than 5,000 square feet; (ii) all Lessees having a Lease of 5,000
square feet or less, when in any six month period such notices are given by
Lessees having Leases of 40,000 square feet or more in the aggregate; and (iii)
Lessees under any Lease having a remaining term of one year or more.
C. Representations Regarding Leases. Mortgagor hereby represents and
--------------------------------
warrants that to the knowledge and belief of Mortgagor, upon due inquiry, (1)
all representations made by it in the Leases are true; (2) all Improvements and
the leased space demised and let pursuant to each Lease have been completed to
the satisfaction of Lessee; (3) each Lessee has accepted possession of its
leased space and has opened for business and commenced payment of rent under its
Lease; (4) each Lessee is in occupancy; (5) all rents and other charges due and
payable under the Leases have been paid except as disclosed in writing to
Mortgagee; (6) no rent has been prepaid, except as expressly described under
such Lease; (7) there is no existing default or breach of any covenant or
condition on the part of any Lessee or Lessor under any Lease except as
disclosed to Mortgagee in writing, and no Lessee has any rights to any offsets
or concessions, claims or defenses to the enforcement of such Lease; (8) there
are no options to purchase all or any portion of the Secured Property contained
in any Lease; (9) there are no options to renew, cancel, extend or expand by any
Lessee except as stated in the Leases; (10) there are no amendments of or
modifications to any Leases except as disclosed in writing to Mortgagee; and
(11) no leasing brokerage commissions are due or payable or are to come due and
payable with respect to the Leases, except for commissions due with respect to
Leases entered into after the date hereof and commissions due upon renewals,
extensions and expansions with respect to such of the Leases as have been
disclosed to Mortgagee in writing.
D. Manager. The manager of the Secured Property shall be of good
-------
reputation and be generally recognized as experienced in the management of
properties of size and type similar to the Secured Property. The manager or
management shall not be changed without first having obtained Mortgagee's prior
written consent, such consent not to be unreasonably withheld, delayed or
conditioned.
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<PAGE>
E. Covenants Regarding Leases. Mortgagor covenants it will not,
--------------------------
without the prior written consent of the Mortgagee obtained in each instance,
which consent shall not be unreasonably withheld, delayed or conditioned:
(1) lease to any person, firm or corporation, all or any part of
the space in any of the Improvements;
(2) cancel, terminate or accept a surrender or suffer or permit
any cancellation, termination or surrender of any Lease
(except in each case in accordance with the terms thereof)
other than any Lease having a remaining term of less than
six (6) months;
(3) modify any Lease so as to reduce the term thereof or the
rent payable thereunder, or to change any renewal provision
contained therein;
(4) commence any summary proceeding or other action to recover
possession of any space demised pursuant to any Lease, other
than a proceeding brought in good faith by reason of a
default of any Lessee;
(5) receive or collect or permit the receipt or collection of
any rental payments of more than one monthly installment of
rent under any Lease in advance of the due dates of such
rental payments;
(6) take any other action with respect to any Lease which would
tend to materially impair the security of Mortgagee under
this Mortgage;
(7) extend any present Lease other than in the manner presently
provided for therein, or at a rental rate lower than that
under the present Lease;
(8) execute an agreement or create or permit a lien which may be
or become superior to any existing Leases affecting the
Secured Property;
(9) sell, assign, transfer, mortgage, pledge or otherwise
dispose of or encumber, whether by operation of law or
otherwise, any Lease or any rentals under any Lease or any
rents, income, profits or cash collateral issuing from the
Secured Property;
(10) fail to perform any material covenant or agreement to be
performed by Mortgagor, as Lessor under any of the Leases;
or
(11) suffer or permit to occur any release of liability of any
Lessee or the accrual of any right in any Lessee to withhold
payment of Rents.
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<PAGE>
F. Approval of Leases. The provisions of this Subsection 1.08(F)
------------------
shall apply notwithstanding any of the covenants made by Mortgagor in Subsection
1.08(E). Mortgagor shall deliver to Mortgagee a copy of each executed Lease.
Unless otherwise provided in this Subsection 1.08(F), each lease shall be
subject to Mortgagee's approval, which approval shall not be unreasonably
withheld. Any Lease executed on Mortgagor's standard form, which has already
been approved by Mortgagee, without material modification thereto, shall not
require Mortgagee's approval if and only if:
(1) Mortgagor is not in default under any of the Loan Documents;
and
---
(2) Such Lease is for space not exceeding 10,000 square feet and
has a term not exceeding five (5) years; and
---
(3) Such Lease meets the following applicable minimum Net Rental
Rate:
(a) if the Lease is for space on floors two through six of the
Improvements, then (i) the minimum Net Rental Rate for
such Lease must be equal to or greater than $11.50 per
rentable square foot, or (ii) if the minimum Net Rental
Rate for such Lease is less than $11.50 per rentable
square foot, the minimum Net Rental Rate for such Lease
must be equal to or greater than $10.00 per square foot
and the overall weighted average of the Net Rental Rate
for the Leases on such floors (including the subject
Lease) must be equal to or greater than $11.50 per
rentable square foot;
(b) if the Lease is for space on floors seven through thirty
of the Improvements, then (i) the minimum Net Rental Rate
for such Lease must be equal to or greater than $15.00 per
rentable square foot, or (ii) if the minimum Net Rental
Rate for such Lease is less than $15.00 per rentable
square foot, the minimum Net Rental Rate for such Lease
must be equal to or greater than $13.50 per square foot
and the overall weighted average of the Net Rental Rate
for the Leases on such floors (including the subject
Lease) must be equal to or greater than $15.00 per
rentable square foot;
(c) if the Lease is for space on floors thirty-one through
forty-five of the Improvements, the minimum Net Rental
Rate for such Lease must be equal to or greater than
$17.00 per rentable square foot.
Mortgagee shall respond to Mortgagor's request for approval of a Lease or
approval of any matter under Subsection 1.08 E hereof no later than eight (8)
-----------------
business days following Mortgagee's receipt of such request accompanied by the
subject Lease in complete and final form.
-23-
<PAGE>
If Mortgagee does not approve or disapprove of such Lease or such request within
such time period, the Lease or such request shall be deemed approved by
Mortgagee so long as the letter requesting Mortgagee's approval of such Lease or
such request itself specified in bold capital letter print that such Lease or
such request will be deemed approved if Mortgagee's reply is not received within
the applicable time period.
From time to time, upon Mortgagor's request, Mortgagee shall confirm with
Mortgagor the current calculations of the weighted average of the Net Rental
Rate for the Leases on certain floors, such weighted average to be determined by
Mortgagee based upon Leases and rent rolls provided to Mortgagee by Mortgagor.
G. Application of Rents. Mortgagor shall use and apply all rents,
--------------------
income and profits from the Secured Property first to the payment of the
Obligations in accordance with the terms of the Loan Documents, and then to the
payment of all Impositions and costs and expenses of management, operation,
repair, maintenance, preservation, reconstruction and restoration of the Secured
Property in accordance with the requirements of this Mortgage and the
obligations of Mortgagor as the lessor under any Lease, and shall not use such
rents, income or profits for purposes unrelated to the Secured Property unless
and until all current payments on the Obligations, Impositions, and such costs
and expenses have been paid or provided for and adequate cash reserves have been
set aside on a monthly basis to ensure the timely payment of Impositions and
Obligations next coming due.
1.09 Assignment of Leases, Rents, Income, Profits and Cash Collateral.
----------------------------------------------------------------
A. Assignment; Discharge of Obligations. Mortgagor does hereby
------------------------------------
unconditionally, absolutely and presently bargain, sell, assign and set over
unto Mortgagee, all Leases, Rents, income, profits and any and all cash
collateral which, whether before or after foreclosure, shall be made upon or
accrue and be owing for the use or occupation of the Secured Property and of the
buildings and fixtures thereon, or any part thereof. For the aforesaid purpose,
Mortgagor does hereby constitute and appoint Mortgagee its attorney-in-fact,
irrevocably in its name, to receive, collect and receipt all sums due or owing
for such use and occupation, as the same accrue, and, out of the amount so
collected, Mortgagee, its successors and assigns, are hereby authorized (but not
obligated) to pay and discharge all obligations of Mortgagor hereunder,
including, but not being limited to, the obligation to pay the Obligations (and
including any accelerated Obligations) in such order as Mortgagee, its
successors or assigns, may determine and whether due or not, and to pay the
remainder, if any, to Mortgagor, but neither this assignment nor any such action
shall constitute Mortgagee as a "mortgagee in possession". The assignments of
Leases, rents, income, profits and any and all cash collateral of the Secured
Property in this Section 1.09 is intended to be an absolute, unconditional and
------------
present assignment from Mortgagor to Mortgagee and not merely the passing of a
security interest. Mortgagor shall, at any time or from time to time, upon
request of Mortgagee, execute and deliver any instrument as may be requested by
Mortgagee to further evidence the assignment and transfer to Mortgagee of
Mortgagor's interest in any Lease. Nothing herein shall in any way limit
Mortgagee's remedies or Mortgagor's obligations under the Assignment to
Mortgagee. It is the intent of the parties that the terms of this Mortgage and
the terms of the Assignment shall be cumulative, but to the extent of any
contradictions between the terms of the Assignment and the terms of this
Mortgage as to the Leases and the Rents, the terms of the Assignment shall
control.
-24-
<PAGE>
B. Entry Onto Secured Property; Lease of Secured Property. Upon the
------------------------------------------------------
occurrence of an Event of Default (as hereinafter defined); Mortgagee at its
sole option shall have the right by itself or through its authorized
representative to enter and take possession of the Secured Property and manage
and operate the same as further provided in Subsection 4.01C, including, without
----------------
limitation, the right to enter into Leases and new agreements extending said
termination dates beyond the maturity set forth in the Note and take any action
which, in Mortgagee's judgment, is necessary or proper to conserve the value of
the Secured Property. The expense (including any receiver's fees, attorneys'
fees, costs and agent's compensation) incurred pursuant to the powers herein
contained shall be secured hereby. Mortgagee shall not be liable to account to
Mortgagor for any action taken pursuant hereto other than to account for any
rents actually received by Mortgagee.
C. License to Manage Secured Property. Notwithstanding anything
----------------------------------
to the contrary contained in Subsection 1.09A above, so long as there shall
----------------
exist no Event of Default hereunder, Mortgagor shall have the license to manage
and operate the Secured Property, subject to Section 1.08 herein, including
------------
without limitation, the right to enter into Leases, and collect, as they accrue,
all such rents, income, profits and cash collateral.
D. Delivery of Assignments. Mortgagor will, as reasonably
-----------------------
requested from time to time by Mortgagee, execute such additional documents, to
evidence the assignment to Mortgagee or its nominee of any Leases now or
hereafter made upon said Secured Property, such assignment documents to be in
form and content acceptable to Mortgagee. For the aforesaid purposes, Mortgagor
agrees to deliver to Mortgagee within thirty (30) days after Mortgagee's
request, a duplicate original (or copy certified by Mortgagor to be accurate and
complete) of every Lease which is at the time of such request outstanding upon
the said Secured Property and in addition thereto shall supply Mortgagee at its
request a complete list of each and every Lease certified by the managing member
or manager of Mortgagor, showing unit number, type, name of each Lessee, monthly
rental, date to which rents have been paid, term of Lease, date of occupancy,
date of expiration and any and every special provision, concession or inducement
granted to Lessee.
E. Indemnity. Notwithstanding anything to the contrary set forth
---------
in this Section 1.09, Mortgagor agrees that in the exercise of the rights of
------------
Mortgagee contained in this Section 1.09, no liability shall be asserted against
------------
Mortgagee, all such liability being expressly waived and released by Mortgagor.
Mortgagor hereby holds Mortgagee harmless from and against any and all claims,
liabilities and expenses of any kind or nature against or incurred by Mortgagee
arising out of such management, operation or maintenance of the Secured Property
or the collection and disposition of rents, income, profits or cash collateral
therefrom.
-25-
<PAGE>
1.10 Further Assurances.
------------------
A. General; Appointment of Attorney-in-Fact. At any time, and from
----------------------------------------
time to time, upon request by Mortgagee, Mortgagor will make, execute, and
deliver or cause to be made, executed and delivered to Mortgagee, any and all
other instruments, certificates and other documents as may, in the opinion of
Mortgagee, be necessary or desirable in order to effectuate, complete, perfect
or continue and preserve the obligations of Mortgagor under the Note and the
Loan Documents. Upon any failure by Mortgagor to do so, Mortgagee may make,
execute and record any and all such instruments, certificates and documents for
and in the name of Mortgagor and Mortgagor hereby irrevocably appoints Mortgagee
the agent and attorney-in-fact of Mortgagor for such purposes. Such power of
attorney is coupled with an interest and is irrevocable by death or otherwise.
Mortgagor will reimburse Mortgagee for any reasonable or customary sums expended
by Mortgagee in making, executing and recording such instruments, certificates
and documents and such sums shall be secured by this Mortgage.
B. Statement Regarding Obligations. Mortgagor from time to time
-------------------------------
within ten (10) days after request by Mortgagee, shall furnish Mortgagee with a
written statement, duly acknowledged, setting forth the unpaid principal of, and
interest on, the Obligations secured hereby and whether or not any set-offs or
defenses exist against such principal and interest, and, if so, the particulars
thereof. Mortgagee shall no more often than one (1) time per calendar year and
at Mortgagor's expense, within ten (10) days after request by Mortgagor, furnish
Mortgagor a written statement duly acknowledged setting forth the unpaid
principal of, and interest on, the obligations and whether or not any setoffs or
defenses exist against such principal and interest and, if so, the particulars
thereof.
C. Additional Security Instruments. Mortgagor shall from time to time,
-------------------------------
within fifteen (15) days after request by Mortgagee, execute, acknowledge and
deliver to Mortgagee such chattel mortgages, security agreements or other
similar security instruments, in form and substance satisfactory to Mortgagee,
covering all property of any kind whatsoever owned by Mortgagor or in which
Mortgagor may have any interest which, in the sole opinion of Mortgagee, is
essential to the operation and maintenance of the Secured Property. Mortgagor
shall further from time to time within fifteen (15) days after request by
Mortgagee, execute, acknowledge and deliver any financing statement, renewal,
affidavit, certificate, continuation statement or other document as Mortgagee
may request in order to perfect, preserve, continue, extend or maintain the
security interest under, and the priority of, this Mortgage or such chattel
mortgage or other security instrument as a first lien in accordance with the
terms of this Mortgage and the Assignment. Mortgagor further agrees to pay to
Mortgagee on demand all costs and expenses incurred by Mortgagee in connection
with the preparation, execution, recording, filing and refiling of any such
instrument or document, including the charges for examining title and the
attorneys' fee (such fee to be reasonable) for rendering an opinion as to the
priority of this Mortgage and of such chattel mortgage or other security
instrument as a valid first and subsisting lien. However, neither a request so
made by Mortgagee nor the failure of Mortgagee to make such a request shall be
construed as a release of such property, or any part thereof, from the lien of
this Mortgage, it being understood and agreed that this covenant and any such
chattel mortgage, security agreement or other similar security instrument,
delivered to Mortgagee, are cumulative and given as additional security.
Mortgagor shall also pay all actual premiums and related costs in connection
with any title insurance policy or policies in full or partial replacement
-26-
<PAGE>
of the title policy now insuring or which will insure the lien of this Mortgage.
D. Security Agreement and Fixture Filing. Mortgagor and Mortgagee
-------------------------------------
agree: (i) that this Mortgage shall constitute a Security Agreement within the
meaning of Article 9 of the Code with respect to all sums on deposit with the
Mortgagee pursuant to Section 1.04 hereof ("Deposits") and with respect to any
------------
property included in the definition herein of the word "Personal Property,"
which property may or may not constitute a "fixture" (within the meaning of
Section 9-313 of the Code), and all replacements of such property, substitutions
for such property, additions to such property, and the proceeds thereof (said
property, replacements, substitutions, additions and the proceeds thereof being
sometimes herein collectively referred to as the "Collateral"); and (ii) that a
security interest in and to the Collateral and the Deposits is hereby granted to
the Mortgagee; and (iii) that the Deposits and all of Mortgagor's right, title
and interest therein are hereby assigned to the Mortgagee; all to secure payment
of the indebtedness and to secure performance by the Mortgagor of the terms,
covenants and provisions hereof. Mortgagor hereby appoints Mortgagee as its
attorney-in-fact to execute and file on its behalf any financing statements,
continuation statements or other statements in connection therewith which
Mortgagee deems necessary or reasonably advisable to preserve and maintain the
priority of the lien hereof, or to extend the effectiveness thereof, under the
Code or any other laws which may hereafter become applicable. This power, being
coupled with an interest, shall be irrevocable so long as any part of the
Obligations remains unpaid. Mortgagor shall pay to Mortgagee, from time to time,
upon demand, any and all costs and expenses incurred by Mortgagee in connection
with the filing of any such statements including, without limitation, reasonable
attorneys' fees and all disbursements and such amounts shall be part of the
Obligations secured by this Mortgage. Mortgagor and Mortgagee also agree, to the
extent permitted by law, that: (i) all of the goods described within the
definition of the word "Premises" herein are or are to become fixtures on the
land described in Exhibit A; (ii) this instrument, upon recording or
---------
registration in the real estate records of the proper office, shall constitute a
"fixture filing" within the meaning of Sections 9-313 and 9-402 of the Code; and
(iii) Mortgagor is the record owner of the land described in Exhibit A. The
---------
addresses of Mortgagor and Mortgagee are set forth in Section 5.09 hereof.
------------
E. Preservation of Mortgagor's Existence. Mortgagor is a limited
-------------------------------------
liability company, and it and its managing member shall do all things necessary
to preserve and keep in full force and effect its existence, franchise, rights
and privileges under the laws of the state of its organization and the state in
which the Secured Property is located, if required by the laws of such state,
and shall comply with all regulations, rules, ordinances, statutes, orders and
decrees of any governmental or quasi-governmental authority or court applicable
to it.
F. Further Indemnities. In addition to any other indemnities to
-------------------
Mortgagee specifically provided for in this Mortgage, Mortgagor hereby
indemnifies and saves Mortgagee harmless from and against any and all losses,
liabilities, suits, obligations, fines, damages, penalties, claims, costs,
charges, and expenses, including, without limitation, reasonable architects',
engineers' and attorneys' fees and all disbursements which may be imposed upon,
incurred or asserted against Mortgagee prior to any entry by Mortgagee onto the
Premises and taking of possession of the Premises or any part thereof by reason
of: (1) the construction of the Improvements, (2) any capital improvements,
other work or things, done in, on or about the Secured Property or any part
thereof, (3) any use, non-use, misuse, possession, occupation, alteration,
repair, condition, operation, maintenance or management of the Secured Property
or any part thereof or any street, drive, sidewalk, curb, passageway or space
comprising a part
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<PAGE>
thereof or adjacent thereto, (4) any negligence or wilful act or omission on the
part of Mortgagor, any Lessee under a Lease or their agents, contractors,
servants, employees, licensees or invitees, (5) any accident, injury (including
death) or damage to any person or property occurring in, on or about the Secured
Property or any part thereof or in, on or about any street, drive, sidewalk,
curb, passageway or space adjacent thereto, (6) any default or Event of Default
(as herein defined), (7) any lien or claim which may be alleged to have arisen
on or against the Secured Property or any part thereof under the laws of the
local or state government or any other governmental or quasi-governmental
authority or any liability asserted against Mortgagee with respect thereto, (8)
any tax attributable to the execution, delivery, filing or recording of this
Mortgage, the Note, any Lease, or any other Loan Documents, (9) any contest
permitted pursuant to the provisions of this Mortgage, or (10) the enforcement
or attempted enforcement of this indemnity.
G. Absence of Insurance. The obligations of Mortgagor under this
--------------------
Section 1.10 shall not in any way be affected by the absence in any case of
- ------------
covering insurance, by the amount of the insurance or by the failure or refusal
of any insurance carrier to perform any obligation on its part under insurance
policies affecting the Secured Property. If any claim, action or proceeding is
made or brought against Mortgagee by reason of any event as to which Mortgagor
is obligated to indemnify Mortgagee, then, upon demand by Mortgagee, Mortgagor,
at its sole cost and expense, shall resist or defend such claim, action or
proceeding in Mortgagee's name, if necessary, by the attorneys for Mortgagor's
insurance carrier, if such claim, action or proceeding is covered by insurance,
otherwise by such attorneys as Mortgagee shall approve. Notwithstanding the
foregoing, Mortgagee may engage its own attorneys in its reasonable discretion
to defend it or to assist in its defense and Mortgagor shall pay the reasonable
fees and disbursements of such attorneys and such amounts shall bear interest at
the Increased Rate and shall be secured by this Mortgage.
1.11 Further Sales or Encumbrances.
-----------------------------
A. Continuing Ownership and Management. Mortgagor acknowledges that
-----------------------------------
the continuous ownership of the Secured Property and the continuous management
and/or control of the operation of same by Mortgagor is of a material nature to
the transaction and the making of the loan evidenced by the Note and secured by
this Mortgage.
B. Transfer or Encumbrance of Secured Property. Mortgagor shall not,
-------------------------------------------
without the prior written consent of Mortgagee being first had and obtained
(which consent may be granted or denied in Mortgagee's sole discretion),
voluntarily or involuntarily, by operation of law or otherwise, transfer or
dispose of, or suffer any third party to transfer or dispose of, all or any
portion of the Secured Property or any interest therein or the management and/or
operation by Mortgagor of the Secured Property. For purposes of this Section
-------
1.11, a transfer or disposition of the Secured Property or any part thereof or
- ----
interest therein shall include, without limitation, the sale of the Secured
Property or any portion thereof to a cooperative corporation, conversion of all
or any part of the Secured Property to a condominium form of ownership,
execution of a contract to sell or option to purchase all or any portion of the
Secured Property or any interest therein (other than a contract or agreement
which provides for a purchase price in excess of the amount necessary to satisfy
the Obligations in full, or a contract or agreement which by its terms provides
that Mortgagor's Obligations thereunder are subject to Mortgagee's approval),
any lease for space in any Improvements on the Secured Property for purposes
other
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<PAGE>
than occupancy by the tenant, any lease for space in the Improvements containing
an option to purchase, or any direct or indirect sale, assignment, conveyance,
transfer (including a transfer as a result of or in lieu of condemnation except
for a voluntary conveyance by Mortgagor not permitted under Section 1.07(A)), or
other alienation of all or any portion of the Secured Property or any interest
therein, including, but not limited to, the creation of a lien, mortgage,
security interest or other encumbrance on the Secured Property or any part
thereof or interest therein, and further including any assignment, pledge, grant
of security interest in, conditional sale, or the execution of a title retention
agreement with regard to any personalty included in the Secured Property. For
purposes of this Section 1.11, a transfer or disposition shall
------------
not include any Lease entered into in accordance with Subsection 1.08(E) or (F)
-------------------------
or any easement for utilities or other services to the Secured Property. Any
such action described in this Subsection 1.11(B) is herein called a
-----------------
"Transfer." A Transfer shall also include, without limitation, any of the
following events, whether made directly or through an intermediary, and whether
made in one transaction or effected in more than one transaction:
(1) If Mortgagor or any member of Mortgagor is a corporation, a
transfer or disposition, directly or indirectly, of more
than 25% of the outstanding voting stock of Mortgagor or
such member of Mortgagor or of any other corporation
directly or indirectly owning or controlling 25% or more of
the voting stock of Mortgagor or such member;
(2) If Mortgagor or any member of Mortgagor is a partnership, a
transfer or disposition, directly or indirectly, of any
interest of any general partner in Mortgagor or such member
of Mortgagor;
(3) If Mortgagor or any member of Mortgagor is a trust or other
entity, a transfer or disposition, directly or indirectly,
of more than 25% of the beneficial interests in Mortgagor or
such member of Mortgagor; or
(4) If Mortgagor or any member of Mortgagor is a limited
liability company, a transfer or disposition, directly or
indirectly, of any interest of any member in Mortgagor or
such member of Mortgagor.
For purposes of the foregoing, a "transfer or disposition" of such stock or
interests shall include, without limitation, any direct or indirect sale
thereof, any execution of a contract or other agreement to sell or option to
purchase such stock or interests, or any assignment of such stock or interests,
including any assignment for security purposes, but shall exclude any transfer
by devise or operation of law.
C. Acceleration of Obligations. In the event of a Transfer
---------------------------
without the prior written consent of Mortgagee, Mortgagee may, without limiting
any other right or remedy available to Mortgagee at law, in equity or by
agreement with Mortgagor, and in Mortgagee's absolute discretion and without
regard to the adequacy of its security, accelerate the maturity of the Note and
require the payment of the then existing outstanding principal balance and all
other sums due under the Note and under this Mortgage, including, but not
limited to, the prepayment
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<PAGE>
charge provided in Section 4.06 herein. The giving of consent by Mortgagee to
------------
a Transfer in any one or more instances shall not limit or waive the need for
such consent in any other or subsequent instances.
D. Subordinate, Wrap-Around and Other Financing. Mortgagor shall
--------------------------------------------
not obtain any financing through any loans, or otherwise incur any indebtedness,
secured by the Secured Property. Should the Secured Property at any time be or
become subject to the lien of any agreement, deed of trust or mortgage or
similar instrument in connection with which payments on account of the
Obligations secured hereby are to be made directly or indirectly by or through a
mortgagee, grantee or beneficiary thereunder, regardless of whether or not
payment of the Obligations secured hereby is assumed by such mortgagee, grantee
or beneficiary, the whole of the principal sum and interest and other sums
hereby secured, at the option of Mortgagee, shall immediately become due and
payable.
1.12 Intentionally Omitted.
---------------------
1.13 Expenses. Mortgagor will pay or reimburse Mortgagee for all reasonable
--------
attorneys' fees, costs and expenses actually incurred by Mortgagee in any
proceedings affecting the Obligations or the Secured Property, (A) involving the
estate of a decedent or an insolvent, or (B) in any action, legal proceeding or
dispute of any kind in which Mortgagee is made a party, or appears as party
plaintiff or defendant, including, but not limited to, any exercise of the power
of sale or judicial foreclosure as set forth in this Mortgage, any bankruptcy,
receivership or other insolvency under any chapter of the Bankruptcy Code (Title
11 of the United States Code) as amended, or in any other applicable insolvency
proceeding, any condemnation action involving the Secured Property or any action
to protect the security hereof or upon the reasonable concern of Mortgagee with
the condition of the Secured Property, and any such amounts paid by Mortgagee
shall be added to the Obligations and secured by this Mortgage. If the
Obligations are referred to attorneys for collection, foreclosure or for any
cause set forth in Article III hereof, Mortgagor shall pay all expenses incurred
by Mortgagee, including reasonable attorneys' fees actually incurred, all costs
of collection, litigation costs, and costs (which may be estimated as to items
to be expended after entry of the decree) of procuring title insurance policies,
whether or not obtained, Torrens certificates, and similar assurances with
respect to title and value as Mortgagee may deem reasonably necessary together
with all statutory costs, with or without the institution of an action or
proceeding. All such costs and expenses with interest thereon at the Increased
Rate shall be deemed to be secured by this Mortgage.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
Mortgagor makes the following representations and warranties:
2.01 Warranty of Title. Mortgagor (A) is lawfully seized and possessed of
-----------------
the Secured Property, in fee simple, subject to no mortgage, lien, charge or
encumbrance, except as specifically set forth in the title insurance policy
issued to Mortgagee upon recordation of this Mortgage, (B) has full power and
lawful authority to grant, bargain, sell, convey, assign, transfer
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<PAGE>
and mortgage the Secured Property in the manner and form hereby mortgaged and
conveyed, (C) is the fee owner of the Land and the Improvements, (D) is the
owner of the Personal Property, and (E) does warrant and will defend the title
to the Secured Property against all claims and demands whatsoever, subject to
those matters set forth in Schedule B of the above-referenced title insurance
policy.
2.02 Ownership Of Improvements And Personal Property. All Improvements and
-----------------------------------------------
Personal Property now or hereafter affixed, placed or used by Mortgagor are and
will hereafter be owned by Mortgagor free from any prior liens or encumbrances,
provided, however, that if any of the foregoing Improvements or Personal
Property shall be subject to a conditional bill of sale, chattel mortgage or
other agreement creating a security interest, then all of the right, title and
interest of Mortgagor in and to such Improvements and Personal Property together
with the benefits of any deposits or payments now or hereafter made thereon
shall be covered by and subject to this Mortgage.
2.03 No Pending Material Litigation or Proceeding; No Hazardous Materials.
--------------------------------------------------------------------
A. Proceedings Affecting Mortgagor. There are no actions, suits or
-------------------------------
proceedings pending, and, to the best knowledge and belief of Mortgagor, there
are no actions, suits, investigations or proceedings threatened, against or
affecting Mortgagor or any managing member of Mortgagor, or the business,
operations, properties or assets of Mortgagor or any managing member of the
Mortgagor, or before or by any Governmental Agency, or any court, arbitrator or
grand jury, which may result in any material adverse change in the business,
operations, properties or assets or in the condition, financial or otherwise, of
Mortgagor or any managing member of Mortgagor, or in the ability of Mortgagor to
perform its obligations under the Note or this Mortgage. To the best knowledge
and belief of Mortgagor, Mortgagor is not in default, and there is no other
default, with respect to any judgment, order, writ, injunction, decree, demand,
rule or regulation of any court, arbitrator, grand jury or of any Governmental
Agency, default under which might have consequences which would materially and
adversely affect the business, operations, properties or assets or the
condition, financial or otherwise, of Mortgagor or the ability of Mortgagor to
perform its obligations under the Note or this Mortgage.
B. Proceedings Affecting Secured Property. There are no proceedings
--------------------------------------
of any kind pending, or, to the best knowledge and belief of Mortgagor,
threatened against or affecting Mortgagor, the Secured Property (including any
attempt or threat by any Governmental Agency to condemn or rezone all or any
portion of the Secured Property), any party constituting Mortgagor or any
general partner in any such party, or involving the validity, enforceability or
priority of this Mortgage, the Note or any of the other Loan Documents or
enjoining or preventing or threatening to enjoin or prevent the use and
occupancy of the Secured Property or the performance by Mortgagee of its
obligations hereunder, and there are no rent controls, governmental moratoria or
environmental controls (other than those generally imposed by federal or state
law upon property in the State of Illinois) presently in existence, or to the
best knowledge of Mortgagor, threatened, affecting the Secured Property, except
as identified in writing to, and approved by, Mortgagee.
-31-
<PAGE>
C. No Hazardous Materials. Except as disclosed in environmental
----------------------
surveys and reports submitted to Mortgagee by Mortgagor and described on Exhibit
-------
B attached hereto and made a part hereof, Neither Mortgagor nor, to the best
- -
knowledge and belief of Mortgagor, any other person has ever caused or knowingly
permitted, in violation of law, any Hazardous Material to be placed, held,
located or disposed of, on, under or at the Secured Property or any part
thereof, or any other real property legally or beneficially owned (or any
interest or estate which is owned) by Mortgagor in any state now or hereafter
having in effect a so-called "Superlien" law or ordinance or any part thereof
(the effect of which would be to create a lien on the Secured Property to secure
any obligation in connection with the real property in such state), and neither
the Secured Property, nor any part thereof, nor any other real property legally
or beneficially owned (or any interest or estate therein which is owned) by
Mortgagor in any state now or hereafter having in effect a so-called "Superlien"
law or ordinance or any part thereof, has ever been used (whether by Mortgagor
or, to the best knowledge of Mortgagor, by any other person) as a dump site or
storage (whether permanent or temporary) site for any Hazardous Material. Except
as disclosed in those documents listed on Exhibit B, Mortgagor further
---------
represents and warrants that neither Mortgagor nor, to the best knowledge and
belief of Mortgagor, any other person has ever caused or knowingly permitted any
asbestos or underground fuel storage facility to be located on the Secured
Property. Except as disclosed in those documents listed on Exhibit B, Mortgagor
---------
further represents and warrants that neither Mortgagor nor, to the best
knowledge or belief of Mortgagor, any other person has discovered any occurrence
or condition on any real property adjoining or in the vicinity of the Secured
Property that could cause the Secured Property or any part thereof to be subject
to any restrictions on the ownership, occupancy, transferability or use of the
Secured Property under any federal, state or local law, ordinance or regulation
relating to Hazardous Materials.
D. No Litigation Regarding Hazardous Materials. No litigation,
-------------------------------------------
administrative enforcement actions or proceedings have been brought, or to
Mortgagor's best knowledge and belief, threatened nor have any settlements been
reached by or with any party or parties, public or private, in disputes in which
the presence, disposal, release or threatened release of any Hazardous Material
on, from, or under any of the Secured Property had been alleged.
2.04 Valid Organization, Good Standing and Qualification of Mortgagor.
----------------------------------------------------------------
Mortgagor is a duly and validly organized and existing limited liability company
in good standing under the laws of the State of Illinois and is duly licensed or
qualified and in good standing as a foreign entity in all other jurisdictions
where the ownership or leasing of property or the nature of business transacted
makes such qualification necessary, and is entitled to own its properties and
assets, and to carry on its business, all as, and in the places where, such
properties and assets are now owned or operated or such business is now
conducted or presently proposed to be conducted. Mortgagor does not own any real
property located outside of the jurisdictions in which it is duly qualified to
do business as a foreign entity and it is not doing business outside of such
jurisdictions of a character which would require such qualification. Mortgagor
has made payment of all franchise and similar taxes in the State of Illinois and
in all of the jurisdictions in which it is qualified as a foreign entity,
insofar as such taxes are due and payable at the date of this Mortgage, except
for any such taxes the validity of which is being contested in good faith and
for which proper reserves have been set aside on the books of Mortgagor.
2.05 Authorization; No Legal Restrictions on Performance. The execution and
---------------------------------------------------
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<PAGE>
delivery by Mortgagor of this Mortgage and the other Loan Documents and its
compliance with the terms and conditions hereof and thereof have been duly and
validly authorized by all necessary limited liability company action and the
Loan Documents are valid and enforceable obligations of Mortgagor in accordance
with the terms hereof and thereof. Neither the execution and delivery by
Mortgagor of this Mortgage or any of the other Loan Documents to which it is a
party nor the consummation of the transactions contemplated herein or therein,
nor compliance with the terms and conditions hereof or thereof will, to the best
of Mortgagor's knowledge, (A) conflict with or result in a breach of, or
constitute a default under, any of the terms, obligations, covenants, conditions
or provisions of (1) any corporate restriction or indenture, mortgage, deed of
trust, pledge, bank loan or credit agreement, corporate charter, by-law or any
other agreement or instrument to which Mortgagor is now a party or by which its
properties may be bound or affected, or (2) any judgment, order, writ,
injunction, decree or demand of any court, arbitrator, grand jury or
Governmental Agency, or (B) result in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever upon any property or asset of
Mortgagor under the terms or provisions of any of the foregoing. Mortgagor is
not in default in the performance, observance or fulfillment of any of the
terms, obligations, covenants, conditions or provisions contained in any
indenture or other agreement creating, evidencing or securing Obligations of
Mortgagor or pursuant to which Mortgagor is a party or by which Mortgagor or its
properties may be bound or affected.
2.06 Compliance With Laws. Mortgagor has, to the best of its knowledge and
--------------------
belief, complied with all applicable statutes, rules, regulations, orders and
restrictions of any domestic or foreign government or any instrumentality or
agency thereof, in respect of the conduct of its business and ownership of its
properties (including, without limitation, applicable statutes, rules,
regulations, orders and restrictions relating to equal employment opportunities
or environmental standards or controls). No governmental orders, permissions,
consents, approvals or authorizations are required to be obtained and no
registrations or declarations are required to be filed in connection with the
execution and delivery or performance of this Mortgage or any of the other Loan
Documents. Mortgagor has received no notice of any violation of any applicable
zoning, land use, subdivision or other law applicable to the Secured Property.
2.07 Tax Status. Mortgagor has filed all United States income tax returns
----------
and all state and municipal tax returns which are required to be filed, and has
paid, or made provision for the payment of, all taxes which have become due
pursuant to said returns or pursuant to any assessment received by Mortgagor,
except such filings and taxes, if any, as are being contested in good faith and
as to which adequate reserves have been provided. The United States income tax
liability of Mortgagor has been finally determined by the Internal Revenue
Service and satisfied for all taxable years up to and including the taxable year
ending 1997.
2.08 Absence of Foreign or Enemy Status. Mortgagor is not a "national" of a
----------------------------------
"designated foreign country" (or a person defined as a "designated foreign
country") within the definitions in the Foreign or Cuban Assets Control
Regulations of the United States Treasury Department, 31 CFR, Subtitle B,
Chapter V, as amended, or any regulation or ruling issued thereunder.
2.09 Federal Reserve Board Regulations. Mortgagor does not own any
---------------------------------
"margin security" as such term is defined in Regulation G of the Board of
Governors of the Federal Reserve System (12 CFR Part 207), as amended, except
margin securities owned or which may
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<PAGE>
be acquired by Mortgagor which do not and would not in the aggregate constitute
a substantial part of the assets of Mortgagor within the meaning of Section
207.2(i) of the aforesaid Regulation G, and Mortgagor will not use any part of
the proceeds from the loan to be made under this Mortgage (A) directly or
indirectly, to purchase or carry any such security or to reduce or retire any
Obligations originally incurred to purchase any such security within the meaning
of such Regulation, (B) so as to involve Mortgagor in a violation of Regulation
T, U or X of such Board (12 CFR Parts 220, 221 and 224), or (C) for any other
purpose not permitted by Section 7 of the Securities Exchange Act of 1934, as
amended, or any of the rules and regulations respecting the extension of credit
promulgated thereunder.
2.10 Investment Company Act and Public Utility Holding Company Act.
-------------------------------------------------------------
Mortgagor is not an "investment company," or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended, and Mortgagor is not a "holding company" or a "subsidiary company"
of a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," as such terms are defined in the
Public Utility Holding Company Act of 1935, as amended.
2.11 Exempt Status of Transactions Under Securities Act and Representations
----------------------------------------------------------------------
Relating Thereto. Mortgagor has not, either directly or through any agent,
- ----------------
offered all or any part of the loan made or to be made by Mortgagee and secured
by this Mortgage to, or solicited any offers to make all or any part of such
loan from, or otherwise approached or negotiated or communicated in respect of
all or any part of such loan with anyone other than Mortgagee. Neither Mortgagor
nor any agent on its behalf will offer to obtain all or any part of such loan
from, or solicit any offers to make all or any part of such loan from, or
otherwise approach or negotiate or communicate in respect of all or any part of
such loan with, any person or persons so as thereby to bring the obtaining of
such loan by Mortgagor and the delivery of the Note within the registration
provisions of the Securities Act of 1933, as amended.
2.12 Employee Benefit Plans.
----------------------
A. None of the Employee Benefit Plans or the trusts created thereunder
has engaged in a prohibited transaction which could subject any such Employee
Benefit Plan or trust to a tax or penalty on prohibited transactions imposed
under ERISA.
B. None of the Employee Benefit Plans which are employee pension
benefit plans or the trusts created thereunder has been terminated since
September 2, 1974; nor has any such Employee Benefit Plan incurred any liability
to the Pension Benefit Guaranty Corporation established pursuant to ERISA which
would be material to Mortgagor, other than for required insurance premiums which
have been paid when due, or incurred any accumulated funding deficiency which
would be material to Mortgagor, whether or not waived; nor has there been any
reportable event, or other event or condition, which presents a risk of
termination of any such Employee Benefit Plan by such Pension Benefit Guaranty
Corporation which termination would be material to Mortgagor.
C. The present value of all benefits vested under the Employee Benefit
Plans which are employee pension benefit plans did not, as of the most recent
valuation date, exceed the then current value of the assets of such Employee
Benefit Plans allocable to such vested benefits by an amount that would
materially affect the financial condition of Mortgagor or the ability of
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<PAGE>
Mortgagor to perform under the Loan Documents.
D. The consummation of the loan from Mortgagee referred to in this
Mortgage, and the execution and delivery of the Note hereunder and the
performance by Mortgagor of its obligations under the Loan Documents, will not
involve any prohibited transaction.
E. As used in this Section 2.12, the terms "employee benefit plans,"
------------
"employee pension benefit plans," "accumulated funding deficiency," "reportable
event," "accrued benefits," "separate account" and "multiemployer plan" shall
have the respective meanings assigned to them in ERISA, and the term "prohibited
transaction" shall have the meaning assigned to it in Internal Revenue Code
Section 4975 and ERISA.
ARTICLE III
DEFAULTS
--------
3.01 Events of Default. Any of the following events shall be deemed an
-----------------
"Event of Default" hereunder:
A. if Mortgagor shall fail, refuse, or neglect to make payment of any
installment of the principal of, or interest on the Obligations or any other sum
which is payable hereunder as and when the same shall become due and payable as
in the Note or herein provided, within three (3) business days after Mortgagee
delivers written notice to Mortgagor of such non-payment; provided, however,
that Mortgagor will not be entitled to such written notice more than four (4)
times during the term of this Mortgage; or
B. if Mortgagor fails to perform or observe any term, provision,
covenant or agreement in the Note, this Mortgage or in any other Loan Documents
(other than those relating to satisfaction of monetary obligations) beyond the
applicable grace period therefor, or if no such grace period is applicable, if
such default has not been remedied within thirty (30) calendar days after
written notice thereof has been given by Mortgagee to Mortgagor; provided,
however, that if the default is curable but is not reasonably susceptible of
cure within said thirty (30) day period, Mortgagor shall have ninety (90) days
from the date Mortgagee gave such notice within which to effect a cure if
Mortgagor commences cure activities within such thirty (30) day period and
thereafter diligently and continuously prosecutes the same to completion and
completes same within said ninety (90) day period; or
C. if any warranty, representation, certification, financial statement
or other information made or furnished at any time pursuant to the terms of this
Mortgage or otherwise, by Mortgagor, or by any person or entity liable for the
Obligations in connection with the loan transaction, shall prove to be
materially false and to have been made or furnished with knowledge of the false
nature thereof; or
D. if Mortgagor shall:
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<PAGE>
(1) apply for, consent to or acquiesce in the appointment of a
receiver, trustee or liquidator of it or of all or a
substantial part of its assets, or the Secured Property or
any interest in any part thereof (the term "acquiesce"
includes, but is not limited to, the failure to file a
petition or motion to vacate or discharge any order,
judgment or decree providing for such appointment within ten
(10) days after the appointment); or
(2) commence a voluntary case or other proceeding in bankruptcy,
or admit in writing its inability to pay its debts as they
come due; or
(3) make a general assignment for the benefit of creditors; or
(4) file a petition or an answer seeking reorganization,
arrangement, composition, readjustment, liquidation,
dissolution, or similar relief for itself under the present
or any future federal bankruptcy act or any other statute or
law relative to bankruptcy, insolvency, or other relief for
debtors; or
(5) file an answer admitting the material allegations of, or
consent to, or default in answering, a petition filed
against it in any bankruptcy, reorganization or insolvency
case or proceeding; or
E. if an order for relief shall be entered against Mortgagor by a
court of competent jurisdiction under any present or future bankruptcy law,
which order shall continue unstayed and in effect for any period of sixty (60)
consecutive days; or
F. if an order, judgment or decree shall be entered by any court of
competent jurisdiction, adjudicating Mortgagor insolvent, approving a petition
seeking reorganization or arrangement of Mortgagor or appointing a receiver,
trustee or liquidator of it or of all or a substantial part of its assets, and
such order, judgment or decree shall continue unstayed and in effect for any
period of sixty (60) consecutive days; or
G. if Mortgagor has assigned or purports to assign the whole or any
part of the rents, income or profits arising from the Secured Property, without
the prior written consent of Mortgagee; or
H. if a Transfer not consented to by Mortgagee shall have occurred;
or
I. if any mechanic's, laborer's or materialman's lien, federal tax
lien, broker's lien or other lien not permitted hereunder and affecting the
Secured Property or any part thereof is not discharged, by payment, bonding,
order of a court of competent jurisdiction or otherwise, within twenty (20) days
after Mortgagor receives notice thereof from the lienor or from Mortgagee.
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ARTICLE IV
REMEDIES
--------
4.01 Acceleration, Foreclosure, etc. Upon the happening of any one or
------------------------------
more of the Events of Default, the entire unpaid principal balance of the
Obligations, interest accrued thereon, and all of the sums secured by this
Mortgage, including, without limitation, the prepayment charge as provided in
Section 4.06 herein and in the Note, at the sole option of Mortgagee, shall
- ------------
become immediately due and payable without notice or demand, and Mortgagee may
forthwith, without further delay, undertake any one or more of the following:
A. Foreclosure. Mortgagee shall have the right to institute an
-----------
action to foreclose this Mortgage, or take such other action as may be allowed
at law or in equity, for the enforcement hereof and realization on the Secured
Property or any other security which is herein or elsewhere provided for, or
proceed thereon through power of sale or to final judgment and execution thereon
for the entire Obligations, with interest, at the rate specified in this
Mortgage to the date of such Event of Default and thereafter at the Increased
Rate, together with all other sums secured by this Mortgage, including, without
limitation, all costs of suit, interest at the Increased Rate on any judgment
obtained by Mortgagee from and after the date of any sale of the Secured
Property (which may be sold in one parcel or in such parcels, manner or order as
Mortgagee shall elect) until actual payment is made of the full amount due
Mortgagee, and any attorneys' fees for collection actually incurred at such
attorneys' standard rates, without further stay, any law, usage or custom to the
contrary notwithstanding.
B. Partial Foreclosure. Mortgagee shall have the right to foreclose
-------------------
the lien hereof for the Obligations or any part thereof. It is further agreed
that if default be made in the payment of any part of the Obligations, as an
alternative to the right of foreclosure for the full Obligations after
acceleration thereof, Mortgagee shall have the right to institute partial
foreclosure proceedings with respect to the portion of said Obligations so in
default, as if under a full foreclosure, and without declaring the entire
Obligations due (such proceeding being hereinafter referred to as a "partial
foreclosure"), and provided that if foreclosure sale is made because of default
of a part of the Obligations, such sale may be made subject to the continuing
lien of this Mortgage for the unmatured part of the Obligations; and it is
agreed that such sale pursuant to a partial foreclosure, if so made, shall not
in any manner affect the unmatured part of the Obligations, but as to such
unmatured part, this Mortgage and the lien hereof shall remain in full force and
effect just as though no foreclosure sale had been made under the provisions of
this subsection. Notwithstanding the filing of any partial foreclosure or entry
of a decree of sale therein, Mortgagee may elect at any time prior to a
foreclosure sale pursuant to such decree, to discontinue such partial
foreclosure and to accelerate the Obligations by reason of any uncured default
or defaults upon which such partial foreclosure was predicated or by reason of
any other defaults, and proceed with full foreclosure proceedings. It is further
agreed that several foreclosure sales may be made pursuant to partial
foreclosures without exhausting the right of full or partial foreclosure sale
for any unmatured part of the Obligations, it being the purpose to provide for a
partial foreclosure sale of the Obligations for any matured portion of the
Obligations without exhausting the power to foreclose and to sell the Secured
Property pursuant to any such partial foreclosure for any other part of the
Obligations, whether matured at the time or subsequently maturing, and without
exhausting any right of acceleration and full foreclosure.
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<PAGE>
C. Entry. Mortgagee personally, or by its agents or attorneys, may
-----
enter into and upon all or any part of the Secured Property, and each and every
part thereof, and may exclude Mortgagor, its agents and servants wholly
therefrom without liability for trespass, damages or otherwise and Mortgagor
agrees to surrender possession to Mortgagee on demand after the happening of any
Event of Default; and having and holding the same, Mortgagee may use, operate,
manage and control the Secured Property and conduct the business thereof, either
personally or by its superintendents, managers, agents, servants, attorneys or
receivers; and upon each such entry, Mortgagee, at the expense of Mortgagor from
time to time, either by purchase, repairs or construction, may maintain and
restore the Secured Property, may complete the construction of the Improvements
and in the course of such completion may make such changes in the contemplated
or completed buildings, structures and improvements as it may deem desirable and
may insure the same; and likewise, from time to time, at the expense of
Mortgagor, Mortgagee may make all necessary or proper repairs, renewals and
replacements and such alterations, additions, betterments and improvements
thereto and thereon as it may deem advisable; and in every such case Mortgagee
shall have the right to manage and operate the Secured Property and to carry on
the business thereof and exercise all rights and powers of Mortgagor with
respect thereto either in the name of Mortgagor or otherwise as it shall deem
best.
D. Collection of Rents, etc. Mortgagee shall be entitled to
------------------------
collect and receive all earnings, revenues, rents, issues, profits and income
derived from the Secured Property and every part thereof, and after deducting
the expenses of conducting the business thereof and of all maintenance, repairs,
renewals, replacements, alterations, additions, betterments and improvements and
amounts necessary to pay for Impositions, insurance and liens or other charges
upon the Secured Property or any part thereof, as well as just and reasonable
compensation for the services of Mortgagee and for all attorneys, counsel,
agents, clerks, servants, and other employees by it properly engaged and
employed, Mortgagee shall apply the moneys arising as aforesaid, first, to the
payment of the unpaid Obligations in inverse order of maturity and then to the
payment of any other sums required to be paid by Mortgagor hereunder.
E. Receivership. Mortgagee shall have the right to have a receiver
------------
appointed to enter into possession of the Secured Property, collect the
earnings, revenues, rents, issues, profits and income therefrom and apply the
same as the court may direct. Mortgagee shall be entitled to the appointment of
a receiver as a matter of right without notice and without the necessity of
proving either the inadequacy of the security or the insolvency of Mortgagor or
any other person who may be legally or equitably liable to pay money secured by
this Mortgage and Mortgagor and each such person shall be deemed to have waived
such proof and to have consented to the appointment of such receiver. Should
Mortgagee or any receiver collect earnings, revenues, rents, issues, profits or
income from the Secured Property, the moneys so collected shall not be
substituted for payment of the Obligations nor can they be used to cure an Event
of Default, without the prior written consent of Mortgagee. Mortgagee shall be
liable to account only for earnings, revenues, rents, issues, profits and income
actually received by Mortgagee.
F. Specific Performance. Mortgagee may institute an action for
--------------------
specific performance of any covenant contained herein or in aid of the execution
of any power herein granted.
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<PAGE>
G. Illinois Mortgage Foreclosure and Remedies.
------------------------------------------
(1) All advances, disbursements and expenditures (collectively
"advances") made by Mortgagee before and during foreclosure, prior to sale, and
where applicable, after sale, for the following purposes, including interest
thereon at the Increased Rate (as defined in the Note), are hereinafter referred
to as "Protective Advances" and shall constitute additional indebtedness
hereunder and shall be secured by the lien hereof:
(a) any amount for restoration or rebuilding in excess of
the actual or estimated proceeds of insurance or condemnation award for the
purpose of such repair or replacement;
(b) advances in accordance with the terms of this Mortgage
to: (i) protect, preserve or restore the Secured Property; (ii) preserve the
lien of this Mortgage or the priority thereof; or (iii) enforce this Mortgage,
as referred to in Subsection (b)(5) of Section 15-1302 of the Illinois Mortgage
Foreclosure Law, 735 ILCS 5/15-1101 et seq., as amended from time to time
-- ---
("Act");
(c) payments of (i) when due installments of principal,
interest or other obligations in accordance with the terms of any Prior
Encumbrance (as hereinafter defined); (ii) when due installments of real estate
taxes and other Impositions; (iii) other obligations authorized by this
Mortgage; or (iv) with court approval any other amounts in connection with other
liens, encumbrances or interests reasonably necessary to preserve the status of
title, all as referred to in Section 15-1505 of the Act;
(d) attorneys' fees and other costs actually incurred in
connection with the foreclosure of this Mortgage as referred to in Sections
1504(d)(2) and 15-1510 of the Act and in connection with any other litigation or
administrative proceeding to which the Mortgagee may be or become or be
threatened or contemplated to be a party, including probate and bankruptcy
proceedings, or in the preparation for the commencement or defense of any such
suit or proceeding; including filing fees, appraisers' fees, outlays for
documents and expert evidence, witness fees, stenographer's charges, publication
costs, and costs (which may be estimated as to items to be expended after entry
of judgment) of procuring all such abstracts of title, title charges and
examinations, foreclosure minutes, title insurance policies, appraisals, and
similar data and assurances with respect to title and value as Mortgagee may
deem reasonably necessary either to prosecute or defend such suit or, in case of
foreclosure, to evidence to bidders at any sale which may be had pursuant to the
foreclosure judgment the true condition of the title to or the value of the
Secured Property;
(e) Mortgagee's fees and costs arising between the entry of
judgment of foreclosure and the confirmation hearing as referred to in
Subsection (b)(1) of Section 15-1508 of the Act;
(f) payment by Mortgagee of Impositions as required of
Mortgagor by Section 1.02 of this Mortgage;
------------
(g) Mortgagee's advances of any amount required to make
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<PAGE>
up a deficiency in deposits for installments of Impositions, as may be required
of Mortgagor under this Mortgage;
(h) expenses deductible from proceeds of sale referred to
in Subsections (a) and (b) of Section 15-1512 of the Act; and
(i) expenses incurred and expenditures made by Mortgagee
for any one or more of the following: (i) if any of the Secured Property
consists of an interest in a leasehold estate under a lease or sublease, rentals
or other payments required to be made by the lessee under the terms of the lease
or sublease; (ii) premiums upon casualty and liability insurance made by
Mortgagee whether or not Mortgagee or a receiver is in possession, if reasonably
required, without regard to the limitation to maintaining of insurance in effect
at the time any receiver or mortgagee takes possession of the Secured Property
imposed by Subsection (c)(1) of Section 15-1704 of the Act; (iii) payments
required or deemed by Mortgagee to be for the benefit of the Secured Property or
required to be made by the owner of the Secured Property under any grant or
declaration of easement, easement agreement, reciprocal easement agreement,
agreement with any adjoining land owners or other instruments creating covenants
or restrictions for the benefit of or affecting the Secured Property; (iv)
shared or common expense assessments payable to any association or corporation
in which the owner of the premises is a member in any way affecting the Secured
Property; (v) operating deficits incurred by Mortgagee in possession or
reimbursed by Mortgagee to any receiver; (vi) fees and costs incurred to obtain
an environmental assessment report relating to the Secured Property; and (vii)
any monies expended in excess of the face amount of the Note.
(2) This Mortgage shall be a lien for all Protective Advances as
to subsequent purchasers and judgment creditors from the time the Mortgage is
recorded, pursuant to Subsection (b)(5) of Section 15-1302 of the Act.
The Protective Advances shall, except to the extent, if any,
that any of the same is clearly contrary to or inconsistent with the provisions
of the Act, be included in:
(a) determination of the amount of indebtedness secured by
this Mortgage at any time;
(b) the indebtedness found due and owing to the Mortgagee
in the judgment of foreclosure and any subsequent amendment of such judgment,
supplemental judgments, orders, adjudications or findings by the court of any
additional indebtedness becoming due after entry of such judgment, it being
hereby agreed that in any foreclosure judgment, the court may reserve
jurisdiction for such purpose;
(c) determination of amounts deductible from sale proceeds
pursuant to Section 15-1512 of the Act;
(d) determination of the application of income in the hands
of any receiver or mortgagee in possession; and
(e) computation of any deficiency judgment pursuant to
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<PAGE>
Subsections (b)(2) and (e) of Section 15-1508 and Section 15-1511 of the Act.
All moneys paid for Protective Advances or any of the other
purposes herein authorized and all expenses paid or incurred in connection
therewith, including attorneys' fees actually incurred, and any other moneys
advanced by Mortgagee to protect the Secured Property and the lien hereof, shall
be so much additional indebtedness secured hereby, and shall become immediately
due and payable without notice and with interest thereon at the Increased Rate.
Inaction of Mortgagee shall never be considered as a waiver of any right
accruing to it on account of any default on the part of Mortgagor.
(3) Should the proceeds of the Note or any part thereof, or any
amount paid out or advanced hereunder by Mortgagee, be used directly or
indirectly to pay off, discharge or satisfy, in whole or in part, any senior
mortgage (as described in Subsection (i) of Section 15-1505 of the Act) or any
other lien or encumbrance upon the Mortgaged Property or any part thereof on a
parity with or prior or superior to the lien hereof ("Prior Encumbrance"), then
as additional security hereunder, the Mortgagee shall be subrogated to any and
all rights, equal or superior titles, liens and equities, owned or claimed by
any owner or holder of said outstanding liens, charges and indebtedness, however
remote, regardless of whether said liens, charges and indebtedness are acquired
by assignment or have been released of record by the holder thereof upon
payment.
(4) If an Event of Default has occurred hereunder, or when the
outstanding indebtedness hereby secured, or any part thereof, shall become due,
whether by acceleration or otherwise, Mortgagee shall have the right to
foreclose the lien hereof for such indebtedness or part thereof and pursue all
remedies afforded to a mortgagee under and pursuant to the Act.
(5) The proceeds of any foreclosure sale of the Secured Property
shall be distributed and applied in accordance with the provisions of Subsection
(c) of Section 15-1512 of the Act. The judgment of foreclosure or order
confirming the sale shall provide (after application pursuant to Subsections (a)
and (b) of said Section 15-1512) for application of sale proceeds in the
following order of priority: first, all items not covered by the provisions of
said Subsections (a) and (b), which under the terms hereof constitute secured
indebtedness additional to that evidenced by the Note, with interest thereon as
herein provided; and second, all principal and interest remaining unpaid on the
Note.
(6) Upon, or at any time after the filing of a complaint to
foreclose this Mortgage, the court in which such complaint is filed shall
appoint a receiver of the Secured Property whenever Mortgagee, when entitled to
possession, so requests pursuant to Section 15-1702(a) of the Act or when such
appointment is otherwise authorized by operation of law. Such receiver shall
have all powers and duties prescribed by Section 15-1704 of the Act, including
the power to make leases to be binding upon all parties; including the Mortgagor
after redemption, the purchaser at a sale pursuant to a judgment of foreclosure
and any person acquiring an interest in the Secured Property after entry of a
judgment of foreclosure, all as provided in Subsection (g) of Section 15-1701 of
the Act. In addition, such receiver shall also have the following powers: (a) to
extend or modify any then existing Leases, which extensions and modifications
may provide for terms to expire, or for options to Lessees to extend or renew
terms to expire, beyond the maturity date of the indebtedness hereunder and
beyond the date of
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<PAGE>
the issuance of a deed or deeds to a purchaser or purchasers at a foreclosure
sale, it being understood and agreed that any such Leases, and the options or
other such provisions to be contained therein, shall be binding upon Mortgagor
and all persons whose interests in the Secured Property are subject to the lien
hereof and upon the purchaser or purchasers at any foreclosure sale,
notwithstanding any redemption, discharge of the mortgage indebtedness,
satisfaction of any foreclosure judgment, or issuance of any certificate of sale
or deed to any purchaser; and (b) all other powers which may be necessary or are
usual in such cases for the protection, possession, control, management and
operation of the Secured Property during the whole of the period of
receivership. The court from time to time, either before or after entry of
judgment of foreclosure, may authorize the receiver to apply the net income in
his hands in payment in whole or in part of: (a) the indebtedness secured
hereby, or by or included in any judgment of foreclosure or supplemental
judgment or other item for which Mortgagee is authorized to make a Protective
Advance; and (b) the deficiency in case of a sale and deficiency.
(7) In any case in which under the provisions of this Mortgage
Mortgagee has a right to institute foreclosure proceedings, whether before or
after the whole principal sum secured hereby is declared to be immediately due
as aforesaid, or whether before or after the institution of legal proceedings to
foreclose the lien hereof or before or after judgment thereunder, and at all
times until confirmation of sale, Mortgagor shall forthwith, upon demand of
Mortgagee, surrender to Mortgagee and Mortgagee shall be entitled to take and
upon Mortgagee's request to the court to be placed in actual possession of,
Mortgagee shall be placed in possession of the Secured Property or any part
thereof, personally, or by its agent or attorneys as provided in Subsections
(b)(2) and (c) of Section 1701 of the Act. In such event Mortgagee in its
discretion may, with or without force and with or without process of law, enter
upon and take and maintain or may apply to the court in which a foreclosure is
pending to be placed in possession of all or any part of said Secured Property,
together with all documents, books, records, papers and accounts of Mortgagor or
then owner of the Secured Property relating thereto, and may exclude Mortgagor,
its agents or servants, wholly therefrom and may, as attorney in fact or agent
of Mortgagor, or in its own name as Mortgagee and under the powers herein
granted, hold, operate, manage and control the Secured Property and conduct the
business, if any, thereof, either personally or by its agents, and with full
power to use such measures, legal or equitable, as in its discretion or in the
discretion of its successors or assigns may be deemed proper or necessary to
enforce the payment or security of the avails, rents, issues, and profits of the
Secured Property, including actions for the recovery of rent, actions in
forcible detainer and actions in distress for rent, and with full power: (a) to
cancel or terminate any Lease or sublease for any cause or on any ground which
would entitle Mortgagor to cancel the same; (b) to elect to disaffirm any Lease
or sublease which is then subordinate to the lien hereof; (c) to extend or
modify any then existing Leases and to make new Leases, which extensions,
modifications and new Leases may provide for terms to expire, or for options to
Lessees to extend or renew terms to expire, beyond the maturity date of the
indebtedness hereunder and beyond the date of the issuance of a deed or deeds to
a purchaser or purchasers at a foreclosure sale, it being understood and agreed
that any such Leases, and the options or other such provisions to be contained
therein, shall be binding upon Mortgagor and all persons whose interests in the
Secured Property are subject to the lien hereof and upon the purchaser or
purchasers at any foreclosure sale, notwithstanding any redemption from sale,
discharge of the Mortgage indebtedness, satisfaction of any foreclosure decree,
or issuance of any certificate of sale or deed to any purchaser; (d) to enter
into any management, leasing or brokerage agreements covering the Secured
Property; (e) to make all necessary or proper repairs, decorating, renewals,
replacements, alterations, additions,
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<PAGE>
betterments and improvements to the Secured Property as to it may deem
judicious; (f) to insure and reinsure the same and all risks incidental to
Mortgagee's possession, operation and management thereof; and (g) to receive all
of such avails, rents, issues and profits; hereby granting full power and
authority to exercise each and every of the rights, privileges and powers herein
granted at any and all times hereafter, without notice to Mortgagor. Without
limiting the generality of the foregoing provisions of this Section, Mortgagee
shall also have all power, authority and duties as provided in Section 15-1703
of the Act.
(8) Mortgagor acknowledges that the Secured Property does not
constitute agricultural real estate, as said term is defined in Section 15-1201
of the Act or residential real estate as defined in Section 15-1219 of the Act.
Mortgagor hereby waives any and all rights of redemption from sale under any
judgment of foreclosure of this Mortgage on behalf of Mortgagor and on behalf of
each and every person acquiring any interest in or title to the Secured Property
of any nature whatsoever, subsequent to the date of this Mortgage. The foregoing
waiver of right of redemption is made pursuant to the provisions of Section 15-
1601(b) of the Act.
(9) At all times, regardless of whether any Loan proceeds have
been disbursed, this Mortgage secures (in addition to the amounts secured
hereby) the payment of any and all Loan commissions, service charges, liquidated
damages, expenses and advances due to or incurred by Mortgagee in connection
with the Loan; provided, however, that in no event shall the total amount
secured hereby exceed two hundred percent (200%) of the face amount of the Note.
(10) At the option of Mortgagee, this Mortgage shall become
subject and subordinate, in whole or in part (but not with respect to priority
of entitlement to insurance proceeds or any Condemnation Proceeds), to any and
all Leases of all or any part of the Secured Property upon the execution by
Mortgagee and recording thereof, at any time hereafter in the appropriate
official records of the County wherein the Secured Property are situated, of a
unilateral declaration to that effect.
4.02 No Election of Remedies. Mortgagee shall be entitled in its sole
-----------------------
discretion to exercise all or any of the rights and remedies herein or in the
Loan Documents provided, or which may be provided by statute, law, equity, or
otherwise in such order and manner as Mortgagee shall elect without impairing
Mortgagee's lien in, or rights to, any of such Loan Documents and without
affecting the liability of any person, firm, corporation or other entity for the
sums secured by the Loan Documents.
4.03 Mortgagee's Right to Release, etc. Mortgagee, in its sole
---------------------------------
discretion, shall have the right to release for such consideration as Mortgagee
may require, any portion of the Secured Property without, as to the remainder of
the Secured Property, in any way impairing or affecting the lien of this
Mortgage, or the priority thereof, or improving the position of any subordinate
lienholder with respect thereto, except to the extent that the Obligations shall
have been reduced by the actual monetary consideration, if any, received by
Mortgagee for such release; and Mortgagee shall have the right to accept by
assignment or pledge any other property in place thereof as Mortgagee may
require without being accountable for so doing to any other lienor. To the
extent permitted by law, neither Mortgagor nor the holder of any lien or
encumbrance affecting the Secured Property or any part thereof shall have the
right to require Mortgagee to marshall assets.
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<PAGE>
4.04 Mortgagee's Right to Remedy Defaults, etc. Mortgagee shall have the
-----------------------------------------
right to remedy any default or appear in, defend or bring any action or
proceeding to protect its interest in the Secured Property or to foreclose this
Mortgage or collect the Obligations and the costs and expenses thereof
(including reasonable attorneys' fees actually incurred to the extent permitted
by law), which shall be paid by Mortgagor to Mortgagee upon demand with interest
at the Increased Rate. All such costs and expenses incurred by Mortgagee, and
any other costs incurred by Mortgagee pursuant to this Mortgage, with interest
as provided in this Mortgage, shall be secured by this Mortgage.
4.05 Waivers. Mortgagor hereby waives and releases (A) all benefits that
-------
might accrue to Mortgagor by virtue of any present or future laws excepting the
Secured Property, or any part of the proceeds arising from any sale thereof,
from attachment, levy or sale under execution from civil process; (B) all
benefits that might accrue to Mortgagor from requiring valuation or appraisal of
any part of the Secured Property levied or sold on execution of any judgment
recovered for the Obligations; (C) all notices not herein or elsewhere
specifically required of Mortgagor's default or of Mortgagee's exercise, or
election to exercise, any option under any of the Loan Documents; and (D) any
right of redemption to the extent that Mortgagor may lawfully waive same. At no
time will Mortgagor insist upon, or plead, or in any manner whatever, claim or
take any benefit or advantage of any stay or extension or moratorium law and any
exemption from execution or sale of the Secured Property or any part thereof,
whenever enacted, now or at any time hereafter in force, which may affect the
covenants and terms of performance of this Mortgage; nor claim, take or insist
upon any benefit or advantage of any law now or hereafter in force providing for
the valuation or appraisal of the Secured Property or any part thereof, prior to
any sale or sales thereof which may be made pursuant to any provision herein, or
pursuant to the decree, judgment or order of any court of competent
jurisdiction; nor after any such sale or sales, and to the extent permitted by
law, claim or exercise any right under any statute heretofore or hereafter
enacted to redeem the property so sold, or any part thereof, and Mortgagor
hereby expressly waives all benefits or advantages of any such law or laws, and
covenants not to hinder, delay or impede the execution of any power herein
granted or delegated to Mortgagee, but to suffer and permit the execution of
every power as though no such law or laws had been made or enacted. In case of a
sale of the Secured Property, the same may be sold in one parcel, as an
entirety, or in such parcels, manner or order as Mortgagee in its sole
discretion may decide, any provision of law to the contrary notwithstanding.
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4.06 Prepayment Charge. Mortgagor hereby agrees to pay the charge
-----------------
provided in the Note for prepayment of the Obligations, if for any reason any of
said Obligations shall be paid prior to the stated maturity date thereof, even
if and notwithstanding that an Event of Default shall have occurred and
Mortgagee, by reason thereof, shall have declared said Obligations due and
payable, and whether or not said payment is made prior to or at any sale held
under or by virtue of this Article IV. Mortgagor acknowledges that Mortgagee, in
making the loan evidenced by the Note and entering into this Mortgage, is
relying on Mortgagor's creditworthiness and its agreement to repay the
Obligations in strict accordance with the terms set forth in the Note. Mortgagor
acknowledges that Mortgagee would not make the loan without full and complete
assurance by Mortgagor of its agreement to make regular payments of principal
and interest under the Note and its further agreement not to prepay all or any
part of the principal of the Note prior to the final maturity date thereof,
except on the terms expressly set forth herein and in the Note. Therefore, any
prepayment of the Note, whether occurring as a voluntary prepayment by Mortgagor
or occurring upon an acceleration of the principal balance of the Note by
Mortgagee on account of any default by Mortgagor (including, but not limited to,
the making or suffering by Mortgagor, of any transfer or disposition of all or
any portion of the Secured Property or any interest therein as prohibited by
Section 1.11 of this Mortgage) will prejudice Mortgagee's ability to meet its
- ------------
obligations and to earn the return on the funds advanced to Mortgagor, which
Mortgagee intended and expected to earn when it agreed to make the subject loan
and will also result in other loss and additional expenses to Mortgagee.
Accordingly, in recognition of the foregoing and in consideration of Mortgagee
making the loan secured by this Mortgage at the interest rate and for the term
set forth in the Note, Mortgagor hereby expressly (A) waives any and all rights
it may have under applicable law to prepay without charge or premium all or any
part of the Note, either voluntarily or upon an acceleration of the maturity
date of the Note on account of any default of Mortgagor (including, but not
limited to, the making or suffering by Mortgagor of any transfer or disposition
prohibited by Section 1.11 of this Mortgage) and (B) agrees that if, for any
------------
reason, whether due to the voluntary acceptance by Mortgagee of a prepayment
tendered by Mortgagor or the acceleration by Mortgagee of the maturity date of
the Note, as aforesaid, on account of any such default by Mortgagor, a
prepayment of all or any part of the principal of the Note is made by or on
behalf of Mortgagor, or is otherwise made or occurs in connection with any
reinstatement of the Loan Documents under any foreclosure proceedings, or any
right of redemption exercised by Mortgagor or any other party having the right
to redeem or to prevent any foreclosure of this Mortgage, or upon the
consummation of any foreclosure sale, then Mortgagor or any other party making
any such prepayment shall be obligated to pay, concurrently therewith, the
prepayment charge set forth in the Note, and the payment of such premium shall
be a condition to the making of such prepayment and shall be secured by this
Mortgage. Such prepayment charge shall be paid without prejudice to the right of
Mortgagee to collect any other amounts provided to be paid or to declare a
default hereunder. Nothing herein shall be construed as permitting any partial
prepayment except with Mortgagee's prior written consent thereto obtained in
each instance. Notwithstanding anything contained in this Section 4.06 to the
------------
contrary, no prepayment charge or other fee shall be paid (i) within ninety (90)
days prior to the end of the term of this Mortgage, as provided in the Note, or
(ii) as a result of application of proceeds of a condemnation or destruction of
the Secured Property, or (iii) as a result of an acceleration of the Obligations
pursuant to Section 1.02(F) of this Mortgage.
---------------
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<PAGE>
ARTICLE V
MISCELLANEOUS
-------------
5.01 Non-Waiver. The failure of Mortgagee to insist upon strict
----------
performance of any term of this Mortgage shall not be deemed to be a waiver of
any term of this Mortgage. Mortgagor shall not be relieved of its obligation to
pay the Obligations at any time and in the manner provided for its payment in
the Note and this Mortgage by reason of (A) a failure by Mortgagee to comply
with any request of Mortgagor to take any action to foreclose this Mortgage or
otherwise enforce any of the provisions of this Mortgage or of the Note or any
other Loan Document, (B) the release, regardless of consideration, of the whole
or any part of the Secured Property or any other security for the Obligations,
or (C) any agreement or stipulation between Mortgagee and any subsequent owner
or owners of the Secured Property or other person extending the time of payment
or otherwise modifying or supplementing the terms of the Note, this Mortgage or
any Loan Document securing or guaranteeing the Obligations or any portion
thereof, without first having obtained the consent of Mortgagor and, in the
latter event, Mortgagor shall continue to be obligated to pay the Obligations at
the time and in the manner provided in the Note and this Mortgage, as so
extended, modified and supplemented, unless expressly released and discharged by
Mortgagee. Regardless of consideration, and without the necessity for any notice
to or consent by the holder of any subordinate lien, encumbrance, right, title
or interest in or to the Secured Property, Mortgagee may release any person at
any time liable for the payment of the Obligations or any portion thereof or any
part of the security held for the Obligations and may extend the time of payment
or otherwise modify the terms of any Loan Documents, including, without
limitation, a modification of the interest rate payable on the principal balance
of the Note, without in any manner impairing or affecting any of the Loan
Documents or the lien thereof or the priority of this Mortgage, as so extended
and modified, as security for the Obligations over any such subordinate lien,
encumbrance, right, title or interest. Mortgagee may resort for the payment of
the Obligations to any other security held by Mortgagee in such order and manner
as Mortgagee, in its discretion, may elect. Mortgagee may take action to recover
the Obligations, or any portion thereof, or to enforce any covenant of this
Mortgage without prejudice to the right of Mortgagee thereafter to foreclose
this Mortgage. Mortgagee shall not be limited exclusively to the rights and
remedies stated in this Mortgage but shall be entitled to every additional right
and remedy now or hereafter afforded by law. The rights of Mortgagee under this
Mortgage shall be separate, distinct and cumulative and none shall be given
effect to the exclusion of the others. No act of Mortgagee shall be construed as
an election to proceed under any one provision of this Mortgage to the exclusion
of any other provision.
5.02 Sole Discretion of Mortgagee. Wherever, pursuant to this Mortgage,
----------------------------
Mortgagee's consent or approval is required, the decision as to whether or not
to consent or approve shall be in the sole discretion of Mortgagee and
Mortgagee's decision shall be final and conclusive, except where this Mortgage
expressly provides to the contrary. If Mortgagor shall seek the approval by or
consent of Mortgagee under this Mortgage and Mortgagee shall fail or refuse to
give such consent or approval, Mortgagor shall not be entitled to any damages
for any withholding of such approval or consent by Mortgagee, it being intended
that Mortgagor's sole remedy shall be an action for injunctive or declaratory
relief, which remedy shall be available only in those cases where Mortgagee has
expressly agreed not to unreasonably withhold its
-46-
<PAGE>
consent or approval.
5.03 Recovery of Sums Required To Be Paid. Mortgagee shall have the right
------------------------------------
from time to time to take action to recover any sum or sums which constitute a
part of the Obligations as such sums shall become due, without regard to whether
or not the balance of the Obligations shall be due, and without prejudice to the
right of Mortgagee thereafter to bring an action of foreclosure or any other
action for default(s) or Event(s) of Default by Mortgagor existing at the time
such earlier action was commenced.
5.04 Legal Tender. All payments of principal, interest and any and all
------------
other payments required or provided herein shall be paid in lawful money of the
United States of America which shall be legal tender in payment of all debts and
dues, public and private, at the time of payment, at the office of Mortgagee or
at such other place either within or without the State of Illinois as Mortgagee
may from time to time designate.
5.05 No Merger. If both the lessor's and lessee's estates under any Lease
---------
or any portion thereof which constitutes a part of the Secured Property shall at
any time become vested in one owner, this Mortgage and the lien created hereby
shall not be destroyed or terminated by the application of the doctrine of
merger and in such event, Mortgagee shall continue to have and enjoy all of the
rights and privileges of Mortgagee as to the separate estates. In addition, upon
the foreclosure of the lien created by this Mortgage on the Secured Property
pursuant to the provisions hereof, any Leases or subleases then existing and
created by Mortgagor shall not be destroyed or terminated by application of the
law of merger or as a matter of law or as a result of such foreclosure unless
Mortgagee or any purchaser at any such foreclosure sale shall so elect. No act
by or on behalf of Mortgagee or any such purchaser shall constitute a
termination of any Lease or sublease unless Mortgagee or such purchaser shall
give written notice thereof to such Lessee or sublessee.
5.06 Discontinuance of Actions. In case Mortgagee shall have proceeded to
-------------------------
enforce any right under this Mortgage by foreclosure, sale or entry or
otherwise, and such proceedings shall have been discontinued or abandoned for
any reason or shall have been determined adversely, then, in every such case,
Mortgagor and Mortgagee shall be restored to their former positions and rights
hereunder with respect to the Secured Property which shall remain subject to the
lien and security interest of this Mortgage.
5.07 Headings. The headings of the sections, paragraphs and subdivisions
--------
of this Mortgage are for the convenience of reference only, are not to be
considered a part hereof and shall not limit or otherwise affect any of the
terms hereof.
5.08 Notice to Parties. All notices and demands or other communications
-----------------
hereunder shall be in writing and shall be deemed to have been sufficiently
given or served for all purposes when presented personally or sent by certified
or registered mail with return receipt requested or generally recognized
overnight delivery service, addressed to the parties at the addresses stated
below, or at such other address as either party may hereafter notify the other
in writing as aforesaid:
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<PAGE>
Mortgagor: OVERSEAS PARTNERS (MADISON PLAZA), LLC
115 Perimeter Center Place, Suite 940
Atlanta, Georgia 30346
Attn: Legal Department
with a copy to: Troutman Sanders LLP
NationsBank Plaza
600 Peachtree Street, N.E.
Suite 5200
Atlanta, Georgia 30308-2216
Attn: James W. Addison, Esq.
with a courtesy copy to: Overseas Partners Capital Corp.
Mintflower Place
P.O. Box 1581
8 Par-la-Ville Road
Hamilton HM GX
Bermuda
Attn: Thomas E. Butler, Esq.
Mortgagee: NEW YORK LIFE INSURANCE COMPANY
51 Madison Avenue
New York, New York 10010
Attn: Senior Vice President
Mortgage Finance Dept.
with a copy to: Sonnenschein Nath & Rosenthal
8000 Sears Tower
Chicago, Illinois 60606
Attn: Eric M. Schiller, Esq.
Service of any such notice or demand so made shall be deemed effective on the
day of actual delivery as shown by the addressee's return receipt or the
expiration of forty-eight (48) hours after the date sent by generally recognized
overnight delivery service or mailed, whichever is the earlier in time, except
that service of any notice of default or notice of sale provided or required by
law shall, if mailed, be deemed effective on the date of mailing.
5.09 Non-Recourse. If an Event of Default has occurred, Mortgagee shall
------------
have all
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<PAGE>
rights reserved in the Note, this Mortgage and every other Loan Document and
shall have full recourse to the Secured Property and to the other collateral
given by Mortgagor to secure the Note, provided, however, that any judgment
obtained by Mortgagee in any proceeding to enforce such rights shall be enforced
only against the Secured Property and such other collateral and Mortgagee shall
have no personal liability under any Loan Document except as hereafter expressly
provided. Notwithstanding the foregoing, Mortgagee shall not in any way be
prohibited from naming Mortgagor or any of its successors or assigns or any
person holding under or through them as parties to any actions, suits or other
proceedings initiated by Mortgagee to enforce such rights or to foreclose its
Mortgage lien or otherwise realize upon any other lien or security interest
created in any other collateral given to secure the payment of the Obligations.
The foregoing restriction shall not apply to, and Mortgagor shall be personally
liable for, any losses, damages, costs and expenses incurred by Mortgagee as a
result of (A) any material misstatement of fact (1) made by Mortgagor or any
person or entity constituting Mortgagor to induce Mortgagee to advance the
principal amount evidenced hereby or (2) contained in any Loan Document, (B)
fraud committed by Mortgagor or any person or entity constituting Mortgagor, (C)
application of any insurance proceeds, condemnation awards, trust funds, or
Rents by Mortgagor or Mortgagor's agents or Mortgagor's authorized
representatives in a manner which is not in accordance with the provisions of
this Mortgage, (D) breach of any representation or warranty contained in
Subsections 2.03C or D hereof, (E) default with respect to any covenant
- ----------------------
contained in Section 1.05F hereof, (F) any default with respect to Mortgagor's
-------------
obligations to pay real estate taxes and assessments due and payable against the
Secured Property during the time period of Mortgagor's ownership thereof
pursuant to Section 1.02 hereof or to pay insurance premiums pursuant to Section
------------ -------
1.03 hereof, or (G) any loss, damage, expense or liability on the part of
- ----
Mortgagee (including, without limitation, reasonable attorneys fees and
disbursements actually incurred) arising from, in respect of, as a consequence
of, or in connection with any of the following: (1) the existence of any
circumstance or the occurrence of any action described in clause (i) of
Subsection 1.05F(1)(d) hereof; (2) claims asserted by any person or entity
- ----------------------
(including, without limitation, any governmental agency or quasi-governmental
authority, board, bureau, commission, department, instrumentality or public
body, court, or administrative tribunal), in connection with or in any way
arising out of the presence, storage, use disposal, generation, transportation,
or treatment of any Hazardous Material on, in or under the Secured Property; (3)
the violation or claimed violation of any Hazardous Materials Laws in regard to
the Secured Property, whether such violation or claimed violation occurred prior
to or after the date of this Mortgage and regardless of whether such violation
occurred prior to or after the time that Mortgagor became owner of the Secured
Property but only to the extent such violation or claimed violation relates to
or arises or occurs prior to or during ownership or operation of the Secured
Property by Mortgagor or as a result of the acts or omissions of Mortgagor,
Mortgagor's affiliates, Mortgagor's agents, or authorized representatives of
Mortgagor or its affiliates; (4) the preparation of an environmental audit on
the Secured Property, whether conducted or authorized by Mortgagor, Mortgagee,
or a third party or the implementation or any environmental audit's
recommendations; or (5) all agreements and indemnification obligations under
that certain Environmental Indemnity Agreement of even date herewith in favor of
Mortgagee.
5.10 Successors and Assigns Included In Parties. Subject to the
------------------------------------------
provisions of Section 1.11, whenever in this Mortgage one of the parties hereto
------------
is named or referred to, the heirs, legal representatives, successors and
assigns of such party shall be included and all covenants and agreements
contained in this Mortgage by or on behalf of Mortgagor or by or on behalf of
Mortgagee shall bind and inure to the benefit of their respective heirs, legal
representatives,
-49-
<PAGE>
successors and assigns, whether so expressed or not. Mortgagee shall have the
right at any time, and without requiring the consent of the Mortgagor, to
appoint and utilize a "servicing agent" or "loan correspondent" for the purpose
of servicing the loan contemplated herein. Mortgagee agrees to so notify
Mortgagor of the appointment of any such directives and requests of such party
as though promulgated directly by Mortgagee.
5.11 Number and Gender. Whenever the singular or plural number, masculine
-----------------
or feminine or neuter gender is used herein, it shall equally include the other.
5.12 Changes and Modifications. This Mortgage cannot be changed except by
-------------------------
an agreement in writing, signed by the party against whom enforcement of any
change or modification is sought.
5.13 Applicable Law. This Mortgage shall be construed and enforced
--------------
according to the laws of the State of Illinois.
5.14 Invalid Provisions to Affect No Others. The unenforceability or
--------------------------------------
invalidity of any provision or provisions of this Mortgage as to any persons or
circumstances shall not render that provision or those provisions unenforceable
or invalid as to any other persons or circumstances, and all provisions hereof,
in all other respects, shall remain valid and enforceable.
5.15 Usury Savings Clause. It is the intention of Mortgagor and Mortgagee
--------------------
to conform strictly to the usury laws now or hereafter in force in the State of
Illinois and any interest payable under the Note, this Mortgage, or any of the
other Loan Documents executed by Mortgagor, to the extent that any sums secured
hereby or the advancing of such sums by Mortgagee shall not be exempt from such
laws, shall be subject to reduction to the amount equal to the maximum non-
usurious amount allowed under the usury laws of Illinois as now or hereafter
construed by the courts having jurisdiction over such matters. In the event the
maturity of the Note is accelerated by reason of any provision of this Mortgage
including, without limitation, an election by Mortgagee resulting from an Event
of Default (or an event permitting acceleration) under this Mortgage or any
other Loan Documents, voluntary prepayment of the Note, or otherwise, then
earned interest may never include more than the maximum amount permitted by law,
computed from the dates of each advance of the Obligations until payment, and
any interest in excess of the maximum amount permitted by law shall be canceled
automatically and, if theretofore paid, shall at the option of Mortgagee either
be rebated to Mortgagor or credited on the principal amount of the Note or if
all principal has been repaid, then the excess shall be rebated to Mortgagor.
The aggregate of all interest (whether designated as interest, service charges,
points or otherwise) contracted for, chargeable, or receivable under the Note,
this Mortgage, or any other Loan Document shall under no circumstances exceed
the maximum legal rates upon the unpaid principal balance of the Note remaining
unpaid from time to time. In the event such interest does exceed the maximum
legal rate, it shall be deemed a mistake and such excess shall be canceled
automatically and if theretofore paid, rebated to Mortgagor or credited on the
principal amount of the Note, or if the Note has been repaid, then such excess
shall be rebated to Mortgagor.
-50-
<PAGE>
5.16 No Statute of Limitations. The pleadings of any statute of
-------------------------
limitations as a defense to any and all obligations secured by this Mortgage are
hereby waived to the full extent permissible by law.
5.17 Late Charges. In the event that any installment of principal,
------------
interest or escrow deposit shall become overdue, a "late charge" of four cents
($.04) for each dollar ($1.00), or part thereof so overdue, may be charged to
Mortgagor by Mortgagee for the purpose of defraying Mortgagee's expenses
incident to handling such delinquent payment. This charge shall be in addition
to, and not in lieu of, any other remedy Mortgagee may have and is in addition
to any reasonable fees and charges of any agents or attorneys which Mortgagee is
entitled to employ on any default hereunder whether authorized herein or by law.
Such "late charges", if not previously paid, shall, at the option of Mortgagee,
be added to and become part of the succeeding monthly payment to be made under
the Note and secured by this Mortgage.
5.18 Waiver of Jury Trial. Mortgagor hereby waives any right to trial by
--------------------
jury with respect to any action or proceeding (a) brought by Mortgagor,
Mortgagee or any other Person relating to (i) the Obligations and/or any
understandings or prior dealings between the parties hereto or (ii) the Loan
Documents, or (b) to which Mortgagee is a party.
5.19 Continuing Effectiveness. This Mortgage shall cover any and all
------------------------
advances made pursuant to the Loan Documents, rearrangements and renewals of the
Obligations and all extensions in the time of payment thereof, whether such
advances, extensions or renewals are evidenced by new promissory notes or other
instruments hereafter executed and irrespective of whether filed or recorded.
Likewise, the execution of this Mortgage shall not impair or affect any other
security which may be given to secure the payment of the Obligations, and all
such additional security shall be considered as cumulative. The taking of
additional security, execution of partial releases of the security, or any
extension of time of payment of the Obligations shall not diminish the force,
effect or lien of this Mortgage and shall not affect or impair the liability of
any maker, surety or endorser for the payment of the Obligations.
-51-
<PAGE>
IN WITNESS WHEREOF, Mortgagor has executed this Mortgage as of the date and year
first above written.
MORTGAGOR
OVERSEAS PARTNERS (MADISON PLAZA), LLC, an Illinois
limited liability company
By: Overseas Partners (333), Inc., an Illinois
corporation, Manager
By: /s/ Michael J Molletta
-------------------------------------
Name: Michael J. Molletta
-----------------------------------
Its: Vice President
------------------------------------
STATE OF Georgia )
------------
) ss
COUNTY OF Cobb )
------------
I, Anne Marie Garavaglia , a notary public in and for said County, in the
---------------------
State aforesaid, DO HEREBY CERTIFY that Michael J Molleta, the Vice President of
-----------------
Overseas Partners (333) Inc., personally known to me to be the same person whose
- ----------------------------
name is subscribed to the foregoing instrument, appeared before me this day in
person and acknowledged that he/she signed, sealed and delivered the said
instrument in his/her capacity as Vice President of such Company as his/her free
---------------- ---------
and voluntary act, for the uses and purposes therein set forth.
GIVEN under my hand and official seal, this 13th day of December, 1998.
-----
/s/ Anne Marie Garavaglia
-----------------------------------------
Notary Public
My commission expires: ------------------
Notary Public, Cobb Count, Georgia
My Commision Expires January 28, 2002
THIS TABLE OF CONTENTS IS PROVIDED FOR CONVENIENCE ONLY AND IS NOT A PART OF THE
ATTACHED MORTGAGE.
-52-
<PAGE>
EXHIBIT 10 (VVV)
<PAGE>
GUARANTY
--------
DECEMBER 15, 1998
WHEREAS, NEW YORK LIFE INSURANCE COMPANY, a New York mutual insurance
company (the "Lender") has agreed to make a loan to OVERSEAS PARTNERS (MADISON
PLAZA), LLC, an Illinois limited liability company, (the "Borrower") in the
principal sum of ONE HUNDRED TWENTY-FIVE MILLION and No/100 Dollars
($125,000,000.00) (the "Loan"), which Loan will be (a) evidenced by and payable
in accordance with the provisions of that certain promissory note dated of even
date herewith in the principal sum of $125,000,000.00 given by the Borrower to
the Lender (as the same may be from time to time amended, the "Note"), and (b)
secured by that certain Mortgage, Assignment of Leases and Rents and Security
Agreement dated of even date herewith given by the Borrower to Lender with
respect to certain premises located in Chicago, Illinois, as more particularly
described therein (the "Premises"), and intended to be duly recorded in Cook
County, Illinois (as the same may be from time to time amended, the "Mortgage"),
and
WHEREAS, the Lender is willing to make the Loan only if the undersigned
parties, Overseas Partners Capital Corp., a Delaware corporation ("OPCC") and
Overseas Holding Company, Inc., a Delaware corporation ("Holding") (hereinafter
referred to, jointly and severally, as the "Guarantor"), execute and deliver
this Guaranty and guarantee payment to the Lender of the Debt (as herein
defined) in the manner hereinafter provided;
WHEREAS, Guarantor will directly benefit from the making of the Loan by the
Lender to the Borrower;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and legal sufficiency of which are hereby
acknowledged, and in order to induce the Lender to make the Loan to the
Borrower, Guarantor hereby acknowledges, agrees and confirms that all of the
above recitals are true, correct and complete and hereby guarantees, absolutely,
irrevocably and unconditionally, to the Lender the full and timely payment of
the Debt and covenants and agrees with the Lender as follows:
1. DEFINITIONS. All capitalized terms used in this Guaranty not otherwise
------------
defined herein shall have the meaning ascribed to such terms in the Mortgage.
The term "Debt" as used in this Guaranty shall mean the following:
(a) any and all costs, expenses and fees for the following matters
relating to leases of all or any portion of the Premises (even though the actual
payment of such amounts may occur or be due and payable after Borrower no longer
holds legal or beneficial title to the Premises):
(i) all initial tenant improvements required by leases to be paid for
by landlord to prepare initial space for new occupancy by tenants
pursuant to leases entered into before or during Borrower's
ownership of legal or beneficial title to the Premises;
<PAGE>
(ii) all leasing commissions required to be paid by landlord with
respect to the initial term (but not any renewal, extension or
expansion thereof) of new leases entered into before or during
Borrower's ownership of legal or beneficial title to the
Premises;
(iii) all tenant improvements required by leases to be paid for by
landlord as the result of any lease extension or renewal which
is exercised by, or effected with respect to, any tenant during
Borrower's ownership of legal or beneficial title to the
Premises, but only such tenant improvements as are required to
be paid for by landlord prior to the expiration of the then-
existing term or with respect to the applicable extension or
renewal term;
(iv) all leasing commissions required to be paid by landlord as a
result of any lease extension or renewal which is exercised by,
or effected with respect to, any tenant during Borrower's
ownership of legal or beneficial title to the Premises, but
only such commissions as are payable with respect to the time
periods for which such extension are extended or renewed (and
not any further extension, renewal or expansion not exercised
during Borrower's ownership);
(v) all initial tenant improvements required by leases to be paid
for by landlord to prepare initial expansion space for new
occupancy by tenants as a result of any lease expansion which
is exercised by, or effected with respect to, any tenant during
Borrower's ownership of legal or beneficial title to the
Premises;
(vi) all leasing commissions required to be paid by landlord with
respect to the ten-n of any lease expansion which is exercised
by, or effected with respect to, any tenant during Borrower's
ownership of legal or beneficial title to the Premises (but not
any further renewal, extension or expansion thereof not
exercised during Borrower's ownership);
(b) any losses, damages, costs and expenses incurred by Lender as a result
of (i) any material misstatement of fact (A) by Borrower or any person or entity
constituting Borrower to induce Lender to advance the principal amount evidenced
hereby or (B) contained in any Loan Document, (ii) fraud committed by Borrower
or any person or entity constituting Borrower, (iii) application of any
insurance proceeds, condensation awards, trust funds, or Rents (as defined in
the Mortgage) by Borrower, Borrower's agents or Borrower's authorized
representatives in a manner which is not in accordance with the provisions of
the Mortgage, (iv) breach of any representation or warranty contained in
Subsections 2.03C or D of the Mortgage, (v) default with
- ----------------------
<PAGE>
respect to any covenant contained in Subsection 1.05F of the Mortgage, (vi) any
----------------
default with respect to Borrower's obligations to pay real estate taxes and
assessments due and payable against the Premises during the time period of
Borrower's ownership thereof pursuant to Section1.02 of the Mortgage or to pay
-----------
insurance premiums pursuant to Section 1.03 of the Mortgage or (vii) any loss,
------------
damage, expense or liability on the part of Lender (including, without
limitation, reasonable attorneys' fees actually incurred and disbursements)
arising from, in respect of, as a consequence of or in connection with any of
the following: (A) the existence of any circumstance or the occurrence of any
action described in clause (i) of Subsection 1.05F(l)(d) of the Mortgage; (B)
-----------------------
claims asserted by any person or entity (including, without limitation, any
governmental agency or quasi-governmental authority, board, bureau, commission,
department, instrumentality or public body, court, or administrative tribunal)
in connection with or in any way arising out of the presence, storage, USE,
disposal, generation, transportation, or treatment of any Hazardous Material (as
defined in the Mortgage) on, in or under the Premises; (C) the violation or
claimed violation of any Hazardous Materials Laws (as defined in the Mortgage)
in regard to the Premises, whether such violation or claimed violation occurred
prior to or after the date of this Note and regardless of whether such violation
occurred prior to or after the time that Borrower became owner of the Premises
but only to the extent such violation or claim violation relates to or arises or
occurs prior to or during ownership or operation of the Premises by Borrower,
Borrower's affiliate, Borrower's agents, or authorized representatives of
Borrower or its affiliates; (D) the preparation of an environmental audit on the
Premises, whether conducted or authorized by Borrower, Lender or a third party
or the implementation of any environmental audit's recommendations; or (E) all
agreements and indemnification obligations of Borrower under that certain
Environmental Indemnity Agreement of even date herewith in favor of Lender.
(c) any and all costs and expenses, including without limitation
reasonable attorneys' fees, incurred by Lender in enforcing, defending or
protecting its rights, remedies and recourses hereunder, whether or not suit is
filed in connection with same, or in connection with Guarantor or any party
comprising Guarantor, becoming a party to a voluntary or involuntary federal or
state bankruptcy, insolvency or other proceeding.
2. GUARANTY. Guarantor hereby absolutely and unconditionally guarantees
---------
under Lender the full and prompt payment when due, and agrees to pay to Lender
immediately upon demand after Borrower's failure to pay all or any portion of
the Debt.
3. FINANCIAL CONDITION AND INFORMATION. Guarantor hereby represents and
------------------------------------
warrants that all financial statements of Guarantor heretofore delivered to the
Lender by or on behalf of Guarantor are true and correct in all material
respects and fairly present the financial condition of Guarantor as of the
respective dates thereof, and no material adverse change has occurred in the
financial conditions reflected therein since the respective dates thereof except
as disclosed by Borrower or Guarantor to Lender in writing. In addition,
Guarantor covenants that so long as any portion of the Debt remains outstanding
and unpaid, Guarantor will furnish Lender annually, within one hundred twenty
(120) days next following the fiscal year of the Guarantor, with a complete copy
of an annual financial statement with respect to Guarantor prepared in
accordance with generally accepted accounting principles consistently applied
and certified by the chief financial officer of Guarantor to be true, correct
and complete, and otherwise in form and substance reasonably satisfactory to
Lender. Together with each such financial statement, Guarantor shall furnish to
Lender a certificate signed by a duly authorized representative of such
Guarantor certifying on the date thereof that to the best of such
representative's knowledge either
<PAGE>
that there does or does not exist an event which constitutes, or which upon
notice or lapse of time or both would constitute, an Event of Default under this
Agreement and, if a default or Event of Default exists, the nature thereof and
the period of time it has existed (a "Certification"). Guarantor shall furnish
to Lender, within ten (10) days after request, such further detailed financial
and other information (including, but not limited to, financial statements) as
may be requested by Lender with respect to Guarantor, as of a date not earlier
than that specified by Lender in such request, together with a Certification
with respect thereto.
4. SEPARATE OBLIGATION. Guarantor hereby expressly agrees that this
--------------------
Guaranty is independent of, and in addition to, all collateral granted, pledged
or assigned under the Note, Mortgage and other documents and instruments given
to evidence or secure the Loan, and Guarantor hereby consents that from time to
time, before or after any default by the Borrower, with or without further
notice to or assent from Guarantor:
(a) any security at any time held by or available to the Lender for
any obligation of the Borrower, or any security at any time held by or
available to the Lender for any obligation of any other person or party
secondarily or otherwise liable for all or any portion of the Debt,
including any guarantor of the Debt, or any obligations of Guarantor
hereunder, may be settled, exchanged, surrendered or released and the
Lender may fail to set off and may release, in whole or in part, any
balance of any deposit account or credit on its books in favor of the
Borrower, or any such other person or party;
(b) any obligation of the Borrower, or of any such other person or
party, may be changed, altered, renewed, extended, continued, accelerated,
surrendered, compromised, settled, waived or released in whole or in part,
or any default with respect thereto waived; and
(c) the Lender may extend further credit in any manner whatsoever to
the Borrower, and generally deal with the Borrower or any of the above
mentioned security, deposit account, credit on it books or other person or
party as the Lender may see fit;
and Guarantor shall remain bound under this Guaranty, without any loss of rights
by the Lender and without affecting the liability of Guarantor, notwithstanding
any such exchange, surrender, release, change, alteration, renewal, extension,
continuance, compromise, waiver, inaction, extension of further credit or other
dealing.
5. WAIVER. Guarantor hereby waives:
(a) notice of acceptance of this Guaranty and of the making of the
Loan or any advance thereof by the Lender to the Borrower;
(b) presentment and demand for payment of the Debt or any portion
thereof,
(c) protest and notice of dishonor or default to Guarantor or to any
other person or party with respect to the Debt or any portion
thereof,
(d) all other notices to which Guarantor might otherwise be entitled
except as specified in this Guaranty; and
<PAGE>
(e) any demand under this Guaranty.
In addition, Guarantor hereby waives, and agrees to waive, the benefits of any
provision of law requiring that Lender exhaust any right or remedy, or take any
action, against the Borrower, any Guarantor, any other person and/or property.
6. EVENT OF DEFAULT. If Guarantor violates any provision of this
-----------------
Guaranty (and such violation is not cured within five (5) business days after
notice from Lender to Guarantor thereof, provided that Guarantor will not be
entitled to any notice of default under this clause more than four (4) times
during the term hereof)' then, and in such event, the Lender may exercise any
and all rights and remedies it may have at law, in equity or as provided herein.
7. GUARANTY OF PAYMENT. This is a guaranty of payment and not of
---------------------
collection and Guarantor further waives any right to require that any action be
brought against the Borrower or any other person or party or to require that
resort be had to any security or to any balance of any deposit account or credit
on the books of the Lender in favor of the Borrower or any other person or
party. Any payment on account of or reacknowledgment of the Debt by the
Borrower, or any other party liable therefor shall be deemed to be taken or made
on behalf of Guarantor and shall serve to start anew the statutory period of
limitations applicable to the Debt.
8. SUCCESSORS AND ASSIGNS. Each reference herein to the Lender shall be
----------------------
deemed to include its successors and assigns, in whose favor the provisions of
this Guaranty shall also inure. Each reference herein to Guarantor shall be
deemed to include the heirs, executors, administrators, legal representatives,
successors and assigns (as applicable) of Guarantor, all of whom shall be bound
by the provisions of this Guaranty, provided, however, that Guarantor shall in
no event nor under any circumstance have the right, without obtaining the prior
written consent of the Lender, to assign or transfer Guarantor's obligations and
liabilities under this Guaranty, in whole or in part, to any, other person,
party or entity.
9. MISCELLANEOUS. The term "Guarantor" as used herein shall, if this
---------------
Guaranty is assigned by more than one party, unless otherwise stated herein,
mean the "Guarantor and, if Guarantor consists of more than one party, each of
them" and each undertaking herein contained shall be their joint and several
undertaking. If there is more than one party comprising Guarantor, the Lender
may proceed against none, one or more of Guarantor at one time or from time to
time as it sees fit in its sole and absolute discretion. If any party hereto
shall be a partnership, the agreements and obligations on the part of Guarantor
herein contained shall remain in force and application notwithstanding any
changes in the individuals composing the partnership and the term "undersigned"
shall include any altered or successive partnerships but the predecessor
partnerships and their partners shall not thereby be released from any
obligations or liability hereunder. If any party hereto shall be a corporation,
the agreements and obligations on the part of Guarantor herein contained shall
remain in force and application notwithstanding the merger, consideration,
reorganization or absorption thereof, and the term "undersigned" shall include
such new entity, but the old entity shall not thereby be released from any
obligations or liabilities hereunder.
10. DELAY NOT WAIVER. No delay on the part of the Lender in exercising
-----------------
any right or remedy under this Guaranty or failure to exercise the same shall
operate as a waiver in whole or in part of any such right or remedy. No notice
to or demand on Guarantor shall be deemed to be a waiver of the obligation of
Guarantor or of the right of the Lender to take further action without notice or
demand as provided in this Guaranty. No course of dealing between Guarantor
<PAGE>
and the Lender shall change, modify or discharge, in whole or in part, this
Guaranty or any obligations of Guarantor hereunder.
11. MODIFICATION IN WRITING ONLY. This Guaranty may only be modified,
-----------------------------
amended, changed or terminated by an agreement in writing signed by the Lender
and Guarantor. No waiver of any term, covenant or provision of this Guaranty
shall be effective unless given in writing by the Lender and if so given by the
Lender shall only be effective in the specific instance in which given. The
execution and delivery hereafter to the Lender by Guarantor of a new instrument
of guaranty or any reaffirmation of guaranty, of whatever nature, shall not
terminate, supersede or cancel this instrument, unless expressly so provided
therein, and all rights and remedies of the Lender hereunder or under any
instrument of guaranty hereafter executed and delivered to the Lender by
Guarantor shall be cumulative and may be exercised singly or concurrently.
12. ABSOLUTE AND UNCONDITIONAL OBLIGATIONS. Guarantor acknowledges that
----------------------------------------
this Guaranty and Guarantor's obligations under this Guaranty are and shall at
all times continue to be absolute, irrevocable and unconditional in all
respects, and shall at all times be valid and enforceable irrespective of any
other agreements or circumstances of any nature whatsoever which might otherwise
constitute a defense to this Guaranty and the obligations of Guarantor under
this Guaranty or the obligations of any other person or party (including,
without limitation, the Borrower) relating to this Guaranty or the obligations
of Guarantor hereunder or otherwise with respect to the Debt, including, but not
limited to, a foreclosure of the Mortgage or the realization upon any other
collateral given, pledged or assigned as security for all or any portion of the
Debt, or the filing of a petition under Title 11 of the United States Code with
regard to the Borrower or Guarantor, or the commencement of an action or
proceeding for the benefit of the creditors of the Borrower or Guarantor, or the
obtaining by the Lender of title to, respectively, the Premises or to any
collateral given, pledged or assigned as security for the Debt by reason of the
foreclosure or enforcement of the Mortgage or any other pledge or security
agreement, the acceptance of a deed or assignment in lieu of foreclosure or
sale, or otherwise. This Guaranty sets forth the entire agreement and
understanding of the Lender and Guarantor with respect to the matters covered by
this Guaranty, and Guarantor acknowledges that no oral or other agreements,
understandings, representations or warranties exist with respect to this
Guaranty or with respect to the obligations of Guarantor under this Guaranty,
except those specifically set forth in this Guaranty.
13. CONSENT, CAPACITY AND AUTHORITY. If Guarantor or any party comprising
--------------------------------
Guarantor is a corporation, partnership or association, as to such entity, this
Guaranty has been validly authorized, executed and delivered by such entity.
Such entity represents and warrants to the Lender that it has the corporate or
partnership, as applicable, power to do so and to perform its obligations under
this Guaranty and this Guaranty constitutes the legally binding obligation of
Guarantor fully enforceable against such entity in accordance with the terms
hereof. Guarantor further represents and warrants to the Lender that:
(a) neither the execution and delivery of this Guaranty nor the
consummation of the transactions contemplated hereby nor compliance with the
terms and provisions hereof will violate any applicable provision of law or any
applicable regulation or other manifestation of governmental action; and
<PAGE>
(b) all necessary approvals, consents, licenses, registrations and
validations of any governmental regulatory body, including, without limitation,
approvals required to permit Guarantor to execute and carry out the provisions
of this Guaranty, for the validity of the obligations of Guarantor hereunder and
for the making of any payment or remittance of any funds required to be made by
Guarantor under this Guaranty, have been obtained and are in full force and
effect.
14. NO CONTRIBUTION RIGHT. Notwithstanding any payments made by Guarantor
----------------------
pursuant to the provisions of this Guaranty, Guarantor shall not seek to enforce
or collect upon any rights which it now has or may acquire against the Borrower
either by way of subrogation, indemnity, reimbursement or contribution for any
amount paid under this Guaranty or by way of any other obligations whatsoever of
the Borrower to Guarantor, until the entire Debt and expenses in connection
therewith shall have been paid in full, nor file, assert or receive payment on
any claim, whether now existing or hereafter arising, against the Borrower in
the event of the commencement of a case by or against the Borrower under Title
11 of the United States Code. In the event either a petition is filed under
said Title 11 of the United States Code with regard to the Borrower or an action
or proceeding is commenced for the benefit of the creditors of the Borrower,
this Guaranty shall at all times thereafter remain effective in regard to any
payments or other transfers of assets to the Lender received from or on behalf
of the Borrower prior to notice of termination of this Guaranty and which are or
may be held voidable on the grounds of preference or fraud, whether or not the
Debt has been paid in full.
15. NOTICE TO PARTIES. All notices and demand hereunder shall be in
-----------------
writing and shall be deemed to have been sufficiently given or served for all
purposes when presented personally or sent by certified or registered mail with
return receipt requested or by generally recognized overnight delivery service,
addressed to the parties at the addresses stated below, or at such other address
as either party may hereafter notify the other in writing as aforesaid:
Guarantor: OVERSEAS PARTNERS CAPITAL CORP.
115 Perimeter Center Place, Suite 940
Atlanta, Georgia 30346
Attn: Legal Department
with a courtesy copy to: OVERSEAS PARTNERS CAPITAL CORP,
Mintflower Place
P.O. Box 1581
8 Par-la-Ville Road
Hamilton HM GX
Bermuda
Attn: Thomas E. Butler, Esq.
Lender: NEW YORK LIFE INSURANCE COMPANY
51 Madison Avenue
New York, New York I 00 IO
Attn: Senior Vice President
Mortgage Finance Department
<PAGE>
Service of any such notice or demand so made shall be deemed effective on the
day of actual delivery as shown by the addressee's return receipt or the
expiration of forty-eight (48) hours after the date sent by generally recognized
overnight delivery service or mailed, whichever is the earlier in time, except
that service of any notice of default or notice of sale provided or required by
law shall, if mailed, be deemed effective on the date of mailing.
16. GOVERNING LAW. This Guaranty is, and shall be deemed to be, a
---------------
contract entered into under and pursuant to the laws of the State of Illinois.
17. JURISDICTION. Guarantor hereby agrees that the venue of any
--------------
litigation arising in connection with the Debt or in respect of any of the
obligations of Guarantor under this Guaranty, to the extent permitted by law,
may at the election of Lender be in Cook County, Illinois, Guarantor hereby
waiving all objections thereto. Guarantor agrees to submit to personal
jurisdiction in the State of Illinois in any action or proceeding arising out of
this Guaranty. Guarantor hereby agrees and consents that without limiting other
methods of obtaining jurisdiction, personal jurisdiction over Guarantor in any
such action or proceeding may be obtained within or without the jurisdiction of
any court located in Illinois and that any process or notice of motion or other
application to any such court in connection with any such action or proceeding
may be served upon Guarantor by registered or certified mail to or by personal
service at the last known address of Guarantor, whether such address be within
or without the jurisdiction of any such court.
18. WAIVER OF SET OFF, ETC, Guarantor absolutely, unconditionally and
----------------------
irrevocably waives any and all right to assert or interpose any defense, setoff,
counterclaim or crossclaim of any nature whatsoever with respect to this
Guaranty or the obligations of Guarantor under this Guaranty or the obligations
of any other person or party (including without limitation, the Borrower)
relating to this Guaranty or the obligations of Guarantor hereunder or otherwise
with respect to the Loan in any action or proceeding brought by the Lender to
collect the Debt, or any portion thereof, or to enforce the obligations of
Guarantor under this Guaranty.
19. RECOURSE OBLIGATION. No exculpatory provisions which may be
---------------------
contained in the Note or in any other document evidencing or securing the Note
shall in any event or under any circumstances be deemed or construed to modify,
qualify, or affect in any manner whatsoever the obligations and liabilities of
Guarantor under this Guaranty.
20. UNCONDITIONAL LIABILITY. The liability of Guarantor shall not be
------------------------
released, diminished, impaired, reduced or adversely affected by the invalidity,
illegality or unenforceability of all or part of the Loan, or any document or
agreement executed in connection with the Loan, for any reason whatsoever,
including without limitation the fact that (i) the Loan, or any part thereof,
exceeds the amount permitted by law, (ii) the act of creating the Loan or any
part thereof is ultra vires, (iii) the officers or representatives executing the
----- -----
Note or the other documents evidencing or securing the Loan or otherwise
creating the Loan acted in excess of their authority, (iv) the Loan violates
applicable usury laws, (v) the Borrower has valid defenses, claims or offsets
(whether at law, in equity or by agreement) which render the Debt or the Loan
wholly or partially uncollectable from the Borrower, (vi) the creation,
performance or repayment of the Loan (or the execution, delivery and performance
of any document or instrument representing part of the Loan or executed in
connection with the Loan, or given to secure the repayment of the Loan) is
illegal, uncollectable or unenforceable, or (vii) the Note or any other
<PAGE>
documents evidencing or securing the Loan have been forged or otherwise are
irregular or not genuine or authentic, it being agreed that Guarantor shall
remain liable hereon regardless of whether the Borrower or any other person be
found not liable on the Loan or any part thereof for any reason.
Notwithstanding this paragraph or any other provision of this Guaranty or any
Loan Document, if all outstanding stock in OPCC is transferred to Holding and
OPCC transfers to Holding all of the outstanding stock in all OPCC subsidiaries
owned as of the date hereof by OPCC, then OPCC shall no longer be liable as
provided under this Guaranty, and Lender and Holding hereby agree that upon the
occurrence of such transfer only Holding shall be liable in accordance with the
terms of this Guaranty; and promptly upon the written request of Holding (which
request shall contain the certification of Holding and OPCC that such transfers
have occurred), Lender shall execute and deliver an acknowledgment that only
Holding is liable hereunder.
<PAGE>
[SIGNATURE PAGE TO GUARANTY]
IN WITNESS WHEREOF, Guarantor has duly executed this Guaranty under seal the
day and year first above set forth.
GUARANTOR:
OVERSEAS PARTNERS CAPITAL
CORP., a Delaware corporation
By: /s/ Michael J. Molletta
-------------------------
Title: Vice President
--------------------
Attest: /s/ Anne Marie Garavaglia
-------------------------
Title: Attorney
-------------------------
(Corporate Seal)
OVERSEAS HOLDING COMPANY,
INC., a Delaware Corporation
By: /s/ Michael J. Molletta
-------------------------
Title: Vice President
--------------------
Attest: /s/ Anne Marie Garavaglia
-------------------------
Title: Attorney
-------------------------
(Corporate Seal)
<PAGE>
PROMISSORY NOTE
---------------
$125,000,000.00 Chicago, Illinois
December 15, 1998
FOR VALUE RECEIVED, OVERSEAS PARTNERS (MADISON PLAZA), LLC, an Illinois
limited liability company, having an office at 115 Perimeter Center Place, Suite
940, Atlanta, Georgia 30346 ("Maker"), promises to pay to NEW YORK LIFE
INSURANCE COMPANY, a New York mutual insurance company, having its principal
office at 51 Madison Avenue, New York, New York 10010 ("Holder"), or order, at
its principal office in New York City, New York, or at such other place as may
be designated in writing by Holder, the principal sum of One Hundred Twenty Five
Million and No/100 Dollars ($125,000,000.00) (the "Principal Indebtedness"),
lawful money of the United States, together with interest thereon calculated on
the basis of a 360 day year at the rate of six and nine-tenths percent (6.90%)
per annum, payable in monthly installments of principal and interest in the sum
of Eight Hundred Twenty-Three Thousand Two Hundred Fifty-One and No/100 Dollars
($823,251.00), commencing on the tenth (10th) day of February 1999, and payable
on the tenth day (10th) of each and every month thereafter for one hundred
forty-three (143) months, with the last installment being due and payable on
January 10, 2011 (the "Maturity Date", at which time the entire unpaid balance
together with accrued interest shall be due and payable. Such monthly
installments shall be applied first to the payment of interest and the balance
to the reduction of principal. Maker shall also pay one (1) installment of
interest only, which shall be due and payable on the date of disbursement
hereunder, and represents interest from the date of disbursement through and
including January 9, 1999.
This Note is secured by, among other things, (i) a Mortgage, Assignment of
Leases and Rents and Security Agreement (the "Mortgage" dated as of the date
hereof made by Maker to Holder and encumbering certain premises situate in the
County of Cook, State of Illinois and known as Madison Plaza, 200 West Madison,
Chicago, Illinois and the improvements thereon, along with other property more
particularly described in the Mortgage (collectively the "Secured Property"),
and (ii) an Assignment of Leases, Rents, Income and Cash Collateral dated as of
the date hereof from Maker to Holder. Each of the documents mentioned in this
paragraph and all other documents either evidencing or further securing the
Principal Indebtedness are collectively referred to herein as the "Loan
Documents," and the terms and provisions of the Loan Documents are hereby fully
incorporated into this Note by this reference.
From and after the earlier to occur of (i) an Event of Default (as defined
in the Mortgage) or (ii) maturity of this Note, either according to its terms or
as the result of a declaration of maturity made by Holder in accordance with the
terms hereof, the entire principal balance remaining unpaid hereunder shall
automatically bear an annual interest rate (in place of the rate hereinabove
specified) equal to twelve and ninety hundredths percent (12.90%) per annum (the
"Increased Rate") unless applicable law requires a lesser such rate, in which
event the maximum rate permitted by law may be charged by Holder.
<PAGE>
No privilege is reserved to prepay the Principal Indebtedness prior to
February 10, 2001 (the "Closed Period"). Beginning on February 10, 2001,
privilege is reserved by Maker to prepay the entire principal balance together
with accrued interest thereon to the date of payment on such date or any
subsequent monthly installment date upon not less than sixty (60) days' prior
written notice to Holder of Maker's intention to make such prepayment, provided
there is paid, in addition to interest accrued to the date of such prepayment, a
prepayment charge which shall be equal to the greater of (a) one percent (1%) of
the principal balance prepaid, or (b) the present value as of the date of
prepayment of the remaining scheduled payments of principal and interest
(including any balloon payment), determined by discounting such payments at the
"Monthly Equivalent Treasury Note Rate" (hereinafter defined) plus fifty (50)
basis points, less the amount of principal being prepaid. The Monthly
Equivalent Treasury Note Rate for purposes of this provision shall be the rate
which, when compounded monthly, results in a yield that is equivalent to the
yield on the U.S. Treasury Note, which is compounded semi-annually, having a
maturity date closest to the Maturity Date. In the event that full prepayment
is made within ninety (90) days of the Maturity Date and after not less than
sixty (60) days' prior written notice to Holder, there shall be no prepayment
charge.
In the event the outstanding principal balance hereof shall become due and
payable as a result of (a) an Event of Default (as such term is defined in the
Mortgage) causing acceleration under this Note or the Loan Documents, which
Event of Default shall be conclusively deemed to be a willful default for
purposes of avoiding the prepayment charges to which Holder is entitled; (b) the
exercise by Maker of any right of redemption or other action to prevent a
foreclosure of the Secured Property; or (c) an acceleration by Holder as a
result of the sale or further encumbrance of the Secured Property in violation
of the applicable provisions of the Mortgage; then, in such event, Maker shall
pay the prepayment charge which would otherwise be applicable hereunder and such
charge shall be added to the indebtedness and secured by the Loan Documents; or
if at that time there is no such privilege of prepayment (e.g., during the
Closed Period), then, to the extent permitted by law, such prepayment charge
shall be calculated in the same manner as specified above. Notwithstanding the
foregoing, if a prepayment penalty is due and payable as a result of a casualty
or condemnation with respect to the Secured Property, such prepayment penalty
shall not be imposed on either the amount of the condemnation award or insurance
proceeds applied to the outstanding balance hereunder or on any other amounts
prepaid as a result of such casualty or condemnation.
Upon breach of any promise made or condition set forth in this Note or in
any of the other Loan Documents, including, without limitation, a failure to
make any payment of any installment of interest and/or principal as and when the
same becomes due and payable (whether by extension, acceleration, or otherwise)
and Maker's failure to cure such breach within the applicable grace period
provided in the Mortgage, if any, or if Maker should make an assignment for the
benefit of creditors, become insolvent, or be adjudged a bankrupt, or a
receiver, trustee, custodian, liquidator or like officer is appointed to take
custody, control or possession of any property subject to any lien, encumbrance
or security interest securing payment of this Note, or upon the occurrence of
any other Event of Default, then and in any such events, Holder may, at its
option, declare this Note and the entire Principal Indebtedness to be
immediately due and payable and collectible then or thereafter as Holder may
elect, regardless of the stated Maturity Date.
<PAGE>
Should the Principal Indebtedness or any part thereof be collected at law
or in equity, or in bankruptcy, receivership, or any other court proceeding
(whether at the trial or appellate level), or should this Note be placed in the
hands of attorneys for collection upon default, Maker agrees to pay, in addition
to the principal, prepayment charge, interest and any other outstanding amounts
due and payable hereon, all costs of collecting or attempting to collect this
Note and enforcing Holder's remedies under the Loan Documents, including
reasonable attorneys' fees and expenses, and the same shall constitute
additional indebtedness secured by the Loan Documents.
Maker recognizes that any default in the payment of any installment of
principal and/or interest due hereunder on the date the same is due will result
in loss and additional expense to Holder in servicing the Principal
Indebtedness, handling such delinquent payments and meeting its other financial
obligations, and that the extent of such loss and additional expenses is
extremely difficult and impractical to ascertain. Maker therefore agrees that
in the event any installment of principal and/or interest due hereunder is not
paid on the date the same is due and payable, without regard to any grace
periods, a late charge of four percent (4%) of the overdue installment of
principal and/or interest shall be paid by Maker and that such amount is a
reasonable estimate of such loss and expense and may be charged by Holder, at
its option, for the purpose of defraying such loss and expense, unless
applicable law requires a lesser such charge, in which event the maximum rate
permitted by such law may be charged by Holder for said purposes.
The failure of Holder to exercise the option for acceleration of maturity,
foreclosure or any other remedies provided in the Loan Documents following any
default as aforesaid or to exercise any other option granted to it hereunder,
under the Mortgage or under any of the other Loan Documents, in any one or more
instances, or the acceptance by Holder of partial payments or partial
performance, shall not constitute a waiver of any such default, but such option
shall remain continuously in force. Acceleration of maturity, once claimed
hereunder by Holder, may at its option be rescinded by written acknowledgement
to such effect, but the tender and acceptance of partial payment or partial
performance alone shall not in any way affect or rescind such acceleration of
maturity.
Maker hereby covenants and agrees that, together with and in addition to
the monthly payments of principal and/or interest payable under the terms of
this Note, Maker will deposit with Holder of this Note or its agent, as directed
by Holder, until this Note is fully paid, installments of insurance premiums and
Impositions (as defined and required in the Mortgage). Amounts held hereunder
shall not be deemed to be trust funds, but may be commingled with the general
funds of Holder.
It is the intention of Maker and Holder to conform strictly to the usury
laws now or hereafter in force in the State of Illinois, and any interest
payable under this Note, the Mortgage, the other Loan Documents, and/or any of
the other documents or instruments executed by Maker in connection with the loan
made or to be made hereunder shall be subject to reduction to the amount not in
excess of the maximum non-usurious amount allowed under the usury laws of the
State of Illinois as now or hereafter construed by the courts having
jurisdiction over such matters. If the aggregate of all interest (whether
designated as interest, service charges, points or otherwise) contracted for,
chargeable or receivable under this Note, the Mortgage and any other
<PAGE>
Loan Document should exceed the maximum legal rate, it shall be deemed a mistake
and such excess shall be canceled automatically and, if theretofore paid, shall
at the option of Holder either be rebated to maker of credited on the principal
amount of this Note, or, if the Note has been repaid, such excess shall be
rebated to Maker. In the event the Maturity Date is accelerated by reason of
any provision of this Note of by reason of an election by Holder resulting from
an Event of Default under the loan Documents, voluntary prepayment by Maker, or
otherwise, then earned interest may never include more than the maximum amount
permitted by law, computed from the dates of each advance of loan proceeds
hereunder until payment, and any interest in excess of the maximum amount
permitted by law shall be canceled automatically and, if theretofore paid, shall
at the option of Holder either be rebated to Maker or credited on the principal
amount of this Note or, it the Note has been repaid, the excess shall be rebated
to the Maker. This provision shall control every other provision of all
agreements between Maker and Holder.
Maker hereby waives presentment, protest, notice of protest, notice of
dishonor and diligence in collection, and any and all other notices and matters
of a like nature, except for those expressly required by the Mortgage or this
Note. Maker consents to any extension of time (whether one or more) of payment
hereof, release of all or any part of the security for the payment of this
obligation or release of any person or entity liable for payment of this Note.
Any such extension or release may be made without notice to any such party and
without discharging said party's liability hereunder.
This Note may not be changed orally, but only by an agreement in writing,
signed by the party against whom enforcement of any waiver, change, modification
or discharge is sought.
Maker agrees hereby to waive and renounce any and all homestead exemption
rights against debt evidenced hereby or any renewal or extension thereof.
No failure or delay on the part of Holder in exercising any right, power or
privilege under this Note and no course of dealing between Maker and Holder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein expressly provided are cumulative and not exclusive of any
rights or remedies which Holder would otherwise have at law or equity. No
notice to or demand in similar or other circumstances or constitute a waiver of
the right of Holder to any other or further action in any circumstances without
notice or demand, except as expressly provided in the Loan Documents.
Whenever in the Note one of the parties hereto is named or referred to, the
heirs, legal representatives, successors and assigns of such party shall be
included and all covenants and agreements contained in this Note by or on behalf
of Maker or by or on behalf of Holder shall bind and inure to the benefit of
such part's heirs, legal representatives, successors and assigns, whether so
expressed or not.
The obligations of each person and entity comprising Maker shall be joint
and several.
<PAGE>
The unenforceability or invalidity of any provision or provisions of this
Note as to any persons or entities or circumstances shall not render that
provision or those provisions unenforceable or invalid as to any other persons
or entities or circumstances, and all provisions hereof, in all other respects,
shall remain valid and enforceable.
Maker acknowledges that the ownership (and the continuation thereof) of the
Secured Property by Maker is of a material nature to the loan and the making of
the loan evidenced by this Note. Therefore, Maker agrees that in the event of
any transfer of all or any part of the Secured Property that is prohibited by
the terms of the Mortgage or any other Loan Document, howsoever evidenced or
occasioned, then, at the option of Holder, the entire Principal Indebtedness
along with all accrued interest thereon shall immediately become due and
payable.
In the event of any default by Maker under this Note, the Mortgage or any
other Loan Document, Holder shall have all rights reserved in this Note, the
Mortgage and every other Loan Document and shall have full recourse to the
Secured Property and to the other collateral given by Maker to secure this Note,
provided, however, that any judgment obtained by Holder in any proceeding to
enforce such rights shall be enforced only against the Secured Property and such
other collateral and Maker shall have no personal liability under any Loan
Document except as hereinafter expressly provided. Notwithstanding the
foregoing, Holder shall not in any way be prohibited from naming Maker or any of
its successors or assigns or any person holding under or through them as parties
to any actions, suits or other proceedings initiated by Holder to enforce such
rights or to foreclose its mortgage lien or otherwise realize upon any other
lien or security interest created in any other collateral given to secure the
payment of this Note. The foregoing restriction shall not apply to, and Maker
shall be personally liable for, any losses, damages, costs and expenses incurred
by Holder as a result of (i) any material misstatement of fact (A) by Maker or
any person or entity constituting Maker to induce Holder to advance the
principal amount evidenced hereby or (B) contained in any Loan Document, (ii)
fraud committed by Maker or any person or entity constituting Maker, (iii)
application of any insurance proceeds, condemnation awards, trust funds, or
Rents (as defined in the Mortgage) by Maker, Maker's agents or Maker's
authorized representatives in a manner which is not in accordance with the
provisions of the Mortgage, (iv) breach of any representation or warranty
contained in Subsections 2.03C or D of the Mortgage, (v) default with respect to
--------------------
any covenant contained in Subsection 1.05F of the Mortgage, (vi) any default
---------- -----
with respect to Maker's obligations to pay real estate taxes and assessments due
and payable against the Secured Property during the time period of Maker's
ownership thereof pursuant to Section 1.02 of the Mortgage or to pay insurance
------------
premiums pursuant to Section 1.03 of the Mortgage or (vii) any loss, damage,
------------
expense or liability on the part of Holder (including, without limitation,
reasonable attorneys' fees and disbursements actually incurred) arising from, in
respect of, as a consequence of or in connection with any of the following: (A)
the existence of any circumstance or the occurrence of any action described in
clause (i) of Subsection 1.05F(l)(d) of the Mortgage; (B) claims asserted by any
-----------
person or entity (including, without limitation, any governmental agency or
quasi-governmental authority, board, bureau, commission, department,
instrumentality or public body, court, or administrative tribunal) in connection
with or in any way arising out of the presence, storage, use, disposal,
generation, transportation, or treatment of any Hazardous Material (as defined
in the Mortgage) on, in or under the Secured Property; (C) the violation or
claimed violation of any Hazardous Materials Laws (as defined in the Mortgage)
in regard to the Secured Property, whether such violation or claimed violation
occurred prior to or after the date of this Note and regardless of whether such
<PAGE>
violation occurred prior to or after the time that Maker became owner of the
Secured Property but only to the extent such violation or claimed violation
relates to or arises or occurs prior to or during ownership or operation of the
Secured Property by Maker or as a result of the acts or omissions of Maker,
Maker's affiliates, Maker's agents, or authorized representatives of Maker or
its affiliates; (D) the preparation of an environmental audit on the Secured
Property, whether conducted or authorized by Maker, Holder or a third party or
the implementation of any environmental audit's recommendations; or (F,) all
agreements and indemnification obligations of Maker under that certain
Environmental Indemnity Agreement of even date herewith in favor of Holder.
Whenever used, the words "Maker" and "Holder" shall be deemed to include the
respective heirs, successors, assigns and legal representatives of Maker and
Holder.
This Note is to be construed and enforced according to and governed by the laws
of the State of Illinois.
[NO MORE TEXT ON THIS PAGE]
<PAGE>
IN WITNESS WHEREOF, Maker has executed this Note as of the date first above
written.
MAKER:
OVERSEAS PARTNERS (MADISON PLAZA),
LLC, an Illinois limited liability company
BY: OVERSEAS PARTNERS (333), INC., an Illinois
corporation, Manager
By: /s/ Michael J. Molletta
------------------------
Name: Michael J. Molletta
-------------------
Title: Vice President
--------------
<PAGE>
EXHIBIT 10(XXX)
AGREEMENT AND RELEASE
---------------------
Bruce M. Barone (hereinafter "Executive") and Overseas Partners Ltd.
(hereinafter the "Company") hereby enter into this Agreement and Release
(hereinafter, inclusive of Attachments A and B hereto, the "Agreement") on
December 18, 1998, and in consideration of the mutual promises set forth below,
the parties agree as follows:
1. Termination of Employment. Executive's last day of regular employment with
-------------------------
the Company shall be December 3, 1998 (the "Resignation Date"). Executive
agrees to submit concurrently with this Agreement a letter of resignation in
accordance with this Agreement and effective as of the Resignation Date,
resigning as an employee and director of the Company, including resignation of
his positions as Chief Executive Officer and President of the Company.
Executive agrees to execute such other resignations as may be reasonably
requested by the Company relating to his employment or other affiliated entity
activities.
2. Consideration Upon Termination. As of the Resignation Date, Executive shall
------------------------------
no longer be an employee or director of the Company. In consideration of the
Executive's release in Paragraph 7 of this Agreement, the Company shall pay or
cause to be paid to Executive the amounts and shall provide or cause to be
provided to Executive the benefits listed on Part I of Attachment A (except for
benefits under employee plans to which Executive is legally entitled). In
consideration of the Executive's performance of his obligations under this
Agreement, the Company shall pay or cause to be paid to Executive the amounts
and shall provide or cause to be provided to Executive the benefits listed on
Part II of Attachment A. Executive understands that, except for the benefits to
which Executive may be entitled under the express terms of the Company's
employee and executive benefit plans and policies, and the consideration listed
on Attachment A and in this Agreement, Executive will receive no other wage,
benefit, or other similar payments from the Company or any of its affiliates or
United Parcel Service of America, Inc. ("UPS") or any of its affiliates
(collectively with the Company and its affiliates referred to as the "Affiliated
Entities").
<PAGE>
3. Press Release and Non-Disparagement. Executive has reviewed the press
-----------------------------------
release attached to this Agreement. The Company and the Executive agree not to
issue any other press releases of their own concerning Executive's resignation
or disavow the characterizations in the attached press release. Executive
agrees not to disparage the Affiliated Entities, or any member thereof, or any
of the Affiliated Entities' directors, officers, employees, agents,
representatives or corporate shareholders, orally or in writing, in any
communication with the print or electronic media or with persons in the business
community, or in any communication with any governmental entity, or in any other
manner or with any other person (except if Executive is compelled to testify
under oath to a court, grand jury, Congressional committee or agency). The
Company agrees that it and its affiliates will not disparage Executive, orally
or in writing, in any communication with the print or electronic media or with
persons in the business community, or in any communication with any governmental
entity, or in any other manner or with any other person (except if compelled to
testify under oath to a court, grand jury or Congressional committee or agency).
Executive will be permitted to review those portions of the Company's annual
report for 1998 that directly refer to Executive prior to such annual report's
publication with the right of approval of such section solely to ensure that the
Company has fulfilled its obligations under this Paragraph. Regardless of
whether agreement is reached as to such portions, however, the Company retains
the right to publish an annual report without direct reference to Executive
without such prior approval.
4. Retention as Consultant. For a period commencing as of the Resignation Date
-----------------------
and ending on January 1, 2002, or such earlier time as the arrangement may be
terminated pursuant to the provisions below, Executive shall serve as a
consultant to the Company. During such period, Executive agrees to be available
from time to time to provide consulting advice and assistance to the Company and
its affiliates as reasonably requested. Such consulting services shall be
scheduled so as to not unreasonably interfere with Executive's other activities.
Executive may terminate his service as a consultant at any time. The Company
may terminate Executive's service as a consultant solely for Cause. For these
purposes, Cause shall mean (i) the Executive has been convicted of, or pleaded
nolo contendere to, a felony (other than a traffic-related offense), (ii) the
Executive has been determined in a criminal or civil proceeding to have
2
<PAGE>
embezzled or misappropriated funds of the Company or UPS, (iii) the Executive
has failed to perform his obligations under this Agreement, or (iv) the
Executive has committed an act of fraud upon the Company or UPS. If at any time
the Executive's service as a consultant is terminated, the Executive shall
forfeit any rights under this Agreement to the payments or other benefits
provided for under Part II of Attachment A of this Agreement that have not been
paid to, provided to, or otherwise accrued to Executive prior to such
termination.
5. Assistance with Litigation. Executive agrees that he shall be available on
--------------------------
a reasonable basis to provide consulting advice and assistance to the Affiliated
Entities with respect to, and shall cooperate fully and in good faith with, all
pending or future litigation matters and any investigations, whether conducted
by an external third party or by the Affiliated Entities or any member thereof,
to the extent that such litigation and/or investigations relate to the period of
time corresponding to Executive's tenure as an employee of the Company and/or
UPS. Such consulting services shall be scheduled so as to not unreasonably
interfere with Executive's other activities. Executive shall be compensated for
such litigation assistance as provided in part II of Attachment A.
6. Non-Competition. Executive agrees not to compete (as defined below) with the
---------------
Affiliated Entities for a period beginning on the Resignation Date and ending on
January 1, 2002. For the purposes of this paragraph 6, "compete" shall mean
working or serving as a director, officer, employee, consultant, agent,
representative or in any other capacity (other than a less than 5% shareholder),
with or without compensation, in the small package delivery business or the
small package delivery insurance or reinsurance business or on behalf of one or
more entities engaged in the small package delivery business or the small
package delivery insurance or reinsurance business with respect to such
business, or on behalf of one or more entities otherwise providing services or
products competing with any services or products provided by UPS as of the date
of this Agreement. Executive expressly agrees that the restrictions set forth
in this paragraph 6 have been designed to be reasonable and are no greater than
are required for the protection of the Company and its affiliates. This
provision shall not be construed to prevent Executive from working for a small
package delivery business or an insurance company or other entity engaged in the
business of insurance or reinsurance or other business that provides services or
products
3
<PAGE>
competing with any services or products provided by UPS as of the date of this
Agreement, so long as he does not have managerial responsibilities over and does
not directly work in, for, or on behalf of the entity's small package delivery
business, small package delivery insurance or reinsurance business(es) or other
business that provides services or products competing with any services or
products provided by UPS as of the date of this Agreement.
7. Release. In return for the mutual promises contained in this Agreement,
-------
Executive and the Company agree to the following mutual release:
a. Except for claims for indemnification under paragraph 12 of this
Agreement, claims solely to enforce his rights under this Agreement (subject to
paragraph 8 of this Agreement), and claims for benefits pursuant to an employee
benefit plan, Executive promises to and hereby does release the Affiliated
Entities (whether or not currently existing), and the employees, officers,
directors, agents and representatives of any of them, as well as the trustees of
any of their employee benefit plans (except with respect to claims for benefits
due under the terms of such plans), from any and all actions, causes of action,
suits, debts, claims, complaints, charges, contracts, controversies, agreements,
promises, damages, counterclaims, cross-claims, claims for contribution and/or
indemnity, claims for costs and/or attorneys' fees, judgments and demands
whatsoever, in law or equity, known or unknown, he ever had or now has based on
Executive's employment with the Affiliated Entities or the termination of that
employment. Executive understands that this includes, but is not limited to,
the release of any rights or claims Executive may have under the Age
Discrimination in Employment Act ("ADEA"); Title VII of the Civil Rights Act of
1964 ("Title VII"), which prohibits discrimination in employment based on race,
color, national origin, religion or sex; the Americans with Disabilities Act
("ADA"); and claims pursuant to any other law of the United States or any state
or locality thereof, or of Bermuda, regarding discrimination based on age, race,
sex, pregnancy, religion, national origin, marital status or disability or any
other unlawful basis, claims for alleged violation of any other law, regulation,
ordinance, public policy or common-law duty of the United States or any state or
locality thereof, or of Bermuda, having any bearing whatsoever upon the terms
and conditions of, and/or the cessation of Executive's employment with the
Affiliated Entities. Executive
4
<PAGE>
understands that this also includes a release by Executive of claims for breach
of express or implied contract, wrongful discharge, constructive discharge,
breach of an implied covenant of good faith and fair dealing, negligent or
intentional infliction of emotional distress, and any claims under the Employee
Retirement Income Security Act of 1974 ("ERISA") (except for claims under that
act for benefits due under the terms of an employee benefit plan). This release
is intended to cover all claims in existence as of the date of this Agreement,
including both claims about which Executive knows and about which Executive does
not know. Executive further represents that he has not filed any claims against
the Affiliated Entities, or any of the individuals covered by this Agreement
with any governmental agency or any court, and promises that Executive will not
do so at any time hereafter regarding any matter covered by this Agreement. This
release does not include any claims based on events occurring after the date of
this Agreement, including any claims to enforce rights arising under the ADEA
after Executive has signed this Agreement.
b. Except for claims to enforce the Company's rights under this Agreement,
and claims of fraud on the part of Executive upon the Company or its affiliates,
the Company for itself, its employees, officers, directors, agents and
representatives, does hereby release Executive, his heirs, successors, assigns,
trustees, personal and legal representatives from any and all actions, causes of
action, suits, debts, claims, complaints, charges, contracts, controversies,
agreements, promises, damages, counterclaims, cross-claims, claims for
contribution and/or indemnity, claims for costs and/or attorneys' fees, judgment
and demands whatsoever, in law or equity, known or unknown, that the Company
ever had, now has, or may have against the Employee as of the date of the
signing of this Agreement. The Company represents that it has not filed any
claims against Executive as of the date of the Agreement.
8. Arbitration. Executive on the one hand, and the Company on the other hand,
-----------
agree that any dispute regarding any aspect of this Agreement (inclusive of the
Attachments) or any act that allegedly has or would violate any provision of
this Agreement will be submitted to arbitration in Atlanta, Georgia, in front of
a single arbitrator, in accordance with the rules of the American Arbitration
Association, as the exclusive remedy for such claim or dispute. Executive and
the Company agree that such arbitration will be confidential and no details,
descriptions, settlements
5
<PAGE>
or other facts concerning such arbitration shall be disclosed or released to any
third party without the specific written consent of the other party, unless
required by law or court order or in connection with enforcement of any decision
in such arbitration. Any damages awarded in such arbitration shall be limited to
the contract measure of damages, and shall not include punitive damages. The
arbitrator shall retain, in his or her sole discretion, the right to award any
or all attorneys fees and costs associated with such arbitration, including the
cost of the arbitration (such as the arbitrator's fee) to the prevailing party.
Notwithstanding the foregoing, Executive and the Company acknowledge that
breaches of the duties set forth in Paragraphs 3, 6 and 11 of the Agreement may
cause irreparable damages, and that damages for a breach of any of those
Paragraphs would be impracticable or extremely difficult to fix, and therefore
suits for specific enforcement of the provisions of such Paragraphs, but only
such Paragraphs, may be brought at any time in a court of competent
jurisdiction, with attorney's fees to be awarded to the prevailing party.
9. Breach of Executive's Promises. If Executive or the Company breaks their
------------------------------
promises in paragraphs 7 or 8 of this Agreement and files a lawsuit based on a
claim that Executive or the Company has released pursuant to this Agreement or
files a lawsuit to enforce this Agreement (other than to enforce a decision of
an arbitrator relating to this Agreement), the breaching party agrees that he or
it will pay for all costs incurred by the other party and their affiliated
entities and the directors, officers, employees, agents or representatives of
any of them, including reasonable attorneys' fees, in defending against such
claim, unless a court determines that such claim was not released pursuant to
this Agreement.
10. Confidentiality of Agreement. The Company and Executive promise to keep
----------------------------
the terms of this Agreement completely confidential except as may be required by
law or court order. Notwithstanding the foregoing, Executive may disclose such
information to his immediate family and professional representatives, so long as
these individuals are informed of and agree to be bound by this confidentiality
clause. Notwithstanding the foregoing, the Company or Executive may disclose
the existence of the non-disparagement and non-disclosure provisions in this
Agreement.
6
<PAGE>
11. Non-Disclosure. Executive agrees not to disclose to anyone any of the
--------------
information or materials the Company has set forth as confidential in Attachment
B, except as required by law or by order of a court or government agency, or
pursuant to written consent given by a duly authorized officer of the Company.
An acknowledgment regarding such confidential information, executed as part of
this Agreement and incorporated herein, is set forth in Attachment B.
12. Indemnification. The Company agrees that all rights to indemnification for
---------------
the benefit of Executive as provided under law or in the By-laws of the Company
as such existed as of the Resignation Date shall continue in full force and
effect in accordance with their terms as they existed on that date, and that any
insurance covering such indemnification rights otherwise made available to
directors and officers at the time such rights to indemnification are exercised
shall be made available to Executive. The determination to authorize any
indemnification and/or advancement of expenses to Executive in any specific case
shall be made by a committee of the Board of Directors of the Company composed
solely of independent directors (i.e., individuals who are not employees of the
Company or any Affiliated Entities). In making such determination, any such
committee shall obtain the advice of independent legal counsel.
13. Acknowledgments. Executive acknowledges that (a) Executive received a copy
---------------
of the draft of this Agreement and was offered a period of twenty-one (21) days
to review and consider it; (b) Executive understands that he could use as much
of the 21-day period as he wished prior to signing and if the full 21-day period
is not used, Executive knowingly waives the remainder of the period; (c)
Executive consulted with and was advised by independent counsel of his choosing
before signing this Agreement; (d) no promise or inducement for this Agreement
has been made except as set forth in this Agreement; (e) this Agreement is
executed by Executive without reliance upon any statement or representation,
written or oral, by the Company or any of the Affiliated Entities or their
employees, officers, directors, agents or representatives, except as set forth
herein; (f) Executive is legally competent to execute this Agreement and to
accept full responsibility therefor. The Company acknowledges that this
Agreement has been duly authorized and executed by the Company, and is a legal,
valid and binding obligation of the Company, enforceable in accordance with its
terms.
7
<PAGE>
14. Revocation Period. Executive acknowledges that he understands that he may
-----------------
revoke this Agreement within seven (7) days of the date of signing of this
Agreement by delivering a written notice of revocation to Mark Bridges, no later
than the close of business on the seventh (7th) day after the Agreement is
signed. If no such revocation is received, this Agreement is effective and
irrevocable as of the eighth (8th) day following the signing of this Agreement.
15. Provision Determined Invalid. Should any of the provisions herein be
----------------------------
determined to be invalid by a court of competent jurisdiction, it is agreed that
this shall not affect the enforceability of the other provisions herein and the
parties shall negotiate the invalidated provision or provisions in good faith to
effectuate its or their purpose and to conform it or them to the law.
16. Waiver. The waiver by any party of a breach of any provision herein shall
------
not operate or be construed as a waiver of any subsequent breach by any party.
17. Definitions. For purposes of this Agreement, the term "affiliate" of a
-----------
person means any other person controlling, controlled by or under common control
with such person.
18. Successors. This Agreement shall be binding upon and inure to the benefit
----------
of Executive, his heirs, beneficiaries, successors and assigns, and the Company,
the Affiliated Entities (whether or not currently existing), their successors
and assigns, and the employees, officers, directors, agents and representatives
of any of them in their capacity as such.
19. Complete Agreement. This Agreement (including the Attachments thereto)
------------------
sets forth the entire agreement between Executive and the Company and may not be
modified, altered, changed or terminated except upon the express prior written
consent of Executive and the Company. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Delaware, without giving effect to its conflict of law rules.
20. Aiding and Abetting. The Executive and the Company agree that no party to
-------------------
this Agreement may accomplish indirectly, whether through aiding and abetting of
some other person, participation in some other entity, or any other conduct,
that which the party is prohibited
8
<PAGE>
from doing directly under this Agreement; and that any such attempt shall be
considered a breach of this Agreement as if such party had taken such action
itself.
21. Notices. All notices, requests, claims, demands and other communication
-------
hereunder shall be in writing and shall be deemed given if delivered personally,
mailed by registered or certified mail (return receipt requested) or by
reputable overnight courier to the parties as follows:
If to the Company:
Overseas Partners Ltd.
Attention: General Counsel
with a copy to:
Gibson, Dunn & Crutcher LLP
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
Attention: William J. Kilberg, Esq.
If to Executive:
Bruce M. Barone
379 Boston Post Road
Suite 414
Sudbury, MA 01776
with a copy to:
Kilpatrick Stockton, LLP
1100 Peachtree Street
Suite 2800
Atlanta, Georgia 30309
Attn: William J. Vesely, Jr.
9
<PAGE>
I ACKNOWLEDGE THAT I HAVE READ AND UNDERSTAND ALL OF THE PROVISIONS OF THIS
AGREEMENT AND RELEASE, AND THAT I AM VOLUNTARILY ENTERING INTO IT.
/s/ Bruce M. Barone /s/ Edwin H. Reitman
- ------------------- -----------------------
Bruce M. Barone Name: Edwin H. Reitman
signed in Hamilton, Bermuda Title: Chairman
For Overseas Partners Ltd.
To the extent necessary to authorize the payments and benefits to Executive
under this Agreement, the undersigned corporation hereby agrees to the Company's
commitments in the Agreement and agrees to be bound by them.
This _______ day of December, 1998
Overseas Partners Capital Corp.
By: /s/ Michael J. Molletta
---------------------------
Michael J. Molletta
10
<PAGE>
Exhibit 21
<PAGE>
SUBSIDIARIES OF OVERSEAS PARTNERS LTD.
- --------------------------------------
Corporation Jurisdiction of Incorporation
----------- -----------------------------
Overseas Partners Re Ltd. Bermuda
Overseas Partners Special Risks Ltd. Bermuda
Overseas Partners Assurance Ltd. Bermuda
Overseas Partners Credit, Inc. 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 Partners Leasing, Inc. 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
<PAGE>
Exhibit 23
<PAGE>
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 7, 1999 appearing in this
Annual Report on Form 10-K of Overseas Partners Ltd. for the year ended December
31, 1998.
DELOITTE & TOUCHE
Hamilton, Bermuda
March 31, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM OPL'S
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 244,822
<DEBT-MARKET-VALUE> 292,237
<EQUITIES> 1,264,086
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 2,437,496
<CASH> 171,948
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 79,450
<TOTAL-ASSETS> 4,357,018
<POLICY-LOSSES> 461,891
<UNEARNED-PREMIUMS> 347,503
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 875,684
0
0
<COMMON> 12,750
<OTHER-SE> 2,511,919
<TOTAL-LIABILITY-AND-EQUITY> 4,357,018
746,918
<INVESTMENT-INCOME> 405,088
<INVESTMENT-GAINS> 50,208
<OTHER-INCOME> 266,870
<BENEFITS> 404,328
<UNDERWRITING-AMORTIZATION> 108,944
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 499,206
<INCOME-TAX> 10,909
<INCOME-CONTINUING> 488,297
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 488,297
<EPS-PRIMARY> 3.87
<EPS-DILUTED> 3.87
<RESERVE-OPEN> 338,425
<PROVISION-CURRENT> 402,830
<PROVISION-PRIOR> (5,532)
<PAYMENTS-CURRENT> 134,613
<PAYMENTS-PRIOR> 139,219
<RESERVE-CLOSE> 461,891
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
