<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, 1999; 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 ________
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
or organization) Identification No.)
Mintflower Place, 8 Par-la-Ville Road, Hamilton, HM GX, Bermuda
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(Address of principal executive offices, including zip code)
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 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 $21.50, the price per share as of
February 29, 2000, at which the Registrant has rights of first refusal for the
purchase of its shares offered for sale by shareowners, was $2,655,927,229.
The number of shares of Registrant's Common Stock outstanding as of
February 29, 2000 was 127,500,000.
<PAGE>
OVERSEAS PARTNERS LTD.
INDEX 10-K
<TABLE>
<S> <C>
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
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters..................... 15
Item 6 Selected Financial Data................................................................... 19
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operation...... 20
Item 7a Quantitative and Qualitative Disclosures About Market Risk................................ 27
Item 8 Financial Statements and Supplementary Data............................................... 31
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...... 31
PART III
Item 10 Directors and Executive Officers of the Registrant........................................ 32
Item 11 Executive Compensation.................................................................... 35
Item 12 Security Ownership of Certain Beneficial Owners and Management............................ 39
Item 13 Certain Relationships and Related Transactions............................................ 41
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K........................... 43
</TABLE>
<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 reinsurance company headquartered
in Bermuda. Unless the context otherwise indicates, the term "Company" refers
to one or more of OPL and its consolidated subsidiaries.
The Company was organized as a corporation under the laws of Bermuda in 1983 as
a subsidiary of United Parcel Service of America, Inc. ("UPS"). On December 31,
1983, the Company ceased to be a subsidiary of UPS when UPS paid a special
dividend to its shareowners of one share of OPL Common Stock for each UPS share
then outstanding to its shareowners of record as of November 18, 1983. The
Company's Common Stock is currently owned by approximately 97,000 shareowners.
OPL's primary business segment is reinsurance. Shipper's risk reinsurance has
historically been OPL's largest source of revenue and underwriting income;
however, this program was cancelled effective October 1, 1999. The Company's
wholly-owned subsidiary, Overseas Partners Re Ltd. ("OP Re"), was incorporated
in 1995 and 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.
In November 1999, the Company established a wholly owned subsidiary, Overseas
Partners Cat Ltd. ("OP Cat"), to provide an opportunity to further diversify the
portfolio of reinsurance risk. OP Cat has entered into an underwriting services
agreement with RenaissanceRe Holdings Ltd. to write worldwide property
catastrophe reinsurance business.
OPL established another wholly-owned subsidiary, Overseas Partners Assurance
Ltd. ("OPAL"), during 1998 to further enhance and broaden its reinsurance
relationships. OPAL provides rent-a-captive facilities to reinsurance clients,
allowing them to participate in the underwriting and investment profits
associated with their programs.
In 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 ownership and management and
leasing which is conducted through its wholly-owned subsidiary, Overseas
Partners Capital Corp. ("OPCC"). OPCC's subsidiaries own and manage the
Company's real estate assets located in major centers such as Atlanta, Boston
and Chicago.
<PAGE>
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 1999, 1998 and 1997 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) 1999 1998 1997
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Reinsurance:
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<S> <C> <C> <C>
Revenue $1,115,426 $ 997,006 $ 865,883
Net reinsurance income $ 229,742 $ 487,584 $ 455,986
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Assets $3,389,636 $2,860,571 $2,249,045
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Real estate and leasing:
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Revenue $ 285,926 $ 268,083 $ 269,694
Operating income $ 29,530 $ 27,633 $ 46,531
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Assets $1,525,646 $1,507,772 $1,418,624
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</TABLE>
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.
3
<PAGE>
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
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OPL's reinsurance activity began with a shipper's risk program - the reinsuring
of insured packages carried by subsidiaries of UPS. Customers of UPS insured
their packages for amounts greater than $100 by paying excess value charges.
Insured values were typically limited to a maximum of $25,000 per occurrence.
Until October 1, 1999, OPL received premiums equal to the excess value charges
received by primary insurers, less appropriate ceding commissions, brokerage and
taxes. OPL reimbursed the primary insurers for the losses they paid on the
package insurance.
The shipper's risk reinsurance described above was historically OPL's largest
source of revenue, generating $273.5 million, $371.8 million and $366.7 million
of premiums earned for 1999, 1998 and 1997, respectively. The program was
cancelled effective October 1, 1999 as UPS decided to provide shipper's risk
reinsurance for its customers through a UPS subsidiary. This follows an August
9, 1999 opinion issued in the United States Tax Court against UPS (United Parcel
Service of America, Inc. v. Commissioner of Internal Revenue) concerning the
taxation of premiums paid by shippers to UPS for the original insurance against
risk of loss or damage to packages carried by them.
Over the years, the Company has diversified into a number of other 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
revenue. The following table provides an analysis of gross premiums written,
both in the aggregate and as a percentage of total premiums, for each of the
years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
(in thousands except for percentages) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
Gross reinsurance premiums written:
<S> <C> <C> <C> <C> <C> <C>
Shipper's risk $273,477 32% $371,768 40% $366,654 51%
Property 126,159 15% 146,749 16% 130,308 18%
Aviation 52,732 6% 121,482 13% 6,403 1%
Workers' compensation 158,157 19% 110,997 12% 102,627 14%
Automobile and auto warranty 45,854 5% 39,278 4% 63,875 9%
Marine 44,537 5% 66,513 7% 31,300 4%
Accident and health 83,456 10% 56,979 6% 5,000 1%
Financial reinsurance and other 60,651 7% 9,857 1% 14,368 2%
- -------------------------------------------------------------------------------------------------------------
$845,023 100% $923,623 100% $720,535 100%
=============================================================================================================
</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 1999, approximately 98% of
gross premiums were written on a proportional basis.
4
<PAGE>
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 83% 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.
In 1999, the Company received business from approximately 20 brokers with two
brokers each providing 10% 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, that 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. This dependence subjects the
Company to the possibility that the ceding companies have not adequately
evaluated the risks to be reinsured and, therefore, that the premiums ceded in
connection therewith may not adequately compensate the Company for the risk
assumed. 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 these risks, the Company tries to focus on those ceding companies
that effectively manage the underwriting process through proper analysis and
pricing of underlying risks and whose underwriting guidelines and performance
are compatible with the Company's profitability objectives. We review treaties
for compliance with our general underwriting standards and evaluate certain
larger treaties in part based upon actuarial analyses conducted by the Company
and/or independent consulting actuaries. The actuarial models used in such
analyses are tailored in each case to the exposures and experience underlying
the specific treaty and the loss experience for the risks covered by such
treaties. 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. We also perform claims audits, when appropriate, in order to
evaluate the client's claims handling abilities and practices.
For both treaty and facultative business, the Company also consider factors such
as cash flows, return on risk capital invested, the establishment of long-term
ceding company and broker relationships, new product or innovative offerings,
market conditions, potential partnerships with market leaders and
diversification.
Our reinsurance contracts sometimes include sliding scale and profit commission
features to motivate the ceding companies to maintain disciplined underwriting
standards. Depending on the risk, 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 totaled $25.3 million, $14.6 million and $0.5
million for the years ended December 31, 1999, 1998 and 1997.
5
<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).
The A.M. Best rating is based upon factors relevant to policyholders and brokers
and is not directed toward the protection of investors. It is not a
recommendation to buy, sell or hold securities.
Claims
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While the reserving process is difficult and subjective for the ceding
companies, the inherent uncertainties of estimating such reserves are even
greater for the reinsurer, due primarily to the length of time between the date
of an occurrence and the reporting of any attendant claims to the reinsurer, the
diversity of development patterns among different types of reinsurance treaties
or facultative contracts, the necessary reliance on the ceding companies for
information regarding reported claims and differing reserving practices among
ceding companies.
The Company's gross liability for accrued losses and loss expenses, which
provides for estimated future payments arising from current and prior
reinsurance transactions, amounted to approximately $972.2 million and $468.3
million at December 31, 1999 and 1998, respectively. Losses recoverable from
reinsurers totaled $15.0 million and $6.4 million as of December 31, 1999 and
1998, respectively. The increase in the liability of $503.9 million during 1999
was primarily due to the growth in the Company's reinsurance business and
$126.7 million of adverse development in the estimation of prior year accrued
losses and loss expenses. 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.
In 1999, the Company recorded an adjustment of $126.7 million to reserves for
prior years. The adjustments primarily relate to higher than anticipated losses
on two programs, one in each of the marine and workers' compensation lines of
business. The marine program is now in run off following the withdrawal from
the market of the ceding company. The workers' compensation program expires on
December 31, 2000. The Company's reserve strengthening includes an allowance
for premium deficiency of $2.8 million associated with estimated claims costs
and expenses in excess of unearned and unreported premiums. Additional
information on these matters is included in "Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations."
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.
6
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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 22%, 19%
and 22% of the Company's revenues for the years ending December 31, 1999, 1998
and 1997, respectively.
Reinsurance investments include global bonds, United States equities (primarily
issuers in the 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 $2.6 billion at December 31, 1999.
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, 1999, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
Asset Class 1999 1998 1997
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<S> <C> <C> <C>
Cash 15% 5% 8%
U.S. Equities 39% 43% 41%
Emerging market equities 9% 10% 12%
Global fixed income securities 20% 24% 39%
Strategic income mutual fund 17% 18% --
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100% 100% 100%
=================================================================================================
</TABLE>
The trading portfolio returned 13.2%, 12.2% and 13.9% for the years ended
December 31, 1999, 1998 and 1997, respectively.
Most of the Company's reinsurance agreements call for reinsurance premiums and
settlements to be paid in United States dollars. In addition, our investments
are primarily made in United States dollar denominated securities. OPL and its
reinsurance subsidiaries are exempt from Bermuda's currency exchange controls.
Our assets are located and our operations are conducted in countries in which,
in management's opinion, the risks of expropriation are not substantial.
Information concerning the Company's investment portfolio, including a
discussion of the significant market risk associated with the portfolio, can be
found in "Item 7A - Quantitative and Qualitative Disclosures About Market Risk."
Competition
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The international property and casualty reinsurance market is highly
competitive, and we compete with 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.
7
<PAGE>
Competition with respect to the types of reinsurance business in which the
Company is engaged is based on many factors, including:
. the perceived overall financial strength of the reinsurer,
. claims-paying ability rating by a recognized rating agency,
. underwriting expertise,
. the jurisdictions where the reinsurer is licensed or otherwise authorized,
. premiums charged,
. other terms and conditions of the reinsurance offered,
. services offered,
. speed of claims payment, and
. reputation and experience in lines written.
The Company competes with numerous reinsurance companies, subsidiaries or
affiliates of established worldwide insurance companies and reinsurance
departments of certain primary insurance companies for business in the United
States and international reinsurance markets. Some of these competitors have
greater financial resources than OPL, 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. OPL was ranked as the 23rd largest reinsurance company in the world,
based on premiums written, according to a 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 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 as well as from the capital markets' entry
into insurance and reinsurance investment products. The Company believes that
the insurance and reinsurance industries, including reinsurance brokers, will
undergo further consolidation and that reinsurers will need significant size and
financial strength to compete effectively.
8
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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, OPAL and OP Cat conduct their
reinsurance business from their principal offices in Bermuda and are subject to
regulation under Bermuda law, which, among other things requires them to
register and comply with certain requirements as to capitalization. For
purposes of Bermuda insurance law and regulation, each of these reinsurance
entities are considered to be engaged in general business; OPL is also
considered to be engaged in long-term business. The minimum paid up share
capital to be maintained by OPL under Bermuda insurance law and regulations is
$370,000, while the other reinsurance companies each require $120,000.
In addition, these reinsurance companies are individually required to maintain a
minimum solvency margin at least equal to the greater of: (i) $1.0 million or
(ii) the aggregate of $1.2 million and 15% of the amount by which net premium
income from general business exceeds $6 million; or (iii) 15% of the aggregate
of accrued losses and loss expense provisions and other general business
insurance reserves. The minimum solvency margin surplus for OPL, OP Re, OPAL
and OP Cat is approximately $49 million, $125 million, $1 million and $1
million, respectively. As of December 31, 1999, OPL, OP Re, OPAL and OP Cat had
approximately $1.6 billion, $300 million, $29 million and $492 million
respectively, of statutory capital and surplus in excess of these requirements.
Regulatory approval is required to reduce total statutory capital, as set out in
the previous year's statutory financial statements, by more than 15%.
Our reinsurance companies must prepare an annual statutory financial return and
statutory financial statements in accordance with the requirements of the
Bermuda Insurance Act of 1978, amendments thereto and related Regulations, and
an annual audit is also required. Each company must also appoint a loss reserve
specialist to review and report on the loss reserves of the insurer on an annual
basis.
Bermuda insurance law and regulations do not limit the categories of assets in
which an insurance company may invest. However, certain categories of assets,
such as unquoted equities, investments in and advances to affiliates, real
estate and collateral loans, are not "relevant assets" for purposes of complying
with the minimum liquidity ratio with respect reinsurance entities' general
business activities. The exclusion of these types of assets from the definition
of relevant assets does not materially affect our ability to satisfy the minimum
liquidity ratio. OPL, OP Re, OPAL and OP Cat met these requirements for the
years ended December 31, 1999, 1998 and 1997.
Our reinsurance companies are not admitted or authorized to conduct business in
any jurisdictions except Bermuda. They do not maintain an office or solicit,
advertise, settle claims or conduct other insurance activities in any
jurisdictions other than Bermuda and therefore are not subject to the insurance
regulatory requirements of jurisdictions other than Bermuda. However, the
statutory standards adopted by the jurisdictions that regulate the companies to
which OPL, OP Re, OPAL and OP Cat provide life, property and casualty and other
reinsurance affect each of these reinsurance entities indirectly. OPL, OP Re,
OPAL and OP Cat record all transactions on their statutory accounts in a manner
that complies with statutory accounting principles required by the Bermuda
Insurance Act of 1978.
From time to time, there have been congressional and other initiatives in the
United States regarding the supervision and regulation of the insurance
industry, including proposals to supervise and regulate foreign reinsurers, such
as ours. 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.
9
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REAL ESTATE AND LEASING SEGMENT
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An important aspect of the Company's strategy over the last five years has been
the ownership of income-producing real estate and leasing assets through
subsidiaries of OPCC. OPCC has assembled a portfolio of Class A properties in
three key U.S. markets: Atlanta, Boston and Chicago. 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.
OPCC has recently engaged a major real estate broker to market one of its
properties, 333 West Wacker Drive. After evaluating the current real estate
market the company has determined that it may sell additional properties in an
effort to realize the increase in their values. Reinvestment of the sales
proceeds is not constrained to real estate.
An OPCC subsidiary, Overseas Capital Co. ("OCC") owns all of the limited
partnership interests, and all stock of the corporate general partner of KMS II
Realty Limited Partnership, a Delaware Limited Partnership ("KMS II"). KMS II
owns a 1.5 million square foot regional distribution facility in Manteno,
Illinois, which it leases to KMart Corporation. The initial term of the KMart
lease expires in 2020 and yearly lease payments are approximately $4.2 million.
After the initial term, KMart has the option to extend the lease for ten
consecutive terms of five years each. KMart has the option to purchase the
KMart facility at the end of the initial term of the lease for a price equal to
the fair market value of the KMart facility on that date.
Until July 8, 1998, OCC leased five Boeing 757 air package freighters to UPS.
The aircraft were sold pursuant to the terms of a purchase option granted to UPS
in a May 31, 1990 Aircraft Lease Agreement between the parties. Proceeds from
the sale were approximately $202 million, yielding a gain on sale before income
taxes of approximately $12 million. There is a fixed component and a variable
component to the rent received on the aircraft lease based on the extent to
which UPS has utilized the assets. The fixed and variable components of the
aircraft lease for 1999, 1998 and 1997 are set forth below.
Lease revenue:
- --------------
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed component $ -- $ 9.9 $17.2
Variable component -- 2.5 5.3
- ---------------------------------------------------------------------------
$ -- $12.4 $22.5
- ---------------------------------------------------------------------------
</TABLE>
OCC leases its Ramapo Ridge Facility to United Parcel Service General Services
Co. ("GSC"), a subsidiary of UPS, for data processing and telecommunications
operations. The Facility is located on approximately 39 acres of land in
Mahwah, New Jersey and consists of an office building, computer center, a
central service structure and a parking garage with an area of approximately
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,
OCC completed construction of a 27,000 square foot addition to the Facility,
which accommodates future expansions of up to 54,000 square feet. OCC is
responsible, at its own cost and expense, for the maintenance of the grounds on
which the Facility is located and of the walls, roof and structural components
of all buildings comprising the facility. GSC is responsible for all other
maintenance at the Facility. OCC is responsible, at its own expense, for
maintaining insurance on the Facility and certain types of liability insurance.
Rent on the Facility has a fixed component and a variable component, based on
the extent to which UPS utilizes it. The fixed and variable components of the
Facility lease for 1999, 1998 and 1997 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."
10
<PAGE>
Lease revenue:
- --------------
<TABLE>
<CAPTION>
(in millions) 1999 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed component $ 7.3 $ 7.3 $ 7.3
Variable component 10.6 7.4 12.5
- --------------------------------------------------------------------------
$17.9 $14.7 $19.8
- --------------------------------------------------------------------------
</TABLE>
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."
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). Overseas Partners Credit, Inc. ("Overseas
Credit"), a special purpose subsidiary of OPL incorporated in the Cayman
Islands, has guaranteed the principal of these bonds. United States zero-coupon
treasury notes owned by it and pledged as security to the Trustee for the
bondholders secure overseas Credit's obligations. On or prior to the scheduled
maturity date of each series of bonds, the zero coupon 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.
OCC also owns the Marriott Copley Place Hotel in Boston, Massachusetts. This is
a 38-story, full service, luxury convention hotel with 1,139 rooms and over
60,000 square feet of meeting and convention space. In 1996, the existing
indebtedness on the hotel was refinanced with a 10-year, non-recourse loan in a
principal amount of $110.0 million with Metropolitan Life Insurance Company, the
principal amount of which was approximately $103.1 million as of December 31,
1999.
OCC 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. The building was approximately 97% leased as of
December 31, 1999. OCC also has a purchase option on adjacent tracts of land
totaling 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 $32.7 million as of
December 31, 1999.
In August 1996, an OPCC subsidiary acquired the Atlanta Financial Center, a
three-tower office complex also located in Atlanta's Buckhead community with
885,889 square feet of rentable office space and a nine-level parking structure.
The complex was 98% leased as of December 31, 1999 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 $77.4 million as of December 31, 1999.
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 was 92% leased as of
December 31, 1999. 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 outstanding principal amount of which was approximately
$62.9 million as of December 31, 1999.
11
<PAGE>
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. As of December 31, 1999 occupancy rates on the retail and
office spaces were 98% 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 $190.5 million as of December 31,
1999.
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 and was 93%
leased as of December 31, 1999. 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, the principal amount of which was approximately $123.8
million as of December 31, 1999.
OPCC has its own real estate property management subsidiary, Overseas
Management, Inc. (OMI). With its own employees and third-party service
providers, OMI provides on-site management and leasing to all of OPCC's office
and retail properties.
In addition to the real estate and leasing properties OPCC holds an investment
position in a real estate investment trust.
Information concerning identifiable real estate and leasing assets, revenues and
net operating income for the years ended 1999, 1998 and 1997 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 downward turn.
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 that OPCC cannot offer or may offer lease terms that
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. OPCC has not been actively pursuing leasing business over
the last five years.
12
<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.
Certain of OPL's subsidiaries engage in business in the U.S., primarily OPCC,
and as a result, these subsidiaries, but not OPL, are subject to U.S. income
taxes. Under current Bermuda law, OPL is not obligated to pay any tax in
Bermuda based upon income or capital gains.
The United States Internal Revenue Service (IRS) previously asserted that the
Company was subject to U.S. taxation in the amounts of approximately $53 million
for its 1984 taxable year and $240 million for its 1985 through 1987 taxable
years, plus additions to tax and interest, for those years. On February 13,
1998, the IRS indicated that it no longer intended to pursue its position
against the Company for 1984. On January 4, 1999, the IRS indicated that it no
longer intended to pursue its position against the Company for 1985 through
1987.
On December 22, 1998, the IRS issued a Notice of Deficiency with respect to the
Company's 1988 through 1990 taxable years in which it asserted that the Company
is subject to U.S. taxation in the aggregate amount of approximately $170
million, plus additions to tax and interest, for those years. On March 19,
1999, the Company filed a Petition in the United States Tax Court contesting the
asserted deficiencies in tax and additions to tax in the Notice. On May 18,
1999, the IRS filed its Answer to the Company's Petition. The IRS has also
asserted that the Company is subject to U.S. taxation for its 1991 through 1994
taxable years and has proposed an aggregate assessment of $319 million of tax,
plus additions to tax and interest, for those years. The Company has filed a
Protest against the proposed assessment with the Appellate Division of the IRS
with respect to the years 1991 through 1994. The IRS has not proposed an
assessment for years subsequent to 1994. However, the IRS may take similar
positions for subsequent years pending resolution of the years currently in
dispute.
OPL believes that it has no tax liability, that it is not subject to U.S.
taxation, and that there is substantial authority for its position. It is
vigorously contesting the Notice of Deficiency for 1988 through 1990 and will
vigorously contest proposed assessments or any future assessments.
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) provide 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."
13
<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. A United States 10% Shareowner would also 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. Code section 1248 provides that if a
U.S. person owns 10% or more of the voting shares of a corporation that is a
Controlled Foreign Corporation ("CFC"), any gain from the sale or exchange of
the shares may be treated as ordinary income to the extent of the CFC's earnings
and profits during the period that the shareholder held the shares (with certain
adjustments). Code section 953(c)(7) generally provides that Code section 1248
will also apply to the sale or exchange of any shares in a foreign corporation,
regardless of whether the shareholder is a 10% shareholder, if the foreign
corporation would be taxed as an insurance company if it were a domestic
corporation and if the foreign corporation were subject to section 953(c)(1)
without regard to whether Related Person Insurance Income ("RPII") constitutes
20% or more of the corporation's gross insurance income. The Company would be
subject to section 953(c)(1), without regard to the 20% de minimis test, only to
the extent of its RPII. Therefore, the Company believes that any potential
application of Code section 1248 should be limited to each shareholder's
proportionate share of any RPII.
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." The opinion issued by the United States Tax Court
against UPS, discussed in the Reinsurance Activities section hereinbefore, does
not address or discuss whether the shipper's risk reinsurance premiums received
by OPL are "active income" of OPL but it does tax the shipper's risk premiums to
UPS. It is not clear what, if any, position the IRS may take about the
character of the shipper's risk reinsurance premiums.
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 78 employees, 42 in Bermuda, 11
in Atlanta, 21 in St. Louis and 4 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.
14
<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 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.
On November 19, 1999 and January 27, 2000 OPL was named as a defendant in class
action lawsuits, filed on behalf of customers of UPS, in Montgomery County, Ohio
Court and Butler County, Ohio Court, respectively. The lawsuits allege, amongst
other things, that UPS told its customers that they were purchasing "insurance"
for coverage of loss or damage to goods shipped by UPS, but a recent opinion by
the United States Tax Court found that the "insurance" program, as conducted by
UPS, several domestic insurance companies, and their related reinsurance
agreement with OPL, was not adequate for UPS to avoid liability for federal
income tax. The November 19, 1999 and the January 27, 2000 actions were removed
to The United States District Court for the Southern District of Ohio, on
December 16, 1999 and February 4, 2000, respectively. The Company will
vigorously defend these actions and will seek dismissal of the actions, as to
OPL, on various grounds, including, among others, lack of personal jurisdiction
by the Court over OPL.
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, 1999.
15
<PAGE>
PART II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- ------- ---------------------------------------------------------------------
Summary of OPL Stock
- ---------------------
We are currently authorized to issue 900,000,000 shares of our Common Stock of
par value $0.10 per share, of which 127,500,000 shares were issued and
outstanding as of February 29, 2000. We are also authorized to issue
200,000,000 shares of preference stock of par value $.10 per share. At present
no shares of preference stock have been issued or are outstanding, nor are there
any plans to issue any preference stock in the foreseeable future.
Our Common Stock is not listed on a securities exchange and is not traded in the
organized over-the-counter markets. Prior to July 21, 1999, units of our Common
Stock had been bundled with shares of UPS Common Stock and sold and provided as
stock compensation awards to UPS employees under the UPS Managers' Incentive and
UPS Stock Purchase Plans ("the UPS Plans"). On July 21, 1999, we suspended the
sale of our Common Stock under these Plans following the announcement by UPS of
an initial public offering.
There were approximately 97,000 record holders of our Common Stock as of
February 29, 2000.
Voting Rights
- -------------
Each share of our Common Stock is entitled to one vote in the election of
directors and on other matters, except that any Substantial Stockholder, as
defined in our Bye-Laws, is entitled to only one one-hundredth of a vote with
respect to each vote which is in excess of 10 percent of our outstanding voting
stock. The term Substantial Stockholder is defined to mean any shareowner or
shareowners acting as a group, other than United Parcel Service, Inc. or any
employee benefit plan of ours or UPS or our subsidiaries, who is the beneficial
owner of more than 10 percent of the voting power of our outstanding shares
entitled to vote generally in the election of directors. There are no
limitations imposed by foreign law, or by our Memorandum of Association and Bye-
Laws, or by any agreement or other instrument to which we are a party or to
which we are subject, on the right of shareowners, solely by reason of their
citizenship or domicile, to vote our Common Stock. Upon liquidation, our
shareowners are entitled to share on a pro rata basis in our assets legally
available for distribution to shareowners.
Transferability of Common Stock - Our Right of First Refusal
- ------------------------------------------------------------
Our Bye-Laws provide that no outstanding shares of our voting stock, including
shares of our Common Stock, may be transferred, except by bona fide gift or
inheritance, unless the shares shall have first been offered, by written notice,
for sale to us at the lower of their fair value or the price at which they are
to be offered to the proposed transferee and on the same terms upon which they
are to be offered to the proposed transferee. Notices of proposed transfers
must be sent to our Treasurer, must set forth the number of shares proposed to
be sold, the proposed price per share, the name and address of the proposed
transferee and the terms of the proposed sale and must contain a statement by
the proposed transferee that the information contained in the notice is true and
correct. We have the option, within 30 days after receipt of the notice, to
purchase all or a portion of the offered shares. If we fail to exercise or
waive the option, the shareowner may, within a period of 20 days thereafter,
sell to the proposed transferee all, but not part, of the shares that were
previously offered to us and not purchased by us pursuant to our option, for the
price and on the terms described in the notice. All transferees of shares hold
their shares subject to the same restrictions. Shares previously offered to us
but not transferred within the 20-day period remain subject to the initial
restrictions.
Under our Bye-Laws, we have the right to purchase shares of our Common Stock
that may be issued as stock dividends, or in stock splits, recapitalizations or
reorganizations similar to the rights that we have to purchase the shares on
which the dividend, split, recapitalization or reorganization shares were
issued. We also have the right to purchase our Common Stock in a number of
other circumstances under our Bye-Laws.
Shares of our Common Stock may be pledged, but they may not be transferred upon
foreclosure unless they have first been offered to us in the manner described
above.
16
<PAGE>
In addition, any shareowner who is our "affiliate" for purposes of the
Securities Act of 1933, could effect a public resale of their shares to a
purchaser other than us only upon delivery of an effective prospectus applicable
to the resale as permitted by applicable securities laws or upon other
compliance with applicable securities laws.
We have historically exercised our right of first refusal and held such
purchased shares in treasury, pending future distributions as incentive awards
to current employees of UPS and OPL. However, as discussed further below, the
Board decided to impose a temporary limit on the number of shares the Company is
willing to purchase from any shareowner who seeks to sell such shares subsequent
to November 23, 1999.
Our Purchase Rights - Recall
- ----------------------------
We have the right under our Bye-laws to purchase (or "recall") shares of our
Common Stock from shareowners following their retirement, death or other
termination of employment with UPS, OPL, or any of their respective
subsidiaries. We may exercise this right to recall all or a portion of the
shares of a former employee at any time within a period of three years or
thirteen years following the holder's termination of employment. The purchase
price will be the fair value of the shares at the time of purchase.
The Company has historically exercised this right of recall each year and held
such purchased shares in treasury, pending future distributions as incentive
awards to current employees of UPS and OPL. However as discussed further below,
the Board decided to defer the recall of our shares that was previously
scheduled to take place in January 2000.
Our Willingness to Purchase and Recall Shares
- ---------------------------------------------
Prior to July 21, 1999, units of our Common Stock had been bundled with shares
of UPS Common Stock and had been sold and provided as stock compensation awards
to UPS employees under the UPS Plans. Previously, we purchased shares from those
shareholders wishing to sell (under our Right of First Refusal) and recalled
shares from those shareowners who had ceased to be employees of UPS and OPL. We
held such shares as treasury pending distribution as future awards under the UPS
Plans.
On July 21, 1999, we suspended the sale of our Common Stock under the UPS Plans
following the announcement by UPS of its initial public offering. This
suspension reduced the amount of our Common Stock that we required for our
treasury. As such, on October 12, 1999 the Board of Directors decided to defer
the recall of our shares that was previously scheduled to take place in January
2000. This deferral does not affect our rights to recall those and other shares
in subsequent years.
Further, on November 23, 1999 the Board imposed a temporary limit on the number
of shares we are willing to purchase under our Right of First Refusal. We are
currently prepared to purchase up to 10% of the shares of Common Stock held by
any shareowner of record on November 23, 1999 from that date through to November
1, 2000. This means that in the aggregate we are willing to purchase
approximately $270 million worth of our shares during this period.
The Board may reconsider the amount of the temporary limit from time to time.
However, there can be no assurance that this policy will not change, or to the
continuation of our willingness to purchase shares. The feasibility of purchase
is subject to the future supply and demand for our Common Stock and our earning
and financial condition, liquidity and capital requirements.
Dividend Policy
- ---------------
The declaration and payment of dividends is at the discretion of the Board of
Directors and depends on many factors, including our earnings, financial
condition, business needs, capital and surplus requirements of our operating
subsidiaries and legal and regulatory considerations. The ability of our
reinsurance subsidiaries to pay dividends to us and our ability to pay dividends
to our shareowners are subject to the maintenance of minimum solvency and
liquidity margins as required by Bermuda insurance law.
17
<PAGE>
It is the intent of our Board to consider the payment of a dividend in an amount
to be determined on the basis of our earnings, financial condition and capital
needs. We declared and paid cash dividends in 1999 and 1998 of $1.20 and $1.04
per share, respectively. On February 9, 2000 the Board determined that it would
commence paying dividends on a semi-annual basis and declared a semi-annual
dividend of $0.60 per share for shareowners of record on February 10, 2000.
Dividends paid by us on shares of our Common Stock to persons residing in the
United States will be subject to United States federal income taxes to the same
extent that the dividends would be taxable if paid by a domestic corporation,
but without the dividend received deduction available to corporations. Similar
treatment is likely to be accorded under applicable state law.
There are no applicable tax treaties or Bermuda laws, decrees or regulations
that would adversely affect our payment or remittance of dividends, require
withholding for tax purposes or restrict the export or import of capital.
Determination of Fair Value
- ---------------------------
We currently purchase shares from our shareowners at their fair value as
determined by the Board of Directors. The current fair value of $21.50 per
share was determined by our Board of Directors on February 9, 2000. Prior to
November 23, 1999 we purchased, recalled and issued shares at book value as
determined by our annual audited consolidated balance sheet.
In determining the fair value, the Board considers a variety of factors,
including past and current earnings and cash flow, the present value of
discounted projected future earnings and cash flow, the stock price, earnings
and book value of comparable companies, industry considerations, liquidity,
debt-to-equity ratios and industry multiples as well as opinions furnished from
time to time by investment counselors acting as independent appraisers. In its
determination of the price to be paid for our stock, the Board has not followed
any predetermined formula. It has considered a number of formulas commonly used
in the evaluation of securities of closely held and publicly held companies, but
its decisions have been based primarily on the judgment of the Board as to our
long-range prospects rather than what the Board considers to be short-range
trends relating to our company or to the values of comparable companies. The
Board does consider factors generally affecting the market prices of publicly
traded securities within the reinsurance market, and prolonged changes in those
prices could have an effect on the prices offered by us. One factor in
determining the price at which securities trade in the organized securities
markets is that of supply and demand. When demand is high in relation to the
shares that investors seek to sell, prices tend to increase, while prices tend
to decrease when demand is low in relation to shares being sold. Our Board of
Directors does not give significant weight to supply-demand considerations in
determining the price to be paid by us for our shares.
The Board will evaluate the fair value on a semi-annual basis, with evaluations
occurring in February and August of each year
The following table reflects the price at which we have purchased shares of
Common Stock since January 8, 1998:
<TABLE>
<CAPTION>
Date Price
- ---------------------------------------------------- ------
<S> <C>
January 8, 1998 to January 7, 1999 (Book Value) $17.00
January 8, 1999 to November 23, 1999 (Book Value) $19.84
November 23, 1999 to present (Fair Value) $21.50
</TABLE>
Sale by Us of Our Common Stock
- ------------------------------
On November 23, 1999, the Board decided to allow existing shareowners to each
purchase up to 10,000 shares of Common Stock between that date and November 1,
2000, subject to registration of our shares for sale with the Securities and
Exchange Commission.
18
<PAGE>
Custody Arrangements for Certificates of OPL Common Stock
- ---------------------------------------------------------
Each shareowner may elect to have First Union National Bank hold his or her
certificates as custodian without cost to the shareowner. First Union's
Employee Shareholder Service Department is located in Philadelphia, Pennsylvania
and can be contacted at the following address:
First Union National Bank
Employee Shareholder Services Corporate
Trust Department
P.O. Box 41784
123 South Broad Street
Philadelphia, PA
19101-1784
(www.firstunion.com\ess\)
If the shareowner elects to have First Union hold the shares of Common Stock in
custody, First Union will have the shares registered in its name and will sell
or otherwise dispose of the shares only upon the shareowner's instruction and in
conformity with our Bye-Laws. Dividends and other distributions on Common Stock
held in custody will be promptly remitted by First Union to the shareowner.
Shareowners will receive periodic statements of the number of shares held by
First Union for their account and of dividends paid on those shares. Notice of
any regular or special meeting of our shareowners will be forwarded to
shareowners by First Union, which will vote the shares as directed by the
shareowner or, on request, furnish the shareowner with a proxy thus permitting
the shareowner to vote the number of shares of Common Stock held for him or her
at the meeting.
19
<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 U.S.$, except per share amounts)
Income Statement Data:
- ---------------------
Years Ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue:
Gross reinsurance premiums written $ 845,023 $ 923,623 $ 720,535 $561,386 $502,527
- ------------------------------------------------------------------------------------------------------------------------------
Reinsurance premiums earned 807,709 746,918 639,071 531,088 463,910
Reinsurance commission income 5,574 6,090 495 - -
Real estate and leasing 273,136 266,870 248,580 150,741 125,450
Investments 314,933 245,211 247,431 165,981 150,700
- ------------------------------------------------------------------------------------------------------------------------------
Total revenue $1,401,352 $1,265,089 $1,135,577 $847,810 $740,060
Cash dividends per share $ 1.20 $ 1.04 $ 0.90 $ 0.72 $ 0.60
Balance Sheet Data:
- ------------------
December 31,
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
Cash and investments $2,942,913 $2,609,444 $2,176,893 $1,873,028 $1,650,291
- -------------------------------------------------------------------------------------------------------------------------------
Assets:
Reinsurance $3,389,636 $2,860,571 $2,249,045 $1,769,144 $1,649,222
Real estate and leasing $1,525,646 $1,507,772 $1,418,624 $1,423,027 $ 770,089
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $4,915,282 $4,368,343 $3,667,669 $3,192,171 $2,419,311
- -------------------------------------------------------------------------------------------------------------------------------
Long-term debt $ 866,144 $ 875,684 $ 758,416 $ 713,790 $ 436,674
- -------------------------------------------------------------------------------------------------------------------------------
Members' equity $2,547,383 $2,524,669 $2,227,162 $1,922,797 $1,631,492
- -------------------------------------------------------------------------------------------------------------------------------
Net book value per share $ 20.48 $ 19.84 $ 17.00 $ 14.24 $ 12.00
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Item 7. Management's Discussion and Analysis of
- ------ ---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
1999 Compared to 1998
- ---------------------
Reinsurance
- -----------
(In thousands U.S.$) 1999 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Gross premiums written $ 845,023 $ 923,623
Premiums ceded (25,340) (14,628)
- -------------------------------------------------------------------------------------------
Net premiums written 819,683 908,995
Change in unearned premiums (11,974) (162,077)
- -------------------------------------------------------------------------------------------
Premiums earned 807,709 746,918
Commission income 5,574 6,090
- -------------------------------------------------------------------------------------------
813,283 753,008
- -------------------------------------------------------------------------------------------
Losses and loss expenses (759,231) (404,328)
Commissions and taxes (120,256) (100,332)
- -------------------------------------------------------------------------------------------
(879,487) (504,660)
- -------------------------------------------------------------------------------------------
Underwriting (loss) income (66,204) 248,348
- -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Investment income:
<S> <C> <C>
U.S. equities 196,488 209,172
Emerging markets 116,983 (57,127)
Fixed income (55,843) 83,561
Strategic income mutual fund 31,863 6,495
Other 12,652 1,897
Expenses (6,197) (4,762)
- -----------------------------------------------------------------------------------------
Investment income 295,946 239,236
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Reinsurance income $229,742 $487,584
- -----------------------------------------------------------------------------------------
</TABLE>
Gross reinsurance premiums written decreased by $78.6 million for the year ended
December 31, 1999 from the prior year. Premiums from seventeen new programs
totaled $129.3 million with the largest contributors being multi-line and
property programs with $36.3 million and $51.2 million, respectively. Premiums
from renewed programs increased by $116.8 million. These increases were offset
by the cancellation of the shipper's risk program and programs that were not
renewed which decreased premiums written by a total of $315.5 million. The
majority of this decrease was as a result of the shipper's risk cancellation and
the Company declining to renew several accident & health, aviation and property
programs, as they did not meet the Company's return requirements.
Premiums from the United Parcel Service of America, Inc. (UPS) shipper's risk
program decreased by $98.3 million to $273.5 million compared to $371.8 million
in the prior year. Shipper's risk reinsurance historically has been OPL's
largest source of revenue. On August 9, 1999, a judge of the United States Tax
Court issued an opinion in United Parcel Service of America, Inc. v.
Commissioner of Internal Revenue. OPL was not a party to the case and is not
directly affected by this decision. However, the opinion concerns the taxation
of premiums paid by shippers for insurance covering risks of loss or damage to
packages carried by UPS (shipper's risk insurance) and that shipper's risk
insurance is reinsured by OPL. On August 31, 1999, the primary insurer notified
the Company that UPS intends to provide shipper's risk reinsurance for its
customers through a UPS subsidiary effective October 1, 1999. This means that
OPL will not provide shipper's risk reinsurance in the future.
Reinsurance premiums earned increased by $60.8 million for the year ended
December 31, 1999 as a result of the growth in volume of business written in the
second half of 1998 and during 1999.
21
<PAGE>
Net underwriting income decreased by $314.6 million for the year ended December
31, 1999. While our premiums earned increased by 8.1%, the overall combined
ratio has also increased from 67.6% to 108.9%. These changes are due to several
factors, including:
. adverse development of $126.7 million in the third and fourth quarters of
1999 relating primarily to two programs written in 1998, plus a further $96.3
million of underwriting losses on premiums earned on these programs
subsequent to 1998.
. cancellation of the shipper's risk program, effective October 1, 1999. This
program contributed $213.5 million and $241.8 million to underwriting income
for the years ended December 31, 1999 and December 31, 1998, respectively.
. a change in the mix of business. Specifically, the new programs have lower
margins than the traditional shipper's risk business, which accounted for
33.9% of the premiums earned in 1999 compared to 49.8% of the premiums earned
in 1998.
. lower margins across most lines of business as a result of continued
competitive pressures on premium rates.
The ceding company on one of the programs that experienced significant adverse
development has commenced arbitration proceedings against the primary carrier
for the underlying business. The ceding company is seeking to rescind its
contract with the primary carrier. The arbitration proceedings will likely take
many months to resolve. As such, it is too early to determine whether the
arbitration decision will be in the ceding company's favor and therefore benefit
OPL. The Company continues to reserve for losses and loss expenses without
regard to the likelihood of rescission.
The Company recently commenced an audit of the books and records of the other
program that has experienced significant adverse development. On the advice of
Counsel, the Company has subsequently issued a Reservation of Rights letter
indicating that the Company will not make any further loss payments under the
program until such time as the ceding company has satisfactorily resolved a
number of serious issues highlighted by the audit. In the meantime, management
believes that current accrued losses and loss expenses are adequate to meet our
obligations under the contract.
Net investment income relating to our reinsurance segment for the year ended
December 31, 1999 was $295.9 million compared to $239.2 million for the year
ended December 31, 1998. This reflects a total return on our portfolio of 13.2%
compared to 12.2% in 1998. During 1999, the U.S. economy continued to grow and
the global economy bounced back from the 1998 crisis in emerging markets. In
the U.S., the Federal Reserve raised interest rates three times in 1999 in
response to strong economic data and concerns of inflation on the horizon.
Despite rising interest rates, our S&P 500 based equity portfolio returned 21.9%
for the year ended December 31, 1999, generating $196.5 million as compared to
$209.2 million in 1998. The emerging markets' recovery was stronger than
expected even in the face of natural disasters, political uncertainty and
looming Y2K concerns. Our emerging markets equity portfolio returned 62.5% for
the year ended December 31, 1999, generating $117.0 million as compared to a
loss of $57.1 million in 1998. The global bond market was under pressure from
two driving forces - the increase in interest rates in the U.S. and the
deterioration of confidence in the euro for euro bloc holdings. The global bond
portfolio lost 9.5% for the year ended December 31, 1999, or $55.9 million, as
compared to a gain of $83.6 million in 1998. Our strategic income mutual fund,
which is a combination of US income strategies, benefited from investments in
floating rate loans which act as an inflationary hedge, and convertible
securities which were fueled by the strength in the U.S. equity market. The
fund returned 7.8% for the year ended December 31, 1999, generating $31.9
million compared to $6.5 million last year.
22
<PAGE>
Real Estate and Leasing
- -----------------------
<TABLE>
<CAPTION>
(In thousands U.S.$) 1999 1998
- -----------------------------------------------------------------------------------------
REVENUE:
<S> <C> <C>
Office buildings $150,218 $130,209
Hotel 101,208 93,886
Leasing 21,710 30,980
Gain on sale of aircraft -- 11,795
- -----------------------------------------------------------------------------------------
273,136 266,870
- -----------------------------------------------------------------------------------------
EXPENSES:
Operating expenses 145,388 136,604
Interest expense 71,533 65,632
Depreciation 36,446 35,392
Minority interest in earnings 3,029 2,822
- -----------------------------------------------------------------------------------------
256,396 240,450
- -----------------------------------------------------------------------------------------
Operating income 16,740 26,420
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Investment income:
Real estate investment trust certificates (5,342) (12,641)
Other 18,132 13,854
- -----------------------------------------------------------------------------------------
Investment income 12,790 1,213
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Real estate and leasing income $ 29,530 $ 27,633
- -----------------------------------------------------------------------------------------
</TABLE>
Office building revenue increased by 15.4% for the year ended December 31, 1999
from $130.2 million for 1998. This increase of $20.0 million was primarily due
to the July 1998 purchase of Madison Plaza, a 45-story Class A office building
located in Chicago's Central Business District. Hotel revenue increased $7.3
million due to an increase in room rates and occupancy rates over 1998 as a
result of the increase in tourism in the Boston area. Leasing revenue has
decreased from $31.0 million in 1998 to $21.7 million in 1999 due to the sale of
five Boeing 757 aircraft to UPS in July 1998.
Operating expenses have increased by $8.8 million due to the purchase of Madison
Plaza and an increase in operating costs at the hotel and Copley Place.
Interest expense increased by $5.9 million from 1998 due to the purchase of
Madison Plaza. Interest expense continues to include the expense associated
with the Series A bonds that were used to finance the original acquisition of
the aircraft. The proceeds from the sale of the aircraft were invested in zero
coupon U.S. treasury notes and corporate bonds to provide collateral for the
future interest obligations.
Other investment income increased due to amortization on the zero coupon U.S.
treasury notes and corporate bonds held as substitute collateral for the
interest obligation on the Series A bonds.
Real estate and leasing income for the year ended December 31, 1999 increased by
$1.9 million over 1998, as a result of increased investment income and
improvements in the profitability of the hotel and Copley Place. This was
offset by the gain on sale of Boeing 757 aircraft in 1998 that yielded an $11.8
million gain in that year.
Net Income
- ----------
Net income for the year ended December 31, 1999 decreased by $255.5 million from
1998 due to the decrease in underwriting income from $248.3 million to a loss of
$66.2 million. This was due to the loss of the shipper's risk program, adverse
development on programs written in 1998 and continued competitive pressures on
premium rates. This was partially offset by an increase in investment income.
Net income per share was $1.85, a $2.02 per share decrease from 1998 as a result
of the aforementioned factors.
23
<PAGE>
1998 Compared to 1997
- ---------------------
Reinsurance
- -----------
<TABLE>
<CAPTION>
(In thousands U.S.$) 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 6,090 495
- -------------------------------------------------------------------------------------------
753,008 639,566
- -------------------------------------------------------------------------------------------
Losses and loss expenses (404,328) (331,879)
Commissions and taxes (100,332) (73,884)
- -------------------------------------------------------------------------------------------
(504,660) (405,763)
- -------------------------------------------------------------------------------------------
Underwriting income 248,348 233,803
- -------------------------------------------------------------------------------------------
U.S. equities 209,172 192,576
Emerging markets (57,127) (20,910)
Fixed income 83,561 49,363
Strategic income mutual fund 6,495 --
Other 1,897 5,288
Expenses (4,762) (4,134)
- -------------------------------------------------------------------------------------------
Investment income 239,236 222,183
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Reinsurance income $487,584 $455,986
- -------------------------------------------------------------------------------------------
</TABLE>
Gross reinsurance premiums written increased by $203.1 million for the year
ended December 31, 1998. The Company's accident & health, aviation, marine,
property, workers' compensation and automobile programs were the largest
contributors to this increase with premiums from new programs totaling $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 in 1997 primarily due to the 15-day strike
against UPS in August 1997. However, the strike continued 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 6.2% 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 63.5% to 67.6% as a result of the expansion into
new lines of business and the increasingly competitive reinsurance market.
Reinsurance investment income for the year ended December 31, 1998 increased by
$17.1 million. Despite considerable volatility in equity markets throughout
1998, the 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 increased 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 $34.2 million more income than in 1997
as investors shifted to government and corporate fixed income securities such as
those held by the Company.
24
<PAGE>
Real Estate and Leasing
- -----------------------
<TABLE>
<CAPTION>
(In thousands U.S.$) 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 aircraft 11,795 --
- -----------------------------------------------------------------------------------------
266,870 248,580
- -----------------------------------------------------------------------------------------
EXPENSES:
Operating expenses 136,604 126,804
Interest expense 65,632 62,442
Depreciation 35,392 32,596
Minority interest in earnings 2,822 1,321
- -----------------------------------------------------------------------------------------
240,450 223,163
- -----------------------------------------------------------------------------------------
Operating income 26,420 25,417
- -----------------------------------------------------------------------------------------
Investment income:
Real estate investment trust certificates (12,641) 15,208
Other 13,854 5,906
- -----------------------------------------------------------------------------------------
Investment income 1,213 21,114
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Real estate and leasing income $ 27,633 $ 46,531
- -----------------------------------------------------------------------------------------
</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 UPS 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 $9.8 million due to the purchase of Madison
Plaza and an increase in operating costs at the hotel and Copley Place.
Interest expense increased by $3.2 million from 1997. The purchase of Madison
Plaza led to additional interest expense in 1998. Real estate and leasing
operating income for the year ended December 31, 1998 increased by $1.0 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.
OPL's real estate investment trust was impacted by the uncertainty in the
capital markets in 1998.
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.
25
<PAGE>
Liquidity and Capital Resources
- -------------------------------
OPL's cash and cash equivalents increased by $279.5 million during the year
ended December 31, 1999. Operating activities generated $497.3 million,
investing activities generated $5.8 million and financing activities used $223.5
million of cash. Reinsurance and real estate operations both provided inflows
of $231.0 million and $23.1 million, respectively for the year ended December
31, 1999. The Company received $59.6 million of interest and dividends,
purchased $905.7 million of traded investments and sold $1,085.1 million of
investments in its trading portfolio. Shareowners purchased $115.2 million of
shares from OPL's treasury stock during the year while the Company purchased
$172.4 million of shares from its shareowners. On August 27, 1999, the Company
paid a dividend of $1.20 per share resulting in a cash outflow of $152.9
million.
During the third quarter, we retained a portion of our positive operating cash
flows as cash equivalents rather than increasing the ownership of equity or
fixed income securities. This decision responded to the loss of future cash
flows from the UPS shipper's risk program and short-term concerns about the
current interest rate environment. The UPS shipper's risk program generated
cash flows of $214.1 million, $252.3 million and $239.4 million in 1999, 1998
and 1997 respectively.
On July 21, 1999, OPL suspended the sale of its stock under the UPS stock
purchase plans (the Plans). This action was taken following the announcement by
UPS of its intended merger with a subsidiary, United Parcel Service, Inc. (New
UPS) and the initial public offering of New UPS shares. UPS suspended the sale
of its shares under the Plans immediately following its announcement. Prior to
the suspension, units of UPS and OPL shares had been sold to UPS employees under
the Plans.
In addition, OPL has elected to defer the 2000 repurchase of its shares, as
previously disclosed in a report on Form 8-K filed on October 12, 1999. The
decrease in cash inflow resulting from the suspension of sales under the Plans
is expected to be offset by the deferral of repurchases in 2000.
On November 23, 1999, the Board announced that it approved a temporary limit on
the number of shares the Company is willing to purchase from any shareowners who
seek to sell such shares. Until further notice, the Company is prepared to
repurchase up to 10% of any shareowner's shares between November 23, 1999 and
November 1, 2000. This means that the Company is currently willing to purchase
in the aggregate approximately $270 million worth of its shares during this
period. The Board has determined that this would be the most equitable way to
purchase shares in the event shareowners wish to offer shares to the Company.
The Board will reconsider the amount of the temporary limit from time to time
based upon the demand for the Company's shares and the continued maintenance by
OPL of satisfactory earnings, financial condition, and liquidity and capital
requirements.
The Board has also authorized existing shareowners to purchase up to 10,000
shares of OPL Common Stock, until November 1, 2000, subject to registration of
OPL's shares for sale with the Securities and Exchange Commission.
The Company intends to use any proceeds from the sale of shares for general
corporate purposes, including strategic investments and acquisitions and the
financing thereof. The Company may also use all or a portion of the proceeds to
repurchase additional shares from those other shareowners that may desire
offering their shares for repurchase by the Company.
Notwithstanding the loss of our shipper's risk reinsurance business, we believe
that our investments, cash flow from operations and borrowing ability are
adequate sources of capital and liquidity for the payment of claims, operating
expenses and dividends and for share repurchases. 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.
26
<PAGE>
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.
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.
Impact of the Year 2000 Issue
- -----------------------------
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. Although the change in date has occurred and the Company has not been
affected by the Year 2000 issue to date, it is not possible to conclude that all
aspects of the Year 2000 issue that may affect the Company, including those
related to customers, suppliers, or other third parties, have been fully
resolved.
Reinsurance contracts that commenced 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 insured. 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 costs incurred in preparing OPL's internal systems and equipment for Year
2000 Compliance were less than $1,000,000.
Credit Risk Disclosures
- -----------------------
Credit risk represents the loss that would occur if a counterparty or issuer
failed to perform its contractual obligations. Certain policies and procedures
have been established to protect the Company against such losses. Controlling
duration by limiting tracking error to known benchmarks, placing limits on
exposure to any one counterparty and mandating minimum credit ratings all serve
to control the credit exposure associated with the Company's financial
instruments.
27
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- -------- ----------------------------------------------------------
The Company is subject to market risk arising from the potential change in the
value of its various financial instruments. These changes may be due to
fluctuations in interest rates, equity prices and foreign currency rates. The
Company does not use derivatives to hedge market risk. Equity price
fluctuations represent the largest market risk factor affecting the Company's
financial position due to the significant level of investment in equity
securities.
The Company's financial instruments that are materially exposed to market risks
as of December 31, 1999 and December 31, 1998 are:
<TABLE>
<CAPTION>
(In thousands U.S.$) FAIR VALUE
- ------------------------------------------------------------------------------------------------------
Trading portfolio: 1999 1998
<S> <C> <C>
Investment in equity securities:
United States $1,002,345 $ 964,719
Emerging markets 236,982 215,198
Strategic income mutual fund 435,480 406,080
Real estate investment trust certificates 62,691 71,754
Investment in global fixed income securities 512,148 536,017
- ------------------------------------------------------------------------------------------------------
2,249,646 2,193,768
Cash and cash equivalents 450,336 170,855
- ------------------------------------------------------------------------------------------------------
Total trading portfolio $2,699,982 $2,364,623
- ------------------------------------------------------------------------------------------------------
</TABLE>
The Company also maintains a non-trading portfolio, comprising U.S. zero coupon
treasury notes and corporate bonds that collateralize certain of the Company's
debt obligations. The Company's non-trading securities are carried at an
amortized cost of $242.9 million (fair value $254.6 million). The non-trading
portfolio also includes $866.1 million (fair value $908.0 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 Salomon Brothers World
Government Bond Index (excluding Japan, unhedged).
. The Company invests in equity markets in both the United States and emerging
market countries. The U.S. equity portfolio is highly correlated with the S&P
500 index, while the emerging market equity portfolio is highly correlated
with the IFC Regional Investable Composite Index.
. The Company's equity securities include an investment in a strategic income
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.
28
<PAGE>
The Company uses financial modeling and asset allocation techniques to optimize
risk and return over the long term (typically up to 10 years). Individual asset
classes are selected based on characteristics such as yield, credit quality,
currency, liquidity, duration, historical volatility and correlation with other
asset classes. Independent investment managers are appointed to execute
management-approved investment guidelines. The performance of the investment
managers is evaluated at least monthly, including the appropriateness of
investments and the acceptability of risk and returns relative to the Company's
investment objective.
The following paragraphs address the significant market risks associated with
the Company's trading portfolio as of December 31, 1999.
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 U.S. 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 has sufficient liquidity to
meet such obligations as they fall due.
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.
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.
29
<PAGE>
Foreign Currency Risk
- ---------------------
OPL is exposed to foreign currency risk arising from foreign exchange rate
fluctuations against the U.S. dollar on both its global fixed income portfolio
and the IFC emerging markets equity portfolio. The principal currencies
creating foreign exchange rate risk are the euro 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 euro. This exposure is
mitigated by the fact that the Company's reinsurance premiums and related
receivables are partially offset by claims incurred and claims liabilities,
respectively, denominated in the same currency.
Value at Risk
- -------------
Potential gains or losses from changes in market conditions can be estimated
through statistical models that attempt to predict, within a specified
confidence level, the maximum loss that could occur over a defined period of
time 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 of VaR were calculated using the variance-covariance (delta
normal) methodology. The model uses historical interest and foreign currency
exchange rates and equity prices for the 60 months ended December 31, 1999 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 11.0% return on equity securities and a 4.5% return on fixed income
securities. VaR is a statistical estimate and should not be viewed as
predictive of the Company's future financial performance and there can be no
assurance that the Company's actual losses in a particular year will not exceed
the VaR amounts indicated in the following table or that such losses will not
occur more than once in 20 years.
Limitations in the analysis include:
. the market risk information is limited by the assumptions and parameters
established in creating the related models;
. the analysis is based on historical data;
. the analysis excludes other significant real estate and reinsurance assets
and liabilities; and
. the model assumes that the composition of the Company's assets and
liabilities remains unchanged throughout the year.
Therefore such models are tools and do not substitute for the experience and
judgment of management.
30
<PAGE>
The VaR for each component of the Company's market risk in the trading portfolio
as of December 31, 1999 and December 31, 1998 was:
<TABLE>
<CAPTION>
Trading portfolio (in millions U.S.$): 1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Interest rate risk $ 6.3 $ 16.8
Equity price risk 171.2 147.4
Foreign exchange rate risk 37.4 51.6
Diversification benefit (98.9) (76.2)
- ----------------------------------------------------------------------------------------------
$116.0 $139.6
- ----------------------------------------------------------------------------------------------
</TABLE>
Estimated changes in fair value associated with the trading portfolio would have
a direct effect on net income. The Company's total VaR includes a
diversification benefit since interest rate, equity and currency risks are only
partially correlated.
The average, high and low VaR for each component of the Company's market risk in
the trading portfolio for the year ended December 31, 1999 was:
<TABLE>
<CAPTION>
Trading portfolio (in millions U.S.$): Average High Low
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest rate risk $ 10.4 $ 14.0 $ 1.6
Equity price risk 159.7 183.2 138.4
Foreign exchange rate risk 39.9 40.4 33.6
Diversification benefit (91.1) (97.8) (95.0)
- --------------------------------------------------------------------------------------------------------------------
$118.9 $139.8 $ 78.6
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Our asset allocation models are continuously updated to incorporate recent
volatility and return characteristics. The decrease in VaR from $139.6 million
at December 31, 1998 to $116.0 million at December 31, 1999 is due, for the most
part, to a higher proportion of cash equivalents being held at present. In
August 1999, we reduced our allocation to equities to reflect a number of
factors including the increased daily volatility in global equity markets and
the increased risk in our reinsurance business. We used such funds to increase
our cash position to take into account the cancellation of the shipper's risk
business, which will make our future cash flows less predictable, as will our
entry in to the property catastrophe market.
Safe Harbor Disclosure
- ----------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. This report 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 generally intended to identify such forward-looking statements.
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)
pricing pressure resulting from the competitive environment in which the Company
operates, (ix) the impact of mergers and acquisitions, (x) developments in
global financial markets which could affect the Company's investment portfolio,
(xi) risks associated with the introduction of lines of business, (xii) the
resolution of any pending or future tax assessments by the IRS against the
Company, and (xiii) the resolution of other pending litigation. By making these
forward-looking statements, the Company does not undertake to update them in any
manner.
31
<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.
32
<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 56 Director since 1994
Prior to becoming a director, Mr. Clanin 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. Mr. Clanin is a member of the UPS
Management Committee, which oversees the day-to-day management of UPS. In 1996,
he was elected to the UPS Board of Directors.
- -------------------------------------------------------------------------------
D. Scott Davis Age 48 Director since 1999
During 1999, Mr. Davis served as President and Chief Executive Officer of OPL.
Mr. Davis currently serves as Chief Executive Officer, pursuant to Ms. Mary
Hennessy's appointment as President on January 4, 2000. Mr. Davis also serves
as President of Overseas Partners Capital Corp. (OPCC). From May 1985 until
January 1999, he served as Vice President - Finance and Accounting for UPS,
where his responsibilities for several years included banking, investments,
financial reporting and shareowner relations. 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, Mr. Davis 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 52 Director since 1995
Mr. Pyne has served as Senior Vice President of Marketing and Corporate
Development for UPS since 1996. In this capacity, he directs UPS's worldwide
marketing, electronic commerce, advertising, public relations, the UPS Logistics
Group, UPS Capital Corporation and other subsidiaries that enable global
commerce. 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 also headed Marketing for U.S. ground and air
delivery services.
- -------------------------------------------------------------------------------
Cyril E. Rance Age 65 Director since 1995
Mr. Rance was President and Chief Executive Officer of a large Bermuda insurer
until his retirement in 1990. He has more than 40 years experience in all
aspects of the insurance industry. He also has had a long and varied career in
civic and government service, including 10 years as a member of the Bermuda
Parliament. He is a director of Exel Limited, an insurance holding company, and
of several international companies registered in Bermuda.
33
<PAGE>
- -------------------------------------------------------------------------------
Edwin H. Reitman Age 57 Director since 1991
Mr. Reitman became non-executive Chairman of the Board of Directors in 1995. Mr.
Reitman served as President and Chief Executive Officer of the Company from 1991
until 1995. Mr. Reitman 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. Mr. Reitman was Manager of the UPS Legal
Department from 1989 until 1995.
- --------------------------------------------------------------------------------
Walter A. Scott Age 62 Director since 1995
Prior to his retirement in September 1994, Mr. Scott 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, Mr. Scott
served in various senior positions with Primerica Corporation, (now Citigroup,
Inc.), 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.
Name Age Officers
- --------------------- --- -----------------------------------------------
Mark R. Bridges 40 Vice President and Treasurer
Thomas E. Butler 55 Vice President and Secretary (1)
Michael J. Cascio 44 Chief Underwriting Officer (2)
D. Scott Davis 48 President and Chief Executive Officer (3)
Mary R. Hennessy 47 President and Chief Operating Officer (4)
Michael J. Molletta 44 Vice President, Overseas Partners Capital Corp.
Leopold A. Schmidt 56 Vice President (5)
(1) Mr. Butler retired as of December 16, 1999. Mr. Butler had served as Vice
President - Legal and Secretary of OPL. Mr. Butler served as Vice
President of OPL since June 1990 and Secretary of OPL since August 1994.
Mr. Butler also served as Vice President and Secretary of OPCC since 1995
as well as a director. Prior to his OPL service, Mr. Butler had been a
member of the UPS Legal Department from 1966 until 1995.
(2) Mr. Cascio was appointed Chief Underwriting Officer of OPL on January 4,
2000.
(3) Mr. Davis served as President and Chief Executive Officer and director of
OPL in 1999. Ms. Mary H. Hennessy succeeded him as President on January 4,
2000.
(4) Ms. Hennessy was appointed President and Chief Operating Officer of OPL on
January 4, 2000.
(5) Mr. Schmidt retired as of May 31, 1999. Mr. Schmidt served as Vice
President - Underwriting of OPL. He had 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.
34
<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. Cascio has served as Chief Underwriting Officer since January 4, 2000. He
was one of the co-founders and from 1994 until 1997, he was one of the Managing
Directors of Stockton Re, a Bermuda based finite risk reinsurer. His prior
experience also includes senior underwriting and management positions with
Centre Re, Pinnacle Reinsurance, KPMG and Travelers Insurance Company. Michael
is a Fellow of the Casualty Actuarial Society (FCAS), a member of the American
Academy of Actuaries and Founder and first President of CABER.
Ms. Hennessy has served as President and Chief Operating Officer of OPL since
January 4, 2000. Mary joined OPL after three years with TIG Holdings, Inc., a
NYSE-publicly traded insurance holding company, initially as Executive Vice
President and Chief Underwriting Officer and then as President and Chief
Operating Officer. Prior to that, she served as President of Am-Re Services,
Inc., Chairman and Chief Executive Officer of Am-Re Consultants, Inc. and Senior
Vice President and Chief Actuary for American Re-Insurance Company for a period
eight years.
For biographical information on Mr. Davis, see above section on "Directors".
Mr. Molletta has served as Vice President of OPCC, a wholly-owned subsidiary of
OPL, since December 1994. He also has served as President of OMI since January
1998. Prior to Mr. Molletta's OPCC duties, he was a member of the UPS Finance
and Accounting Department from 1988 until 1994.
The officers of OPL serve at the pleasure of the Board of Directors.
35
<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 1999, 1998 and 1997 to the following Named Executive
Officers in all capacities in which they served:
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
- ------------------------------------------------------------------------------------------------- ---------------------
Stock
Other Annual Appreciation
Name and Principal Position Year Salary Bonus (5) Compensation (6) Rights (7)
- -------------------------------------------------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Thomas E. Butler 1999 $145,000 $171,449 $160,557 5,923
Vice President and Secretary (1) 1998 $132,500 $ 35,586 $153,702 5,474
1997 $126,250 $ 40,512 $132,851 3,832
Mark R. Bridges 1999 $171,875 $176,135 $135,000 7,021
Vice President and Treasurer (2) 1998 $104,000 $ -- $ 84,375 --
1997 $ -- $ -- $ -- --
D. Scott Davis 1999 $225,500 $112,680 $ 96,000 13,480
President and Chief Executive 1998 $ -- $ -- $ -- --
Officer (3) 1997 $ -- $ -- $ -- --
Michael J. Molletta 1999 $137,500 $121,986 $ -- 5,617
Vice President 1998 $126,250 $ 29,160 $ -- 4,013
1997 $112,500 $ 34,604 $ -- 2,561
Leopold A. Schmidt 1999 $ 84,000 $ 78,075 $ 78,182 7,149
Vice President (4) 1998 $142,500 $ 37,098 $151,260 5,888
1997 $131,250 $ 37,980 $165,675 3,983
</TABLE>
(1) Mr. Butler retired as of December 16, 1999.
(2) Mr. Bridges commenced employment with OPL in May 1998.
(3) Mr. Davis was appointed President and CEO on January 7, 1999.
(4) Mr. Schmidt retired as of May 31, 1999.
(5) Bonus includes the 1998 bonus paid on January 19, 1999 and the 1999 bonus
paid on November 23, 1999.
(6) Other annual compensation consists of cost of living allowances, and for
Messrs. Butler and Schmidt, 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.
Schmidt became a Bermuda resident in November 1996. Mr. Butler became a
Bermuda resident in January 1997. Mr. Davis became a Bermuda resident in
January 1999.
(7) Number of shares underlying Stock Appreciation Rights granted.
36
<PAGE>
Stock Appreciation Rights - Grants
- ----------------------------------
The following table sets forth information concerning grants of Stock
Appreciation Rights to the Named Executive Officers in 1999:
<TABLE>
<CAPTION>
% of Total Potential Realizable Value at Assumed
Granted Annual Rates of OPL Stock
Rights 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>
Mark R. Bridges 7,021 7.9% $19.84 03/31/04 $38,485 $ 85,042
Thomas E. Butler 5,923 6.6% $19.84 03/31/04 $32,466 $ 71,742
D. Scott Davis 13,480 15.1% $19.84 03/31/04 $73,890 $163,277
Michael J. Molletta 5,617 6.3% $19.84 03/31/04 $30,789 $ 68,036
Leopold A. Schmidt 7,149 8.0% $19.84 03/31/04 $39,187 $ 86,592
</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 1999 by the Named Executive Officers and the value of their
unexercised Rights on December 31, 1999.
<TABLE>
<CAPTION>
Aggregated Stock Appreciation Rights Exercised in 1999 and Year-End Rights Value
--------------------------------------------------------------------------------
Number of Unexercised Value of Unexercised
Number of Rights at 12/31/99 Rights at 12/31/99
Shares ------------------------------------------------------------
Underlying Value Realized
Name Rights Exercised Upon Exercise Exercisable Unexercisable Exercisable Unexercisable (1)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mark R. Bridges -- $ -- -- 7,021 $ -- $ 11,655
Thomas E. Butler 4,224 $46,633 -- 22,432 $ -- $148,474
D. Scott Davis -- $ -- -- 13,480 $ -- $ 22,377
Michael J. Molletta 1,797 $19,839 -- 17,352 $ -- $100,517
Leopold A. Schmidt 2,570 $28,373 -- 24,182 $ -- $143,217
</TABLE>
(1) Based on fair value per share of OPL Common Stock as of December 31, 1999
minus exercise price.
37
<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 $16,440 per year (maximum
currently payable) in primary Social Security benefits:
Pension Plan Table
- ------------------
<TABLE>
<CAPTION>
Estimated Annual Retirement Benefits (as of 12/31/99)
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 $ 27,141 $ 36,188 $ 45,234 $ 54,281
$150,000 $ 33,391 $ 44,521 $ 55,651 $ 66,782
$175,000 $ 39,641 $ 52,855 $ 66,068 $ 79,282
$200,000 $ 45,891 $ 61,188 $ 76,485 $ 91,782
$225,000 $ 52,141 $ 69,522 $ 86,902 $104,282
$250,000 $ 58,391 $ 77,855 $ 97,319 $116,783
$300,000 $ 70,892 $ 94,522 $118,153 $141,783
$400,000 $ 95,892 $127,856 $159,820 $191,784
$450,000 $108,392 $144,523 $180,654 $216,785
$500,000 $120,893 $161,190 $201,488 $241,785
</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: Butler - 30 years, Molletta - 22 years and
Schmidt - 30 years.
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.
38
<PAGE>
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
The Compensation Committee is comprised of the following members - Robert J.
Clanin, Joseph M. Pyne and Cyril E. Rance. 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.
39
<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 29, 2000(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>
Mark R. Bridges
Mintflower Place
8 Par-la-Ville Road
P.O. Box 1581
Hamilton, HM GX, Bermuda 8,966 -- 8,966 (0.01%)
Thomas E. Butler
Wild Oak Bay
3603 Quail Hollow Lane
Bradenton, FL 34210 15,037 -- 15,037 (0.01%)
Robert J. Clanin
55 Glenlake Parkway, NE
Atlanta, GA 30328 38,148 5,658,232 5,696,380 (4.61%)
D. Scott Davis
Mintflower Place
8 Par-la-Ville Road
P.O. Box 1581
Hamilton, HM GX, Bermuda 18,041 -- 18,041 (0.01%)
Michael J. Molletta
115 Perimeter Center Place
Suite 940
Atlanta, GA 30346 12,193 -- 12,193 (0.01%)
Joseph M. Pyne
55 Glenlake Parkway, NE
Atlanta, GA 30328 22,613 -- 22,613 (0.02%)
Cyril E. Rance
Blue Anchorage
No. 6 Agars Hill - Point Shares
Pembroke, HM 05, Bermuda 2,000 -- 2,000 (0.00%)
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Common Stock Held as of February 29, 2000(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 40,847 -- 40,847 (0.03%)
Leopold A. Schmidt
103 Quill Place
Williamsburg, VA 23185 36,948 -- 36,948 (0.03%)
Walter A. Scott
c/o Tempest Re
Par-la-Ville Place
14 Par-la-Ville Road
Hamilton, HM 08, Bermuda 2,000 -- 2,000 (0.00%)
All directors and executive officers
as a group (8 persons) (4) 144,808 5,658,232 5,803,040 (4.69%)
</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 24,423 shares
owned by or held in trust for members of the families of Messrs. Butler,
Clanin, and Schmidt, as to which they disclaim beneficial ownership.
(3) None of the directors, nominees, other officers or members of their
families, have any ownership rights in the shares listed in this column. Of
the shares 5,321,070 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 totaled as of February 29, 2000.
As such, Mr. Butler and Mr. Schmidt have been excluded from the total as
Mr. Butler retired from the Company as of December 16, 1999 and Mr. Schmidt
retired from the Company as of May 31, 1999.
41
<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, 1999 to December 31, 1999 were $273.5 million or 19.5% of OPL's 1999
revenues, a reduction from 29.4% in 1998.
On August 9, 1999, a judge of the United States Tax Court issued an opinion in
United Parcel Service of America, Inc. v. Commissioner of Internal Revenue. OPL
is not a party to the case and is not directly affected by this decision.
However, the opinion concerns the taxation of premiums paid for shipper's risk
insurance and that shipper's risk insurance is reinsured by OPL. On August 31,
1999, the primary insurer notified the Company that UPS intended to provide
shipper's risk reinsurance for its customers through a UPS subsidiary effective
October 1, 1999. This means that OPL will not provide shipper's risk
reinsurance in the future.
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.
Two members of OPL's Board of Directors served as officers of UPS during 1999.
Mr. Robert J. Clanin has served as Vice President, Treasurer and Chief Financial
Officer of UPS since 1994 and Mr. Joseph M. Pyne serves as Senior Vice President
- - Corporate Marketing of UPS. As such these individuals had an interest in
transactions occurring between the Company and UPS in 1999. In considering
which risks related to UPS's business to reinsure, directors of OPL who are also
officers and shareowners of UPS must consider the impact of their business
decisions on each of the two companies. Although prevailing market conditions
are among the factors considered by them in making such decisions, there can be
no assurance that transactions relating to the two companies will be on the most
favorable terms that could be obtained by either party in the open market. OPL
does not have any formal conflict resolution procedures.
OPL's business includes leasing certain real estate property to subsidiaries of
UPS through OCC. OCC is a wholly owned subsidiary of OPL and OPL has guaranteed
OCC's performance of the leasing arrangements described below. In December
1989, OCC acquired from UPS the Ramapo Ridge facility. Beginning in July 1990,
the Facility was leased to UPS for an initial term ending in 2019. UPS uses the
Facility as a data processing, telecommunications and operations center. Lease
payments have fixed and variable components. The fixed component provides for
aggregate lease payments of approximately $216 million over the initial term of
the lease. The variable component of the lease payments is based on the number
of customer accounts maintained by UPS.
42
<PAGE>
OCC 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 OCC fails to pay
certain income taxes, UPS is obligated to pay additional rentals to provide for
such taxes. OCC is required to reimburse UPS the amount of any such
termination or tax payments.
At the conclusion of the lease, 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 OCC in 2050 for approximately $63.7 million, subject
to certain adjustments for increases in the fair market value of the land. In
1999 OCC received rental payments of approximately $17.3 million in the
aggregate from UPS pursuant to the lease described above.
Other Transactions
- ------------------
Subsequent to his retirement, Mr. Leopold A. Schmidt provided reinsurance
consulting services to OPL from June 1999 to December 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.
43
<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, 1999.
(c) Exhibits required by Item 601 of Regulation S-K.
- See Exhibit Index at page E-1
44
<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
<TABLE>
<CAPTION>
Item 8. Financial Statements Page Number
- ------- -------------------- -----------
<S> <C> <C>
Independent Auditors' Report F - 2
Consolidated Balance Sheets as of December 31, 1999 and 1998 F - 3
Consolidated Statements of Income for the years ended F - 4
December 31, 1999,1998, and 1997
Consolidated Statements of Members' Equity for the years ended F - 5
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended F - 6
December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements for the years ended F - 7
December 31, 1999, 1998 and 1997 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.
</TABLE>
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, 1999 and 1998,
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, 1999.
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, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999 in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE
Hamilton, Bermuda
January 11, 2000,
except for Note 13,
as to which
the effective date
is February 4, 2000.
F-2
<PAGE>
<TABLE>
<CAPTION>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------
Consolidated Balance Sheets
December 31, 1999 and 1998
(In thousands, except share and per share amounts)
==================================================================================================================
1999 1998
----------- -----------
<S> <C> <C>
ASSETS:
Investments:
Trading, at fair value-
Fixed income securities (amortized cost 1999-$559,416, 1998-$508,801) $ 512,148 $ 536,017
Equity securities (cost 1999-$1,223,954, 1998-$1,353,321) 1,737,498 1,657,751
Restricted investments, held-to-maturity, at amortized cost
(fair value 1999-$254,619, 1998-$292,236) 242,931 244,821
- ------------------------------------------------------------------------------------------------------------------
2,492,577 2,438,589
Cash and cash equivalents 450,336 170,855
Receivables 711,495 500,710
Deferred acquisition costs 87,146 79,450
Real estate and leasing:
Operating leases with UPS 98,847 101,340
Finance leases 45,400 46,779
Hotel 159,403 164,601
Office buildings 790,864 810,033
Other assets:
Goodwill 19,748 22,242
Other 59,466 33,744
- ------------------------------------------------------------------------------------------------------------------
Total assets $4,915,282 $4,368,343
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND MEMBERS' EQUITY:
Liabilities:
Accrued losses and loss expenses $ 972,201 $ 468,326
Unearned premiums 376,745 352,392
Reinsurance balances payable 43,466 28,293
Accounts payable and other accruals 48,632 55,403
Deferred income taxes 16,542 18,565
Long-term debt 866,144 875,684
Minority interest 44,169 45,011
- ------------------------------------------------------------------------------------------------------------------
Total liabilities $2,367,899 $1,843,674
- ------------------------------------------------------------------------------------------------------------------
Commitments and contingencies -- --
Members' equity:
Preference Stock, par value $0.10 per share; authorized 200 million shares; none issued -- --
Common Stock, par value, $0.10 per share; authorized 900 million shares; issued and
outstanding, 127.5 million shares 12,750 12,750
Contributed surplus 39,991 39,757
Retained earnings 2,556,774 2,476,865
Treasury stock (1999 - 3,108,585 shares, 1998 - 276,662 shares), at cost (62,132) (4,703)
- ------------------------------------------------------------------------------------------------------------------
Total members' equity 2,547,383 2,524,669
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and members' equity $4,915,282 $4,368,343
- ------------------------------------------------------------------------------------------------------------------
Net book value per share $ 20.48 $ 19.84
- ------------------------------------------------------------------------------------------------------------------
</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, 1999, 1998 and 1997
(In thousands, except per share amounts)
================================================================================================
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Gross reinsurance premiums written $ 845,023 $ 923,623 $ 720,535
Reinsurance premiums ceded (25,340) (14,628) (451)
- ------------------------------------------------------------------------------------------------
Net reinsurance premiums written 819,683 908,995 720,084
Change in unearned premiums (11,974) (162,077) (81,013)
- ------------------------------------------------------------------------------------------------
Reinsurance premiums earned 807,709 746,918 639,071
Commission income 5,574 6,090 495
Operating leases with UPS 17,932 27,079 42,233
Finance leases 3,778 3,901 3,991
Hotel 101,208 93,886 91,361
Office buildings 150,218 130,209 110,995
Gain on sale of aircraft -- 11,795 --
Interest 54,396 52,926 53,109
Net holding gain on trading securities 234,525 166,938 187,139
Amortization of fixed income securities 14,657 9,215 4,887
Dividends 11,355 16,132 2,296
- ------------------------------------------------------------------------------------------------
1,401,352 1,265,089 1,135,577
- ------------------------------------------------------------------------------------------------
Expenses:
Reinsurance losses and loss expenses 759,231 404,328 331,879
Reinsurance commissions, taxes and other 120,256 100,332 73,884
Depreciation expense 36,446 35,392 32,596
Real estate and leasing operating expenses 145,388 136,604 126,804
Interest expense 71,533 65,632 62,442
Minority interest in earnings 3,029 2,822 1,321
Investment expenses 6,197 4,762 4,134
Amortization of goodwill 2,550 2,513 209
Other operating expenses 12,795 13,498 8,383
- ------------------------------------------------------------------------------------------------
1,157,425 765,883 641,652
- ------------------------------------------------------------------------------------------------
Income before income taxes 243,927 499,206 493,925
- ------------------------------------------------------------------------------------------------
Income taxes - current (13,155) (56,822) --
- deferred 2,023 45,913 (16,810)
- ------------------------------------------------------------------------------------------------
(11,132) (10,909) (16,810)
- ------------------------------------------------------------------------------------------------
Net income $ 232,795 $ 488,297 $ 477,115
- ------------------------------------------------------------------------------------------------
Basic and diluted net income per share $ 1.85 $ 3.87 $ 3.64
- ------------------------------------------------------------------------------------------------
Weighted average number of shares
outstanding 125,882 126,014 131,000
- ------------------------------------------------------------------------------------------------
</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, 1999, 1998 and 1997
(In thousands, except per share amounts)
=============================================================================================================================
Treasury Stock Total
Preference Common Stock -------------- Contributed Retained Members'
Stock Shares Amount Shares Amount Surplus Earnings Equity
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $ -- 135,000 $13,500 -- $ -- $25,331 $1,883,966 $1,922,797
Net income -- -- -- -- -- -- 477,115 477,115
Dividends paid ($0.90 per share) -- -- -- -- -- -- (117,101) (117,101)
Gain on issuance of Common
Stock held for stock plans -- -- -- -- -- 1,311 -- 1,311
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 share) -- -- -- -- -- -- (131,252) (131,252)
Transfer of Common Stock held
for stock plans -- -- -- (1,746) (24,859) -- -- (24,859)
Purchase of treasury stock -- -- -- (7,452) (126,682) -- -- (126,682)
Sale of treasury stock -- -- -- 5,421 87,338 4,665 -- 92,003
Issuance of Common Stock -- 500 50 (500) (8,500) 8,450 -- --
Retirement of treasury stock -- (4,000) (400) 4,000 68,000 -- (67,600) --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $ -- 127,500 $12,750 (277) $ (4,703) $39,757 $2,476,865 $2,524,669
Net income -- -- -- -- -- -- 232,795 232,795
Dividends paid ($1.20 per share) -- -- -- -- -- -- (152,886) (152,886)
Purchase of treasury stock -- -- -- (8,671) (172,443) -- -- (172,443)
Sale of treasury stock -- -- -- 5,839 115,014 234 -- 115,248
Balance, December 31, 1999 $ -- 127,500 $12,750 (3,109) $ (62,132) $39,991 $2,556,774 $2,547,383
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997
(In thousands)
================================================================================
<TABLE>
<CAPTION>
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 232,795 $ 488,297 $ 477,115
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes (2,023) (45,913) 16,810
Depreciation expense 36,446 35,392 32,596
Minority interest in earnings 3,029 2,822 1,321
Net holding gain on trading securities (234,525) (166,938) (187,139)
Amortization of fixed income securities (14,657) (9,215) (4,887)
Gain on sale of Boeing 757 aircraft -- (11,795) --
Other 4,405 3,703 1,429
Changes in assets and liabilities:
Receivables (210,785) (266,750) (112,801)
Deferred acquisition costs (7,696) (31,749) (20,597)
Other assets (25,722) (8,666) (4,267)
Accrued losses and loss expenses 503,875 129,901 73,259
Unearned premiums 24,353 166,967 81,013
Reinsurance balances payable 15,173 20,938 7,355
Accounts payable and other accruals (6,771) 14,533 (59,166)
Proceeds from sale of trading investments 1,085,097 1,733,510 1,635,416
Purchase of trading investments (905,741) (1,988,370) (1,780,944)
- -------------------------------------------------------------------------------------------------
Net cash flow provided by operating activities 497,253 66,667 156,513
- -------------------------------------------------------------------------------------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from maturity of restricted investments 16,946 -- --
Purchase of restricted investments (1,108) (185,739) --
Proceeds on sale of Boeing 757 aircraft -- 202,220 --
Acquisition of office building -- (199,308) --
Acquisition of business, net of cash -- -- (24,756)
Additions to real estate and leasing assets (10,062) (15,973) (25,061)
- -------------------------------------------------------------------------------------------------
Net cash flow provided (used) by investing activities 5,776 (198,800) (49,817)
- -------------------------------------------------------------------------------------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Purchases of Common Stock -- -- (93,590)
Proceeds from sale of Common Stock held for stock plans -- -- 20,026
Purchases of treasury stock (172,443) (126,682) --
Proceeds from sale of treasury stock 115,248 92,003 --
Repayment of debt (9,596) (7,788) (215,318)
Borrowings -- 125,000 260,000
Distributions to minority interest (3,871) (3,349) --
Dividends paid (152,886) (131,252) (117,101)
- -------------------------------------------------------------------------------------------------
Net cash flow used by financing activities (223,548) (52,068) (145,983)
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 279,481 (184,201) (39,287)
Cash and cash equivalents:
Beginning of year 170,855 355,056 394,343
- -------------------------------------------------------------------------------------------------
End of year $ 450,336 $ 170,855 $ 355,056
- -------------------------------------------------------------------------------------------------
Amounts paid for:
U.S. income taxes $ 10,527 $ 61,928 $ 814
- -------------------------------------------------------------------------------------------------
Interest $ 72,258 $ 58,572 $ 63,661
- -------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
================================================================================
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.
OPL's largest program related to the reinsurance of customer packages shipped by
United Parcel Service of America Inc. (UPS). The shipper's risk program was
cancelled effective October 1, 1999. The program generated premium revenues of
$273.5 million, $371.8 million and $366.7 million in 1999, 1998 and 1997
respectively, contributing $213.5 million, $241.8 million and $225.2 million to
net income in each of those years.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America. All activity is
recorded in U.S. dollars. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
following are the significant accounting policies adopted by the Company.
Intercompany balances and transactions have been eliminated in consolidation.
A statement of comprehensive income is not included as OPL's net income equals
comprehensive income.
Premiums written and ceded are recorded based on estimates of ultimate amounts
at inception of the contract. Such estimates are continuously reviewed with
adjustments, if any, recorded in the period in which they are determined.
Premiums written and ceded are recognized as earned on a pro-rata basis over the
period the coverage is provided. Unearned premiums and acquisition costs,
primarily commissions and taxes, applicable to the unexpired periods of the
policies in force, are deferred. The deferral of acquisition expenses is limited
to its realizable value by giving consideration to losses and expenses expected
to be incurred as premiums are earned and to the future anticipated investment
income related to such premiums. Any resulting premium deficiency is recorded as
part of accrued losses and loss expenses.
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 incurred.
All highly liquid debt instruments with maturities of three months or less at
the date of acquisition are considered cash equivalents.
Trading securities are carried at fair value with any unrealized gains and
losses included in net income. The cost of securities sold is calculated using
the specific identification method. Held-to-maturity investments are carried at
amortized cost as OPL has the ability and intent to hold such investments to
maturity. Non-U.S. dollar securities are translated into U.S. dollars at year
end rates.
Estimated fair value of investments is based on market quotations. The estimated
fair value of long-term debt is based on the net present value of future
contractual cash flows, using current interest rates offered for similar debt
with similar maturities. The carrying values of other financial instruments
approximate their fair values due to the short-term nature of the balances.
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.
F-7
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
================================================================================
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
------------------------------------------
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 of members' equity.
Net book value per share is based on 124.4 million shares outstanding (net of
treasury) at December 31, 1999 and 127.2 million shares at December 31, 1998.
Net income per share is computed based on weighted average shares outstanding of
125.9 million in 1999, 126.0 million in 1998 and 131.0 million in 1997.
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 buildings are recorded at cost less accumulated depreciation, which is
provided under the straight-line method over the estimated useful lives as
follows:
Operating Leases with UPS
- -------------------------
Facility 40 years
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 2001 and is not
expected to have a material impact on the Company's financial position or
results of operations.
In October 1998 the American Institute of Certified Public Accountants issued
Statement of Position, 98-7 "Deposit Accounting" which is effective for
financial statements with fiscal years beginning after June 15, 1999. The
Company does not expect that this standard will have a material impact on the
Company's financial position or results of operations.
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, 1999, 1998 and 1997
================================================================================
3. TAXES (continued)
-----
The United States Internal Revenue Service (IRS) previously asserted that the
Company was subject to U.S. taxation in the amount of approximately $53 million
for its 1984 taxable year and $240 million for its 1985 through 1987 taxable
years, plus additions to tax and interest for those years. On February 13, 1998,
the IRS indicated that it no longer intended to pursue its position against the
Company for 1984. On January 4, 1999, the IRS indicated that it no longer
intended to pursue its position against the Company for 1985 through 1987.
On December 22, 1998, the IRS issued a Notice of Deficiency with respect to the
Company's 1988 through 1990 taxable years in which it asserted that the Company
is subject to U.S. taxation in the aggregate amount of approximately $170
million, plus additions to tax and interest, for those years. On March 19, 1999,
the Company filed a petition in the United States Tax Court contesting the
asserted deficiencies in tax and additions to tax in the Notice. On May 18,
1999, the IRS filed its Answer to the Company's Petition. The IRS has also
asserted that the Company is subject to U.S. taxation for its 1991 through 1994
taxable years and has proposed an aggregate assessment of $319 million of tax,
plus additions to tax and interest, for those years. The Company has filed a
Protest against the proposed assessment with the Appellate Division of the IRS
with respect to the years 1991 through 1994. The IRS has not proposed an
assessment for years subsequent to 1994. However, the IRS may take similar
positions for subsequent years pending resolution of the years currently in
dispute.
OPL believes that it has no tax liability, that it is not subject to U.S.
taxation, and that there is substantial authority for its position. It is
vigorously contesting the Notice of Deficiency for 1988 through 1990 and will
vigorously contest proposed assessments or any future assessments.
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) 1999 1998 1997
- ----------------------------------------------- --------- -------
<S> <C> <C> <C>
Current:
Federal $10,639 $ 50,837 $ --
State 2,516 5,985 --
- -------------------------------------------------------------------
13,155 56,822 --
- -------------------------------------------------------------------
Deferred:
Federal (1,634) (40,842) 14,679
State (389) (5,071) 2,131
- -------------------------------------------------------------------
(2,023) (45,913) 16,810
- -------------------------------------------------------------------
$11,132 $ 10,909 $16,810
- -------------------------------------------------------------------
</TABLE>
The income tax rate on earnings differed from the U.S. Federal statutory rate as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Federal statutory rate 35.0% 35.0% 35.0%
Bermuda operations not subject to U.S. taxation (31.3) (33.0) (32.0)
State taxes 0.9 0.2 0.4
- ---------------------------------------------------------------------------------
Effective tax rate 4.6% 2.2% 3.4%
- ---------------------------------------------------------------------------------
</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, 1999, 1998 and 1997
================================================================================
3. TAXES (continued)
-----
The components of deferred income taxes as of December 31, 1999 and 1998 are as
follows:
(In thousands) 1999 1998
- -------------------------------------------------------------------------
Expenses not currently deductible 3,173 591
- -------------------------------------------------------------------------
Total deferred tax assets 3,173 591
- -------------------------------------------------------------------------
Excess of tax over book depreciation 9,776 6,871
Unrealized holding gain on securities 7,106 9,038
Other 2,833 3,247
- -------------------------------------------------------------------------
Total deferred tax liabilities 19,715 19,156
- -------------------------------------------------------------------------
Deferred income taxes $16,542 $ 18,565
- -------------------------------------------------------------------------
4. INVESTMENTS
-----------
Investments consist of:
(In thousands) 1999 1998
- -----------------------------------------------------------------------------
Trading, at fair value $2,249,646 $2,193,768
- -----------------------------------------------------------------------------
Held-to-maturity, at amortized cost 242,931 244,821
- -----------------------------------------------------------------------------
$2,492,577 $2,438,589
- -----------------------------------------------------------------------------
Amortized cost and fair value of investments in trading securities are as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
(In thousands) UNREALIZED UNREALIZED
December 31, 1999: AMORTIZED COST GAINS LOSSES FAIR VALUE
- ---------------------------------------------------------------------------------------
Fixed income:
<S> <C> <C> <C> <C>
U.S. government bonds $ 142,022 $ -- $ (8,377) $ 133,645
Foreign government bonds 378,367 1,123 (38,830) 340,660
Corporate and other bonds 39,027 -- (1,184) 37,843
- ---------------------------------------------------------------------------------------
559,416 1,123 (48,391) 512,148
- ---------------------------------------------------------------------------------------
Equities:
U.S. equities 589,759 428,230 (15,644) 1,002,345
Emerging markets 185,454 65,418 (13,890) 236,982
Strategic income mutual fund 399,440 36,040 -- 435,480
Real estate investment trust
certificates 49,301 18,017 (4,627) 62,691
- ---------------------------------------------------------------------------------------
1,223,954 547,705 (34,161) 1,737,498
- ---------------------------------------------------------------------------------------
$1,783,370 $548,828 $(82,552) $2,249,646
- ---------------------------------------------------------------------------------------
</TABLE>
F-10
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
================================================================================
4. INVESTMENTS (continued)
-----------
<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 255,032 18,885 (963) 272,954
Corporate and other bonds 49,843 4,001 (8) 53,836
- --------------------------------------------------------------------------------------------------------------------------------
508,801 28,467 (1,251) 536,017
- --------------------------------------------------------------------------------------------------------------------------------
Equities:
U.S. equities 627,020 346,231 (8,532) 964,719
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
- --------------------------------------------------------------------------------------------------------------------------------
1,353,321 386,850 (82,420) 1,657,751
- --------------------------------------------------------------------------------------------------------------------------------
$1,862,122 $415,317 $(83,671) $2,193,768
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A portion of the equity portfolio is invested in a strategic income mutual fund
listed on the Irish and Cayman Islands Stock Exchanges. The underlying
securities of the fund include U.S. high yield bonds, convertible securities and
floating rate loans with an average credit quality of BBB.
Included in net holding gain on trading securities of $234.5 million, $166.9
million and $187.1 million in 1999, 1998 and 1997, were $135.1 million, $116.7
million and $69.4 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 $254.6 million as of December 31, 1999 and $292.2 million as of December 31,
1998. Gross unrealized holding gains and losses at December 31, 1999 and 1998
were $20.9 million and $9.2 million and $47.4 million and $nil respectively.
The investments are held as substitute collateral for the interest obligation
associated with the Series A Bonds and the principal associated with the Series
A and B Bonds issued in connection with the original acquisition of the Boeing
757 aircraft and the data processing facility. The Series A obligation was
previously collateralized by the fixed minimum rentals on the lease of the
aircraft sold in 1998 (see Note 6).
The amortized cost and estimated fair value of held-to-maturity securities, by
contractual maturities, are as follows:
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------------------------------------------------
AMORTIZED AMORTIZED
(In thousands) COST FAIR VALUE COST FAIR VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Within 1 year $ 19,602 $ 19,550 $ 19,884 $ 19,971
After 1 year through 5 years 83,466 80,968 82,891 84,932
After 5 years through 10 years 52,608 48,057 52,752 55,894
After 10 years 87,255 106,044 89,294 131,439
- ---------------------------------------------------------------------------------------------------------------------
$242,931 $254,619 $244,821 $292,236
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
F-11
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
================================================================================
4. INVESTMENTS (continued)
-----------
The components of investment income were as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. equities $196,488 $209,172 $192,576
Emerging markets 116,983 (57,127) (20,910)
Fixed income (55,843) 83,561 49,363
Real estate investment trust certificates (5,342) (12,641) 15,208
Strategic income mutual fund 31,863 6,495 --
Other 30,784 15,751 11,194
Expenses (6,197) (4,762) (4,134)
- ----------------------------------------------------------------------------------------------------------------------
$308,736 $240,449 $243,297
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The components of realized gains (losses) were as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. equities $112,918 $ 65,458 $ 89,769
Emerging markets (1,245) (25,833) 21,892
Fixed income (12,239) 8,735 2,709
Real estate investment trust certificates -- -- 2,651
Other 3 1,848 674
- ----------------------------------------------------------------------------------------------------------------------
$ 99,437 $ 50,208 $117,695
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
Fair value of financial instruments is as follows:
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------------------------------------------------
CARRYING CARRYING
(In thousands) VALUE FAIR VALUE VALUE FAIR VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments (Note 4) $2,492,577 $2,504,265 $2,438,589 $2,486,004
- ---------------------------------------------------------------------------------------------------------------------
Long-term debt (Note 8) $ 866,144 $ 908,048 $ 875,684 $ 989,492
- ---------------------------------------------------------------------------------------------------------------------
</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, 1999, 1998 and 1997
================================================================================
6. REAL ESTATE AND LEASING (continued)
-----------------------
Real estate and leasing assets consist of the following:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Leases with UPS:
Data processing facility $ 118,125 $ 118,125
- ---------------------------------------------------------------------------------------------------
118,125 118,125
Accumulated depreciation (19,278) (16,785)
- ---------------------------------------------------------------------------------------------------
98,847 101,340
- ---------------------------------------------------------------------------------------------------
Finance leases:
Lease rents receivable 88,232 93,384
Estimated residual value 6,744 6,744
Unearned and deferred income (49,576) (53,349)
- ---------------------------------------------------------------------------------------------------
45,400 46,779
- ---------------------------------------------------------------------------------------------------
Hotel:
Building and improvements 152,076 152,076
Furniture, fixtures and equipment 22,179 21,329
Air rights, leasehold interest 18,128 18,128
--------------------------------------------------------------------------------------------------
192,383 191,533
Accumulated depreciation (32,980) (26,932)
- ---------------------------------------------------------------------------------------------------
159,403 164,601
- ---------------------------------------------------------------------------------------------------
Office buildings:
Building and improvements 769,861 769,239
Furniture, fixtures and equipment 4,047 3,797
Tenant improvements 55,809 47,496
Land 34,328 34,328
--------------------------------------------------------------------------------------------------
864,045 854,860
Accumulated depreciation (73,181) (44,827)
--------------------------------------------------------------------------------------------------
790,864 810,033
- ---------------------------------------------------------------------------------------------------
Total $1,094,514 $1,122,753
- ---------------------------------------------------------------------------------------------------
</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 1999, 1998 and 1997 were $10.6 million, $9.8 million and
$17.8 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>
2000 $ 7,321 $ 5,157 $ 83,872 $ 96,350
2001 7,321 4,476 71,930 83,727
2002 7,321 4,248 63,495 75,064
2003 7,321 4,248 56,445 68,014
2004 7,321 4,248 46,151 57,720
After 2004 109,809 65,855 102,805 278,469
- --------------------------------------------------------------------------------------------------
$146,414 $88,232 $424,698 $659,344
- --------------------------------------------------------------------------------------------------
</TABLE>
F-13
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
================================================================================
7. ACCRUED LOSSES AND LOSS EXPENSES
--------------------------------
Activity in accrued losses and loss expenses is summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross balance at January 1, $ 468,326 $ 338,879 $ 265,166
Less reinsurance recoverable (6,435) (454) --
- -------------------------------------------------------------------------------------------------------------------------
Net balance at January 1, 461,891 338,425 265,166
- -------------------------------------------------------------------------------------------------------------------------
Incurred related to:
Current year 632,537 409,860 318,807
Prior years 126,694 (5,532) 13,072
- -------------------------------------------------------------------------------------------------------------------------
Total incurred 759,231 404,328 331,879
- -------------------------------------------------------------------------------------------------------------------------
Paid related to:
Current year (110,366) (134,613) (120,788)
Prior years (146,565) (139,219) (130,802)
- -------------------------------------------------------------------------------------------------------------------------
Total paid (256,931) (273,832) (251,590)
Amortization of life and annuity reserve - net (7,030) (7,030) (7,030)
- -------------------------------------------------------------------------------------------------------------------------
Net balance at December 31, 957,161 461,891 338,425
Plus reinsurance recoverable 15,040 6,435 454
- -------------------------------------------------------------------------------------------------------------------------
Gross balance at December 31, $ 972,201 $ 468,326 $ 338,879
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
As a result of the change in estimates of insured events in prior years, the
provision for losses and loss expenses increased by $126.7 million in 1999
primarily due to higher than anticipated losses on two programs in the marine
and workers' compensation lines of business.
Losses recoverable from reinsurers of $15.0 million and $6.4 million at December
31, 1999 and 1998, respectively are included in receivables in the consolidated
balance sheets. Losses incurred are net of $9.0 million, $6.0 million and $0.5
million of recoveries for the years ended December 31, 1999, 1998 and 1997
respectively.
At December 31, 1999 and 1998, there were no amounts due from any individual
reinsurer in excess of 10% of OPL's members' equity.
F-14
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
================================================================================
8. LONG-TERM DEBT AND COMMITMENTS
------------------------------
OPL has issued or assumed certain debt obligations, collateralized by the
related real estate and leasing assets, as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<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 (844) (900)
- ---------------------------------------------------------------------------------------------------------------
244,156 244,100
- ---------------------------------------------------------------------------------------------------------------
Finance leases:
7.53% non-recourse note through 2008 21,501 23,233
8.10% non-recourse note through 2011 10,070 10,070
- ---------------------------------------------------------------------------------------------------------------
31,571 33,303
- ---------------------------------------------------------------------------------------------------------------
Hotel:
8.39% non-recourse note due through 2006 103,139 105,357
- ---------------------------------------------------------------------------------------------------------------
Office buildings:
6.90% non-recourse note due through 2011 123,817 125,000
7.246% non-recourse note due through 2005 32,694 33,335
7.44% non-recourse note due through 2007 190,537 192,544
7.57% non-recourse note due through 2012 62,851 63,851
7.80% non-recourse note due through 2006 77,379 78,194
- ---------------------------------------------------------------------------------------------------------------
487,278 492,924
- ---------------------------------------------------------------------------------------------------------------
$866,144 $875,684
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Principal payments under debt obligations are as follows: (In thousands)
<TABLE>
<S> <C>
2000 $ 10,466
2001 11,294
2002 12,188
2003 13,152
2004 13,236
After 2004 806,652
- ----------------------------------------------
866,988
Unamortized discount (844)
- ----------------------------------------------
$ 866,144
- ----------------------------------------------
</TABLE>
The principal of the Series A and Series B bonds is secured by zero coupon U.S.
treasury notes held by an OPL wholly-owned subsidiary, Overseas Partners Credit,
Inc. On or prior to the scheduled maturity of each series of the bonds, the
U.S. treasury notes will mature in an amount equal to or exceeding the principal
amount of that series. The interest obligation associated with the Series A
bonds is collateralized by zero coupon U.S. treasury notes and corporate bonds
held by an OPL wholly-owned subsidiary, OPL Funding Corp. The right to receive
fixed minimum rentals on the data processing facility is used to collateralize
and service the debt interest on the Series B bonds.
In the normal course of reinsurance business, OPL's brokers have issued letters
of credit totaling $635.3 million and $388.8 million as of December 31, 1999 and
1998, respectively, to collateralize the company's accrued losses and unearned
premium obligations to certain reinsureds.
F-15
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
================================================================================
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 has underwritten shipper's risk, accident & 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, 1999, 1998 and
1997. Intersegment expenses, such as corporate overhead, were allocated based
on estimated utilization for the years ended December 31, 1999, 1998 and 1997.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Income before income taxes by
segment consists of revenues less expenses related to the respective segment's
operations. The reinsurance segment maintains a portfolio of cash and liquid
investments to support its reserves for accrued losses and loss expenses and
unearned premiums as well as its capital requirements. Investments relating to
real estate and leasing are primarily used to collateralize long-term debt
issued in connection with the purchase of real estate properties, operating
leases and finance leases. Summary financial information about the Company's
segments is presented in the following table.
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Reinsurance:
Premiums earned $ 807,709 $ 746,918 $ 639,071
Commission income 5,574 6,090 495
Investment income 302,143 243,998 226,317
- -----------------------------------------------------------------------------------------------------------------------
1,115,426 997,006 865,883
- -----------------------------------------------------------------------------------------------------------------------
Real estate and leasing:
Rentals 273,136 255,075 248,580
Gain on sale of Boeing 757 aircraft -- 11,795 --
Investment income 12,790 1,213 21,114
- -----------------------------------------------------------------------------------------------------------------------
285,926 268,083 269,694
- -----------------------------------------------------------------------------------------------------------------------
Consolidated $1,401,352 $1,265,089 $1,135,577
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME BEFORE TAXES
Reinsurance $ 229,742 $ 487,584 $ 455,986
Real estate and leasing 29,530 27,633 46,531
Other operating expenses (15,345) (16,011) (8,592)
- -----------------------------------------------------------------------------------------------------------------------
Consolidated $ 243,927 $ 499,206 $ 493,925
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
Reinsurance
Cash and investments $2,581,509 $2,287,605 $1,944,385
Other 808,127 572,966 304,660
- -----------------------------------------------------------------------------------------------------------------------
3,389,636 2,860,571 2,249,045
- -----------------------------------------------------------------------------------------------------------------------
Real estate and leasing
Cash and investments 383,016 336,110 253,224
Other 1,142,630 1,171,662 1,165,400
- -----------------------------------------------------------------------------------------------------------------------
1,525,646 1,507,772 1,418,624
- -----------------------------------------------------------------------------------------------------------------------
Consolidated $4,915,282 $4,368,343 $3,667,669
- -----------------------------------------------------------------------------------------------------------------------
</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.
F-16
<PAGE>
OVERSEAS PARTNERS LTD. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
Years Ended December 31, 1999, 1998 and 1997
================================================================================
9. BUSINESS SEGMENTS (continued)
-----------------
Greater than 80% of the Company's revenues for 1999, 1998 and 1997 were derived
primarily from sources located in the United States. Other revenues were
derived from customers located primarily in European countries. For 1999, 1998
and 1997, all of the Company's long-lived assets were located in the United
States.
Earned premiums on shipper's risk reinsurance were $273.5 million, $371.8
million and $366.7 million in 1999, 1998 and 1997, respectively. OPL earned
premiums of $48.3 million, $50.6 million and $67.6 million in 1999, 1998 and
1997, 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 $17.9 million, $27.1 million and $42.2 million
in 1999, 1998 and 1997, respectively.
10. THE BERMUDA INSURANCE REGULATIONS
---------------------------------
The Bermuda Insurance Act of 1978, amendments thereto and related Regulations
require OPL and its wholly-owned reinsurance subsidiaries to each maintain a
minimum solvency margin and a liquidity ratio. For the years ended December 31,
1999 and 1998, OPL and each of its reinsurance subsidiaries met these
requirements. The Company's ability to pay dividends to shareholders is not
currently restricted by 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. Although the change in date has occurred and the Company has not been
affected by the Year 2000 issue to date, it is not possible to conclude that all
aspects of the Year 2000 issue that may affect the Company, including those
related to customers, suppliers, or other third parties, have been fully
resolved. Also, it is not possible to determine how the Year 2000 Issue has
impacted the Company's reinsurance business, in terms of potential increases in
severity and / or frequency of future claims.
12. SUPPLEMENTARY INFORMATION
-------------------------
Amortization of acquisition costs included in reinsurance commissions, taxes and
other for 1999, 1998 and 1997 were $115.0 million, $95.9 million and $72.8
million, respectively. Underwriting expenses for 1999, 1998 and 1997 were $5.3
million, $4.4 million and $1.1 million, respectively.
13. CONTINGENCIES
-------------
On November 19, 1999 and January 27, 2000 OPL was named as a defendant in class
action lawsuits, filed on behalf of customers of UPS, in Montgomery County, Ohio
Court and Butler County, Ohio Court, respectively. The lawsuits allege, amongst
other things, that UPS told its customers that they were purchasing "insurance"
for coverage of loss or damage to goods shipped by UPS, but a recent opinion by
the United States Tax Court found that the "insurance" program, as conducted by
UPS, several domestic insurance companies, and their related reinsurance
agreement with OPL, was not adequate for UPS to avoid liability for federal
income tax. The November 19, 1999 and the January 27, 2000 actions were removed
to The United States District Court for the Southern District of Ohio, on
December 16, 1999 and February 4, 2000, respectively. The Company will
vigorously defend these actions and will seek dismissal of the actions, as to
OPL, on various grounds, including, among others, lack of personal jurisdiction
by the Court over OPL.
14. COMPARATIVE FIGURES
-------------------
Certain of the 1998 and 1997 amounts have been reclassified to conform to the
presentation adopted in 1999.
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 28, 2000 By: /s/ D. Scott Davis
--------------------------------
(D. Scott Davis)
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, the
following persons in the capacities and on the dates indicated have signed this
Report below:
<TABLE>
<CAPTION>
Signature Title Date
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
March 28, 2000
/s/ D. Scott Davis Chief Executive Officer
- --------------------------------------- (Principal Executive Officer) and Director
(D. Scott Davis)
/s/ Mary R. Hennessy President and Chief Operating Officer March 28, 2000
- ---------------------------------------
(Mary R. Hennessy)
/s/ Mark R. Bridges Vice President and Treasurer March 28, 2000
- --------------------------------------- (Principal Financial and Accounting Officer)
(Mark R. Bridges)
/s/ Robert J. Clanin Director March 28, 2000
- ---------------------------------------
(Robert J. Clanin)
/s/ Joseph M. Pyne Director March 28, 2000
- ---------------------------------------
(Joseph M. Pyne)
/s/ Cyril E. Rance Director March 28, 2000
- ---------------------------------------
(Cyril E. Rance)
/s/ Edwin H. Reitman Chairman March 28, 2000
- --------------------------------------- of the Board of Directors and
(Edwin H. Reitman) Director
/s/ Walter A. Scott Director March 28, 2000
- ---------------------------------------
(Walter A. Scott)
/s/ Michael J. Molletta Vice President and Authorized Representative in March 28, 2000
- --------------------------------------- the United States
(Michael J. Molletta)
</TABLE>
<PAGE>
EXHIBITS
--------
TO
OVERSEAS PARTNERS LTD.
REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1999
<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 and restated 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
</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) Series A Loan Agreement and Note Incorporated by Reference to Exhibit 10(o) of OPL's
between OPL Funding and OPCC dated Post-Effective Amendment No. 1 to Registration Statement
November 6, 1990. (on Form S-2) No. 33-30944
10(c) Security Agreement between OPL 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(d) Series B Loan Agreement and Note Incorporated by Reference to Exhibit 10(v) of OPL's
between OPL Funding and OPCC dated Post-Effective Amendment No. 1 to Registration Statement
November 6, 1990 (on Form S-2) No. 33-30944
10(e) Mortgage and Security Agreement Incorporated by Reference to Exhibit 10(w) of OPL's
between OPL Funding and OPCC dated Post-Effective Amendment No. 1 to Registration Statement
November 6, 1990. (on Form S-2) No. 33-30944.
10(f) Amended and Restated Trust 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.
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10(g) 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(h) 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(i) 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(j) 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(k) 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(l) OPCC 1995 Stock Appreciation Rights Incorporated by Reference to Exhibit 10(oo) of OPL's Annual
Plan. Report on Form 10-K for the Year Ended December 31, 1994
10(m) Purchase and Sale Agreement between Incorporated by Reference to Exhibit 10(pp) of OPL's Annual
OPCC and The Mutual Life Insurance Report on Form 10-K for the Year Ended December 31, 1996
Company of New York dated August 9,
1996.
10(n) Promissory Note from Overseas Partners Incorporated by Reference to Exhibit 10(tt) of OPL's Annual
(AFC), Inc. to The Mutual Life Report on Form 10-K for the Year Ended December 31, 1996
Insurance Company of New York dated
October 23, 1996.
10(o) Deed to Secure Debt, Assignment of Incorporated by Reference to Exhibit 10(uu) of OPL's Annual
Leases and Rents and Security Report on Form 10-K for the Year Ended December 31, 1996
Agreement from Overseas Partners
(AFC), Inc. to The Mutual Life
Insurance Company of New York dated
October 23, 1996.
10(p) Reserve Account Agreement from Incorporated by Reference to Exhibit 10(vv) of OPL's Annual
Overseas Partners (AFC), Inc. and The Report on Form 10-K for the Year Ended December 31, 1996
Mutual Life Insurance Company of New
York dated October 23, 1996.
10(q) Side Letter Agreement Waiving Tax and Incorporated by Reference to Exhibit 10(ww) of OPL's Annual
Insurance Deposits from The Mutual Report on Form 10-K for the Year Ended December 31, 1996
Life Insurance Company of New York to
Overseas Partners (AFC), Inc. dated
October 23, 1996.
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10(r) Side Letter Agreement Regarding Audit Incorporated by Reference to Exhibit 10(xx) of OPL's Annual
Certification from The Mutual Life Report on Form 10-K for the Year Ended December 31, 1996
Insurance Company of New York to
Overseas Partners (AFC), Inc. dated
October 23, 1996.
10(s) One Time Transfer Letter from The Incorporated by Reference to Exhibit 10(yy) of OPL's Annual
Mutual Life Insurance Company of New Report on Form 10-K for the Year Ended December 31, 1996
York to Overseas Partners (AFC), Inc.
dated October 23, 1996.
10(t) Guarantee of Payment Related to Incorporated by Reference to Exhibit 10(zz) of OPL's Annual
Leasing between The Mutual Life Report on Form 10-K for the Year Ended December 31, 1996
Insurance Company of New York to
Overseas Partners (AFC), Inc. dated
October 23, 1996.
10(u) Purchase and Sale Agreement between Incorporated by Reference to Exhibit 10(aaa) of OPL's
OPCC and 333 Wacker Drive Limited Annual Report on Form 10-K for the Year Ended December 31,
Partnership dated December 24, 1996. 1996
10(v) Purchase and Sale Agreement by and Incorporated by Reference to Exhibit 10(eee) of OPL's
among JMB Realty Corporation, Carlyle Annual Report on Form 10-K for the Year Ended December 31,
Real Estate Limited Partnership - 1996
XIII, Urban Investment and Development
Co. and OPCC dated December 31, 1996.
10(w) First Amendment to Purchase and Sale Incorporated by Reference to Exhibit 10(fff) of OPL's
Agreement by and among JMB Realty Annual Report on Form 10-K for the Year Ended December 31,
Corporation, Carlyle Real Estate 1996
Limited Partnership - XIII, Urban
Investment and Development Co. and
OPCC dated January 23, 1997.
10(x) 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(y) Agreement of Merger between Copley Incorporated by Reference to Exhibit 10(nnn) of OPL's
Place Associates and Copley Place Annual Report on Form 10-K for the Year Ended December 31,
Associates, LLC dated January 23, 1997. 1996
10(z) Management Agreement by and between Incorporated by Reference to Exhibit 10(ooo) of OPL's
Copley Place Associates, LLC and Annual Report on Form 10-K for the Year Ended December 31,
Overseas Management, Inc. dated 1996
January 23, 1997.
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10(aa) Management and Leasing Fee Incorporated by Reference to Exhibit 10(ppp) of OPL's
Subordination Agreement by and among Annual Report on Form 10-K for the Year Ended December 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.
10(bb) Agreement for Purchase of Consulting Incorporated by Reference to Exhibit 10(qqq) of OPL's
and Other Services by and between Annual Report on Form 10-K for the Year Ended December 31,
Overseas Management, Inc. and Urban 1996
Retail Property Co. dated January 23,
1997.
10(cc) Consulting Subordination Agreement by Incorporated by Reference to Exhibit 10(rrr) of OPL's
and among Copley Place Associates, Annual Report on Form 10-K for the Year Ended December 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(dd) Class A Promissory Note from Copley Incorporated by Reference to Exhibit 10(sss) of OPL's
Place Associates, LLC and Urban Annual Report on Form 10-K for the Year Ended December 31,
Investment and Development Co. to the 1997
Metropolitan Life Insurance Company
dated July 30, 1997.
10(ee) Class B Promissory Note from Copley Incorporated by Reference to Exhibit 10(ttt) of OPL's
Place Associates, LLC and Urban Annual Report on Form 10-K for the Year Ended December 31,
Investment and Development Co. to the 1997
Metropolitan Life Insurance Company
dated July 30, 1997.
10(ff) 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(gg) 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(hh) Collateral Assignment and Security Incorporated by Reference to Exhibit 10(www) of OPL's
Agreement in regard to Contracts, Annual Report on Form 10-K for the Year Ended December 31,
Licenses, Permits, Agreements, 1997
Warranties and Approvals, to
Metropolitan Life Insurance Company
dated July 30, 1997.
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10(ii) Guaranty Agreement made by Overseas Incorporated by Reference to Exhibit 10(xxx) of OPL's
Partners Capital Corp. and JMB Realty Annual Report on Form 10-K for the Year Ended December 31,
Corporation in favor of Metropolitan 1997
Life Insurance Company dated July 30,
1997.
10(jj) Second Amended and Restated Limited Incorporated by Reference to Exhibit 10(yyy) of OPL's
Liability Company Agreement of Copley Annual Report on Form 10-K for the Year Ended December 31,
Place Associates, LLC by Overseas 1997
Partners Capital Corp., JMB Realty
Corporation and Copley Place Corp.,
Inc. dated July 30, 1997.
10(kk) 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(ll) Confirmation of Direct Lease and Incorporated by Reference to Exhibit 10(aaaa) of OPL's
Leasehold Mortgage by Copley Place Annual Report on Form 10-K for the Year Ended December 31,
Associates, LLC, Urban Investment and 1997
Development Co. and Metropolitan Life
Insurance Company dated July 30, 1997.
10(mm) Second Amendment to Amended and Incorporated by Reference to Exhibit 10(bbbb) of OPL's
Restated Facility Lease Agreement Annual Report on Form 10-K for the Year Ended December 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(nn) Mortgage, Security Agreement and Incorporated by Reference to Exhibit 10(cccc) of OPL's
Fixture Filing by Overseas Partners Annual Report on Form 10-K for the Year Ended December 31,
(333), Inc. and The Prudential 1997
Insurance Company of America, Inc.
dated August 27, 1997.
10(oo) 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(qq) 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.
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10(rr) Assignment of Leases and Rents by and Incorporated by Reference to Exhibit 10(gggg) of OPL's
from Overseas Partners (333), Inc. to Annual Report on Form 10-K for the Year Ended December 31,
The Prudential Insurance Company of 1997
America, Inc. dated August 27, 1997.
10(ss) The Overseas Partners Ltd. and Incorporated by Reference to Exhibit 10(hhhh) of OPL's
Subsidiaries Retirement Plan As Annual Report on Form 10-K for the Year Ended December 31,
Amended and Restate Generally 1997
Effective January 1, 1997
10(tt) Agreement of General Partnership of Incorporated by Reference to Exhibit 10(iiii) of OPL's
OPL Group Investment Partnership dated Annual Report on Form 10-K for the Year Ended December 31,
as of December 1, 1997. 1997
10(uu) 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(vv) Term Loan Promissory Note by Overseas Incorporated by Reference to Exhibit 10 (rrrr) of OPL's
Partners (Madison Plaza) LLC and Bank Quarterly Report on Form 10-Q for the Quarter Ended
of America National Trust and Savings September 30, 1998
Association
10(ww) Guaranty made by Overseas Partners Incorporated by Reference to Exhibit 10 (ssss) of OPL's
Ltd. and OPCC in favor of Bank of Quarterly Report on Form 10-Q for the Quarter Ended
America National Trust and Savings September 30, 1998
Association
10(xx) Investment Manager Agreement by and Incorporated by Reference to Exhibit 10 (uuuu) of OPL's
between Oxford Advisors Ltd. and Quarterly Report on Form 10-Q for the Quarter Ended
Overseas Partners Ltd. September 30, 1998
10(yy) Mortgage, Assignment of Leases and Incorporated by Reference to Exhibit 10 (uuu) of OPL's
Rents and Security Agreement by Annual Report on Form 10-K for the Year Ended December 31,
Overseas Partners (Madison Plaza), LLC 1998
and New York Life Insurance Company
dated December 15, 1998
10(zz) Guaranty Agreement made by Overseas Incorporated by Reference to Exhibit 10 (vvv) of OPL's
Partners (Madison Plaza), LLC in favor Annual Report on Form 10-K for the Year Ended December 31,
of New York Life Insurance Company 1998
dated December 15, 1998.
10(aaa) Promissory Note from Overseas Partners Incorporated by Reference to Exhibit 10 (www) of OPL's
(Madison Plaza), LLC to the New York Annual Report on Form 10-K for the Year Ended December 31,
Life Insurance Company dated December 1998
15, 1998.
(21) Subsidiaries Filed herewith.
(23) Consent of Deloitte & Touche Filed herewith.
(27) Financial Data Schedule Filed herewith.
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(99) Additional exhibits:
(99a) Custody Arrangements for OPL Common Incorporated by Reference to Exhibit 28(c) of OPL's
Stock. Registration Statement (on Form S-1) No. 2-95460.
(99c) OPL's Specimen Stock Certificate Incorporated by Reference to Exhibit 99 (c) of OPL's Annual
Report on Form 10-K for the Year Ended December 31, 1996
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<PAGE>
EXHIBIT 3 (B)
AMENDED AND RESTATED
BYE-LAWS
of
OVERSEAS PARTNERS LTD.
Effective as of October 20, 1999
INDEX
Subject Bye-law No.
- ------- -----------
ACCOUNTS
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)
<PAGE>
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
<PAGE>
SEAL
Affixation -- requirements for 65
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
<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.
<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.
<PAGE>
(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;
(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.
<PAGE>
(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.
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.
<PAGE>
(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 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.
<PAGE>
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
(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.
<PAGE>
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 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.
<PAGE>
(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 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.
<PAGE>
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 Company with complete information 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 number(s) of 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.
(6) Nothing contained in this Bye-law 28A shall be construed to relieve
any Substantial Stockholder from any fiduciary obligation imposed by law.
<PAGE>
(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 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
<PAGE>
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 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.
<PAGE>
(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.
<PAGE>
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 shares will be transferred. Such notice shall 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.
<PAGE>
(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.
<PAGE>
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 purchaser at
any sale, private or judicial, upon foreclosure or execution shall become the
owner of said shares or
<PAGE>
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 fair value per
share as determined by the Board of Directors in good faith from time to time
using such criteria as it deems appropriate in the circumstances. If purchased
by the Company pursuant to the right described in paragraph (3) of this Bye-law,
the purchase price shall be the lesser of (a) the price determined by the Board
of Directors, or (b) the price at which such shares are proposed to be sold as
set forth in paragraph (2) of this Bye-law 40.
(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.
<PAGE>
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 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.
<PAGE>
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.
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.
<PAGE>
(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.
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.
<PAGE>
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 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.
<PAGE>
(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.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF OVERSEAS PARTNERS LTD.
- --------------------------------------
Corporation Jurisdiction of Incorporation
- ----------- -----------------------------
Overseas Partners Re Ltd. Bermuda
Overseas Partners Cat Ltd. (formerly 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 Capital Co. Delaware
Overseas Management, Inc. Massachusetts
Overseas Partners (333), Inc. Illinois
Overseas Partners (AFC), Inc. Georgia
Overseas Partners Capital (Illinois), Inc. Delaware
Overseas Partners Capital (Massachusetts), Inc. Massachusetts
Overseas Partners (Madison Plaza), Inc. Delaware
Overseas Partners (Madison Plaza) LLC Illinois
Parcel Insurance Plan, Inc. Delaware
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos. 333-
69681 (on Form S-3), 333-21571 (on Form S-3) and 333-20545 (on Form S-3) of
Overseas Partners Ltd. of our report dated January 11, 2000 appearing in this
Annual Report on Form 10-K of Overseas Partners Ltd. for the year ended December
31, 1999.
DELOITTE & TOUCHE
Hamilton, Bermuda
March 30, 2000
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<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.
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<DEBT-CARRYING-VALUE> 242,931
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<EQUITIES> 1,737,498
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