UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1997 Commission File No. 1-11166
- --------------------------------------------------------------------------------
The Equitable Companies Incorporated
(Exact name of registrant as specified in its charter)
Delaware 13-3623351
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1290 Avenue of the Americas, New York, New York 10104
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 554-1234
-------------------------
None
- --------------------------------------------------------------------------------
(Former name, former address, and former fiscal year if changed
since last report.)
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) been subject to such filing requirements
for the past 90 days.
Yes X No
---- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares Outstanding
Class at May 9, 1997
- --------------------------------------------------------------------------------
Common Stock, $.01 par value 186,965,136
Page 1 of 34
<PAGE>
THE EQUITABLE COMPANIES INCORPORATED
FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page #
------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1: Unaudited Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996.... 3
Consolidated Statements of Earnings for the Three Months Ended
March 31, 1997 and 1996.................................................... 4
Consolidated Statements of Shareholders' Equity for the Three Months
Ended March 31, 1997 and 1996.............................................. 5
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1997 and 1996.................................................... 6
Notes to Consolidated Financial Statements................................ 7
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................ 16
PART II OTHER INFORMATION
Item 1: Legal Proceedings............................................................ 33
Item 6: Exhibits and Reports on Form 8-K............................................. 33
SIGNATURES................................................................................... 34
</TABLE>
2
<PAGE>
PART I FINANCIAL INFORMATION
Item 1: Unaudited Consolidated Financial Statements.
THE EQUITABLE COMPANIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------------- -----------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at estimated fair value............................. $ 18,164.7 $ 18,556.2
Held to maturity, at amortized cost..................................... 169.4 178.5
Trading account securities, at market value............................... 17,375.9 15,728.1
Securities purchased under resale agreements.............................. 25,711.6 20,492.1
Mortgage loans on real estate............................................. 2,958.8 3,133.0
Equity real estate........................................................ 3,317.9 3,298.4
Policy loans.............................................................. 2,300.8 2,196.1
Other equity investments.................................................. 823.8 809.1
Other invested assets..................................................... 570.7 397.8
----------------- -----------------
Total investments..................................................... 71,393.6 64,789.3
Cash and cash equivalents................................................... 1,091.7 755.3
Broker-dealer related receivables........................................... 20,141.5 16,661.7
Deferred policy acquisition costs........................................... 3,228.0 3,106.5
Amounts due from discontinued GIC Segment................................... 967.7 996.2
Other assets................................................................ 4,798.2 4,361.1
Closed Block assets......................................................... 8,502.2 8,495.0
Separate Accounts assets.................................................... 29,478.9 29,646.1
----------------- -----------------
Total Assets................................................................ $ 139,601.8 $ 128,811.2
================= =================
LIABILITIES
Policyholders' account balances............................................. $ 21,828.1 $ 21,863.8
Future policy benefits and other policyholders liabilities.................. 4,476.0 4,416.6
Securities sold under repurchase agreements................................. 37,171.2 29,378.3
Broker-dealer related payables.............................................. 21,933.8 19,497.0
Short-term and long-term debt............................................... 6,740.8 5,379.6
Other liabilities........................................................... 5,018.8 5,598.3
Closed Block liabilities.................................................... 9,134.2 9,091.3
Separate Accounts liabilities............................................... 29,413.8 29,598.3
----------------- -----------------
Total liabilities..................................................... 135,716.7 124,823.2
----------------- -----------------
Commitments and contingencies (Note 12)
SHAREHOLDERS' EQUITY
Series C convertible preferred stock........................................ 24.4 24.4
Series D convertible preferred stock........................................ 325.4 294.0
Stock employee compensation trust........................................... (325.4) (294.0)
Series E convertible preferred stock........................................ 380.2 380.2
Common stock, at par value.................................................. 1.9 1.9
Capital in excess of par value.............................................. 2,797.3 2,782.2
Retained earnings........................................................... 752.7 632.9
Net unrealized investment (losses) gains.................................... (58.5) 179.3
Minimum pension liability................................................... (12.9) (12.9)
----------------- -----------------
Total shareholders' equity............................................ 3,885.1 3,988.0
----------------- -----------------
Total Liabilities and Shareholders' Equity.................................. $ 139,601.8 $ 128,811.2
================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
THE EQUITABLE COMPANIES INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(In Millions, Except Per
Share Amounts)
<S> <C> <C>
REVENUES
Universal life and investment-type product policy fee income................ $ 230.5 $ 212.9
Premiums.................................................................... 151.8 141.0
Net investment income....................................................... 872.0 780.5
Investment gains, net....................................................... 178.0 170.3
Commissions, fees and other income.......................................... 768.5 599.3
Contribution from the Closed Block.......................................... 35.8 32.1
----------------- -----------------
Total revenues........................................................ 2,236.6 1,936.1
----------------- -----------------
BENEFITS AND OTHER DEDUCTIONS
Interest credited to policyholders' account balances........................ 312.9 320.6
Policyholders' benefits..................................................... 254.9 254.2
Other operating costs and expenses.......................................... 1,392.7 1,147.2
----------------- -----------------
Total benefits and other deductions................................... 1,960.5 1,722.0
----------------- -----------------
Earnings from continuing operations before Federal income taxes,
minority interest and cumulative effect of accounting change.............. 276.1 214.1
Federal income taxes........................................................ 87.4 64.7
Minority interest in net income of consolidated subsidiaries................ 49.4 39.7
----------------- -----------------
Earnings from continuing operations before cumulative effect of
accounting change......................................................... 139.3 109.7
Discontinued operations, net of Federal income taxes........................ (3.3) -
Cumulative effect of accounting change, net of Federal income taxes......... - (23.1)
----------------- -----------------
Net earnings................................................................ 136.0 86.6
Dividends on preferred stocks............................................... 6.7 6.7
----------------- -----------------
Net Earnings Applicable to Common Shares.................................... $ 129.3 $ 79.9
================= =================
Per Common Share:
Assuming No Dilution:
Earnings from continuing operations before cumulative effect of
accounting change..................................................... $ .70 $ .55
Discontinued operations, net of Federal income taxes.................... (.02) -
Cumulative effect of accounting change, net of Federal income taxes..... - (.12)
----------------- -----------------
Net Earnings............................................................ $ .68 $ .43
================= =================
Assuming Full Dilution:
Earnings from continuing operations before cumulative effect of
accounting change..................................................... $ .63 $ .51
Discontinued operations, net of Federal income taxes.................... (.01) -
Cumulative effect of accounting change, net of Federal income taxes..... - (.10)
----------------- -----------------
Net Earnings............................................................ $ .62 $ .41
================= =================
Cash Dividend Per Common Share.............................................. $ .05 $ .05
================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
THE EQUITABLE COMPANIES INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Series C convertible preferred stock, beginning of year and end of period... $ 24.4 $ 24.4
----------------- -----------------
Series D convertible preferred stock, beginning of year..................... 294.0 286.6
Change in market value of shares............................................ 31.4 3.0
----------------- -----------------
Series D convertible preferred stock, end of period......................... 325.4 289.6
----------------- -----------------
Stock employee compensation trust, beginning of year........................ (294.0) (286.6)
Change in market value of shares............................................ (31.4) (3.0)
----------------- -----------------
Stock employee compensation trust, end of period............................ (325.4) (289.6)
----------------- -----------------
Series E convertible preferred stock, beginning of year and end of period... 380.2 380.2
----------------- -----------------
Common stock, at par value, beginning of year and end of period............. 1.9 1.8
----------------- -----------------
Capital in excess of par value, beginning of year as previously reported.... 2,782.2 2,561.1
Cumulative effect on prior years of retroactive restatement for
accounting change......................................................... - 192.2
----------------- -----------------
Capital in excess of par value, beginning of year as restated............... 2,782.2 2,753.3
Additional capital in excess of par value................................... 15.1 7.2
----------------- -----------------
Capital in excess of par value, end of period............................... 2,797.3 2,760.5
----------------- -----------------
Retained earnings, beginning of year as previously reported................. 632.9 590.7
Cumulative effect on prior years of retroactive restatement for
accounting change......................................................... - 6.8
----------------- -----------------
Retained earnings, beginning of year as restated............................ 632.9 597.5
Net earnings................................................................ 136.0 86.6
Dividends on preferred stocks............................................... (6.7) (6.7)
Dividends on common stock................................................... (9.5) (9.2)
----------------- -----------------
Retained earnings, end of period............................................ 752.7 668.2
----------------- -----------------
Net unrealized investment gains, beginning of year as previously reported... 179.3 328.3
Cumulative effect on prior years of retroactive restatement for
accounting change......................................................... - 58.3
----------------- -----------------
Net unrealized investment gains, beginning of year as restated.............. 179.3 386.6
Change in unrealized investment gains (losses).............................. (237.8) (288.1)
----------------- -----------------
Net unrealized investment (losses) gains, end of period..................... (58.5) 98.5
----------------- -----------------
Minimum pension liability, beginning of year and end of period.............. (12.9) (35.1)
----------------- -----------------
Total Shareholders' Equity, End of Period................................... $ 3,885.1 $ 3,898.5
================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
THE EQUITABLE COMPANIES INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Net earnings................................................................ $ 136.0 $ 86.6
Adjustments to reconcile net earnings to net cash (used)
provided by operating activities:
Interest credited to policyholders' account balances.................... 312.9 320.6
Universal life and investment-type product policy fee income............ (230.5) (212.9)
Net change in trading activities and broker-dealer related
receivables/payables.................................................. (2,845.9) 1,126.9
(Increase) decrease in matched resale agreements........................ (5,437.8) (2,251.5)
Increase (decrease) in matched repurchase agreements.................... 5,437.8 2,251.5
Investment gains, net of dealer and trading gains....................... (21.7) (26.9)
Change in clearing association fees and regulatory deposits............. (149.4) (264.2)
Change in accounts payable and accrued expenses......................... (553.1) (286.9)
Change in Federal income taxes payable.................................. 30.8 (130.6)
Other, net.............................................................. 33.6 (267.3)
----------------- -----------------
Net cash (used) provided by operating activities............................ (3,287.3) 345.3
----------------- -----------------
Cash flows from investing activities:
Maturities and repayments................................................. 725.8 609.4
Sales.................................................................... 2,632.8 3,150.2
Return of capital from joint ventures and limited partnerships............ 19.2 24.1
Purchases................................................................. (3,176.5) (4,216.6)
Decrease in loans to discontinued GIC Segment............................. 25.1 135.0
Other, net................................................................ (427.0) 113.7
----------------- -----------------
Net cash used by investing activities....................................... (200.6) (184.2)
----------------- -----------------
Cash flows from financing activities: Policyholders' account balances:
Deposits................................................................ 435.9 474.1
Withdrawals............................................................. (549.9) (641.7)
Increase (decrease) in short-term financings.............................. 3,862.2 (249.5)
Additions to long-term debt............................................... 104.2 249.9
Repayments of long-term debt.............................................. (15.9) (136.0)
Other, net................................................................ (12.2) (23.2)
----------------- -----------------
Net cash provided (used) by financing activities............................ 3,824.3 (326.4)
----------------- -----------------
Change in cash and cash equivalents......................................... 336.4 (165.3)
Cash and cash equivalents, beginning of year................................ 755.3 1,200.4
----------------- -----------------
Cash and Cash Equivalents, End of Period.................................... $ 1,091.7 $ 1,035.1
================= =================
Supplemental cash flow information
Interest Paid............................................................. $ 786.9 $ 686.5
================= =================
Income Taxes Paid......................................................... $ 61.0 $ 13.9
================= =================
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE>
THE EQUITABLE COMPANIES INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1) BASIS OF PRESENTATION
The preparation of the accompanying consolidated financial statements in
conformity with GAAP required management to make estimates and assumptions
(including normal, recurring accruals) that affect the reported amounts of
assets and liabilities and 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. These statements should
be read in conjunction with the consolidated financial statements of The
Equitable for the year ended December 31, 1996. The results of operations
for the three months ended March 31, 1997 are not necessarily indicative
of the results to be expected for the full year.
The terms "first quarter 1997" and "first quarter 1996" refer to the three
months ended March 31, 1997 and 1996, respectively.
Certain reclassifications have been made in the amounts presented for
prior periods to conform those periods with the current presentation.
2) ACCOUNTING CHANGES AND PRONOUNCEMENTS
In February, 1997, the FASB issued SFAS No. 128, "Earnings Per Share".
This statement simplifies the standards for computing earnings per share
("EPS") previously found in APB Opinion No. 15, "Earnings Per Share".
Basic EPS will replace primary EPS. Basic EPS will be computed by dividing
income available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted EPS will be computed
similarly to the present fully diluted EPS. Dual presentation of basic and
diluted EPS will be required on the face of the income statement. A
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation is also required. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997; earlier
application is not permitted. Restatement of all prior period EPS data
will be required. Had The Equitable's EPS calculations for the first
quarters of 1997 and 1996 been computed on an SFAS No. 128 basis, the
results would not be materially different from the reported amounts.
In 1996, The Equitable changed its method of accounting for long-duration
participating life insurance contracts, primarily within the Closed Block,
in accordance with the provisions prescribed by SFAS No. 120. The effect
of this change, including the impact on the Closed Block, was to increase
previously reported first quarter 1996 earnings from continuing operations
before cumulative effect of accounting change by $3.3 million, net of
Federal income taxes of $1.8 million ($.02 per share assuming no dilution
and $.01 per share assuming full dilution).
3) FEDERAL INCOME TAXES
Federal income taxes for interim periods have been computed using an
estimated annual effective tax rate. This rate is revised, if necessary,
at the end of each successive interim period to reflect the current
estimate of the annual effective tax rate.
7
<PAGE>
4) INVESTMENTS
Investment valuation allowances and changes thereto are shown below:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
1997 1996
--------------- ---------------
(In Millions)
<S> <C> <C>
Balances, beginning of year............................................... $ 137.1 $ 325.3
SFAS No. 121 release...................................................... - (152.4)
Additions charged to income............................................... 23.7 38.5
Deductions for writedowns and asset dispositions.......................... (31.2) (82.0)
--------------- ---------------
Balances, End of Period................................................... $ 129.6 $ 129.4
=============== ===============
Balances, end of period:
Mortgage loans on real estate........................................... $ 42.7 $ 85.3
Equity real estate...................................................... 86.9 44.1
--------------- ---------------
Total..................................................................... $ 129.6 $ 129.4
=============== ===============
</TABLE>
For the first quarters of 1997 and 1996, investment income is shown net of
investment expenses (including interest expense to finance short-term
trading instruments) of $693.0 million and $581.9 million, respectively.
As of March 31, 1997 and December 31, 1996, fixed maturities classified as
available for sale had amortized costs of $18,198.4 million and $18,196.1
million, fixed maturities in the held to maturity portfolio had estimated
fair values of $183.6 million and $195.1 million and trading account
securities had amortized costs of $17,616.6 million and $15,758.3 million,
respectively. Other equity investments included equity securities with
carrying values of $354.2 million and $342.1 million and costs of $380.6
million and $354.7 million as of March 31, 1997 and December 31, 1996,
respectively.
For the first quarters of 1997 and 1996, proceeds received on sales of
fixed maturities classified as available for sale amounted to $2,519.5
million and $3,074.3 million, respectively. Gross gains of $43.6 million
and $43.1 million and gross losses of $42.6 million and $19.3 million were
realized on these sales for the first quarters of 1997 and 1996,
respectively. There was a decrease in unrealized investment gains (losses)
related to fixed maturities classified as available for sale for first
quarter 1997 of $393.8 million, resulting in a balance of $(33.7) million
at March 31, 1997.
Impaired mortgage loans along with the related provision for losses were
as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses....................... $ 225.9 $ 340.0
Impaired mortgage loans with no provision for losses.................... 116.2 122.3
--------------- -----------------
Recorded investment in impaired mortgage loans.......................... 342.1 462.3
Provision for losses.................................................... 36.4 46.4
--------------- -----------------
Net Impaired Mortgage Loans............................................. $ 305.7 $ 415.9
=============== =================
</TABLE>
8
<PAGE>
During the first quarters of 1997 and 1996, respectively, The Equitable's
average recorded investment in impaired mortgage loans was $402.2 million
and $505.0 million. Interest income recognized on these impaired mortgage
loans totaled $5.1 million and $9.5 million for the first quarters of 1997
and 1996, respectively, including $.6 million and $3.3 million recognized
on a cash basis.
5) SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Securities sold under repurchase agreements are treated as financing
transactions and carried at the amounts at which the securities
subsequently will be reacquired per the respective agreements. These
agreements with counterparties were collateralized principally by U.S.
government securities. The weighted average interest rates on securities
sold under repurchase agreements were 6.02% and 6.08% at March 31, 1997
and December 31, 1996, respectively.
6) ALLIANCE - CURSITOR TRANSACTION
On February 29, 1996, Alliance acquired the business of Cursitor for
approximately $159.0 million. The purchase price consisted of 1.8 million
Alliance Units, $94.3 million in cash, $21.5 million in notes payable
ratably over four years and substantial additional consideration which
will be determined at a later date. The Equitable recognized an investment
gain of $20.6 million as a result of this transaction. In addition to its
1% general partnership interest in Alliance, at March 31, 1997, The
Equitable owned approximately 57.2% of Alliance Units.
7) BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
1997 1996
---------------- ---------------
(In Millions)
<S> <C> <C>
Revenues
Insurance Operations...................................................... $ 983.1 $ 905.7
Investment Services....................................................... 1,250.5 1,027.3
Corporate and Other....................................................... 12.8 13.8
Consolidation/elimination................................................. (9.8) (10.7)
---------------- ---------------
Total..................................................................... $ 2,236.6 $ 1,936.1
=============== ===============
Earnings from Continuing Operations Before Federal
Income Taxes, Minority Interest and Cumulative Effect of
Accounting Change
Insurance Operations...................................................... $ 126.8 $ 84.6
Investment Services....................................................... 181.7 159.5
Corporate and Other....................................................... 2.7 5.1
Consolidation/elimination................................................. (.4) (.5)
--------------- ---------------
Subtotal................................................................ 310.8 248.7
Corporate interest expense................................................ (34.7) (34.6)
---------------- ---------------
Total..................................................................... $ 276.1 $ 214.1
=============== ===============
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Insurance Operations................................................... $ 60,951.9 $ 60,464.9
Investment Services.................................................... 78,539.9 68,205.3
Corporate and Other.................................................... 719.6 774.3
Consolidation/elimination.............................................. (609.6) (633.3)
----------------- -----------------
Total.................................................................. $ 139,601.8 $ 128,811.2
================= =================
</TABLE>
8) CLOSED BLOCK
Summarized financial information of the Closed Block is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Fixed maturities:
Available for sale, at estimated fair value (amortized cost of
$3,935.0 and $3,820.7)............................................. $ 3,900.9 $ 3,889.5
Mortgage loans on real estate.......................................... 1,376.7 1,380.7
Policy loans........................................................... 1,742.4 1,765.9
Cash and other invested assets......................................... 367.0 336.1
Deferred policy acquisition costs...................................... 912.5 876.5
Other assets........................................................... 202.7 246.3
----------------- -----------------
Total Assets........................................................... $ 8,502.2 $ 8,495.0
================= =================
Liabilities
Future policy benefits and other policyholders' account balances....... $ 8,969.5 $ 8,999.7
Other liabilities...................................................... 164.7 91.6
----------------- -----------------
Total Liabilities...................................................... $ 9,134.2 $ 9,091.3
================= =================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
1997 1996
---------------- ---------------
(In Millions)
<S> <C> <C>
Revenues
Premiums and other income................................................. $ 174.8 $ 184.9
Investment income (net of investment expenses of $7.1 and $6.9)........... 138.8 136.8
Investment gains (losses), net............................................ 2.3 (4.2)
--------------- ---------------
Total revenues............................................................ 315.9 317.5
--------------- ---------------
Benefits and Other Deductions
Policyholders' benefits and dividends..................................... 271.0 278.0
Other operating costs and expenses........................................ 9.1 7.4
--------------- ---------------
Total benefits and other deductions....................................... 280.1 285.4
--------------- ---------------
Contribution from the Closed Block........................................ $ 35.8 $ 32.1
=============== ===============
</TABLE>
10
<PAGE>
Investment valuation allowances amounted to $17.9 million and $13.8
million on mortgage loans and $2.8 million and $3.7 million on equity real
estate at March 31, 1997 and December 31, 1996, respectively. The adoption
of SFAS No. 121 at January 1, 1996 resulted in the recognition of
impairment losses of $5.6 million on real estate held and used.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 115.3 $ 128.1
Impaired mortgage loans with no provision for losses................... .6 .6
----------------- -----------------
Recorded investment in impaired mortgages.............................. 115.9 128.7
Provision for losses................................................... 15.9 12.9
----------------- -----------------
Net Impaired Mortgage Loans............................................ $ 100.0 $ 115.8
================= =================
</TABLE>
During the first quarters of 1997 and 1996, respectively, the Closed
Block's average recorded investment in impaired mortgage loans was $122.4
million and $129.7 million. Interest income recognized on these impaired
mortgage loans totaled $2.6 million for each of the first quarters of 1997
and 1996, including $1.2 million recognized on a cash basis.
9) DISCONTINUED OPERATIONS
Summarized financial information for the GIC Segment is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Assets
Mortgage loans on real estate.......................................... $ 1,027.2 $ 1,111.1
Equity real estate..................................................... 908.4 925.6
Other invested assets.................................................. 519.4 474.0
Other assets........................................................... 215.2 226.1
----------------- -----------------
Total Assets........................................................... $ 2,670.2 $ 2,736.8
================= =================
Liabilities
Policyholders liabilities.............................................. $ 1,318.2 $ 1,335.9
Allowance for future losses............................................ 246.9 262.0
Amounts due to continuing operations................................... 967.7 996.2
Other liabilities...................................................... 137.4 142.7
----------------- -----------------
Total Liabilities...................................................... $ 2,670.2 $ 2,736.8
================= =================
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
1997 1996
---------------- ---------------
(In Millions)
<S> <C> <C>
Revenues
Investment income (net of investment expenses of $25.5
and $31.3).............................................................. $ 34.9 $ 71.8
Investment losses, net.................................................... (5.1) (11.0)
Policy fees, premiums and other income.................................... .1 .1
--------------- ---------------
Total revenues............................................................ 29.9 60.9
Benefits and Other Deductions............................................. 47.2 71.3
Losses charged to allowance for future losses............................. (17.3) (10.4)
--------------- ---------------
Pre-tax loss from operations.............................................. - -
Pre-tax loss from strengthening of the allowance for future losses........ (5.1) -
Federal income tax benefit................................................ 1.8 -
--------------- ---------------
Loss from Discontinued Operations......................................... $ (3.3) $ -
=============== ===============
</TABLE>
The Equitable's quarterly process for evaluating the loss provisions
applies the current period's results of discontinued operations against
the allowance, re-estimates future losses, and adjusts the provisions, if
appropriate. The evaluation performed in first quarter 1997 resulted in
management's decision to strengthen the loss provisions by $5.1 million,
resulting in a post-tax charge of $3.3 million to discontinued operations'
results for first quarter 1997.
Management believes the loss provisions for Wind-Up Annuities and GIC
contracts at March 31, 1997 are adequate to provide for all future losses;
however, the determination of loss provisions continues to involve
numerous estimates and subjective judgments regarding the expected
performance of discontinued operations investment assets. There can be no
assurance the losses provided for will not differ from the losses
ultimately realized. To the extent actual results or future projections of
discontinued operations differ from management's current best estimates
and assumptions underlying the loss provisions, the difference would be
reflected in the consolidated statements of earnings in discontinued
operations. In particular, to the extent income, sales proceeds and
holding periods for equity real estate differ from management's previous
assumptions, periodic adjustments to the loss provisions are likely to
result.
Investment valuation allowances amounted to $10.0 million and $9.0 million
on mortgage loans and $14.7 million and $20.4 million on equity real
estate at March 31, 1997 and December 31, 1996, respectively. As of
January 1, 1996, the adoption of SFAS No. 121 resulted in a release of
existing valuation allowances of $71.9 million on equity real estate and
recognition of impairment losses of $69.8 million on real estate held and
used.
Impaired mortgage loans (as defined under SFAS No. 114) along with the
related provision for losses were as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------------- -----------------
(In Millions)
<S> <C> <C>
Impaired mortgage loans with provision for losses...................... $ 82.2 $ 83.5
Impaired mortgage loans with no provision for losses................... 15.6 15.0
----------------- -----------------
Recorded investment in impaired mortgages.............................. 97.8 98.5
Provision for losses................................................... 9.6 8.8
----------------- -----------------
Net Impaired Mortgage Loans............................................ $ 88.2 $ 89.7
================= =================
</TABLE>
12
<PAGE>
During the first quarters of 1997 and 1996, the GIC Segment's average
recorded investment in impaired mortgage loans was $98.2 million and
$124.5 million, respectively. Interest income recognized on these impaired
mortgage loans totaled $2.0 million and $2.7 million for the first
quarters of 1997 and 1996, respectively, including $1.4 million and $1.6
million recognized on a cash basis.
Benefits and other deductions included $14.8 million and $37.6 million of
interest expense related to amounts borrowed from continuing operations
for the first quarters of 1997 and 1996, respectively.
10) COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
1997 1996
--------------- ---------------
(In Millions, Except Per
Share Amounts)
<S> <C> <C>
Net earnings.............................................................. $ 136.0 $ 86.6
Less - dividends on preferred stocks...................................... 6.7 6.7
Less - effect of assumed exercise of options of publicly held
subsidiaries............................................................ 3.1 1.1
--------------- ---------------
Net earnings applicable to common shares - assuming no dilution........... 126.2 78.8
Add - dividends on convertible preferred stock and interest on
convertible subordinated debt, when dilutive............................ 10.4 10.4
--------------- ---------------
Net Earnings Applicable to Common Shares -
Assuming Full Dilution.................................................. $ 136.6 $ 89.2
=============== ===============
Weighted average common shares outstanding - assuming no
dilution(1)............................................................. 186.3 185.0
Add - assumed exercise of stock options, when dilutive.................... 1.8 1.1
Add - assumed conversion of convertible preferred stock,
when dilutive........................................................... 17.8 17.8
Add - assumed conversion of convertible subordinated debt,
when dilutive........................................................... 14.7 14.7
--------------- ---------------
Weighted Average Shares Outstanding - Assuming Full Dilution.............. 220.6 218.6
=============== ===============
<FN>
(1) The Equitable's stock options are not included because their effect is
less than 3%.
</FN>
</TABLE>
Shares of the Series D Convertible Preferred Stock (or common stock issued
on conversion thereof) are not considered to be outstanding in the
computation of weighted average shares of common stock until the shares
are allocated to fund the obligations for which the SECT was established.
11) RESTRUCTURING COSTS
During the first quarters of 1997 and 1996, The Equitable recorded
pre-tax provisions of $5.2 million and $.7 million, respectively, for
employee termination and exit costs. The amounts paid during first
quarter 1997 totaled $8.5 million. At March 31, 1997, the liabilities
included costs related to the consolidation of insurance operations'
service centers, relocation expenses, the termination of operating leases
and employee severance benefits and amounted to $41.2 million.
13
<PAGE>
12) LITIGATION
There have been no new material legal proceedings and no material
developments in matters which were previously reported in The Equitable's
Notes to Consolidated Financial Statements for the year ended December 31,
1996, except as follows:
In Bowler, Equitable Life has filed its reply brief, urging summary
judgment on all claims but one. Issues of fact are raised by one
plaintiff's claim (that he was misled by the representation concerning
state approval), and accordingly this claim only could not be resolved on
summary judgment. The summary judgment motion is now under judicial
review.
In Cole, on April 29, 1997, at a pre-trial conference, the court ordered
that all discovery be completed by October 8, 1997. The Court further
ordered that a Note of Issue (placing the case on the trial calendar) be
filed on or before October 10, 1997, and that on October 14, 1997, the
court would hold a conference to schedule a trial date. The parties have
agreed on a briefing schedule for plaintiffs' motion for class
certification. A hearing on plaintiffs' motion for class certification
will be scheduled, at the discretion of the court, on or after September
12, 1997.
In Fletcher, on April 24, 1997, the magistrate granted plaintiffs' remand
motion, and Equitable Life has filed an application to the judge for
reconsideration. Equitable Life's time to answer the complaint has been
extended until 30 days after the court's final resolution of plaintiffs'
remand motion.
In Duncan, plaintiff moved to have the action certified as a nationwide
class action with two plaintiff subgroups: one comprising those alleging
misrepresentations concerning the extent to which their policies were
proper replacement policies, and the other comprising those alleging
misrepresentations concerning the number of years that the annual premium
would need to be paid. Equitable Life will oppose the motion.
Discovery as to class certification has begun.
In Bradley, on March 3, 1997, EVLICO served a notice of appeal of the
court's order denying EVLICO's motion to remove the Bradley action to New
York County and to consolidate or jointly try the Cole and Bradley
actions. Discovery as to class certification has begun.
In Dillon, on February 24, 1997, Equitable Life and EOC moved to dismiss
the complaint on several grounds.
In Chaviano, plaintiff filed an amended complaint on April 14, 1997.
In connection with the previously reported actions relating to Harrah's
Jazz Company and Harrah's Jazz Finance Corp., the parties to these actions
have agreed to a settlement, subject to the approval of the U.S. District
Court for the Eastern District of Louisiana.
On May 2, 1997, DLJ was named as a defendant in the First Amended
Derivative Complaint in James G. Caven v. Charles R. Miller, et al., an
action in the United States District Court for the Southern District of
Texas. The action is a derivative action allegedly brought on behalf of
Paracelsus Healthcare Corporation ("Paracelsus"), and in turn on behalf of
Champion Healthcare Corporation ("Champion"), in connection with
Champion's merger with Paracelsus on or about August 16, 1996. Other
defendants named in the amended complaint are certain officers and
directors of Champion, Paracelsus, certain officers and directors of
Paracelsus, and Paracelsus' outside auditors. With respect to DLJ, the
amended complaint alleges that DLJ was engaged by Champion to act as its
investment advisor in identifying suitable merger and acquisition
prospects in the healthcare industry, and that DLJ was negligent in
14
<PAGE>
recommending Paracelsus to Champion as a suitable merger partner and in
rendering an opinion to Champion's board of directors that the exchange
ratio of Paracelsus common stock for Champion common stock in the merger
was fair from a financial point of view to holders of Champion common
stock. The amended complaint seeks damages in an unspecified amount,
rescission of the merger, interest, attorney's fees and costs, and other
relief. Due to the early stage of such litigation, based on the
information currently available to it, DLJ's management cannot make an
estimate of loss, if any, or predict whether or not such litigation will
have a material adverse effect on DLJ's results of operations in any
particular period.
In addition to the matters previously reported and the matters described
above, the Holding Company and its subsidiaries are involved in various
legal actions and proceedings in connection with their businesses. Some of
the actions and proceedings have been brought on behalf of various alleged
classes of claimants and certain of these claimants seek damages of
unspecified amounts. While the ultimate outcome of such matters cannot be
predicted with certainty, in the opinion of management no such matter is
likely to have a material adverse effect on The Equitable's consolidated
financial position or results of operations.
13) SUBSEQUENT EVENT
On April 10, 1997, Equitable Life entered into a definitive agreement to
sell Equitable Real Estate (other than EQ Services, Inc. and its interest
in Column Financial, Inc.) to Lend Lease Corporation Limited ("Lend
Lease"), a publicly traded, international property and financial services
company based in Sydney, Australia. The total purchase price is $400.0
million and consists of $300.0 million in cash and a $100.0 million note
maturing in eight years and bearing interest at the rate of 7.4%, subject
to certain adjustments. The transaction is expected to be completed during
the second quarter of 1997, subject to regulatory approvals and certain
other conditions. Equitable Life will enter into long-term advisory
agreements pursuant to which the businesses to be sold will continue to
provide to Equitable Life's General Account and Separate Accounts
substantially the same services, for substantially the same fees, as
currently provided.
For first quarter 1997 and the year ended December 31, 1996, respectively,
the businesses to be sold reported combined revenues of $48.6 million and
$226.1 million and combined net earnings of $4.1 million and $30.7
million. Total combined assets and liabilities as reported at March 31,
1997 were $163.2 million and $117.5 million, respectively.
15
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following analysis of the consolidated results of operations and financial
condition of The Equitable should be read in conjunction with the Consolidated
Financial Statements and the related Notes to Consolidated Financial Statements
included elsewhere herein, and with the Management's Discussion and Analysis
section included in The Equitable's 1996 Report on Form 10-K. The terms "first
quarter 1997" and "first quarter 1996" refer to the three months ended March 31,
1997 and 1996, respectively.
COMBINED RESULTS OF OPERATIONS
The contribution from the Closed Block is reported on one line in the
consolidated statements of earnings. The following table presents the results of
operations of the Closed Block for the first quarters of 1997 and 1996 combined
with the results of operations outside of the Closed Block. See Closed Block
results as combined herein on page 18. Management's discussion and analysis
addresses the combined results of operations unless noted otherwise.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------------
1997 1996
--------------- ---------------
(In Millions)
<S> <C> <C>
Combined Results of Operations
Policy fee income and premiums.................................................. $ 557.4 $ 538.6
Net investment income........................................................... 1,010.8 917.3
Investment gains, net........................................................... 180.3 166.1
Commissions, fees and other income.............................................. 768.2 599.5
--------------- ---------------
Total revenues................................................................ 2,516.7 2,221.5
Total benefits and other deductions............................................. 2,240.6 2,007.4
--------------- ---------------
Earnings from continuing operations before Federal income taxes,
minority interest and cumulative effect of accounting change.................. 276.1 214.1
Federal income taxes............................................................ 87.4 64.7
Minority interest in net income of consolidated subsidiaries.................... 49.4 39.7
--------------- ---------------
Earnings from Continuing Operations before Cumulative Effect of
Accounting Change............................................................. $ 139.3 $ 109.7
=============== ===============
</TABLE>
Continuing Operations
Compared to the comparable prior year period, the higher pre-tax results of
operations for first quarter 1997 reflected increased earnings in the Insurance
Operations and Investment Services segments partially offset by higher losses in
the Corporate and Other segment. Federal income taxes increased due to higher
pre-tax results of operations. Minority interest in net income of consolidated
subsidiaries was higher principally due to increased earnings at both DLJ and
Alliance.
The $295.2 million increase in revenues for first quarter 1997 compared to the
corresponding period in 1996 was attributed primarily to a $168.7 million
increase in commissions, fees and other income principally due to increased
business activity within Investment Services and a $107.7 million increase in
investment results.
16
<PAGE>
Net investment income increased $93.5 million for first quarter 1997 principally
due to increases of $89.2 million and $4.5 million, respectively, for Investment
Services and Insurance Operations.
Investment gains increased by $14.2 million for first quarter 1997 from $166.1
million for the same period in 1996. There were investment gains of $22.2
million on General Account Investment Assets as compared to losses of $23.9
million in first quarter 1996. Investment gains at DLJ declined by $11.9 million
as the $24.8 million decrease in other equity investments was partially offset
by increased dealer and trading gains of $12.9 million. The Holding Company
Group investment portfolio had $0.9 million of investment gains realized during
first three months 1997; there were no investment gains/losses during first
quarter of 1996. In 1996, a gain of $20.6 million was recognized as a result of
the issuance of Alliance Units to third parties upon completion of the Cursitor
acquisition.
For first quarter 1997, total benefits and other deductions increased by $233.2
million from the comparable period in 1996, reflecting increases in other
operating costs and expenses of $247.1 million, partially offset by $6.7 million
decrease in policyholders' benefits and a $7.3 million decrease in interest
credited to policyholders. The increase in other operating costs and expenses
was attributable to increased operating costs of $201.0 million in Investment
Services associated with increased segment revenues and a $43.9 million increase
in Insurance Operations.
Discontinued Operations
The Equitable's quarterly evaluation of the GIC Segment's loss provisions
applies the current period's results of the discontinued operations against the
allowance, re-estimates future losses and adjusts the provisions, if
appropriate. The evaluation performed in first quarter 1997 resulted in
management's decision to strengthen the loss provisions by $5.1 million. The
factor contributing to this strengthening was higher than anticipated investment
losses principally on other equity investments.
Excluding the effect of the aforementioned reserve strengthening, in first
quarter 1997, $17.3 million of pre-tax losses were incurred and charged to the
GIC Segment's allowance for future losses as compared to $10.4 million in first
quarter 1996. Investment results declined by $31.0 million in the first three
months of 1997 as compared to the year-earlier period. Net investment income
declined by $36.9 million, principally due to lower yields on a significantly
reduced GIC Segment Investment Asset base. The reduction in GIC Segment
investments was principally due to the repayments of approximately $1.02 billion
of loans from continuing operations during 1996. Investment losses were $5.1
million in the first three months of 1997 compared to $11.0 million in the
comparable period in 1996. There were $6.2 million lower losses on other equity
investments than during the year earlier period principally offset by $1.1
million of losses on equity real estate as compared to $1.0 million in gains in
first quarter 1996. Benefits and other deductions declined by $24.1 million
principally due to the aforementioned repayments in 1996 resulting in the
decrease in interest expense on lower borrowings from continuing operations.
17
<PAGE>
COMBINED RESULTS OF CONTINUING OPERATIONS BY SEGMENT
Insurance Operations
The Closed Block is part of Insurance Operations. The following table combines
the Closed Block amounts with the reported results of operations outside of the
Closed Block on a line-by-line basis.
<TABLE>
<CAPTION>
Insurance Operations
(In Millions)
Three Months Ended March 31,
------------------------------------------------------------------
1997
------------------------------------------------
As Closed 1996
Reported Block Combined Combined
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Policy fees, premiums and other income.......... $ 410.3 $ 174.8 $ 585.1 $ 563.3
Net investment income........................... 517.1 138.8 655.9 651.4
Investment gains (losses), net.................. 19.9 2.3 22.2 (23.6)
Contribution from the Closed Block.............. 35.8 (35.8) - -
------------- -------------- ------------- --------------
Total revenues................................ 983.1 280.1 1,263.2 1,191.1
Total benefits and other deductions............. 856.3 280.1 1,136.4 1,106.5
------------- -------------- ------------- --------------
Earnings from Continuing Operations
before Federal Income Taxes,
Minority Interest and Cumulative
Effect of Accounting Change................... $ 126.8 $ - $ 126.8 $ 84.6
============= ============== ============= ==============
</TABLE>
For first quarter of 1997, earnings from continuing operations for Insurance
Operations reflected an increase of $42.2 million from the year earlier period.
Investment gains in 1997 versus losses in 1996, higher policy fees on variable
and interest-sensitive life and individual annuities contracts and improved DI
and group pension results were offset by higher employee benefit costs. The
improved DI and group pension results reflect the establishment of premium
deficiency reserves in fourth quarter 1996. To the extent periodic results from
these businesses differ from the assumptions used in establishing those
reserves, the resulting earnings (loss) will impact Insurance Operations'
results.
Total revenues increased by $72.1 million primarily due to a $50.3 million
increase in investment results and a $17.6 million increase in policy fees. The
increase in Insurance Operations' investment results principally was due to
investment gains (losses). Gains on fixed maturities were $5.8 million higher in
first quarter 1997, up from $25.5 million in first quarter 1996. Mortgage loans
produced a $1.6 million gain as compared with a $26.7 million loss in first
quarter 1996. Losses on equity real estate and other equity investments were
lower by $8.2 million and $3.8 million, respectively. Insurance Operations'
$27.3 million increase in gross investment income principally was due to higher
overall yields on a $1.37 billion larger General Account Investment Asset base
offset by $22.8 million lower interest on lower amounts due from discontinued
operations. Policy fee income rose to $230.5 million due to higher insurance and
annuity account balances.
Total benefits and other deductions for first quarter 1997 rose $29.9 million
from the comparable 1996 period as increases of $56.8 million in other operating
expenses and $15.0 million higher DAC amortization were offset by $27.9 million
higher DAC capitalization, the effects of the favorable mortality experience on
variable and interest-sensitive policies and a decrease in future policy
benefits. The increase in operating costs resulted from higher variable expenses
related to increased sales, higher employee benefit costs and higher costs
related to the annuity wholesaler distribution system implemented in the latter
part of 1996. The decrease in policyholders' benefits primarily resulted from a
lower increase in reserves on DI business and improved mortality experience on
the larger in force book of business for variable and interest-sensitive life
policies. This lower mortality experience resulted in an increase in the
amortization of DAC on variable and interest-sensitive life policies. Interest
credited on policyholders' account balances in Insurance Operations decreased by
$7.3 million reflecting moderately lower crediting rates applied to a larger in
force book of business.
18
<PAGE>
Premiums and Deposits - The following table lists premiums and deposits,
including universal life and investment-type contract deposits, for Insurance
Operations' major product lines.
<TABLE>
<CAPTION>
Premiums and Deposits
(In Millions)
Three Months Ended
March 31,
-----------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Individual annuities
First year.................................................................... $ 647.3 $ 509.7
Renewal....................................................................... 340.3 330.1
--------------- ---------------
987.6 839.8
Variable and interest-sensitive life
First year recurring.......................................................... 52.6 44.9
First year optional........................................................... 59.8 40.2
Renewal....................................................................... 341.3 338.1
--------------- ---------------
453.7 423.2
Traditional life
First year recurring.......................................................... 4.0 4.9
First year optional........................................................... 1.1 1.3
Renewal....................................................................... 205.4 212.8
--------------- ---------------
210.5 219.0
Other(1)
First year.................................................................... 4.0 7.1
Renewal....................................................................... 90.4 89.6
--------------- ---------------
94.4 96.7
Total first year................................................................ 768.8 608.1
Total renewal................................................................... 977.4 970.6
--------------- ---------------
--------------- ---------------
Total individual insurance and annuity products................................. 1,746.2 1,578.7
Participating group annuities................................................... 47.3 60.9
Conversion annuities............................................................ 2.1 -
Association plans............................................................... 31.4 23.2
--------------- ---------------
Total group pension products.................................................... 80.8 84.1
Total Premiums and Deposits..................................................... $ 1,827.0 $ 1,662.8
=============== ===============
<FN>
(1) Includes health insurance and reinsurance assumed.
</FN>
</TABLE>
First year premiums and deposits for individual insurance and annuity products
for first quarter 1997 increased from prior year levels by $160.7 million
primarily due to higher sales of individual annuities and variable and
interest-sensitive life contracts. Renewal premiums and deposits increased by
$6.8 million during first quarter 1997 over the prior year period as increases
in the larger block of individual annuities and variable and interest-sensitive
life policies were partially offset by decreases in traditional life policies
and other product lines. Traditional life premiums and deposits for first
quarter 1997 decreased from the prior year's comparable period by $8.5 million
due to the marketing focus on variable and interest-sensitive products and the
decline in the traditional life book of business. The 27.0% increase in first
year individual annuities premiums and deposits in first quarter 1997 over the
prior year period included a $138.4 million increase in sales of a new line of
19
<PAGE>
retirement annuity products sold through both the career agency force and
complementary distribution channels. First year variable and interest-sensitive
life policies included $17.2 million of premiums from the sale of one large COLI
policy. Management believes the strategic positioning of The Equitable's
insurance operations has begun to positively affect premium growth. Particular
emphasis will continue to be devoted to the support of the new needs based
selling approach and the establishment of consultative financial services as the
cornerstone of the sales process. Changes in agent recruitment and training
practices have resulted in retention and productivity improvements which,
management believes, are contributing to premium results.
Surrenders and Withdrawals - The following table summarizes surrenders and
withdrawals, including universal life and investment-type contract withdrawals,
for Insurance Operations' major individual insurance and annuities' product
lines.
<TABLE>
<CAPTION>
Surrenders and Withdrawals
(In Millions)
Three Months Ended
March 31,
-----------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Individual Insurance and Annuities' Product Lines:
Individual annuities............................................................ $ 594.4 $ 610.5
Variable and interest-sensitive life............................................ 123.2 112.3
Traditional life................................................................ 105.6 93.6
--------------- ---------------
Total........................................................................... $ 823.2 $ 816.4
=============== ===============
</TABLE>
Policy and contract surrenders and withdrawals increased $6.8 million during
first quarter 1997 compared to the same period in 1996 due to the $22.9 million
higher surrenders and withdrawals in variable and interest-sensitive and
traditional life products, partially offset by a decrease in individual
annuities surrenders and withdrawals. Surrenders and withdrawals in first
quarter 1996 included $88.0 million paid in January 1996 for two small pension
annuity clients who terminated their contracts.
Investment Services
The following table summarizes the results of operations for Investment
Services.
<TABLE>
<CAPTION>
Investment Services
(In Millions)
Three Months Ended
March 31,
-----------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Third party commissions and fees................................................ $ 723.4 $ 560.7
Affiliate fees.................................................................. 30.7 30.1
Other income(1)................................................................. 496.4 436.5
--------------- ---------------
Total revenues.................................................................. 1,250.5 1,027.3
Total costs and expenses........................................................ 1,068.8 867.8
--------------- ---------------
Earnings from Continuing Operations before Federal Income Taxes,
Minority Interest and Cumulative Effect of Accounting Change.................. $ 181.7 $ 159.5
=============== ===============
<FN>
(1) Includes net dealer and trading gains, investment results and other items.
</FN>
</TABLE>
20
<PAGE>
For first quarter 1997, pre-tax earnings for Investment Services increased by
$22.2 million from the year-earlier period primarily due to higher earnings for
DLJ and Alliance. DLJ's earnings were higher in 1997 largely due to strong
merger and acquisition activity, increased levels of underwriting, higher dealer
and trading gains and the growth in trading volume on most major exchanges.
Total segment revenues were up $223.2 million principally due to higher revenues
at DLJ. Other income for first quarter 1996 included a gross gain of $20.6
million recognized by The Equitable as a result of the issuance of Alliance
Units in the Cursitor acquisition.
Total costs and expenses increased by $201.0 million for first quarter 1997 as
compared to that same period in 1996 principally reflecting increases in
compensation and interest expense at DLJ due to increased activity.
The following table summarizes results of operations by business unit.
<TABLE>
<CAPTION>
Investment Services
Results of Operations by Business Unit
(In Millions)
Three Months Ended
March 31,
-----------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Earnings from continuing operations before Federal income taxes,
minority interest and cumulative effect of accounting change:
DLJ(1)........................................................................ $ 131.0 $ 98.8
Alliance...................................................................... 54.1 46.1
Equitable Real Estate......................................................... 6.5 7.5
Consolidation/elimination(2)(3)............................................... (9.9) 7.1
--------------- ---------------
Earnings from Continuing Operations before Federal Income Taxes,
Minority Interest and Cumulative Effect of Accounting Change.................. $ 181.7 $ 159.5
=============== ===============
<FN>
(1) Excludes amortization expense of $1.0 million and $0.9 million for the first
quarters of 1997 and 1996, respectively, on goodwill and intangible assets
related to Equitable Life's acquisition of DLJ in 1985, which are included in
consolidation/elimination.
(2) Includes interest expense of $3.0 million and $3.2 million related to
intercompany debt issued by intermediate holding companies payable to Equitable
Life for the first quarters of 1997 and 1996, respectively.
(3) Includes a gain of $16.9 million (net of $3.7 million related state income
tax) for first quarter 1996 on issuance of Alliance Units to third parties upon
the completion of the Cursitor transaction.
</FN>
</TABLE>
DLJ - DLJ's earnings from continuing operations for first quarter 1997 were
$131.0 million, up $32.2 million from the comparable prior year period. Revenues
increased $205.4 million to $980.9 million primarily due to higher net
investment income of $90.1 million, increased fees of $62.9 million,
underwriting revenues of $38.5 million and higher commissions of $21.8 million
offset by lower gains on the corporate development portfolio of $24.7 million.
DLJ's expenses were $849.9 million for first quarter 1997, up $173.2 million
from the comparable prior year period primarily due to a $79.1 million increase
in compensation and commissions, higher interest expense of $43.2 million and
$13.8 million higher brokerage and exchange fees.
21
<PAGE>
DLJ enters into certain contractual agreements referred to as derivatives or
off-balance-sheet financial instruments involving futures, forwards and options.
DLJ's derivative activities are not as extensive as many of its competitors.
Instead, DLJ has focused its derivative activities on writing OTC options to
accommodate its customers' needs, trading in forward contracts in U.S.
government and agency issued or guaranteed securities and in futures contracts
on equity based indices, interest rate instruments and currencies, and issuing
structured notes. DLJ's involvement in swap contracts is not significant. As a
result, DLJ's involvement in derivatives products is related primarily to
revenue generation through the provision of products to its clients as opposed
to hedges against DLJ's own positions.
Options contracts are typically written for a duration of less than thirteen
months. Revenues from these activities (net of related interest expense) were
approximately $9.6 million and $8.8 million for the first quarters of 1997 and
1996, respectively. Option writing revenues are primarily from the amortization
of option premiums.
The notional value of written options contracts outstanding was approximately
$9.3 billion and $4.9 billion at March 31, 1997 and 1996, respectively. The
increase in the notional value of options was primarily due to increases in
customer activity related to U.S. government obligations and foreign debt
securities. Such written options contracts are substantially covered by various
financial instruments that DLJ had purchased or sold as principal.
As part of DLJ's trading activities, including trading activities in the related
cash market instruments, DLJ enters into forward and futures contracts primarily
involving securities, foreign currencies, indices and forward rate agreements as
well as options on futures contracts. Such forward and futures contracts are
entered into as part of DLJ's covering transactions and are generally not used
for speculative purposes.
Net trading gains (losses) on forward contracts were $29.3 million and $(23.9)
million and net trading gains (losses) on futures contracts were $5.7 million
and $8.7 million for the first quarters of 1997 and 1996, respectively.
The notional contract and market values of the forward and futures contracts
at March 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
March 31, 1997 March 31, 1996
---------------------------------- -----------------------------------
Purchases Sales Purchases Sales
--------------- --------------- --------------- ---------------
(In Millions)
<S> <C> <C> <C> <C>
Forward Contracts
(Notional Contract Value).............. $ 17,222.2 $ 26,188.6 $ 17,945.2 $ 17,297.3
=============== =============== =============== ===============
Futures Contracts and Options on
Futures Contracts (Market Value)....... $ 2,193.1 $ 6,843.6 $ 1,672.6 $ 1,001.7
=============== =============== =============== ===============
</TABLE>
Structured notes are customized financing instruments in which the amount of
interest or principal paid on a debt obligation is linked to the return on
specific cash market financial instruments. At March 31, 1997 and December 31,
1996, DLJ had issued long-term structured notes totaling $211.4 million and
$82.7 million, respectively. DLJ expects the volume of this activity to increase
in the future. DLJ covers its obligations on structured notes primarily by
purchasing and selling the securities to which the value of its structured notes
are linked.
In March 1997, DLJ acquired the London based Phoenix Group Limited, a financial
advisory and investment management business with offices in London and Hong
Kong. It has two principal operations, a corporate finance and advisory business
and a private equity fund management business investing in unquoted securities.
It also makes investments as principal.
Alliance - Alliance's earnings from continuing operations for first quarter 1997
were $54.1 million, an increase of $8.0 million from the prior year's comparable
period. Revenues totaled $219.3 million for first quarter 1997, an increase of
$37.7 million from the comparable period in 1996, due to increased investment
advisory and service fees. Alliance's costs and expenses increased $29.7 million
for first quarter 1997 primarily due to increases in employee compensation and
benefits and other promotional expenditures.
22
<PAGE>
On February 29, 1996, Alliance acquired substantially all of the assets and
liabilities of Cursitor for approximately $159.0 million. The acquisition was
accounted for under the purchase method with the results of Cursitor from the
date of acquisition included in Alliance's consolidated financial statements.
Cursitor specializes in providing global asset allocation services to U.S. and
non-U.S. institutional investors. Cursitor's investment results were poor in
1995 and 1996. Despite a modest improvement in investment results during the
three months ended March 31, 1997, Cursitor continued to experience significant
client account terminations and asset outflows. Cursitor's assets under
management at March 31, 1997 and April 30, 1997 were approximately $6.0 billion
and $5.4 billion, respectively.
Alliance evaluates the potential impairment of its intangible assets by
comparing the undiscounted cash flows expected to be realized from those
intangible assets to their recorded values pursuant to SFAS No. 121. Management
of Alliance currently estimates that despite a significant decline in the
profitability of Cursitor, the undiscounted cash flows from Cursitor will be
sufficient for Alliance to recover its investment. However, should the
profitability of Cursitor continue to decline, management's estimate may change
and Alliance's investment in Cursitor might be considered impaired. In such
event, Alliance would be required to reduce the recorded value of Cursitor
goodwill and contracts acquired to fair market value, which is significantly
below their recorded value.
Equitable Real Estate - Equitable Real Estate's earnings from operations were
$6.5 million for first quarter 1997, down $1.0 million from the comparable
period in 1996. The decrease primarily was due to lower General Account fees.
On April 10, 1997, Equitable Life and Lend Lease signed a definitive agreement
for Lend Lease to purchase Equitable Real Estate's investment management
business for $300.0 million in cash and a $100.0 million eight year note,
subject to certain adjustments. The sale is expected to be completed during
second quarter 1997, subject to regulatory approval and certain other
conditions. Equitable Life will enter into long-term advisory agreements
pursuant to which the businesses to be sold will continue to provide services to
Equitable Life's General Account and Separate Accounts. See Note 13 to
Consolidated Financial Statements for further information.
Fees From Assets Under Management - As the following table illustrates, third
party clients continued to represent an important source of revenues and
earnings.
<TABLE>
<CAPTION>
Fees and Assets Under Management
(In Millions)
At or For the
Three Months Ended
March 31,
-----------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Fees:
Third Party................................................................... $ 204.7 $ 166.5
The Equitable................................................................. 27.7 27.2
--------------- ---------------
Total........................................................................... $ 232.4 $ 193.7
=============== ===============
Assets Under Management:
Third Party................................................................... $ 184,137 $ 161,231
The Equitable................................................................. 56,684 50,819
--------------- ---------------
Total........................................................................... $ 240,821 $ 212,050
=============== ===============
</TABLE>
Fees from assets under management increased for first quarter 1997 from the
comparable 1996 period principally as a result of growth in assets under
management for third parties. Alliance's third party assets under management
increased by $17.3 billion primarily due to market appreciation and mutual fund
sales.
23
<PAGE>
At March 31, 1997, third party assets under management by Equitable Real Estate,
including Separate Accounts, were $14.7 billion. For first quarter 1997 and full
year 1996, fees received for assets under management by the businesses to be
sold totaled $48.5 million and $229.9 million, respectively, of which $31.4
million and $139.6 million, respectively, were received from third parties.
CONTINUING OPERATIONS INVESTMENT PORTFOLIO
The continuing operations investment portfolio is composed of the General
Account investment portfolio and investment assets of the Holding Company Group.
The General Account's portfolio is discussed first, followed by a separate
discussion on the Holding Company Group investments.
General Account Investment Portfolio
The following table reconciles the consolidated balance sheet asset amounts to
the amounts of General Account Investment Assets.
<TABLE>
<CAPTION>
General Account Investment Assets Carrying Values
March 31, 1997
(In Millions)
General
Holding Account
Balance Closed Company Investment
Balance Sheet Captions: Sheet Block Other(1) Group (2) Assets
- ---------------------------------- ----------------- ------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Fixed maturities:
Available for sale.............. $ 18,164.7 $ 3,900.9 $ (151.1) $ 401.9 $ 21,814.8
Held to maturity................ 169.4 - - 169.4 -
Trading account securities........ 17,375.9 - 17,375.9 - -
Securities purchased under
resale agreements............... 25,711.6 - 25,711.6 - -
Mortgage loans on real estate..... 2,958.8 1,376.7 - - 4,335.5
Equity real estate................ 3,317.9 200.8 (17.8) - 3,536.5
Policy loans...................... 2,300.8 1,742.4 - - 4,043.2
Other equity investments.......... 823.8 100.3 237.9 7.6 678.6
Other invested assets............. 570.7 87.8 637.0 10.3 11.2
---------------- ------------- --------------- -------------- -------------
Total investments............... 71,393.6 7,408.9 43,793.5 589.2 34,419.8
Cash and cash equivalents......... 1,091.7 (21.9) 335.7 71.8 662.3
---------------- ------------- --------------- -------------- -------------
Total............................. $ 72,485.3 $ 7,387.0 $ 44,129.2 $ 661.0 $ 35,082.1
================ ============= =============== ============== =============
<FN>
(1) Assets listed in the "Other" category principally consist of assets held in
portfolios other than the Holding Company Group and the General Account
(primarily securities held in inventory or for resale by DLJ) which are not
managed as part of General Account Investment Assets and certain
reclassifications and intercompany adjustments. The "Other" category is
deducted in arriving at the General Account Investment Assets.
(2) The Holding Company Group investment assets are not managed as part of
General Account Investment Assets and are deducted in arriving at General
Account Investment Assets.
</FN>
</TABLE>
The General Account Investment Assets presentation set forth in the following
pages includes the investments of the Closed Block on a line-by-line basis.
Management believes it is appropriate to discuss the information on a combined
basis in view of the similar asset quality characteristics of major asset
categories in the portfolios.
24
<PAGE>
Writedowns on fixed maturities were $4.6 million and $19.8 million for the first
quarters of 1997 and 1996, respectively; writedowns on equity real estate in
first quarter 1997 were $0.1 million. The following table shows asset valuation
allowances and additions to and deductions from such allowances for mortgages
and equity real estate for the first quarters of 1997 and 1996.
<TABLE>
<CAPTION>
General Account Investment Assets
Valuation Allowances
(In Millions)
Equity Real
Mortgages Estate Total
--------------- --------------- --------------
<S> <C> <C> <C>
March 31, 1997
Assets Outside of the Closed Block:
Beginning balances............................................ $ 50.4 $ 86.7 $ 137.1
Additions..................................................... 9.5 14.2 23.7
Deductions(2)................................................. (17.2) (14.0) (31.2)
--------------- --------------- --------------
Ending Balances............................................... $ 42.7 $ 86.9 $ 129.6
=============== =============== ==============
Closed Block:
Beginning balances............................................ $ 13.8 $ 3.7 $ 17.5
Additions..................................................... 5.3 0.5 5.8
Deductions(2)................................................. (1.2) (1.4) (2.6)
--------------- --------------- --------------
Ending Balances............................................... $ 17.9 $ 2.8 $ 20.7
=============== =============== ==============
Total:
Beginning balances............................................ $ 64.2 $ 90.4 $ 154.6
Additions..................................................... 14.8 14.7 29.5
Deductions(2)................................................. (18.4) (15.4) (33.8)
--------------- --------------- --------------
Ending Balances............................................... $ 60.6 $ 89.7 $ 150.3
=============== =============== ==============
March 31, 1996
Total:
Beginning balances............................................ $ 83.9 $ 264.1 $ 348.0
SFAS No. 121 release(1)....................................... - (152.4) (152.4)
Additions..................................................... 26.5 19.2 45.7
Deductions(2)................................................. (0.5) (81.9) (82.4)
--------------- --------------- --------------
Ending Balances............................................... $ 109.9 $ 49.0 $ 158.9
=============== =============== ==============
<FN>
(1) As a result of the adoption of SFAS No. 121 at January 1, 1996, $152.4
million of allowances on assets held for investment were released and
impairment losses of $149.6 million were recognized on real estate held and
used.
(2) Primarily reflected releases of allowances due to asset dispositions and
writedowns.
</FN>
</TABLE>
25
<PAGE>
General Account Investment Assets by Category
The following table shows the amortized cost, valuation allowances and net
amortized cost of the major categories of General Account Investment Assets at
March 31, 1997 and net amortized cost at December 31, 1996.
<TABLE>
<CAPTION>
General Account Investment Assets
(Dollars In Millions)
March 31, 1997 December 31, 1996
----------------------------------------------------------- -----------------------------
% of % of
Net Total Net Net Total Net
Amortized Valuation Amortized Amortized Amortized Amortized
Cost Allowances Cost Cost Cost Cost
--------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities(1).......... $ 21,892.8 $ - $ 21,892.8 62.3% $ 21,711.6 62.6%
Mortgages.................... 4,396.1 60.6 4,335.5 12.3 4,513.7 13.0
Equity real estate........... 3,626.2 89.7 3,536.5 10.1 3,518.6 10.1
Other equity investments..... 678.6 - 678.6 1.9 692.4 2.0
Policy loans................. 4,043.2 - 4,043.2 11.5 3,962.0 11.4
Cash and short-term
investments(2)............. 673.5 - 673.5 1.9 277.7 0.9
--------------- ------------- ------------- ------------- ------------- -------------
Total........................ $ 35,310.4 $ 150.3 $ 35,160.1 100.0% $ 34,676.0 100.0%
=============== ============= ============= ============= ============= =============
<FN>
(1) Excludes unrealized (losses) gains of $(78.0) million and $432.9 million in
fixed maturities classified as available for sale at March 31, 1997 and
December 31, 1996, respectively.
(2) Comprised of "Cash and cash equivalents" and short-term investments included
within the "Other invested assets" caption on the consolidated balance
sheet.
</FN>
</TABLE>
Management has a policy of not investing substantial new funds in equity real
estate except to safeguard values in existing investments or to honor
outstanding commitments. It is management's continuing objective to reduce the
size of the equity real estate portfolio relative to total assets over the next
several years on an opportunistic basis. Management anticipates that reductions
will depend on real estate market conditions, the level of mortgage foreclosures
and expenditures required to fund necessary or desired improvements to
properties.
26
<PAGE>
Investment Results of General Account Investment Assets
<TABLE>
<CAPTION>
Investment Results by Asset Category
(Dollars In Millions)
Three Months Ended March 31,
---------------------------------------------------------
1997 1996
--------------------------- ---------------------------
(1) (1)
Yield Amount Yield Amount
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Fixed Maturities:
Income.................................................... 8.00% $ 435.9 7.92% $ 383.4
Investment Gains/(Losses)................................. 0.57% 31.3 0.53% 25.5
----------- ------------- ----------- -------------
Total..................................................... 8.57% $ 467.2 8.45% $ 408.9
Ending Assets............................................. $ 21,892.8 $ 19,570.8
Mortgages:
Income.................................................... 9.47% $ 104.7 8.74% $ 108.6
Investment Gains/(Losses)................................. 0.14% 1.6 (2.15)% (26.7)
----------- ------------- ----------- -------------
Total..................................................... 9.61% $ 106.3 6.59% $ 81.9
Ending Assets............................................. $ 4,335.5 $ 4,934.3
Equity Real Estate(2):
Income.................................................... 2.09% $ 14.2 3.28% $ 25.9
Investment Gains/(Losses)................................. (1.54%) (10.5) (2.37)% (18.7)
----------- ------------- ----------- -------------
Total..................................................... 0.55% $ 3.7 0.91% $ 7.2
Ending Assets............................................. $ 2,705.5 $ 3,105.7
Other Equity Investments:
Income.................................................... 12.90% $ 22.1 11.55% $ 21.0
Investment Gains/(Losses)................................. (0.12%) (0.2) (2.20)% (4.0)
----------- ------------- ----------- -------------
Total..................................................... 12.78% $ 21.9 9.35% $ 17.0
Ending Assets............................................. $ 678.6 $ 689.9
Policy Loans:
Income.................................................... 6.90% $ 69.0 6.83% $ 65.1
Ending Assets............................................. $ 4,043.2 $ 3,855.1
Cash and Short-term Investments:
Income.................................................... 10.60% $ 12.6 10.32% $ 22.6
Ending Assets............................................. $ 673.5 $ 799.6
Total:
Income.................................................... 7.72% $ 658.5 7.62% $ 626.6
Investment Gains/(Losses)................................. 0.26% 22.2 (0.29)% (23.9)
----------- ------------- ----------- -------------
Total(3).................................................. 7.98% $ 680.7 7.33% $ 602.7
Ending Assets............................................. $ 34,329.1 $ 32,955.4
<FN>
(1) Yields have been annualized and calculated based on the quarterly average
asset carrying values excluding unrealized gains (losses) in fixed
maturities. Annualized yields are not necessarily indicative of a full
year's results.
(2) Equity real estate carrying values are shown net of third party debt and
minority interest in real estate of $831.0 million and $917.2 million as of
March 31, 1997 and 1996, respectively. Equity real estate income is shown
net of operating expenses, depreciation, third party interest expense and
minority interest. Third party interest expense and minority interest
totaled $13.3 million and $14.3 million for the first quarters of 1997 and
1996, respectively.
(3) Total yields are shown before deducting investment fees paid to the
Investment Subsidiaries (which include asset management, acquisition,
disposition, accounting and legal fees). If such fees had been deducted,
total yields would have been 7.71% and 7.04% for the first quarters of 1997
and 1996, respectively.
</FN>
</TABLE>
27
<PAGE>
For first quarter 1997, General Account investment results were up $78.0 million
or 12.9% from the year earlier period reflecting higher income on a higher asset
base and gains on fixed maturities. On an annualized basis, total investment
yield increased to 7.98% from 7.33%. Investment income increased by $31.9
million or 5.1%, resulting in an increase in the annualized income yield to
7.72% from 7.62%. Excluding SFAS No. 121 related permanent impairment writedowns
of $149.6 million and releases of valuation allowances totaling $152.4 million
relating to equity real estate in 1996, additions to asset valuation allowances
and writedowns of fixed maturities and equity real estate were $34.3 million in
first quarter 1997 compared to $65.5 million in first quarter 1996.
Total investment results for fixed maturities increased $58.3 million or 14.3%
for first quarter 1997 compared to the year earlier period. Investment income
increased by $52.5 million reflecting a higher asset base as nearly all
available funds were reinvested in fixed maturities. Investment gains were $31.3
million for first quarter 1997 compared to $25.5 million in first quarter 1996.
Writedowns on fixed maturities were $4.6 million in the first three months of
1997 as compared to $19.8 million in the comparable period of 1996. Total
investment results on mortgages improved $24.4 million or 29.8% in first quarter
1997 compared to the same period a year ago largely due to investment gains of
$1.6 million as compared to losses of $26.7 million in first quarter 1996,
partially offset by lower investment income attributable to a lower asset base.
Equity real estate investment results were $3.5 million lower during the first
three months of 1997 than the year earlier period reflecting lower investment
yield on a smaller asset base. During the first three months of 1997, $4.2
million of losses were recognized on equity real estate with amortized cost of
$77.2 million which was sold as compared to first quarter 1996 when $0.9 million
of losses were recognized on properties with an amortized cost of $202.4 million
which were sold. There were higher investment results for other equity
investments as the effect of a reduced asset base in first quarter 1997 was more
than offset by the 1996 period's loss realized on the disposition of a limited
partnership interest.
Fixed Maturities. Fixed maturities consist of publicly traded debt securities,
privately placed debt securities and small amounts of redeemable preferred
stock, which represented 72.9%, 26.4% and 0.7%, respectively, of the amortized
cost of this asset category at March 31, 1997.
<TABLE>
<CAPTION>
Fixed Maturities By Credit Quality
(Dollars In Millions)
March 31, 1997 December 31, 1996
Rating Agency -------------------------------------- -----------------------------------------
NAIC Equivalent Amortized % of Estimated Amortized % of Estimated
Rating Designation Cost Total Fair Value Cost Total Fair Value
- -------- ---------------------- --------------- --------- ------------ ----------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1-2 Aaa/Aa/A and Baa...... $ 19,066.8(1) 87.1% $ 18,951.1 $ 18,994.8(1) 87.5% $ 19,334.0
3-6 Ba and lower.......... 2,660.6(2) 12.2 2,719.4 2,575.2(2) 11.9 2,665.7
------------ ----------- ------------ ----------- ---------- -------------
Subtotal........................ 21,727.4 99.3 21,670.5 21,570.0 99.4 21,999.7
Redeemable preferred stock
and other..................... 165.4 0.7 144.3 141.6 0.6 144.8
------------ ----------- ------------ ----------- ------------- -------------
Total........................... $ 21,892.8 100.0% $ 21,814.8 $ 21,711.6 100.0% $ 22,144.5
============ =========== ============ =========== ============= =============
<FN>
(1) Includes Class B Notes with an amortized cost of $57.6 million and $67.0
million, at March 31, 1997 and December 31, 1996, respectively,
eliminated in consolidation.
(2) Includes Class B Notes with an amortized cost of $100.0 million, eliminated
in consolidation.
</FN>
</TABLE>
At March 31, 1997, The Equitable held collateralized mortgage obligations
("CMOs") with an amortized cost of $2.48 billion, including $2.36 billion in
publicly traded CMOs. About 59.1% of the public CMO holdings were collateralized
by GNMA, FNMA and FHLMC securities. Approximately 38.7% of the public CMO
holdings were in PAC bonds. At March 31, 1997, IO strips amounted to $4.7
million at amortized cost. There were no holdings of principal only strips at
that date. In addition, at March 31, 1997, The Equitable held $2.36 billion of
mortgage pass-through securities (GNMA, FNMA or FHLMC securities) and also held
$425.6 million of Aa or higher rated public asset backed securities, primarily
backed by home equity mortgages, airline and other equipment, and credit card
receivables.
28
<PAGE>
<TABLE>
<CAPTION>
Fixed Maturities
Problems, Potential Problems and Restructureds
Amortized Cost
(In Millions)
March 31, December 31,
1997 1996
--------------- -----------------
<S> <C> <C>
FIXED MATURITIES.............................................................. $ 21,892.8 $ 21,711.6
Problem fixed maturities...................................................... 35.0 50.6
Potential problem fixed maturities............................................ 0.5 0.5
Restructured fixed maturities(1).............................................. 3.4 3.4
<FN>
(1) Excludes restructured fixed maturities of $2.5 million and $2.5 million that
are shown as problems at March 31, 1997 and December 31, 1996, respectively,
and excludes $0.0 million of restructured fixed maturities that are shown as
potential problems at March 31, 1997.
</FN>
</TABLE>
Mortgages. Mortgages consist of commercial, agricultural and residential loans.
At March 31, 1997, commercial mortgages totaled $2.71 billion (61.6% of the
amortized cost of the category), agricultural loans were $1.69 billion (38.3%)
and residential loans were $3.6 million (0.1%).
<TABLE>
<CAPTION>
Mortgages
Problems, Potential Problems and Restructureds
Amortized Cost
(Dollars In Millions)
March 31, December 31,
1997 1996
--------------- -----------------
<S> <C> <C>
COMMERCIAL MORTGAGES.......................................................... $ 2,707.0 $ 2,901.2
Problem commercial mortgages.................................................. 10.8 11.3
Potential problem commercial mortgages........................................ 284.2 425.7
Restructured commercial mortgages(1).......................................... 237.1 269.3
VALUATION ALLOWANCES.......................................................... 60.6 64.2
AGRICULTURAL MORTGAGES........................................................ $ 1,685.5 $ 1,672.7
Problem agricultural mortgages................................................ 11.0 5.4
Potential problem agricultural mortgages...................................... - -
Restructured agricultural mortgages........................................... 2.0 2.0
VALUATION ALLOWANCES.......................................................... - -
<FN>
(1) Excludes restructured commercial mortgages of $1.7 million that are shown as
problems at both March 31, 1997 and December 31, 1996, and excludes $81.2
million and $229.5 million of restructured commercial mortgages that are
shown as potential problems at March 31, 1997 and December 31, 1996,
respectively.
</FN>
</TABLE>
Problem commercial mortgages decreased by $0.5 million from December 31, 1996 to
March 31, 1997 due to foreclosures. Potential problem loans declined primarily
due to loans reclassified to performing status. During first quarter 1997, the
amortized cost of foreclosed commercial mortgages totaled $38.5 million with a
$1.5 million reduction in amortized cost required at the time of foreclosure.
29
<PAGE>
The original weighted average coupon rate on the $237.1 million of restructured
mortgages was 9.7%. As a result of these restructurings, the restructured
weighted average coupon rate was 8.5% and the restructured weighted average cash
payment rate was 7.9%. The foregone interest on restructured commercial
mortgages (including restructured commercial mortgages presented as problem or
potential problem commercial mortgages) for first quarter 1997 was $0.8 million.
As of March 31, 1997, the distribution of problem commercial mortgages by
property type was: retail ($9.1 million or 84.3%) and apartment ($1.7 million or
15.7%). By state, the distribution was: Connecticut ($5.0 million or 46.3%),
Mississippi ($4.1 million or 38.0%) and Indiana ($1.7 million or 15.7%). The
distribution of potential problem commercial mortgages by property type was:
retail ($188.6 million or 66.4%), office ($44.1 million or 15.5%), industrial
($27.3 million or 9.6%), and hotel ($24.2 million or 8.5%). By state, the
distribution was: New York ($97.3 million or 34.2%), Pennsylvania ($60.1 million
or 21.1%), Massachusetts ($35.3 million or 12.4%), Texas ($24.2 million or
8.8%), California ($19.3 million or 6.8%), Puerto Rico ($18.7 million or 6.6%)
and Virginia ($16.5 million or 5.8%). No other state was larger than 5.0%.
At March 31, 1997 and 1996, respectively, management identified impaired loans
as defined under SFAS No. 114 with carrying values of $403.5 million and $514.6
million. The provisions for losses for these impaired mortgage loans were $52.4
million and $98.4 million at March 31, 1997 and 1996, respectively. For the
first quarters of 1997 and 1996, respectively, income accrued on these loans was
$7.7 million and $12.0 million, including cash received of $7.5 million and $9.6
million.
For first quarter 1997, scheduled principal amortization payments and
prepayments on commercial mortgage loans received aggregated $160.6 million. In
addition, $150.6 million of commercial mortgage loan maturity payments were
scheduled, of which $13.0 million were paid as due. Of the amount not paid,
$98.3 million were granted short term extensions of up to three months, $39.3
million were foreclosed and none were delinquent or in default for non-payment
of principal.
Equity Real Estate. As of March 31, 1997, on the basis of amortized cost, the
equity real estate category included $2.54 billion (70.1%) acquired as
investment real estate and $1.09 billion (29.9%) acquired through or in lieu of
foreclosure (including in-substance foreclosures). At March 31, 1997 and 1996,
respectively, allowances totaling $89.7 million and $49.0 million were held on
properties identified as available for sale with amortized costs of $457.6
million and $336.7 million.
At March 31, 1997, the vacancy rate for The Equitable's office properties was
14.7% in total, with a vacancy rate of 10.0% for properties acquired as
investment real estate and 27.9% for properties acquired through foreclosure.
The national commercial office vacancy rate was 12.1% (as of December 31, 1996)
as measured by CB Commercial.
Holding Company Group Investment Portfolio - Continuing Operations
For first quarter 1997, Holding Company Group investment results were $12.9
million, as compared to $13.9 million in the year-earlier period. The decrease
primarily was due to lower investment income on the Holding Company's smaller
fixed maturities portfolio.
At March 31, 1997, the Holding Company Group investment portfolio's $661.0
million carrying value was made up of $571.3 million of fixed maturities ($397.6
million with an NAIC 1 rating), $82.1 million of cash and short-term investments
and $7.6 million of other equity investments. At December 31, 1996, the
portfolio's carrying value was $705.7 million, which included $657.7 million of
fixed maturities ($444.9 million with an NAIC 1 rating), $40.6 million of cash
and short-term investments and $7.4 million of other equity investments.
30
<PAGE>
<TABLE>
<CAPTION>
Holding Company Group Fixed Maturities
By Credit Quality
(Dollars In Millions)
March 31, 1997 December 31, 1996
Rating Agency --------------------------------------- ----------------------------------------
NAIC Equivalent Amortized % of Estimated Amortized % of Estimated
Rating Designation Cost Total Fair Value Cost Total Fair Value
- ---------- ---------------------- ------------- --------- ------------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1-2 Aaa/Aa/A and Baa...... $ 474.0 82.8% $ 484.3 $ 525.0 80.1% $ 537.8
3-6 Ba and lower.......... 98.2 17.2 101.1 130.4 19.9 136.5
------------- --------- ------------- ------------- ------------------------
Total......................... $ 572.2 100.0% $ 585.4 $ 655.4 100.0% $ 674.3
============= ========= ============= ============= ========================
</TABLE>
At March 31, 1997, the amortized cost of problem fixed maturities was $0.0
million, $5.8 million for potential problem fixed maturities and $10.7 million
for restructured fixed maturities.
LIQUIDITY AND CAPITAL RESOURCES
Since becoming a public company in 1992, The Equitable's Board of Directors has
declared quarterly cash dividends of $0.05 per share on the outstanding shares
of its Common Stock. The Equitable has three series of preferred stock
outstanding. The annual dividend rate on the Series C Convertible Preferred
Stock is fixed at 6% and dividends amounted to $0.4 million for first quarter
1997. The Series D Convertible Preferred Stock will increase shareholders'
equity only when shares are released from the SECT. No shares of Series D
Convertible Preferred Stock were released from the SECT during first quarter
1997. The Series E Convertible Preferred Stock's dividend rate is fixed at
6.125% and dividends totaled $6.3 million for the three months of 1997. The
Series E Preferred Stock dividends are payable quarterly in Common Stock.
In April 1996, The Equitable registered with the SEC approximately 11.9 million
shares of The Equitable's Common Stock issuable upon conversion of shares of the
Series D Convertible Preferred Stock held by the SECT. The aggregate market
value of these registered securities was $340.6 million on May 1, 1997, based on
the closing market price on the NYSE.
Equitable Life has a commercial paper program with an issue limit of up to
$500.0 million. This program is available for general corporate purposes and is
supported by Equitable Life's existing $350.0 million bank credit facility,
which expires in June 2000. Equitable Life uses this program from time to time
in its liquidity management. At March 31, 1997, no amounts were outstanding
under either the commercial paper program or the revolving credit facility.
Consolidated Cash Flows
The net cash used by operating activities was $3.29 billion for first quarter
1997 compared to net cash provided by operating activities of $345.3 million for
first quarter 1996. Cash used by operating activities in 1997 principally was
attributable to the $2.85 billion net change in trading activities and
broker-dealer related receivables/payables at DLJ reflecting an increase in
operating assets and the $553.1 million reduction in accounts payable and
accrued expenses. The 1996 cash provided by operations principally was due to
the $1.13 billion net change in trading activities and broker-dealer related
receivables/payables at DLJ due to an increase in operating liabilities
partially offset by the $264.2 million change in clearing association fees and
regulatory deposits and the $130.6 million change in Federal income taxes
payable.
31
<PAGE>
Net cash used by investing activities was $200.6 million for first quarter 1997
as compared to $184.2 million for the same period in 1996. Cash used by
investing activities during the first three months of 1997 primarily was
attributable to the increase in other invested assets partially offset by
investment sales, maturities, repayments and returns of capital exceeding
purchases by approximately $201.3 million. In 1996, investment purchases
exceeded sales, maturities, repayment and returns of capital by $432.9 million.
Loans to the discontinued GIC segment were reduced by $135.0 million during
first quarter of 1996.
Net cash provided by financing activities was $3.82 billion for first quarter
1997 as compared to net cash used by financing activities of $326.4 million in
first quarter 1996. Net cash provided by financing activities during first
quarter 1997 primarily resulted from a $3.86 billion increase in short-term
financings, principally due to net repurchase agreement activity. Withdrawals
from policyholders' account balances exceeded deposits by $114.0 million during
first quarter 1997. During first quarter 1996, cash used for the repayment of
long-term debt of $136.0 million and the net decrease of $249.5 million in
short-term financing, principally at DLJ, were partially offset by the net cash
proceeds of $247.8 million from DLJ's February 1996 Medium Term Notes offering.
The operating, investing and financing activities described above resulted in an
increase in cash and cash equivalents during the first three months of 1997 of
$336.4 million to $1.09 billion.
32
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no new material legal proceedings and no material developments
in matters which were previously reported in the Registrant's Form 10-K for the
year ended December 31, 1996, except as set forth in Note 12 to the Registrant's
Unaudited Consolidated Financial Statements in Part I of this Form 10-Q for the
quarter ended March 31, 1997.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 2 Purchase Agreement, dated April 10, 1997,
between Equitable Life and Lend Lease
Corporation Limited, filed herewith.
Exhibit 10.27 Agreement, dated April 24, 1996,
between Equitable Life and Mr. Stanley B.
Tulin, filed herewith.
Exhibit 10.28 Agreement, dated March 26, 1997,
between Equitable Life and Mr. James M.
Benson, filed herewith.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
None
33
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, The
Equitable Companies Incorporated has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: May 14, 1997 THE EQUITABLE COMPANIES INCORPORATED
By: /s/Stanley B. Tulin
-----------------------------------
Name: Stanley B. Tulin
Title: Executive Vice President and
Chief Financial Officer
Date: May 14, 1997 /s/Alvin H. Fenichel
------------------------------------
Alvin H. Fenichel
Senior Vice President and Controller
34
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
SALE OF
EQUITABLE REAL ESTATE INVESTMENT MANAGEMENT, INC.
AND
EQUITABLE AGRI-BUSINESS, INC.
TO
LEND LEASE CORPORATION LIMITED
-----------------------------
PURCHASE AGREEMENT
-----------------------------
Dated as of April 10, 1997
<PAGE>
TABLE OF CONTENTS
1. Sale and Purchase
1.1 Sale and Purchase of the Shares
1.2 Closing
1.3 Purchase Price Adjustment
1.3.1 General Account Purchase Price Adjustment
1.3.2 Separate Account Purchase Price Adjustment.
1.3.3 Queue Purchase Price Adjustment.
1.3.4 Time and Method of Payment.
2. Representations and Warranties of the Seller
2.1 Corporate Status and Authority
2.2 No Conflicts, Consents and Approvals, etc.
2.3 Corporate Status of the Companies and Investment Entities.
2.4 The Shares
2.5 Subsidiaries and Investment Entities
2.6 Financial Statements
2.7 Absence of Undisclosed Liabilities
2.8 Assets, Properties, etc.
2.9 Contracts
2.10 Employees' Employment Benefits
2.10.1 Employees
2.10.2 Employee Laws
2.10.3 Employee Benefit Plans
2.10.4 Tax-exempt and Compliance Status
2.10.5 ERISA
2.11 Intellectual Property
2.12 Governmental Authorizations; Compliance with Law
2.13 Litigation
2.14 Taxes
2.15 Absence of Changes
2.16 Insurance
2.17 Brokers
2.18 Bank Accounts
3. Representations and Warranties of the Purchaser and the Purchasing
Subsidiary
3.1 Corporate Status and Authority
3.2 No Conflicts
3.3 Financial Ability to Perform
3.4 Litigation
3.5 Purchase for Investment
3.6 Brokers
4. Certain Covenants
4.1 Obligations of the Parties
4.2 Obligations of the Seller.
4.2.1 Conduct of Business, etc.
4.2.2 Access and Information
4.2.3 Consents
4.3 Transfer Taxes
4.4 Taxes
4.4.1 Tax Sharing Agreements
4.4.2 Filing of Tax Returns
4.4.3 Payment of Tax Liabilities
4.4.4 Audits
4.4.5 Certain Timing Items
4.4.6 Section 338(h)(10) Election.
4.4.7 Cooperation
4.5 Publicity
4.6 Supplements to Disclosures
4.7 Use of Names, etc.
4.8 Non-Competition Covenant of the Seller.
4.9 Non-Solicitation
4.10 [This Section intentionally left blank]
4.11 CALPERS Agreement.
4.12 New York City Retention Agreement.
4.13 Release of Certain Claims
4.14 Dividends
4.15 Other Actions
4.16 Insurance
4.17 [This section intentionally left blank]
4.18 Affiliate Transactions
4.19 Seventh Avenue Lease.
4.20 Delegation Guidelines
4.21 Bulk Sale
4.22 Long Term Employee Incentive Plan
4.23 Berlin Property
<PAGE>
5. Employee Benefit Matters.
5.1 Performance of Obligations
5.2 Employee Benefit Plans
5.3 Stock Plans
5.4 No Third Party Beneficiaries
6. Conditions Precedent
6.1 General
6.2 Conditions to Obligations of Both Parties
6.2.1 HSR Act
6.2.2 New York Insurance Department
6.2.3 No Injunction, etc.
6.2.4 Governmental Consents
6.2.5 Third Party Consents
6.2.6 Department of Labor
6.3 Conditions to Obligations of the Seller
6.3.1 Representations and Warranties of the Purchaser
6.3.2 Officer's Certificate
6.3.3 Opinions of Counsel
6.4 Conditions to Obligations of the Purchaser
6.4.1 Representations and Warranties of the Seller
6.4.2 Officer's Certificate
6.4.3 Opinion of Counsel
6.4.4 Tax Certificate
6.4.5 Resignations
7. Indemnification
7.1 Survival of Representations and Warranties
7.2 Indemnification
7.2.1 By the Seller
7.2.2 By the Purchaser
7.2.3 Indemnification Procedures
8. Definitions
9. General Provisions
9.1 Modification; Waiver
9.2 Entire Agreement
9.3 Exclusivity of Representations and Warranties and
Indemnification Provision; Relationship Between the
Parties
9.4 Termination
9.5 Expenses
9.6 Further Actions
9.7 Post-Closing Access
9.8 Notices
9.9 Assignment
9.10 No Third Party Beneficiaries
9.11 Counterparts
9.12 Interpretation
9.13 Governing Law
9.14 Dispute Resolution; Arbitration
9.15 Consent to Jurisdiction, etc.
9.16 Waiver of Punitive and Other Damages and Jury Trial
Exhibits
Exhibit A-1 Note
Exhibit A-2 Guarantee
Exhibit B-1 General Account Advisory Agreement -- Company
Exhibit B-2 General Account Advisory Agreement -- Equitable Agri-Business
Exhibit B-3 Separate Account Advisory Agreements
Exhibit B-4 Equitable Separate Accounts
<PAGE>
PURCHASE AGREEMENT, dated as of April 10, 1997, among The Equitable Life
Assurance Society of the United States, a New York stock life insurance company
(the "Seller"), Lend Lease Corporation Limited (ACN 000 226 228), a corporation
incorporated in the state of New South Wales, Australia (the "Purchaser"), and
Neptune Real Estate, Inc., a Delaware corporation and a wholly owned subsidiary
of Lend Lease (the "Purchasing Subsidiary").
WHEREAS, the Seller owns all of the outstanding stock of Equitable Holding
Corporation, a Delaware corporation ("Equitable Holding"), which owns all of the
outstanding stock of Equitable Investment Corporation, a New York corporation
(the "Selling Subsidiary"), which owns all of the outstanding stock (the
"Company Shares") of Equitable Real Estate Investment Management, Inc., a
Delaware corporation (the "Company"), and all of the outstanding stock (the
"Equitable Agri-Business Shares," and together with the Company Shares, the
"Shares") of Equitable Agri-Business, Inc., a Delaware corporation ("Equitable
Agri-Business"); and
WHEREAS, the Company and Equitable Agri-Business, together with their
Subsidiaries (the Company, Equitable Agri-Business and their Subsidiaries,
collectively, shall be referred to as the "Companies"), are engaged in the
business of rendering real estate investment and management advisory services,
both debt and equity, and property management, leasing and development services;
and
WHEREAS, the Seller wishes to sell the Shares to the Purchaser and the
Purchaser is willing to purchase the Shares.
NOW, THEREFORE, the parties hereto agree as follows:
1. Sale and Purchase.
1.1. Sale and Purchase of the Shares . Subject to the terms and conditions
of this Agreement, at the Closing (as defined in Section 1.2), the Seller will
cause the Selling Subsidiary to sell, and the Purchaser will cause the
Purchasing Subsidiary to purchase, the Shares.
1.2. Closing . The closing of the purchase of the Shares (the "Closing")
will take place at the offices of Debevoise & Plimpton, 875 Third Avenue, New
York, New York 10022 at 10:00 A.M., New York time, on June 10, 1997, or as
promptly as practicable thereafter following the satisfaction of the last
remaining Closing Condition, or at such other date and time as the parties shall
have agreed to in writing (the "Closing Date"). At the Closing:
(a) the Selling Subsidiary will deliver, or cause to be delivered, to the
Purchasing Subsidiary stock certificates representing the Shares, endorsed or
accompanied by stock powers in favor of the Purchasing Subsidiary, and
accompanied by all requisite stock transfer stamps; and
(b) the Purchasing Subsidiary will deliver, or cause to be delivered, to
the Seller or its designee (i) an aggregate of (x) $300 million (the "Cash
Amount") and (y) an additional amount, if any, calculated at the rate of 7.40%
per annum based on the amount of $400 million for the period from June 1, 1997
to the Closing Date, by wire transfer of immediately available funds to an
account previously designated in writing by the Seller, provided that no such
additional payment shall be required unless the Purchaser breaches its
obligations under Section 4.1 and, if such breach occurs, the Seller is not in
breach of its obligations under Section 4.1 and (ii) a note of the Purchasing
Subsidiary in the amount of $100 million and in the form of attached Exhibit A-1
(the "Note," and together with the "Cash Amount," the "Purchase Price");
(c) the Purchaser will deliver to the Seller or its designee its Guarantee,
in the form of attached Exhibit A-2;
(d)(i) the General Account Advisory Agreements for the Company and
Equitable Agri-Business, respectively, in the forms of attached Exhibits B-1 and
B-2, will be executed by the Seller and the Company; (ii) one or more Separate
Account Advisory Agreements, in the form of attached Exhibit B-3 (with
appropriate modifications for the account involved), relating to the respective
Equitable Separate Accounts listed on Exhibit B-4 will be executed by the Seller
and the Company; (iii) the Agreement to Seek Consents will be executed by the
Seller and the Purchaser; (iv) the ML/EQ Agreement will be executed by the
Company and the Selling Subsidiary; (v) the Property Disposition Agreement will
be executed by the Seller and the Company; (vi) the letter agreement regarding
advisor services with respect to future debt investments will be executed by the
Seller and the Company; and (vii) the Seventh Avenue Lease will be executed by
the Seller and the Company. "Guarantee" and all other undefined capitalized
terms are defined in Article 8 of this Agreement.
<PAGE>
(e) The parties shall also deliver, or cause to be delivered, all other
agreements, certificates, opinions and documents required by the terms of this
Agreement to be delivered by or on behalf of the Seller or the Purchaser.
1.3. Purchase Price Adjustment.
1.3.1. General Account Purchase Price Adjustment. If the Company's
engagement as advisor with respect to the Equitable General Account pursuant to
the General Account Advisory Agreements is terminated by the Seller pursuant to
Section 7.3 of either the General Account Advisory Agreements, effective on or
prior to the twelfth anniversary of the Closing Date, the following rules shall
determine the amount of the payment that the Seller or the Seller's designee is
required to make to the Purchasing Subsidiary as an adjustment to the Purchase
Price (the "General Account Purchase Price Adjustment"):
(a) If the General Account Advisory Agreements are terminated by the Seller
pursuant to Section 7.3 of either of the General Account Advisory Agreements and
the legal duties disclosed in the certificate required by Section 7.3 have
arisen as a direct result of actions taken by any Governmental Authority that
have specific application to the Seller or any of its Affiliates, but not to
insurance companies generally, then the General Account Purchase Price
Adjustment will be equal to the sum of (i) $100 million, reduced by the sum of
(a) an amount which is the sum of 30% of the gross revenues paid by the Seller
to the Company or Equitable Agri-Business, as the case may be, pursuant to the
General Account Advisory Agreements from the Closing Date to the effective date
of termination of the General Account Advisory Agreements, discounted back to
January 1, 1997 at a discount rate of 10%, and (b) the amount by which interest
payments under the Note have been reduced through the effective date of
termination of the General Account Advisory Agreements as a result of shortfalls
in expected General Account revenues, and (ii) $25 million, plus or minus, for
each then elapsed year from the Closing Date to the effective date of the
termination, the product of (x) $25 million and (y) the percentage increase or
decrease (expressed as a fraction) in such year, if any, in the Consumer Price
Index for All Urban Consumers U.S. City Average, All Items (1982-84=100)
("CPI"). If the referenced index (1982-1984=100) of the CPI is revised, the base
index will be converted to a new base reference index in accordance with the
conversion table published by the Bureau of Labor Statistics.
(b) If the General Account Advisory Agreements are terminated by the Seller
pursuant to Section 7.3 of either the General Account Advisory Agreements and
the legal duties disclosed in the certificate required by Section 7.3 have
arisen as a direct result of actions taken by any Governmental Authority that do
not have specific application to the Seller, Purchaser or their Affiliates then
the General Account Purchase Price Adjustment will be equal to the sum of (i)
$100 million, reduced by the sum of (a) an amount which is the sum of 30% of the
gross revenues paid by the Seller to the Company or Equitable Agri-Business, as
the case may be, pursuant to the General Account Advisory Agreements from the
Closing Date to the effective date of termination of the General Account
Advisory Agreements, discounted back to January 1, 1997 at a discount rate of
10%, and (b) the amount by which interest payments under the Note have been
reduced through the effective date of termination of the General Account
Advisory Agreements as a result of shortfalls in expected General Account
revenues, and (ii) $10 million, plus or minus, for each then elapsed year from
the Closing Date to the effective date of the termination, the product of (x)
$10 million and (y) the percentage increase or decrease (expressed as a
fraction) in such year, if any, in the CPI.
<PAGE>
(c) If the General Account Advisory Agreements are terminated by the Seller
pursuant to Section 7.3 thereof of either of the General Account Advisory
Agreements and the legal duties disclosed in the certificate have arisen for any
reason other than those listed in paragraphs (a) and (b), above, there shall be
no General Account Purchase Price Adjustment.
(d) If only one of the General Account Advisory Agreements is terminated,
the formulas set forth above for determining the amount of the General Account
Purchase Price Adjustment payment due shall be applied on a pro-rated basis,
substituting for the $100 million, $25 million and $10 million and interest
payment reduction amounts set forth above the product of such amounts and a
fraction, the numerator of which is the sum of the gross revenues paid by the
Seller to the Company or Equitable Agri-Business, as the case may be pursuant to
the applicable General Account Advisory Agreement from the Closing Date to the
effective date of termination of such General Account Advisory Agreement and the
denominator of which is the sum of the gross revenues paid by the Seller to the
Company and Equitable Agri-Business pursuant to both General Account Advisory
Agreements from the Closing Date to the effective date of such termination.
1.3.2. Separate Account Purchase Price Adjustment. If the Company's
engagement as advisor with respect to any Separate Account pursuant to the
applicable Separate Account Advisory Agreement is terminated by the Seller
pursuant to Section 7.3 thereof effective on or prior to the fifteenth
anniversary of the Closing Date, the Company is obligated under such Separate
Account Advisory Agreement to return to the Seller full ability to manage and
administer such Separate Account. In recognition of this obligation, and of the
fact that the cause of such termination likely will be beyond the control of
either party, the parties agree that it is fair and equitable for the Seller to
reimburse the Purchaser for the value of the contract which has been terminated
if alternative arrangements are not entered into as provided for in such Section
7.3 (or as otherwise may be acceptable to the Seller and the Company). Such
value shall be based on a valuation of the fees reasonably anticipated to be
earned by the Company under the applicable Separate Account Advisory Agreement
from the effective date of termination through the fifteenth anniversary of the
Closing Date, reduced by all expenses reasonably anticipated to be incurred by
the Company in rendering the services required under the applicable Separate
Account Advisory Agreement for the same period, and shall be determined by
agreement of two investment banking firms, one selected by each of the Seller
and the Purchaser (or, if they cannot agree, by a third investment banking firm
selected by the two investment banking firms). The Seller or the Seller's
designee shall pay such reimbursement to the Purchasing Subsidiary as an
adjustment to the Purchase Price (the "Separate Account Purchase Price
Adjustment"). In no event will the Seller be responsible for reimbursing more
than $130 million pursuant to this Section 1.3.2; provided that with respect to
terminations that are effective prior to the fifth anniversary of the Closing
Date, the maximum reimbursement shall be $100 million in the aggregate.
1.3.3. Queue Purchase Price Adjustment. Following the fourth anniversary of
the Closing Date, Seller or Seller's designee may also be required to make a
payment of up to $5 million to the Purchasing Subsidiary as an adjustment to the
Purchase Price in respect of certain withdrawals of assets by clients of the
Prime Property Fund, as follows (the "Queue Purchase Price Adjustment"):
(a) On the Closing Date Seller shall cause the Company to deliver to
Purchaser a true and correct certificate setting forth (i) the names of holders
of Investment Contracts representing an interest in the Prime Property Fund
whose requests to withdraw assets from the Prime Property Fund remain
unsatisfied as of the Closing Date (the "Queue Clients") and (ii) in the case of
each such client, the total amount of assets subject to such unsatisfied
withdrawal requests represented by the assets subject to such client's
withdrawal request (the "Client Queue Assets"). The total of the Client Queue
Assets shall be deemed to be the Total Queue Assets.
(b) The Queue Purchase Price Adjustment shall be equal to the product of
(i) $5 million and (ii) the percentage, expressed as a decimal rounded to two
decimal places, of the Total Client Queue Assets represented by withdrawal
requests that were satisfied between the Closing Date and the fourth anniversary
of the Closing Date over the Total Queue Assets. In the case of withdrawal
requests satisfied after a Client has increased its Queue Assets, the Client's
Queue Assets deemed to have been withdrawn shall be pro-rated. For purposes of
the foregoing calculation a withdrawal request shall not be deemed to have been
"satisfied" if the relevant assets have been distributed to a Queue Client but
reinvested by such Queue Client in any investment vehicle or account sponsored
or managed by the Company or any of its Affiliates.
<PAGE>
1.3.4. Time and Method of Payment. The amount of any purchase price
adjustment determined to be payable in accordance with this Section 1.3 shall be
paid as follows: (i) any General Account Purchase Price Adjustment shall be paid
in cash within 10 Business Days after the effective date of the termination of
the General Account Advisory Agreements, (ii) any Separate Account Purchase
Price Adjustment shall be paid in cash within 10 Business Days after the
determination of such amount and (iii) any Queue Purchase Price Adjustment shall
be paid in cash within 10 Business Days after the determination of such amount.
The amount due, to the extent payable in cash, shall be paid in immediately
available funds to an account specified in writing by the Purchaser.
Notwithstanding the foregoing, as set forth in the Note, the Purchaser shall
have the right to elect to accept, and the Seller shall have the right to elect
to pay, any such purchase price adjustment in whole or in part in the form of a
reduction in the unpaid principal amount of the Note or the interest accrued,
but unpaid, on the Note as of the effective date of the purchase price
adjustment.
2. Representations and Warranties of the Seller. The Seller represents and
warrants to the Purchaser as follows:
2.1. Corporate Status and Authority. (a) The Seller (i) is a stock life
insurance corporation duly incorporated, validly existing and in good standing
under the laws of the State of New York and (ii) has the corporate power and
authority to execute and deliver this Agreement and perform its obligations
hereunder. The execution, delivery and performance by the Seller of this
Agreement and the consummation by the Seller, Equitable Holding and the Selling
Subsidiary, as the case may be, of the transactions contemplated by this
Agreement have been duly authorized by the Boards of Directors of each of the
Seller, Equitable Holding and the Selling Subsidiary and the sole stockholder of
the Selling Subsidiary, which constitutes all necessary corporate action on the
part of the Seller, Equitable Holding and the Selling Subsidiary for such
authorization. This Agreement has been duly executed and delivered by the Seller
and (assuming its due execution and delivery by the Purchaser) constitutes the
valid and binding obligation of the Seller, enforceable against the Seller in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, reorganization, insolvency, fraudulent conveyance,
moratorium, receivership or similar laws affecting creditors of insurance
companies and creditors' rights generally and by general principles of equity
(whether considered at law or in equity).
(b) Equitable Holding is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware.
(c) The Selling Subsidiary is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of New York and has
the corporate power and authority to own the Shares.
2.2. No Conflicts, Consents and Approvals, etc. (a) Except as set forth on
Schedule 2.2, neither the execution, delivery and performance of this Agreement
by the Seller nor the sale and purchase of the Shares pursuant to this Agreement
will result in (i) any conflict with the charter documents or by-laws of the
Seller, Equitable Holding, the Selling Subsidiary or any of the Companies, (ii)
any breach or violation of or default or requirement of consent of any third
party under any statute, regulation, judgment, order or decree or any mortgage,
agreement (other than Account Contracts and Property Management Contracts, as
such terms are defined in Section 2.9 below), deed of trust, indenture or any
other instrument to which the Seller, Equitable Holding, the Selling Subsidiary
or any of the Companies is a party or by which any of them or their respective
properties or assets are bound (including without limitation any joint venture,
shareholders, limited liability company operating, partnership or similar
agreement to which any of the Companies is a party relating to any entity that
is not a wholly-owned subsidiary of one of the Companies), except where such
breaches or defaults or failures to obtain consents would not have, individually
or in the aggregate, a Material Adverse Effect, (iii) the creation or imposition
of any liens, security interests, adverse claims, charges or encumbrances
("Liens") upon or in respect of any properties or assets of any of the
Companies, except for such Liens which would not have, individually or in the
aggregate, a Material Adverse Effect or (iv) the creation or imposition of any
Liens upon or in respect of the Shares.
<PAGE>
(b) No consent, approval or authorization of or filing with any
Governmental Authority is required on the part of the Seller, the Selling
Subsidiary or any of the Companies in connection with the execution and delivery
of this Agreement or the sale and purchase of the Shares pursuant to this
Agreement, except filings, consents or approvals (i) required with respect to
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), (ii)
required with respect to the New York Insurance Department approval of the
amendments to the Equitable Separate Account Plans of Operations to permit the
Company, as an unaffiliated advisor, to continue to render advisory services
with respect to such Equitable Separate Accounts after the Closing, and any
other approval or consent required by the New York Insurance Department, (iii)
set forth on Schedule 2.2 or (iv) which, if not made or obtained, would not
have, individually or in the aggregate, a Material Adverse Effect.
2.3. Corporate Status of the Companies and Investment Entities. (a) The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. The Company has all requisite
corporate power and authority to conduct its business and to own or lease its
properties, as now conducted, owned or leased. The Company is duly qualified to
do business in those jurisdictions listed in Schedule 2.3(a), which constitute
all jurisdictions where the failure to be so qualified would have a Material
Adverse Effect. The Company does not have any equity interest or investment in,
and does not serve as a manager (other than pursuant to any Account Contract or
Property Management Contract) or general partner of, any corporation,
partnership, joint venture, association or other business organization other
than as set forth on Schedule 2.3(a).
(b) Equitable Agri-Business is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware. Equitable
Agri-Business has all requisite corporate power and authority to conduct its
business and to own or lease its properties, as now conducted, owned or leased.
Equitable Agri-Business is duly qualified to do business in those jurisdictions
listed in Schedule 2.3(b), which constitute all jurisdictions where the failure
to be so qualified would have a Material Adverse Effect. Equitable Agri-Business
does not have any equity interest or investment in, and does not serve as a
manager (other than pursuant to any Account Contract or Property Management
Contract) or general partner of, any corporation, partnership, joint venture,
association or other business organization other than as set forth on Schedule
2.3(b).
(c) Each Subsidiary of the Company or Equitable Agri-Business, as the case
may be, is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization. Each such Subsidiary has all
requisite corporate power and authority to conduct its business and to own or
lease its properties, as now conducted, owned or leased. Each such Subsidiary is
duly qualified to do business in those jurisdictions set forth opposite such
Subsidiary's name on Schedule 2.3(c), which constitute all jurisdictions where
the failure to be so qualified would have a Material Adverse Effect. None of the
Subsidiaries of the Company or Equitable Agri-Business, as the case may be, has
any equity interest or investment in or serves as a general partner or managing
member of any corporation, partnership, joint venture, limited liability
company, association or other business organization other than as set forth on
Schedule 2.3(c).
(d) A list of all Investment Entities is set forth in Schedule 2.3(d). Each
Investment Entity is a partnership or limited liability company duly organized,
validly existing and, to the extent the concept of "good standing" is recognized
with respect to a form of organization, in good standing under the laws of its
jurisdiction of organization. Each Investment Entity has all requisite
partnership or company power and authority to conduct its business and to own or
lease its properties, as now conducted, owned or leased. Each Investment Entity
is duly qualified to do business in those jurisdictions listed in Schedule
2.3(d), which constitute all jurisdictions where the failure to be so qualified
would have a Material Adverse Effect.
<PAGE>
2.4. The Shares. (a) The authorized stock of the Company consists of 1,000
shares of common stock, par value $1.00 per share, 123 of which shares are
issued and outstanding and owned by the Selling Subsidiary, free and clear of
all Liens. The Company Shares have been duly authorized and validly issued and
are fully paid and non-assessable. There are no outstanding options, warrants,
conversion or other rights or agreements of any kind (other than this Agreement)
for the purchase or acquisition from, or the sale or issuance by, the Seller or
the Company of any shares of stock of the Company, and no authorization therefor
has been given.
(b) The authorized stock of Equitable Agri-Business consists of 1,000
shares of common stock, par value $1.00 per share, 260 of which shares are
issued and outstanding and owned by the Selling Subsidiary, free and clear of
all Liens. The Equitable Agri-Business Shares have been duly authorized and
validly issued and are fully paid and non-assessable. There are no outstanding
options, warrants, conversion or other rights or agreements of any kind (other
than this Agreement) for the purchase or acquisition from, or the sale or
issuance by, the Seller or Equitable Agri-Business of any shares of stock of
Equitable Agri-Business, and no authorization therefor has been given.
2.5. Subsidiaries and Investment Entities. (a) Neither the Company nor
Equitable Agri-Business has any direct or indirect subsidiaries other than the
respective Subsidiaries listed on Schedule 2.3(c).
(b) Except for the Subsidiaries listed on Schedule 2.5(b), all of the
issued and outstanding shares of or other equity interests in, as the case may
be, each Subsidiary of the Company or Equitable Agri-Business, as the case may
be, are owned either by the Company, Equitable Agri-Business or a wholly-owned
subsidiary of the Company or Equitable Agri-Business, free and clear of all
Liens, and have been duly authorized and validly issued and are fully paid and
non-assessable. As to each Subsidiary listed on Schedule 2.5(b): (i) the
percentage of shares set forth opposite such Subsidiary's name on Schedule
2.5(b) is owned either by the Company, Equitable Agri-Business or a wholly-owned
subsidiary of the Company or Equitable Agri-Business, free and clear of all
Liens and have been duly authorized and validly issued and are fully paid and
non-assessable, and (ii) there is set forth on Schedule 2.5(b), to the Knowledge
of the Seller, the name of, and ownership percentage held by, each other holder
of shares or other equity interests in such Subsidiary. There are no (i)
outstanding shareholders agreements or other agreements of a similar nature to
which any of the Companies is a party restricting in any way the right of the
Company, Equitable Agri-Business or any of their Subsidiaries to transfer, or
giving any party a right of first refusal to acquire, any shares or equity
interests in any of the Subsidiaries listed in Schedule 2.5(b), or (ii)
outstanding options, warrants, conversion or other rights or agreements of any
kind for the purchase or acquisition from, or the sale or issuance by, the
Company, Equitable Agri-Business or any of their Subsidiaries of any shares of
stock of or other equity interests in any of their Subsidiaries, and no
authorization therefor has been given, except in each case as set forth in
Schedule 2.5(b).
(c) As to each Investment Entity, Schedule 2.5(c) lists: (i) the form of
legal organization of such Investment Entity; (ii) the legal relationship of the
Company, Equitable Agri-Business or any of their Subsidiaries to such Investment
Entity (e.g., general partner, operating member); (iii) the percentage of shares
or other equity interests, as the case may be, held by the Company, Equitable
Agri-Business or any of their Subsidiaries in such Investment Entity; and (iv)
to the Seller's knowledge, except for any Investment Entity whose shares or
other equity interests are publicly-traded, the name of, and ownership
percentage held by, each other holder of shares or other equity interests in
such Investment Entity. All shares or other equity interests held by the
Company, Equitable Agri-Business or any of their Subsidiaries in any Investment
Entity are free and clear of all Liens, and have been duly authorized and
validly issued and are fully paid and non-assessable. There are no (i)
outstanding shareholders agreements or other agreements of a similar nature to
which any of the Companies is a party restricting in any way the right of the
Company, Equitable Agri-Business or any of their Subsidiaries to transfer, or
giving any party a right of first refusal to acquire, any shares or equity
interests in any Investment Entity, or (ii) outstanding options, warrants,
conversion or other rights or agreements of any kind for the purchase or
acquisition from, or the sale or issuance by, the Company, Equitable
Agri-Business or any of their Subsidiaries of any shares or equity interests in
any Investment Equity, and no authorization therefor has been given, except in
each case as set forth in Schedule 2.5(c).
<PAGE>
2.6. Financial Statements. (a) Schedule 2.6(a)includes:(i) the audited
consolidated balance sheets of the Company and its subsidiaries as of December
31, 1996 and December 31, 1995, respectively, and the related consolidated
statements of income, consolidated statements of shareholder's equity and
consolidated statements of cash flows for the years then ended, and the related
notes thereto, together with the report of Price Waterhouse LLP thereon (the
"ERE Financial Statements") and (ii) the audited balance sheet of Equitable
Agri-Business as of December 31, 1996, and the related statement of income,
statement of changes in shareholder's equity and statement of cash flows for the
year then ended, and the related notes thereto, together with the report of
Price Waterhouse LLP thereon and the drafts of the unaudited balance sheets of
Equitable Agri-Business as of December 31, 1996, 1995, and 1994, respectively,
and the related statements of income, statements of changes in shareholder's
equity and statements of cash flows for the years then ended and the related
notes thereto (the "Equitable Agri-Business Statements" and together with the
ERE Financial Statements, the "Financial Statements"). The ERE Financial
Statements present fairly in all material respects the financial condition of
the Company and its subsidiaries as of their respective dates and the results of
operations and the cash flows of the Company and its subsidiaries for the
periods indicated, and have been prepared and presented in accordance with GAAP,
except as set forth in Schedule 2.6(a) or as noted therein. The Equitable
Agri-Business Statements present fairly in all material respects the financial
condition of Equitable Agri-Business as of their respective dates and the
results of operations and the cash flows of Equitable Agri-Business for the
periods indicated, and have been prepared and presented in accordance with GAAP,
except as set forth in Schedule 2.6(a). When used in this Section 2.6, the
phrase "in all material respects" shall mean material in light of the financial
condition or other applicable characteristic of the Companies taken as a whole.
(b) Except for Oxhead Operating Co., L.L.C. and Headwind Operating Co.,
L.L.C., for which no financial statements are attached to Schedule 2.6(b), with
regard to each Investment Entity organized in partnership form, and each
Investment Entity organized in limited liability company form as to which any of
the Companies is responsible (by law or pursuant to contract) for the
preparation of the financial statements, Schedule 2.6(b) includes: (i) the
balance sheets (which may be combined or consolidated to include more than one
Investment Entity), trial balances, or balance sheets scheduled to federal tax
returns, as the case may be, of such Investment Entity as of December 31, 1996
and, with respect to certain Investment Entities, December 31, 1995,
respectively, (ii) the related statements of operations (which may be combined
or consolidated to include more than one Investment Entity), trial balances,
statements of income (which may be combined to include more than one Investment
Entity) or statements of income and expenses scheduled to federal tax returns,
as the case may be, for the year ended December 31, 1996 and, with respect to
certain Investment Entities, December 31, 1995, respectively, (iii) the related
statements or schedules of partners' capital or equity (which may be combined or
consolidated to include more than one Investment Entity) or analyses of
partners' capital accounts scheduled to a federal tax return, as the case may
be, for the year ended December 31, 1996 and, with respect to certain Investment
Entities, December 31, 1995, respectively, and (iv) with respect to certain
Investment Entities, the related statements of cash flows (which may be combined
or consolidated to include more than one Investment Entity) for the years ended
December 31, 1996 and December 31, 1995, respectively, which financial
statements are audited or unaudited in accordance with the customary practice of
such Investment Entity, together with the notes thereto (in the case of audited
statements). For purposes of this Section 2.6(b) and Section 2.7(b), "Investment
Entity Audited Statements" and "Investment Entity Unaudited Statements" shall
mean audited or unaudited financial statements, respectively, of an Investment
Entity included in Schedule 2.6(b). Each of the Investment Entity Audited
Statements presents fairly in all material respects the financial condition of
the relevant Investment Entity as of its respective dates and the results of
operations and the cash flows of the relevant Investment Entity for the periods
indicated, and has been prepared and presented in accordance with GAAP, except
as set forth in Schedule 2.6(b) or as noted therein. Each of the Investment
Entity Unaudited Statements presents fairly in all material respects the
financial condition of the relevant Investment Entity as of its respective dates
and the results of operations and, with respect to certain Investment Entities,
the cash flows of the relevant Investment Entity for the period indicated, and
has been prepared and presented in accordance with GAAP, except for the absence
of related notes and except as set forth in Schedule 2.6(b) or as noted therein.
When used in this Section 2.6(b), the phrase "in all material respects" shall
mean material in light of the financial condition or other applicable
characteristic of the Companies taken as a whole.
<PAGE>
2.7 Absence of Undisclosed Liabilities. (a). None of the Companies has any
liabilities, whether absolute, accrued, contingent, known, unknown or otherwise,
except for (i) liabilities reflected or reserved against in the Financial
Statements, (ii) liabilities incurred since December 31, 1996 in the ordinary
course of business consistent with past practice and not prohibited by this
Agreement, (iii) liabilities which, individually or in the aggregate, would not
have a Material Adverse Effect, or (iv) as set forth in Schedule 2.7.
(b) None of the Investment Entities has any liabilities, whether absolute,
accrued, contingent, known, unknown or otherwise, except for (i) liabilities
reflected or reserved against in any of the Investment Entity Audited Statements
or Investment Entity Unaudited Statements, as the case may be, of such
Investment Entity, (ii) liabilities incurred since December 31, 1996 in the
ordinary course of business consistent with past practice and not prohibited by
this Agreement, (iii) liabilities which, individually or in the aggregate, would
not have a Material Adverse Effect, or (iv) as set forth in Schedule 2.7(b).
2.8. Assets, Properties, etc. Except for properties owned by a partnership
or limited liability company as to which one of the Companies is a general
partner or managing member, none of the Companies owns any real property.
Schedule 2.8 lists all material items of real property leased by the Companies
(the "Real Property"). Each of the Companies has (a) valid and subsisting
leasehold estates in the Real Property leased by it and (b) legal and beneficial
ownership of all of its tangible personal property included in the Financial
Statements dated as of December 31, 1996, in each case subject to no Lien,
except (i) Liens for which adequate reserves and accruals are reflected in the
Financial Statements, (ii) Liens for Taxes and assessments (A) not due and
payable, or (B) which are being contested in good faith by appropriate
proceedings, (iii) Liens which do not materially interfere with the current use
of the properties affected thereby, and (iv) as set forth in Schedule 2.8.
2.9 Contracts. (a) Schedule 2.9(a) lists all Contracts. For purposes of
this Agreement, "Contracts" means all agreements, contracts and commitments of
the following types to which any of the Companies is a party or by which any of
the Companies or any of their respective properties is bound as of the date
hereof (other than real property leases, which are provided for in Section 2.8):
(i) joint venture, limited liability company and limited partnership agreements
(including any related agreements such as shareholders agreements, operating
agreements and the like), (ii) mortgages, indentures, loan or credit agreements,
security agreements and other agreements and instruments relating to the
borrowing of money or extension of credit in any case in excess of $250,000 of
principal in any one calendar year (regardless of whether or not there is
currently any amount outstanding thereunder), (iii) agreements for the
performance of investment advisory or investment management services
(collectively, the "Account Contracts"), (iv) agreements for the performance of
property management, facility management, leasing or development services
(collectively, the "Property Management Contracts"), (v) employment, consulting,
severance, agency and other compensation agreements and arrangements, including
without limitation any agreements or arrangements relating to special or other
compensation or continued employment in connection with the sale of the Company
or Equitable Agri-Business, (vi) agreements between any of the Companies and the
Seller or any Affiliate (other than another of the Companies) of the Seller,
excluding any such agreements listed under "Account Contracts" or "Property
Management Contracts," and (vii) other agreements, contracts and commitments
which are not cancelable by any of the Companies without penalty on notice of 60
days or less and which require payment by any of the Companies after the date
hereof of more than $250,000 in any one calendar year. The Companies are not in
default under or otherwise in violation of any Contract and all Contracts are in
full force and effect, except to the extent that any such defaults, violations
or failures to be so in full force and effect would not have, individually or in
the aggregate, a Material Adverse Effect or except as disclosed in Schedule
2.9(a).
<PAGE>
(b) Neither the Seller nor any of the Companies has received any written
notice for withdrawal of assets or for termination by any investment client
under an Account Contract or under any group annuity contract or other
arrangement representing an interest in an Equitable Separate Account
("Investment Contracts"), except for withdrawals of assets and terminations by
investment clients under any Account Contract or Investment Contract from which
fees of less than $100,000 were derived in the twelve months immediately
preceding the effective date of the withdrawal or termination or as disclosed in
Schedule 2.9(b).
(c) Neither the Seller nor any of the Companies has received any written
notice for withdrawal of assets or for termination by any investment client
under a Property Management Contract, except for notices in the ordinary course
of business of sales of individual properties and termination of related
property management services, withdrawals of assets and terminations by
investment clients under any Property Management Contract from which fees of
less than $100,000 were derived in the twelve months immediately preceding the
effective date of the withdrawal or termination or as disclosed in Schedule
2.9(c).
(d) Except as noted in Schedule 2.9(d), Each of the Account Contracts and
Property Management Contracts has been duly authorized, executed and delivered
by one of the Companies and, to the extent applicable, has been adopted in
compliance with Section 15 of the Investment Company Act and is a valid and
binding agreement of such party, enforceable in accordance with its terms
(subject to ERISA, as hereinafter defined, or to bankruptcy, insolvency,
moratorium, fraudulent transfer and similar laws affecting creditors' rights
generally and to general equity principles) and, in the case of Account
Contracts, the Company or Equitable Agri-Business (as applicable) and, to the
Knowledge of the Seller, the Third Party Client thereto is in compliance in all
material respects with the terms of each Account Contract to which it is a
party, and no event has occurred or condition exists that constitutes or with
notice or the passage of time would constitute a default by the Company,
Equitable Agri-Business or, to the Knowledge of the Seller, the Third Party
Client thereunder. Except as set forth on Schedule 2.9(d), to the Knowledge of
the Seller, none of the Account Contracts, or any other arrangements or
understandings, whether written or oral, relating to rendering of investment
advisory or investment management services to any Third Party Client contains
any undertaking by the Company or Equitable Agri-Business to cap a material
amount of fees or to reimburse any material amount of fees thereunder, except as
required by the applicable law of any jurisdiction in which the shares of any
Fund party thereto are qualified for distribution which exceptions would not
have a Material Adverse Effect.
<PAGE>
2.10 Employees' Employment Benefits.
2.10.1 Employees. A list setting forth the names of all current employees
of any of the Companies as of the date hereof (the "Employees"), and, with
respect to each Employee, such Employee's job title, whether or not such
Employee is covered by a collective bargaining agreement, and such Employee's
current salary or wage rate (as applicable), the amount of any bonuses or other
compensation paid since January 1, 1996 to such Employee, and the date of
employment of such Employee has previously been delivered to Purchaser. A list
setting forth any outstanding loans in excess of $50,000 (other than policy
loans or plan loans) from any of the Companies or the Seller to any officer,
director, Employee, agent or consultant of any of the Companies has previously
been delivered to the Purchaser. All severance policies, retention agreements
and other severance arrangements maintained by the Companies or Seller for the
benefit of Employees are referenced in Schedule 2.10.1 hereto. Complete and
correct copies of all agreements with or concerning Employees, any former
employees of the Companies (the "Former Employees") and consultants and all
employment policies, including all severance policies of the Companies or the
Seller covering or for the benefit of the Employees, and all amendments and
supplements thereto, have previously been delivered to the Purchaser, and a list
of all such agreements and policies, whether written or oral, is set forth on
Schedule 2.10.1. Except as set forth on Schedule 2.10.1, since January 1, 1997
none of the Companies or the Seller has (i) except in the ordinary course of
business and consistent with past practice, increased the salary or other
compensation payable or to become payable to or for the benefit of any of the
Employees or Former Employees, (ii) provided any of the Employees with any
increased security or tenure of employment, (iii) increased the amounts payable
to any Employees upon the termination of any such person's employment or (iv)
adopted, increased, augmented or improved benefits granted to or for the benefit
of any of the Employees under any Plan (as hereinafter defined). Except as set
forth in Schedule 2.10.1, the Seller will have accrued or reflected in the
Companies' balance sheets as of the Closing Date in accordance with GAAP all
obligations for salaries, vacation, medical and other benefits and other
compensation of any kind with respect to the Employees or Former Employees,
consultants and agents.
2.10.2 Employee Laws. Except as disclosed on Schedule 2.10.2, the Seller
and the Companies have complied at all times with all laws, statutes, rules and
regulations applicable with respect to Employees in each of the jurisdictions in
which it operates and/or does business. Except as disclosed on Schedule 2.10.2,
the Seller and the Companies have complied in all material respects with Title
VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in
Employment Act, as amended, the Americans with Disabilities Act, the Family
Medical and Leave Act, the Fair Labor Standards Act, as amended, and all
applicable laws, statutes, executive orders and regulations governing payment of
minimum wages and overtime rates, labor standards, working conditions, the
withholding and payment of taxes or any other kind of governmental charge from
compensation, terms and conditions of employment, workplace safety, workers'
compensation, social benefits whether or not imposed by a governmental program,
discriminatory practices, including, without limitation, with respect to
employment and discharge, or otherwise relating to the conduct of employers with
respect to employees or potential employees (collectively, the "Employee Laws"),
and there have been no claims made or to the Knowledge of the Seller,
threatened, thereunder against the Seller or any of the Companies arising out
of, relating to or alleging any violation of any of the foregoing. The Seller
and the Companies have complied with the employment eligibility verification
form requirements under the Immigration and Naturalization Act, as amended
("INA"), in recruiting, hiring, reviewing and documenting Employees and
prospective employees for employment eligibility verification purposes and the
Seller and the Companies have complied with the paperwork provisions and
anti-discrimination provisions of the INA. The Seller and the Companies have
obtained and maintained the Employee records and I-9 forms with respect to the
Employees (as hereinafter defined) in proper order as required by law. The
Seller and the Companies are not currently employing any non-citizens
unauthorized to work. Except as set forth on Schedule 2.10.2, there are no
strikes, work stoppages, picketing, job actions, unfair labor practice charges,
material controversies or grievances, investigations, charges, complaints,
disputes or other proceedings pending or threatened between either the Seller or
any of the Companies and any of the Employees or Former Employees; no labor
union or other collective bargaining unit represents or has ever represented any
of the Employees, including any "leased employees" (within the meaning of
Section 414(n) of the Code); no organizational effort by any labor union or
other collective bargaining unit currently is under way or threatened with
respect to any Employees; the consent of no labor union or other collective
bargaining unit is required to consummate the transactions contemplated by this
Agreement; and neither the Seller nor any Companies have incurred any liability
under the Worker Adjustment Retraining Notification Act or similar state and
local laws with respect to Employees or Former Employees.
<PAGE>
2.10.3 Employee Benefit Plans. Schedule 2.10.3 hereto contains a complete
list of each "employee benefit plan", as such term is defined in section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
each bonus, incentive, deferred compensation or severance plan, arrangement,
practice program or policy stock ownership plan, consulting or employment
agreement, executive compensation program or arrangement, supplemental
retirement plan or arrangement, agreement with respect to temporary employees or
"leased employees" (within the meaning of Section 414(n) of the Code), vacation
pay, sickness, disability or death benefit plan (whether provided through
insurance, on a funded or unfunded basis or otherwise), retiree medical or life
insurance plan, employee stock option or stock purchase plan, termination or
salary continuation plan, arrangement or practice, employee relations policy,
practice or arrangement, and each other employee benefit plan, program or
arrangement except for those maintained by the Seller under which employees of
any of the Companies participate or that is maintained by the Seller or the
Companies or to which the Seller or the Companies contributes or is obligated to
contribute, whether written or oral or whether express or implied (all such
plans, programs, policies, arrangements and practices that are not Multiemployer
Plans (as hereinafter defined) are referred to collectively as the "Plans").
Purchaser will not incur any liability under any severance agreement, deferred
compensation agreement, employment agreement, similar agreement or any other
Plan solely as a result of the consummation of the transactions contemplated by
this Agreement except where the Purchaser by its actions has caused such
liability. Except as indicated on Schedule 2.10.3, the Seller and the Companies
do not have any obligation to provide post-retirement medical or other benefits
to Employees or Former Employees or their survivors, dependents and
beneficiaries, except as may be required by Section 4980B of the Code, Part 6 of
Title I of ERISA or similar state medical benefits continuation law ,and to the
Knowledge of the Seller, the Seller may cause the Companies to terminate any
such post-retirement medical or other benefits pertaining to former employees
who have retired from the Companies subsequent to January 1, 1994 upon thirty
(30) days notice or less without any penalty or liability therefor. With respect
to each Plan, the Seller has provided or made available to the Purchaser
complete and accurate copies of all written Plan documents; all trust agreements
and insurance or annuity contracts maintained in connection with any Plan; the
most recent Form 5500 and all schedules thereto filed with the United States
Internal Revenue Service (the "IRS") and any financial statements and opinions
required by Section 103(a)(3) of ERISA; the most recent IRS determination
letter; summary plan descriptions as well as all other descriptions distributed
to the Employees as set forth in any manuals or other documents; the most recent
actuarial report, if any, relating to the Plan; the most recent actuarial
valuation, study or estimate of any retiree medical and life benefits plan or
supplemental retirement benefit plan; and the most recent statement of plan
assets for each Plan that is intended to meet the requirements of Section 401(a)
of the Code; and all amendments and modifications to any such document.
2.10.4 Tax-exempt and Compliance Status. Except as set forth on Schedule
2.10.4, neither the Seller nor any of the Companies has terminated within the
past ten years any Plan which was intended to meet the requirements of Section
401(a) of the Code relating to the Employees or Former Employees. Except as set
forth on Schedule 2.10.4, each Plan which is an "employee pension benefit plan"
(as defined in Section 3(2) of ERISA) meets the requirements of Section 401(a)
of the Code, and the trust, if any, forming part of such plan is exempt from
U.S. federal income tax under Section 501(a) of the Code. Each Plan intended to
be qualified under section 401(a) of the Code is so qualified and has received a
favorable determination letter from the IRS as to the qualification of each such
Plan and related trust under the Code, and nothing has occurred since the date
of such determination letter that would adversely affect such qualification.
2.10.5. ERISA. Except as set forth on Schedule 2.10.5 hereto, neither the
Company nor any corporation or other trade or business under common control with
the Company (as determined pursuant to Section 414(b) or (c) of the Code) (a
"Related Person") has ever maintained or contributed to or in any way directly
or indirectly has any liability (whether contingent or otherwise) with respect
to, any multiemployer plan, within the meaning of Section 3(37) or 4001(a)(3) of
ERISA (a "Multiemployer Plan"), or any other benefit plan subject to Title IV of
ERISA or Section 412 of the Code, and no Plan of the Company or of any Related
Person is currently or has in the past been subject to Title IV of ERISA.
Neither the Company nor any Related Person has been a "substantial employer" as
defined in Section 4001(a)(2) of ERISA or is a party to or has any liability,
potential or otherwise, under any agreement imposing secondary liability on it
as a seller of the assets of a business in accordance with Section 4204 of ERISA
or under any other provision of Title IV or ERISA or other agreement, and no
assets of any of the Companies are subject to a lien under Sections 4064 or 4068
of ERISA. None of the Companies nor any other Related Person has incurred any
material liability under Title IV of ERISA, and none of the Companies has
incurred any material civil penalties under Section 502(i) or (l) of ERISA.
<PAGE>
Except as disclosed on Schedule 2.10.5, each of the Plans has been operated and
administered to date in all material respects in accordance with ERISA, the Code
and applicable law and with the terms and provisions of all documents, contracts
or agreements pursuant to which such Plan is mentioned. Except as disclosed on
Schedule 2.10.5, there is no material pending or, to the Knowledge of the
Seller, threatened dispute, arbitration, suit, grievance or claim by or on
behalf of or with respect to any of the Plans or by any Employee (other than
routine claims for benefits). There have been no "prohibited transactions"
within the meaning of Section 4975 of the Code or Part 4 of Subtitle B of Title
I of ERISA; all reports and information required to be filed with the U.S.
Department of Labor, the IRS, the Pension Benefit Guaranty Corporation or plan
participants or beneficiaries with respect to any Plan have been timely filed;
none of the Plans nor any fiduciary thereof has been the direct or indirect
subject of an order or investigation or examination by governmental or
quasi-governmental agency (other than routine audits and examinations) and there
are no matters pending before the IRS, the Department of Labor, or any other
domestic or foreign governmental agency with respect to a Plan: there have been
no claims, or notice of claims, filed or, to the Knowledge of the Seller,
threatened, under any fiduciary liability insurance policy covering any Plan;
and there has been and will be no nondeductible "parachute payment" to any of
the Employees prior to the Closing or after the Closing relating to the
transactions contemplated by this Agreement. No event or set of conditions exist
which would subject any of the Companies to any tax under Section 4999 of the
Code or to any material tax under Sections 4972, 4974-76, 4979, 4980, 4980B or
5000 of the Code. None of the Companies nor to the Knowledge of the Seller, any
Related Person has withdrawn in a complete or partial withdrawal from any
Multiemployer Plan or incurred any material contingent liability under section
4204 of ERISA. To the Knowledge of the Seller, no Multiemployer Plan to which
any of the Companies contributes or is obligated to contribute is in
"reorganization" or "insolvent" within the meaning of Section 4241 or 4245 of
ERISA, respectively. No Plan is a "multiple employer plan" within the meaning of
section 4063 or 4064 of ERISA. Each Plan that is subject to the minimum funding
standards of ERISA or the Code satisfies such standards under section 412 and
302 of the Code and ERISA, respectively, and no such Plan has incurred an
"accumulated funding deficiency" within the meaning of such sections, whether or
not waived.
2.11 Intellectual Property. Schedule 2.11 lists all trademarks,
copyrights, trade names, service marks, patents and similar intangible rights
(including without limitation, rights in computer software), and all
applications therefor, used in and necessary to the conduct of or otherwise
material to the business of any of the Companies (the "Intellectual Property").
The Companies own the Intellectual Property free and clear of all Liens, except
as set forth in Schedule 2.11. None of the Companies has received any written
notice of a claim that it is infringing on or otherwise acting adversely to the
rights of any person in respect of the trademarks, copyrights, trade names,
service marks, patents or similar intangible rights of others and, to the
Knowledge of the Seller, no such claim is threatened. To the Knowledge of the
Seller, there has been no infringement by any person of the Intellectual
Property, except as set forth in Schedule 2.11. None of the Companies is
obligated to pay any royalty or licensee fee to any third party in order to use
any of the Intellectual Property, and none of the Companies has licensed or
agreed to license for use by any other person any of the Intellectual Property,
except in each case as set forth in Schedule 2.11.
2.12 Governmental Authorizations; Compliance with Law. (a) Each of the
Company and Equitable Real Estate Hyperion Capital Advisors L.L.C. ("EREHCA"
and, together with the Company, the "Advisers") is and has been since July 2,
1985, in the case of the Company, and since July 5, 1995, in the case of EREHCA,
duly registered as an investment adviser under the Investment Advisers Act of
1940, as amended (the "Advisers Act"). Each of the Advisers is duly registered
or licensed under applicable law as an investment adviser in each state or other
jurisdiction in which the nature of its business so requires and where the
failure to be so duly registered or licensed would have, individually or in the
aggregate, a Material Adverse Effect. None of the Companies other than the
Advisers is an "investment adviser" within the meaning of the Advisers Act or
has engaged in any business or conduct which would require or would have
required it to be registered, licensed or qualified as an investment adviser
under the Advisers Act or any applicable state or local securities law or
regulation or is otherwise subject to any liability or disability by reason of
any failure to be so registered, licensed or qualified, except for such
liabilities or disabilities that would not have, individually or in the
aggregate, a Material Adverse Effect.
<PAGE>
(b) The information contained in the Advisers' respective Forms ADV, as
amended to date and filed with the Securities and Exchange Commission (the
"SEC"), state investment adviser registration forms, as amended to date and
current reports required to be kept by the Advisers pursuant to the Advisers Act
and rules promulgated thereunder, or required pursuant to applicable state
investment adviser statutes, were true and complete at the time of filing in all
material respects. Copies of all inspection reports or similar documents
furnished to either of the Advisers by the SEC or state regulatory authorities
or any self-regulatory organization since January 1, 1992 are listed in Schedule
2.12(b) and have been provided to the Purchaser. Each of the Advisers has filed
all required amendments to registration statements on Form ADV where the failure
to make such filing would have, individually or in the aggregate, a Material
Adverse Effect (collectively, the "Advisers' Regulatory Filings"). The Advisers'
Regulatory Filings contain the information required to be included therein in
all material respects.
(c) Except as set forth in Schedule 2.12(c), since January 1, 1992, none of
the Companies has been enjoined, indicted, convicted or made the subject of a
disciplinary proceeding, consent decree, or administrative order on account of
any violation of the Securities Act of 1933, as amended (the "Securities Act"),
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Investment Company Act of 1940, as amended (the "Investment Company Act"), or
the Advisers Act or state securities laws.
(d) None of the Companies nor any of the Investment Entities is, nor
immediately following sale and purchase of the Shares pursuant to this Agreement
will any of them be, an "investment company," within the meaning of the
Investment Company Act, which is required to be registered under such Act.
(e) There is not pending or (to the Knowledge of the Seller) threatened any
investigation, whether formal or informal, of any of the Companies or, to the
Knowledge of the Seller, any of the Investment Entities or any of their records
by the SEC or any state regulatory authority or any self-regulatory
organization, and since January 1, 1992 none of the Companies or, to the
Knowledge of the Seller, Investment Entities has been notified by the SEC or any
state regulatory authority or any self-regulatory organization that any past
inspection has revealed any material deficiency in any such entity's
recordkeeping or compliance with any federal or state regulatory requirements.
(f) The outstanding securities of each Investment Entity have been offered
and sold in compliance in all material respects with the registration
requirements of the Securities Act, or pursuant to an applicable exemption from
such requirements. The following additional entities shall be deemed to be
"Investment Entities" solely for the purpose of the representation contained in
the preceding sentence and solely with respect to offers and sales of securities
prior to the Closing Date: Buckhead Industrial Properties, Inc., Tallahassee
Mall Partners Ltd. and E-Walk Investors, L.L.C. Each Investment Entity has been
and is being operated in compliance in all material respects with its respective
objectives, policies and restrictions, including without limitation any
restrictions set forth in the applicable offering or private placement
memorandum relating to such Investment Entity.
(g) None of the Companies acts as investment adviser or sub-adviser to any
investment company, as defined in the Investment Company Act, which is
registered under such Act.
(h) Except as set forth on Schedule 2.12(h), the accounts of each client of
any of the Companies that is subject to ERISA have been managed by the Companies
such that the Companies, in the exercise of such management, are in compliance
in all material respects with the applicable requirements of ERISA, including
the requirements of any Department of Labor exemption relied upon in connection
with the operation of such accounts, and the sale and purchase of the Shares
pursuant to this Agreement will not result in a violation of such ERISA
requirements or loss of any such exemption.
(i) Except as set forth on Schedule 2.12(i), during the preceding 12 months
none of the Companies nor any of the Investment Entities has received any
written investor complaints from clients under any Account Contract, Property
Management Contract or Investment Contract alleging a material violation of any
such contract that, to the Knowledge of the Seller, have not been resolved.
(j) Equitable Real Estate Capital Markets, Inc. ("Equitable Capital
Markets") is duly registered as a broker-dealer under the Exchange Act and is in
compliance in all material respects with the applicable provisions of the
Exchange Act and the rules and regulations promulgated thereunder, including
<PAGE>
without limitation the net capital requirements thereof, and with all applicable
provisions of any agreement with the NASD restricting the scope of its business.
None of the Companies other than Equitable Capital Markets is required to be, or
has engaged in any business or conduct which would require or have required it
to be, registered, licensed or qualified as a broker-dealer under the Exchange
Act, or is otherwise subject to any liability or disability by reason of any
failure to be so registered, licensed or qualified, except for liabilities or
disabilities which would not have, individually or in the aggregate, a Material
Adverse Effect. Equitable Capital Markets is a member of the NASD and in
compliance in all material respects with all applicable rules and regulations of
the NASD.
(k) Equitable Capital Markets' Form BD, as amended to date and filed with
the SEC, and all reports filed by Equitable Capital Markets since January 1,
1992 with the SEC, NASD or any state securities agency are in compliance in all
material respects with the applicable requirements of the Exchange Act and the
rules and regulations thereunder, and the applicable requirements of the NASD
and rules thereunder.
(l) Except as otherwise set forth in Schedule 2.12, the Companies hold all
licenses, permits and other governmental authorizations necessary to conduct the
business of the Companies taken as a whole, except for those the absence of
which would not have, individually or in the aggregate, a Material Adverse
Effect, and none of the Companies has received any notice of any violation of
any statute, rule, regulation, judgment, order, decree, permit, concession,
franchise, or other governmental authorization or approval applicable to it or
to any of its properties, except for violations which would not have,
individually or in the aggregate, a Material Adverse Effect.
2.13 Litigation.(a) Except as otherwise set forth in Schedule 2.13(a) or
Schedule 2.14, and except for routine litigation (including, without limitation,
personal injury litigation arising from the Companies' property management
business) which would not in the aggregate have a Material Adverse Effect, there
are no judicial, arbitration or administrative actions, proceedings or
investigations pending or, to the Knowledge of the Seller, threatened, against
any of the Companies, or affecting any of their assets or properties, which
would have a Material Adverse Effect, and none of the Companies is the subject
of any judicial, arbitration or administrative order or decree which will
require any payment of a material amount of money or implementation of a program
of compliance following the Closing Date.
(b) There are no actions, proceedings or investigations pending or, to the
Knowledge of the Seller, threatened against the Seller or any of the Companies
which question the validity of this Agreement or any action taken or to be taken
by the Seller, Equitable Holding, the Selling Subsidiary or any of the Companies
in connection herewith.
(c) Except as otherwise set forth in Schedule 2.13(c) or Schedule 2.14,
there are no judicial, arbitration or administrative actions pending or, to the
Knowledge of the Seller, threatened against any Investment Entity, or against
any of the Subsidiaries in its capacity as general partner or managing member
of, or investment advisor to, any Investment Entity, which (i) involves any
claim by a shareholder or partner in such Investment Entity, (ii) involves any
claim by any federal or state agency, or (iii) would have a Material Adverse
Effect.
2.14. Taxes. (a) Except as set forth on Schedule 2.14:(i) the Companies,
each Investment Entity and, with respect to the conduct of the business and the
ownership of the assets of the Companies, each Affiliated Group, have timely
filed with the appropriate taxing authorities each Tax Return required to be
filed by them as of the date hereof on which Taxes of $10,000 or more are
reportable, and all such Tax Returns are true, correct and complete in all
material respects; (ii) the Companies, each Affiliated Group and each Investment
Entity have paid (or on or before the Closing Date will pay) all Taxes shown to
be due on such filed Tax Returns; (iii) appropriate accruals and reserves,
determined in accordance with GAAP, have been established on the Financial
Statements for liabilities in respect of Taxes of the Companies; (iv) none of
the Companies, no Investment Entity and, with respect to the conduct of the
business of or the ownership of the assets of the Companies, no Affiliated
Group, is delinquent in the payment of any Tax in excess of $10,000 or has
requested any extension of time within which to file any Tax Return on which
Taxes of $10,000 or more are reportable and has not yet filed such Tax Return;
and (v) none of the Companies, no Investment Entity and, with respect to the
conduct of the business of or the ownership of the assets of the Companies, no
Affiliated Group, has received any written notice of deficiency, assessment or
adjustment from any taxing authority with respect to liabilities for Taxes which
have not been fully paid or finally settled; and (vi) a reasonable basis (within
the meaning of section 6662(d) of the Code) existed at the time of filing for
<PAGE>
reporting each item on each Tax Return filed by any Company, any Investment
Entity or, with respect to each item pertaining to the conduct of the business
of or the ownership of the assets of the Companies, any Affiliated Group.
(b) Except as set forth on Schedule 2.14: (i) none of the Companies and no
Investment Entity has granted any extension or waiver of the statute of
limitations period applicable to any Tax, which period (after giving effect to
such extension or waiver) has not expired; (ii) there are no Taxes described in
clause (a)(iv) above asserted in writing by any taxing authority to be due; and
(iii) no claim has been made in writing by a taxing authority in a jurisdiction
where any of the Companies or any Investment Entity does not file Tax Returns
that such entity is subject to taxation by that jurisdiction, which claim has
not been resolved.
(c) Except as set forth on Schedule 2.14: (i) no election has been made to
have the provisions of section 341(f) of the Code apply to the Companies; (ii)
none of the Companies has agreed or is required to make any material adjustment
under section 481 of the Code (or any comparable provision of state, local or
foreign law) by reason of a change in method of accounting; (iii) none of the
Companies and no Investment Entity has entered into an installment sale with
respect to which any amount will be includable in its income during Tax periods
ending after the Closing Date; and (iv) none of the Companies is liable as
transferee or successor for any Taxes that are not attributable to the conduct
of the business or the ownership of the assets of the Companies.
(d) The Purchaser will not be required to deduct and withhold any amount
pursuant to section 1445 of the Code with respect to Taxes upon the sale of the
Shares to the Purchaser.
(e) None of the Companies and no Investment Entity has been a member of an
Affiliated Group at any time when the common parent of such Affiliated Group was
not an Affiliate of the Seller and, except as set forth on Schedule 2.14, none
of the Companies is a party to or bound by or has any obligation under any Tax
Sharing Agreement.
(f) Each of the Companies and each Investment Entity has withheld and paid
all Taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder or
other third party.
2.15. Absence of Changes. Since December 31, 1996, except as otherwise set
forth in this Agreement or Schedule 2.15 or as otherwise set forth in the
Schedules hereto, the business of the Companies taken as a whole has been
conducted in the ordinary course in substantially the same manner in which it
has been previously conducted, there has been no Material Adverse Effect, and
none of the Companies has:
(a) declared or paid any dividends;
(b) purchased or redeemed any shares of its stock, or granted or issued any
option, warrant or other right to purchase or acquire any such shares;
(c) incurred any material liabilities or obligations, except current
liabilities and obligations incurred in the ordinary course of business;
(d) mortgaged, pledged or subjected to any Lien any of its properties or
assets, except for Liens incurred in the ordinary course of business;
(e) increased the compensation of any officer or employee, other than (i)
in the ordinary course of business and consistent with past practice or (ii) to
comply with applicable law;
(f) amended any employee benefit plan, severance plan or similar
arrangement;
(g) amended or modified any Account Contract, Property Management Contract,
Plan of Operation or Investment Contract, except for (i) amendments or
modifications required by any applicable federal, state or local law, (ii)
renewals, (iii) non-material amendments to Account Contracts or Investment
Contracts, or (iv) amendments to Property Management Contracts in the ordinary
course of business;
(h) disposed or agreed to dispose of any material properties or assets,
except in the ordinary course of business for consideration not less than fair
market value;
(i) cancelled or forgiven any material debts or claims;
<PAGE>
(j) suffered the expiration or termination of (or received any written
notice of the intent of a client to permit to expire without renewal or to
terminate) any Account Contract or (except for expirations or terminations
incident to the sale of the property relating to a Property Management Contract)
Property Management Contract from which fees in excess of $100,000 were derived
in the twelve months immediately preceding the effective date of such expiration
or termination; or
(k) entered into any transaction other than in the ordinary course of
business.
2.16 Insurance. Schedule 2.16 sets forth a list, as of the date hereof, of
the material policies of insurance currently maintained by the Seller and the
Companies with respect to the business of the Companies.
2.17 Brokers. All negotiations relating to this Agreement and the
transactions contemplated hereby have been carried out without the intervention
of any person acting on behalf of the Seller, the Selling Subsidiary or any of
the Companies in such manner as to give rise to any valid claim against the
Purchaser, the Seller, the Selling Subsidiary or any of the Companies for any
brokerage or finder's commission, fee or similar compensation, except for J.P.
Morgan & Co. Incorporated and Donaldson, Lufkin and Jenrette, Inc., whose
respective fees in respect hereof shall be paid by the Seller.
2.18 Bank Accounts. Schedule 2.18 sets forth a list of the name and
location of each bank and money market fund in which any of the Companies has an
account (except for any account established solely in connection with a property
managed by one of the Companies pursuant to a Property Management Contract), the
name and number of each account, and the names of all persons authorized to draw
thereon or to have access thereto.
3. Representations and Warranties of the Purchaser and the Purchasing
Subsidiary. Each of the Purchaser and the Purchasing Subsidiary represents and
warrants to the Seller as follows:
3.1. Corporate Status and Authority. The Purchaser is a corporation duly
incorporated and validly existing under the laws of the state of New South
Wales, Australia and has the power and authority to execute and deliver this
Agreement and perform its obligations hereunder and has obtained all necessary
consents to enable it to do so. The Purchasing Subsidiary is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of Delaware and has the power and authority to execute and deliver this
Agreement and perform its obligations hereunder. The execution, delivery and
performance of this Agreement have been duly authorized by the Board of
Directors of each of the Purchaser and the Purchasing Subsidiary, which
constitutes all necessary corporate action on the part of the Purchaser and the
Purchasing Subsidiary for such authorization. This Agreement has been duly
executed and delivered by each of the Purchaser and the Purchasing Subsidiary
and constitutes the valid and binding obligation of the Purchaser and the
Purchasing Subsidiary, enforceable against each of them in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, fraudulent conveyance, moratorium, receivership or
similar laws affecting creditors' rights generally and by general principles of
equity (whether considered at law or in equity).
3.2 No Conflicts. (a) Except as set forth in Schedule 3.2, the execution,
delivery and performance of this Agreement by the Purchaser and the Purchasing
Subsidiary will not result in (i) any conflict with the memorandum or articles
of association of the Purchaser or the Purchasing Subsidiary, (ii) any breach or
violation of or default or requirement of consent of any third party under any
statute, regulation, judgment, order or decree or any mortgage, agreement, deed
of trust, indenture or any other instrument to which the Purchaser or the
Purchasing Subsidiary is a party or by which the Purchaser or the Purchasing
Subsidiary or any of their properties or assets are bound, or (iii) the creation
or imposition of any Lien, except in each case under the foregoing clauses (i),
(ii) and (iii) for such breaches, violations, defaults or failures to obtain
consents and such Liens which would not, individually or in the aggregate,
materially impair the ability of the Purchaser to perform its obligations under,
or to consummate the transactions contemplated by, this Agreement.
<PAGE>
(b) No consent, approval or authorization of or filing with any
Governmental Authority is required on the part of the Purchaser or the
Purchasing Subsidiary in connection with the execution and delivery of this
Agreement or the sale and purchase of the Shares pursuant to this Agreement,
except filings, consents or approvals (i) required with respect to the HSR Act
and (ii) which, if not made or obtained, would not, individually or in the
aggregate, materially impair the ability of the Purchaser or the Purchasing
Subsidiary to perform its obligations under, or to consummate the transactions
contemplated by, this Agreement.
3.3. Financial Ability to Perform. The Purchasing Subsidiary has or, at
the Closing Date, will have currently available cash funds sufficient to
consummate the transactions contemplated by this Agreement and will not require
any financing to consummate the transactions contemplated by this Agreement
other than the Note.
3.4. Litigation. There are no judicial or administrative actions,
proceedings or investigations pending or, to the knowledge of the Purchaser or
the Purchasing Subsidiary, threatened, which question the validity of this
Agreement or any action taken or to be taken by the Purchaser or the Purchasing
Subsidiary in connection herewith, or which, individually or in the aggregate,
would materially impair the ability of the Purchaser or the Purchasing
Subsidiary to perform its obligations under, or to consummate the transactions
contemplated by, this Agreement.
3.5. Purchase for Investment. The Purchasing Subsidiary is acquiring the
Shares for investment and not with a view toward any resale or distribution
thereof except in compliance with the Securities Act.
3.6. Brokers. All negotiations relating to this Agreement and the
transactions contemplated hereby have been carried out without the intervention
of any person acting on behalf of the Purchaser or the Purchasing Subsidiary in
such manner as to give rise to any valid claim against the Purchaser, the
Purchasing Subsidiary, the Seller, the Selling Subsidiary or any of the
Companies for any brokerage or finder's commission, fee or similar compensation,
except for Merrill, Lynch, Pierce, Fenner & Smith Incorporated, whose fees in
respect hereof shall be paid by the Purchaser.
4. Certain Covenants.
4.1. Obligations of the Parties. The parties shall apply for and
diligently prosecute all applications for, and shall use commercially reasonable
efforts promptly to obtain, such consents, authorizations and approvals from
such Governmental Authorities as shall be necessary to permit the consummation
of the transactions contemplated by this Agreement, and shall use commercially
reasonable efforts to bring about the satisfaction as soon as practicable of all
the conditions contained in Section 6 and to effect the consummation of the
transactions contemplated by this Agreement.
4.2. Obligations of the Seller.
4.2.1. Conduct of Business, etc. From the date hereof until the Closing,
except as set forth on Schedule 4.2.1, contemplated by this Agreement or as
otherwise consented to by the Purchaser in writing, such consent not to be
unreasonably withheld, the Seller shall cause each of the Companies to:
(a) carry on its business in the ordinary course in substantially the same
manner in which it previously has been conducted and use commercially reasonable
efforts to preserve intact its present business organization, keep available the
services of its executive officers and key employees and preserve its
relationships with customers, clients and others having material business
dealings with it, except that in the case of individuals who are currently dual
officers of both the Seller and any of the Companies, the Seller may terminate
the appointment of such individuals as officers of the Seller and terminate
related agreements to indemnify such officers for their conduct as officers of
the Seller or of any of the Companies; provided, however, that no such
termination of an indemnification agreement shall operate retroactively to deny
any individual the benefit of such indemnification or the benefit of directors
and officers insurance coverage, as in effect on the date of this Agreement (i)
for any period prior to the termination of the individual's status as an officer
of the Seller, with regard to conduct in such capacity, or (ii) for any period
prior to the Closing Date, with regard to conduct as an officer of any of the
Companies;
<PAGE>
(b) not amend its charter documents or by-laws;
(c) not merge or consolidate with, or agree to merge or consolidate with,
or purchase substantially all of the assets of, or otherwise acquire any
business of, or enter into any joint venture or partnership with, any
corporation, partnership, association or other business organization or division
thereof;
(d) not take any action or omit to take any action, hich action or omission
would result in a breach or inaccuracy of any of the representations and
warranties set forth in Section 2.15 at, or as of any time prior to, the
Closing;
(e) not sell any of its own assets outside the ordinary course of business;
(f) maintain its books of account and records (including, without
limitation, preparing pro forma tax returns) in its usual, regular and ordinary
manner, consistent with its past practice;
(g) not amend or modify any Account Contract, Property Management Contract,
Plan of Operation or Investment Contract, except for (i) amendments or
modifications required by any applicable federal, state or local law, (ii)
renewals, (iii) non-material amendments to Account Contracts or Investment
Contracts, or (iv) amendments to Property Management Contracts in the ordinary
course of business, or withdraw from the investment advisory services of the
Company or Equitable Agri-Business any assets currently held in the Equitable
General Account as to which the Company or Equitable Agri-Business currently
acts as advisor (other than as a result of dispositions of assets in the normal
course of operations of the Equitable General Account, including, without
limitation, by way of a "Bulk Sale" as that term is defined in the Property
Disposition Agreement);
(h) not grant any increase in compensation to any vice president or more
senior officer or (except in accordance with past practice) to any other
employee;
(i) except as required by applicable federal, state or local law, in
connection with the withdrawal of any of the Companies from a Plan maintained by
the Seller and the adoption of a substantially similar Plan by the Company, or
as set forth on Schedule 4.2.1(i), not adopt, or amend or modify in any material
respect, any employee benefit plan or executive compensation plan, or any
severance plan covering any employees of any of the Companies;
(j) not agree or commit to do any of the foregoing referred to in clauses
(a) - (e) and (g) - (i); and
(k) promptly advise the Purchaser in writing of any fact, condition,
occurrence or change known to the Seller that would reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect or cause a
material breach of this Section 4.2, provided, however, that nothing contained
in this Section 4.2.1 shall be deemed to impose on the Seller any obligation to
create new separate accounts and provided, further, that the parties acknowledge
that prior to the Closing the Seller may cause the Company to transfer by
dividend to the Seller or an Affiliate of the Seller all the stock of EREIM
Managers Corp. and all of the Company's shares in Column Financial, Inc.
4.2.2 Access and Information. The Seller shall cause each of the Companies
to give to the Purchaser and its representatives full access at all reasonable
times to the officers and employers of the Companies, the properties, books and
records of the Companies, and the legal, accounting and actuarial advisors to
the Companies, and shall furnish such information and documents in its
possession relating to the Companies as the Purchaser may reasonably request.
All such information and documents obtained by the Purchaser shall be subject to
the terms of the Confidentiality Agreement, dated November 18, 1996 (the
"Confidentiality Agreement"), between the Purchaser and the Seller.
4.2.3 Consents. (a) As promptly as practicable after execution of this
Agreement, the Seller shall cause those Third Party Clients that are parties to
Third Party Advisory Agreements that do not require express consent to the
transactions contemplated by this Agreement, to be informed of the transactions
contemplated by this Agreement and shall request the written consent of such
Third Party Clients to the continuation of their respective Third Party Advisory
Agreements with the Company or Equitable Agri-Business, as the case may be, such
consents to be in form and substance satisfactory to the Purchaser in its
<PAGE>
reasonable judgment. If such consent is not received from any such Third Party
Client within 30 days, the Seller will promptly send a new notice advising such
Third Party Client of its intention to continue the advisory services, pursuant
to the Company's or Equitable Agri-Business's existing contracts with such Third
Party Clients, subject to such Third Party Client's right to terminate such
contract within 45 days of receipt of such notice, and that each such Third
Party Client's consent will be implied if it continues to accept the services
without rejection during such specified 45-day period.
(b) As promptly as practicable after the execution of this Agreement, with
respect to those Third Party Clients that are parties to either Third Party
Advisory Agreements that require express consent to the transactions
contemplated by this Agreement or Property Management Contracts that require
express consent to or the giving of notice of the transactions contemplated by
this Agreement, the Seller shall seek such consent or give such notice, as the
case may be, in accordance with the terms of the respective contracts.
4.3. Transfer Taxes. All U.S. federal, state and local transfer,
documentary, sales, use, stamp, registration and other similar taxes imposed on
the sale and purchase of the Shares pursuant to this Agreement shall be borne
equally by the Seller and the Purchaser when due and the Purchaser shall file or
cause the Companies to file all necessary returns and other documentation with
respect to such taxes. If required by law, the Seller shall join in the
execution of any such returns or other documentation.
4.4. Taxes.
4.4.1. Tax Sharing Agreements. (a) All Tax Sharing Agreements shall
terminate with respect to the Companies as of the end of the day immediately
preceding the Closing Date. Except as provided (i) in Section 4.3 or in this
Section 4.4 and (ii) in Section 7.2.1 as a result of the breach or inaccuracy of
any representation or warranty under Section 2.14 with respect to Taxes, from
and after the Closing Date none of the Purchaser or the Companies shall have a
claim against the Seller or any Affiliate of the Seller, and neither the Seller
nor any Affiliate of the Seller shall have a claim against the Purchaser or the
Companies, with respect to Taxes or in connection with such Tax Sharing
Agreements.
(b) On or prior to the day immediately preceding the Closing Date the
Seller shall cause the Companies to pay to the Selling Subsidiary an amount
equal to the sum of (i) the Seller's best estimate of the combined stand-alone
federal income tax liability of the Companies for the Tax year ended December
31, 1996 and the Tax period beginning on January 1, 1997 and ending on the
Closing Date, reduced by any amounts previously paid by any of the Companies to
the Selling Subsidiary with respect to such liability (including payments of
estimated federal income taxes under the terms of any Tax Sharing Agreement);
(ii) the Seller's best estimate of the combined stand-alone state, local or
foreign income tax liability of the Companies for the Tax year ended December
31, 1996 and the period beginning on January 1, 1997 and ending on the Closing
Date that is reportable on any consolidated, combined or unitary income tax
return, each of which in respect of the Companies is listed on Schedule 4.4.1
("Consolidated State Tax Returns"), reduced by any amounts previously paid by
any of the Companies to the Seller or any Affiliate of the Seller with respect
to such liabilities; (iii) the Seller's best estimate of the California state
income tax liability of the Seller directly attributable to the making of the
Section 338(h)(10) Elections (as hereinafter defined), reduced by any net
federal income tax benefit directly attributable to such liability (determined
taking into account the Tax consequences of both the payment of such liability
and the Seller's receipt of the amount described in this clause (iii) so that
the Seller is held harmless against any incremental Tax cost with respect to the
payment of such liability and its receipt of the amount paid under this clause
(iii)) (the "California Section 338(h)(10) Amount"); and (iv) an amount equal to
the sum of any additional reserves or accruals maintained by any of the
Companies with respect to federal income taxes (other than any such reserves for
deferred taxes) and such other amounts as are due and payable by any of the
Companies to the Seller or any Affiliate of the Seller, other than any of the
Companies, under the terms of any Tax Sharing Agreement as of the day preceding
the Closing Date. The amounts payable pursuant to clauses (i) and (ii) of the
preceding sentence shall be computed, with the cooperation of the Companies, as
if the Company, its Subsidiaries and Equitable Agri-Business had filed a
consolidated federal income tax return (and any relevant consolidated, combined
or unitary state, local or foreign income tax return), in each case using
methods and conventions and making elections that are consistent with the
methods, conventions and elections previously used by the Companies in preparing
the relevant pro forma federal, state, local or foreign income tax returns and,
with respect to the Tax period beginning on January 1, 1997 and ending on the
Closing Date, (1) in the case of clause (i) only, without giving effect to the
consequences of the Section 338(h)(10) Elections, including, without limitation,
the incremental cost of any federal income taxes payable by any of the Companies
<PAGE>
as a result of the deemed sale of assets resulting from such Section 338(h)(10)
Elections, or any federal income tax deductions or credits resulting from the
accrual or payment of any state, local or foreign Taxes attributable thereto and
(2) in the case of both clauses (i) and (ii), without regard to any deductions
attributable to expenses (including, for example, bonuses or other compensation
paid or accrued for employees of the Companies) that the Seller (or any
Affiliate of the Seller other than the Companies) will bear under the terms of
this Agreement or any other Agreement entered into in connection with the
transactions contemplated by this Agreement.
(c) If the Closing shall have occurred prior to June 30,1997, no later than
July 21, 1997 the Purchaser shall cause the Company to provide to the Seller pro
forma stand-alone federal income tax returns for the Companies for the Tax year
ended December 31, 1996 and pro forma stand-alone state, local and foreign
income tax returns for the Tax year ended December 31, 1996 for each Company
that will be included in a Consolidated State Tax Return, for each jurisdiction
in which such a Tax Return will be filed. Such pro forma returns shall be
prepared in accordance with, and such preparation shall be in all respects
consistent with, the methodology (including without limitation the computational
methodology of treating the Company, its Subsidiaries and Equitable
Agri-Business as filing on a consolidated, combined or unitary basis, as the
case may be) described in Section 4.4.1(b), provided that the use of any method,
election or convention that is not determined by past practice of the Companies
shall be subject to the mutual consent of the Seller and the Purchaser. Within
30 days of its receipt of such pro forma returns, the Seller may dispute any
amounts shown on such pro forma returns by specifying in writing each disputed
item and the amount thereof in dispute. If the Purchaser and the Seller are
unable to agree with respect to any disputed item within 30 days such dispute
shall be resolved in accordance with the Tax Dispute Resolution Procedure.
Within 30 days after the Seller's receipt of such pro forma returns or, in the
event of any dispute with respect to such pro forma returns, after the
resolution of all such disputes, the amount payable by the Companies to the
Selling Subsidiary pursuant to clauses (i) and (ii) of the preceding paragraph
shall be redetermined on the basis of such pro forma returns, as adjusted as a
result of the resolution of any dispute with respect thereto, and either (i) the
Purchaser shall cause the Companies to pay to the Selling Subsidiary the amount
of any excess of the amount payable pursuant to such clauses as a result of such
redetermination over the amount previously paid pursuant to such clauses or (ii)
the Selling Subsidiary shall pay to the Companies the amount of any excess of
the amount previously paid pursuant to such clauses over the amount payable
pursuant to such clauses as a result of such redetermination.
(d) Within 90 days after the Closing Date, the Purchaser shall cause the
Companies to provide to the Seller pro forma stand-alone federal income tax
returns for the Companies for the Tax period beginning January 1, 1997 and
ending on the Closing Date and pro forma stand-alone state, local and foreign
income tax returns for the Tax period beginning on January 1, 1997 and ending on
the Closing Date for each Company that will be included in a Consolidated State
Tax Return, for each jurisdiction in which such a Tax Return will be filed. Such
pro forma returns shall be prepared as described in Sections 4.4.1 (b) and (c),
and any dispute between the Seller and the Purchaser with respect to any amount
shown on such pro forma returns shall be resolved as described in Section 4.4.1
(c). Within 30 days after the Seller's receipt of such pro forma returns or, in
the event of any dispute with respect to such pro forma returns, after the
resolution of all such disputes, the amount payable by the Companies to the
Selling Subsidiary pursuant to clauses (i) and (ii) of Paragraph (b) of this
Section 4.4.1 shall be redetermined on the basis of such pro forma returns, as
adjusted as a result of the resolution of any dispute with respect thereto, and
either (i) the Purchaser shall cause the Companies to pay to the Selling
Subsidiary the amount of any excess of the amount payable pursuant to such
clauses as a result of such redetermination over the amount previously paid
pursuant to such clauses or (ii) the Selling Subsidiary shall pay to the
Companies the amount of any excess of the amount previously paid pursuant to
such clauses over the amount payable pursuant to such clauses as a result of
such redetermination.
4.4.2. Filing of Tax Returns. (a) To the extent permitted by law, the
Seller and the Purchaser shall cause the Companies to be included, for all Tax
periods or portions thereof ending on or prior to the Closing Date, (i) in the
consolidated federal income tax return filed by the Affiliated Group that
includes the Selling Subsidiary and (ii) in the Consolidated State Tax Returns.
The Purchaser shall file, or cause to be filed, all other Tax Returns required
to be filed after the Closing Date with respect to the conduct of the business
of or the ownership of the assets of the Companies.
<PAGE>
(b) Each Tax Return filed by the Purchaser, any Company or any Affiliate of
the Purchaser following the Closing Date (including without limitation any
amended Tax Return) with respect to any of the Companies that relates to any Tax
period ending on or before December 31, 1996 shall be prepared using methods and
conventions and making elections that are consistent with the methods,
conventions and elections previously used by the Companies in preparing the
relevant returns. Each such Tax Return shall be subject to pre-filing review by
the Seller. In the event of any disagreement between the Seller, on the one
hand, and the Purchaser or any of the Companies, on the other hand, with respect
to any amount reported or required to be reported on any such Tax Return, such
disagreement shall be resolved pursuant to the Tax Dispute Resolution Procedure.
Unless otherwise agreed to by the Seller and the Purchaser, each Tax Return
subject to pre-filing review shall be submitted by the Purchaser to the Seller
at least 45 days prior to the due date of such Tax Return (including extensions)
and the Seller shall either complete its review or provide written comments on
such Tax Return within 30 days of receipt of such Tax Return, provided that the
Purchaser shall not be required to submit any Tax Return to the Seller for
review on or prior to the date that is 10 business days after the Closing Date.
If the Tax Dispute Resolution Procedure has not been completed with respect to
any Tax Return required to be submitted to the Seller pursuant to this Section
4.4.2(b) prior to the due date of such Tax Return (including extensions) such
Tax Return shall be filed in the manner determined by the Seller. In the event
that such dispute is resolved in a manner that requires the payment of
additional Taxes, the Purchaser shall file promptly, or cause the Companies to
file promptly, amended Tax Returns reflecting the final determination pursuant
to the Tax Dispute Resolution Procedure and the Seller shall be liable for such
Taxes to the extent provided in Section 4.4.3.
4.4.3. Payment of Tax Liabilities. Notwithstanding any other provision
contained in this Agreement, the Seller shall pay or cause to be paid, and shall
indemnify and hold harmless the Purchaser and the Companies from and against,
(i) all Taxes payable by or with respect to any of the Companies with respect to
any Tax period or portion thereof that ends on or before December 31, 1996,
provided that no indemnity payment for Taxes other than Consolidated Taxes shall
be required to be made pursuant to this clause (i) except to the extent that the
sum of such payment and all other payments made under this clause (i) for Taxes
other than Consolidated Taxes exceeds the amount of the Tax Reserve, and (ii)
with respect to the Tax period beginning on January 1, 1997 and ending on the
Closing Date, any federal income taxes (including any interest or penalties
thereon or additions thereto) attributable, directly or indirectly, to the
Section 338(h)(10) Elections (including, with respect to each of clauses (i) and
(ii) above, and without limitation, Taxes that do not relate to the conduct of
the business or the ownership of the assets of the Companies that are imposed on
the Purchaser or any of the Companies pursuant to Treasury Regulations section
1.1502-6 or any comparable provision of state, local or foreign law).
Notwithstanding the foregoing, the Seller shall not pay, and the Purchaser shall
indemnify and hold harmless the Seller and its Affiliates from and against, any
Taxes resulting from the failure, following the Closing, of the Purchaser to
cause the Companies to carry on their business on the Closing Date only in the
ordinary course and in substantially the same manner as theretofore conducted.
The Purchaser shall pay or cause to be paid, and shall indemnify and hold
harmless the Seller and its Affiliates from and against, all Taxes, other than
Taxes for which the Seller is responsible under the first sentence of this
Section 4.4.3, payable by or with respect to any of the Companies including,
notwithstanding anything to the contrary herein, all state, local or foreign
Taxes attributable to the Section 338(h)(10) Elections. Each payment required
under this Section 4.4.3 shall be made not later than 30 days after the date on
which the payor has received written notice that liability for the relevant Tax
has been fixed by a Final Determination.
4.4.4 Audits. (a) Subject to Section 4.4.4(b) and (c) below, following the
Closing Date, the Seller shall control the conduct of all stages of any audit or
administrative or judicial proceeding with respect to Consolidated Taxes, and
the Purchaser shall control the conduct of all other audits or administrative or
judicial proceedings with respect to the Tax liability of any of the Companies.
(b)(i) The Seller shall give prompt notice to the Purchaser of any Tax
adjustment proposed in writing pursuant to any audit or other proceeding
controlled by the Seller pursuant to Section 4.4.4(a) with respect to the assets
and activities of any of the Companies; (ii) at the Purchaser's reasonable
request, the Seller shall discuss with the Purchaser and the Purchaser's counsel
the position that the Seller intends to take regarding any issue concerning such
assets or activities; and (iii) the Seller shall not, and shall not permit any
of its Affiliates to, enter into any settlement or agreement which purports to
bind (or which any of them knows will have the effect of binding) the Purchaser
or any of the Companies with respect to any Tax period ending after the Closing
Date without the express written consent of the Purchaser, which consent shall
not be unreasonably withheld.
<PAGE>
(c)(i) The Purchaser shall give prompt notice to the Seller of any Tax
adjustment proposed in writing pursuant to any audit or other proceeding which
is controlled by the Purchaser pursuant to Section 4.4.4(a) above, which
adjustment could give rise to a claim for indemnification or payment from the
Seller under this Agreement; (ii) the Purchaser shall provide the Seller with
notice of, and an opportunity to attend, any meeting with any taxing authority
regarding any such claim; and (iii) the Purchaser shall afford the Seller and
its counsel the right, at the Seller's option, to assume control of the conduct
of any administrative or judicial proceeding regarding a proposed adjustment
described in clause (i) above, including, without limitation, by providing the
Seller and its counsel with powers of attorney or other appropriate documents
that will enable the Seller and its counsel to conduct such proceedings. If the
Seller does not elect to control such proceedings, the Purchaser shall (x)
consult with the Seller or its counsel with respect to any material action the
Purchaser or any of its Affiliates may take with respect to any claim described
in clause (i) above; (y) permit the Seller to review and comment on any material
written submission to any taxing authority; and (z) permit the Seller and its
counsel, at the Seller's option, to participate in conferences with taxing
authorities and submit pertinent material in support of the Seller's position.
The party in control of any audit or other proceeding pursuant to this paragraph
(c) shall not, and shall not permit any of its Affiliates to, accept any
proposed adjustment or enter into any settlement or agreement in compromise
without the express written consent of the other, provided that, if the Seller
recommends to the Purchaser or any Company, in connection with any audit or
other proceeding it controls, that a proposed settlement, adjustment or
compromise be accepted and the Purchaser or Company does not give its consent,
the Seller's obligation to indemnify or pay any amount to the Purchaser or the
Companies with respect to the proposed adjustment that is the subject of such
settlement or compromise shall be limited to the amount that would be payable
under the terms of the recommended settlement or compromise.
4.4.5. Certain Timing Items. If, as a result of an adjustment resulting
from an audit or administrative or judicial proceeding with respect to Taxes for
which the Seller is liable under Section 4.4.3, (i) any deduction, credit or
other Tax benefit that was (x) reflected in a pro forma income tax return
prepared with respect to any of the Companies pursuant to this Agreement or
pursuant to any other Tax Sharing Agreement in effect prior to the Closing Date
or (y) reflected in any other state, local or foreign Tax Return filed with
respect to the Companies for Tax periods ending on or before December 31, 1996,
is disallowed and (ii) any of the Companies, the Purchaser or any Affiliate of
the Purchaser or any Affiliated Group is allowed to claim such deduction, credit
or other Tax benefit in an income tax return filed in the Tax jurisdiction with
respect to which such disallowance occurred for any Tax period beginning after
the Closing Date, then the Purchaser shall pay to the Seller the amount of any
reduction in Taxes payable by any of the Companies, the Purchaser, any Affiliate
of the Purchaser or any Affiliated Group that is actually realized as a result
of such deduction, credit or other Tax benefit. Any such payment shall be made
within 30 days after the filing of any Tax Return or amended Tax Return
reflecting a reduction of Taxes actually realized as a result of such deduction,
credit or other Tax benefit. The Purchaser shall take, or cause to be taken, all
action as may reasonably be necessary to secure the benefit of any such
deduction, credit or Tax benefit (including by filing an amended Tax Return or
claim for refund). Any payments under rise to such payment and the Seller shall
promptly repay to the Purchaser (or the Purchaser shall pay to the Seller) any
amounts resulting from any such adjustment. Procedures similar to those provided
in Paragraph (c) of Section 4.4.4 hereof shall apply to any audit or other
proceeding that might result in an adjustment to any amount previously paid
under this Section 4.4.5.
<PAGE>
4.4.6 Section 338(h)(10) Election.
(a) Election. The Seller and the Purchaser shall join, and shall cause
their respective Affiliates to join, in an election pursuant to section
338(h)(10) of the Code with respect to the sale and the purchase of the shares
of each of the Companies, and in all comparable elections under state, local or
foreign Tax law with respect to the purchase and sale of such shares (together
with the election under section 338(h)(10) of the Code, the "Section 338(h)(10)
Elections") in the manner described in this Section 4.4.6.
(b) Forms.
(i) On or before the date that is 90 days after the Closing Date occurs the
Purchaser shall deliver to the Seller a proposed allocation of the modified
aggregate deemed sales price for the deemed sales of assets resulting from the
Section 338(h)(10) Elections, and draft copies of all forms and schedules
required to be filed in connection with the Section 338(h)(10) Elections,
including without limitation IRS Form 8032-A and all attachments required to
filed therewith pursuant to applicable Treasury Regulations and the instructions
to such form, and any state, local or foreign reports or forms that are
necessary or appropriate for purposes of complying with the requirements for
making the Section 338(h)(10) Elections (collectively, "Section 338 Forms"),
together with the Purchaser's computation of the California Section 338(h)(10)
Amount. Such Section 338 Forms and computation shall take into account
adjustments to the Purchase Price pursuant to Section 1.3 and any other
appropriate adjustments to reflect information available at such time. The
parties shall endeavor to agree on the Section 338 Forms and the California
Section 338(h)(10) Amount. If, as of the date that is 150 days after the Closing
Date, there remains a dispute as to the form and content of the Section 338
Forms or the California Section 338(h)(10) Amount, then the dispute shall be
resolved in accordance with the Tax Dispute Resolution Procedure, provided that
the agreement pursuant to which the Tax Dispute Accountants are retained shall
provide that such resolution shall be made no later than the date that is l80
days after the Closing Date. The Purchaser shall prepare the Section 338 Forms,
as determined according to the procedures set forth in this Section 4.4.6 and
the Seller shall promptly execute, or cause the proper party to execute, such
forms. Within 10 days of the receipt by the Seller of such forms, the Seller
shall pay to the Purchaser the excess, if any, of the amount paid to the Selling
Subsidiary under clause (iii) of Section 4.4.1(b) over the California Section
338(h)(10) Amount or the Purchaser shall pay to the Seller the excess, if any,
of the California Section 338(h)(10) Amount over the amount paid to the Selling
Subsidiary under such clause (iii).
(c) Modification; Revocation. Except as provided in this Section 4.4.6, the
Purchaser and the Seller shall not take, and shall not permit any of their
Affiliates to take, any action to modify the Section 338 Forms following the
execution thereof, or to modify or revoke the Section 338(h)(10) Elections
following the filing of the Section 338 Forms, without the written consent of
the other.
(d) Consistent Treatment; Reporting. The Purchaser and the Seller shall
file, and shall cause their respective Affiliates to file, all Tax Returns in a
manner consistent with the information contained in the Section 338 Forms. The
Purchaser and the Seller shall not take, and shall not permit any of their
Affiliates to take, any position contrary to the allocations reflected in such
Section 338 Forms with any taxing authority without the express written consent
of the other party, provided that the Seller and the Purchaser agree that
appropriate adjustments shall be made to reflect any adjustment to the Purchase
Price that occurs pursuant to Section 1.3 after the Section 338 Forms are filed.
<PAGE>
4.4.7 Cooperation. The Purchaser and the Seller shall cooperate, and the
Purchaser shall cause the Companies to cooperate, with respect to the
preparation and filing of any Tax Return or any Section 338 Forms or the conduct
of any Tax audit or other proceeding for which the other is responsible pursuant
to this Section 4.4. Such cooperation by the Purchaser and the Seller shall
include, without limitation, the Purchaser and the Companies, or the Seller, as
the case may be, making employees available for consultation and making
workpapers and other records available during regular business hours in
accordance with Section 9.7, provided that the party requesting such cooperation
shall pay any out-of-pocket cost incurred by the other party in connection with
such cooperation. If reasonably requested by the other, the Purchaser or the
Seller shall (or shall cause their Affiliates to) each provide to the other
historic factual Tax data in its possession regarding the Companies to assist
the other in tax planning and the preparation of Tax Returns, provided that any
studies or reports requested, that are of a type that was not provided by the
Seller and the Companies to one another in the ordinary course of business prior
to the date hereof, shall be described in detail by the requesting party
(including formulas and methodology for all computations) and, at the option of
the party providing the information, such reports or studies may be prepared by
independent accountants or counsel selected by the providing party (at the
expense of the requesting party), and provided, further, that, if requested, the
data shall be certified by an officer of the providing party or by independent
accountants or counsel selected by the providing party (at the expense of the
requesting party). Notwithstanding anything to the contrary herein, (i) in no
event shall the Seller or any Affiliate of Seller, or any Affiliated Group of
which the Seller or any Affiliate of Seller has been a member, be required to
submit any of its Tax Returns or any part thereof to the Purchaser or any other
Person, provided that, in the event the Purchaser is required to make any
payment under Section 4.4.5, at the Purchaser's request the Seller shall deliver
to the Purchaser a certificate prepared by the Seller's accountants certifying
as to the disallowance of any deduction, credit or other Tax benefit giving rise
to the Purchaser's obligation to make such payment, and (ii) in no event shall
the Purchaser or any Affiliate of the Purchaser be required to submit any of its
Tax Returns or any part thereof to the Seller or any other Person, except as
provided in Section 4.4.2 or as reasonably requested by the Seller to establish
a claim by the Purchaser or any Affiliate of the Purchaser for indemnification
with respect to Taxes under this Agreement or in connection with the Seller's
exercise of its rights under Section 4.4.4(c) or otherwise with respect to any
potential claim for indemnification with respect to Taxes.
4.5. Publicity. No press release, public announcement or disclosure to any
third party related to this Agreement or the transactions contemplated herein
shall be issued or made without the joint approval of the Seller and the
Purchaser, unless required by law (in the reasonable opinion of counsel) in
which case the Seller or the Purchaser, as the case may be, shall use its best
efforts to allow the other sufficient time, consistent with such obligations, to
review the nature of such legal obligations and to comment upon such disclosure
prior to publication.
4.6. Supplements to Disclosures . The term "Schedule" when used in this
Agreement refers to the Schedules delivered on the date hereof. From time to
time prior to the Closing Date, the Seller may amend or supplement such
Schedules to this Agreement with respect to any matter that, if existing or
occurring at or prior to the date hereof, would have been required to be set
forth or described in such a Schedule or that is necessary to complete or
correct any information in any representation or warranty contained in Section
2. For purposes of determining the fulfillment of the condition precedent set
forth in Section 6.4.1 or determining whether the aggregate amount of Damages
referred to in Section 7.2.1(b) has been reached, no such amendment or
supplement shall be given effect; for all other purposes, each such amendment
and supplement shall be given effect; provided that the Purchaser's consummation
of the Closing shall constitute, without any further action on the part of the
Purchaser, a waiver by the Purchaser of its right to require satisfaction of the
condition precedent set forth in Section 6.4.1 (but shall not be deemed to
preclude or restrict any claim by the Purchaser for indemnification pursuant to
Section 7.2.1).
4.7 Use of Names, etc. (a) Until the first anniversary of the Closing Date
the Purchaser and the Companies may use the word "Equitable" only as part of the
name "Equitable Real Estate Investment Management, Inc." or "Equitable
Agri-Business, Inc." On or prior to the first anniversary of the Closing Date,
the Purchaser shall cause the Company and Equitable Agri-Business to file
charter amendments effective upon such date of filing or within one day
thereafter changing the names of the Company and of Equitable Agri-Business to
names that do not include the word "Equitable", or the acronym "EREIM", or any
name confusingly or misleadingly similar thereto (other than the acronyms "ERE"
and "EAB"). After the third anniversary of the Closing Date, if such acronyms
are still in use, the Purchaser shall discontinue using the acronyms "ERE" and
"EAB".
<PAGE>
(b) It is expressly agreed that the Purchaser is not purchasing or
acquiring any right (except as specifically contemplated in this Section 4.8),
title or interest in any trademarks, logos, service marks, brand names or trade,
corporate or business names employing the name "Equitable Real Estate Investment
Management, Inc.", "Equitable Agri-Business, Inc." or any part or variation
thereof, including the names "Equitable", "EREIM", "ERE", "EAB" or "Column") or
any trademarks, logos, service marks, brand names or trade, corporate or
business names confusingly or misleadingly similar thereto (collectively, the
"Seller's Marks"). To the extent the Seller's Marks are used by any of the
Companies or their Affiliates on any materials constituting their properties and
assets, including any stationery, signage, invoices, receipts, forms, packaging,
advertising and promotional materials, product, training and service literature
and materials, software or like materials or appear on the Companies' inventory
(including work-in-process and inventory on order) at the Closing Date, as
promptly as commercially reasonable in connection with the change of corporate
names referred to above, but in no event later than the first anniversary of the
Closing Date, the Purchaser shall, and shall cause the Companies and their
Affiliates to, remove, strike over or otherwise obliterate all the Seller's
Marks from all such materials; provided, however, that the Purchaser may use the
"ERE" and "EAB" marks and the current form of EAB logo in any of the
above-listed manners until the third anniversary of the Closing Date.
4.8. Non-Competition Covenant of the Seller. (a) During the period
beginning on the Closing Date and ending on the fifth anniversary of the Closing
Date, neither the Seller nor any of its Subsidiaries shall engage in the
business of rendering real estate investment advisory services or property
management, leasing and development services in the United States to any
unaffiliated party (the "Competitive Services"), provided that nothing shall
prohibit the:
(i) rendering of Competitive Services by any parent of or other Person
controlling the Seller or by Donaldson, Lufkin and Jenrette, Inc., Alliance
Capital Management, L.P., Column Financial, Inc. or any Subsidiary, Affiliate or
successor to the business (other than the Seller) of any of the foregoing
(collectively, the "Excluded Companies");
(ii) acquisition or ownership by the Seller or any of its Affiliates, by
any benefit plan of the Seller or any of its Affiliates, or by any accounts
managed or advised by the Seller or any of its Affiliates, of outstanding
capital stock (or equity or other interests) of any Person engaged in the
rendering of Competitive Services, provided that the business of such Person
rendering the Competitive Services is not principally managed by the Seller (or
any Subsidiary or Affiliate of the Seller not permitted to render Competitive
Services under clause (i) above);
(iii) acquisition by the Seller or any of its Subsidiaries or Affiliates,
through foreclosure or in settlement of a debt investment, of outstanding
capital stock (or equity or other interests) of any Person engaged in the
rendering of Competitive Services, provided that such acquisition is not made
for the purpose of circumventing the restrictions of this Section 4.8; or
(iv) the rendering of Competitive Services by the Seller or any of its
Subsidiaries with respect to the assets of Separate Account 26 (Timberfund) of
the Seller.
(b) During the period beginning on the Closing Date and ending on the fifth
anniversary of the Closing Date, if (i) the Seller or any of its Subsidiaries
other than any of the Excluded Companies acquires a controlling interest in a
business that renders Competitive Services (other than as permitted by clauses
(a)(ii) and (a)(iii) of this Section 4.8), (ii) the real estate assets to which
such Competitive Services relate account for at least 15% of the real estate
assets managed by such business and exceed $1 billion in the aggregate and (iii)
the portion of the acquired business rendering the Competitive Services is
readily separable and capable of being sold on a stand-alone basis, then the
Seller shall offer the Company the opportunity to acquire that portion of the
acquired business. Such offer shall be made as promptly as practicable following
the acquisition of such business by the Seller or any of its Subsidiaries other
than the Excluded Companies and shall be at a cash price equal to the fair
market value of the offered business as agreed by the parties within 60 days of
the extension of the offer by Seller. If the parties are unable in such 60-day
period to agree, such fair market value shall be as determined by an investment
bank selected by mutual agreement of the Seller and the Company within the next
30-day period, or, if the parties are unable in such 30-day period to agree upon
an investment bank, by a third investment bank to be selected by the investment
bank designees of each of the Seller and the Company. The investment bank agreed
upon by the parties or selected by the investment bank designees, as the case
may be, shall determine fair market value within 30 days of selection. The
Company's right to acquire the offered business shall expire irrevocably if it
does not accept the offer within 30 days following such establishing of fair
market value by agreement of the parties or determination of an investment
banker, as the case may be.
<PAGE>
4.9. Non-Solicitation. During the period beginning on the Closing Date and
ending on the fifth anniversary of the Closing Date, without the approval of the
Company, neither the Seller nor any Subsidiary of the Seller shall solicit or
induce any person then employed by any of the Companies in a management capacity
to accept employment with the Seller or a Subsidiary of the Seller. This
provision shall not apply to solicitations through newspaper ads or search firms
engaged in a broad-based search (and not engaged to circumvent the restrictions
of this Section 4.9).
4.10. [This Section intentionally left blank]
4.11. CALPERS Agreement. Prior to the Closing, the Purchaser shall obtain
the release of the Selling Subsidiary from the Commercial Loan Correspondent
Agreement, dated June 17, 1988, among CALPERS, the Company and the Selling
Subsidiary and, if necessary to obtain such release, shall consent to substitute
itself for the Selling Subsidiary as the guarantor of the Company's obligation
thereunder.
4.12. New York City Retention Agreement. After the Closing and until the
expiration of the New York City Retention Agreement, the Purchaser agrees to
furnish all certificates required by and the Seller agrees to bear any costs
under the New York City Retention Agreement.
4.13. Release of Certain Claims. Effective on the Closing Date and subject
to the consummation of the Closing in accordance with the terms of this
Agreement, the Seller, acting on behalf of itself and its Affiliates, hereby
releases any and all claims and causes of action that it now has or may ever
have against any of the Companies arising under the General Account Advisory
Agreements and Separate Account Advisory Agreements listed in Schedule 2.9(a)
(including, without limitation, any claim for indemnification under such
agreements in connection with a claim or cause of action asserted by a third
party against the Seller or its Affiliates), and any predecessor agreements, in
so far as any such claim or cause of action relates to any action or failure to
act on the part of the Companies at any time prior to the Closing Date.
4.14. Dividends. Except as set forth in Section 4.15 hereof, from the date
hereof until the Closing, neither the Company nor Equitable Agri-Business shall
declare or pay any dividends.
4.15. Other Actions. The covenants set forth in Sections 4.14, 4.15 and
4.16 are for the purpose of ensuring that as of the Closing Date the Company and
its subsidiaries and Equitable Agri-Business will have a consolidated net worth
equal to the consolidated net worth of the Company and its subsidiaries and of
Equitable Agri-Business as set forth in their respective audited balance sheets
as of December 31, 1996 that have been delivered to the Purchaser pursuant to
Section 4.6 hereof (such balance sheets indicating net worth amounts of
$29,803,667 and $5,857,992, respectively), as adjusted to reflect the actions
set forth in Sections 4.14, 4.15 and 4.16, plus the net income of the Company
and its subsidiaries and Equitable Agri-Business from January 1, 1997 to the
Closing Date. At the Closing the Seller will deliver to the Purchaser a
certificate, together with reasonable supporting detail, to the effect that all
adjustments set forth in Sections 4.14, 4.15 and 4.16 to be taken on or prior to
the Closing Date have been made, and promptly following the completion of the
adjustments set forth in Sections 4.14, 4.15 and 4.16 to be made as of the
Closing Date, the Purchaser shall deliver a certificate to the Seller, together
with reasonable supporting detail, to the effect that it has taken all
appropriate actions after the Closing Date to implement such adjustments. In
furtherance of the foregoing, the Seller and the Purchaser agree that the
following actions and adjustments shall occur:
(a) On or prior to the Closing Date, Equitable Agri-Business shall dividend
to the Selling Subsidiary an amount in cash or in kind (e.g., receviables) equal
to $5,116,003, representing the retained earnings of Equitable Agri-Business as
of December 31, 1996,
(b) on or prior to the Closing Date, the Selling Subsidiary shall assume
the Company's outstanding liability to EQ Services, Inc. at December 31, 1996 of
$8,216, 112,
(c) on or prior to the Closing Date, the Company shall use commercially
reasonable efforts to settle all intercompany account balances with Column
Financial, Inc.,
(d) on or prior to the Closing Date, the Company shall dividend all of the
shares of Column Financial, Inc. to the Selling Subsidiary,
(e) promptly following determination by the Seller and the Purchaser of the
following amount after the Closing, the Selling Subsidiary shall make a payment
to the Company in cash in an amount equal to the variable compensation due to
employees of the Company accrued less related federal income and state income
tax deductions or benefits recorded on the financial statements of the Company
as of the Closing Date based solely on the net income of Column Financial, Inc.,
for the period from January 1, 1997 to the Closing Date,
<PAGE>
(f) on or prior to the Closing Date, the Company shall record on its
financial statements the acquisition of a 50% interest in AMB Rosen Real Estate,
L.L.C. set forth on Schedule 2.15 hereto,
(g) on or prior to the Closing Date, the Selling Subsidiary shall make a
capital contribution to the Company in cash in the amount of $357,688,
(h) as of the Closing Date, the Company and Equitable Agri-Business shall
transfer to the Selling Subsidiary their prepaid pension assets relating to
certain of the Company and Equitable Agri-Business employees' participation in
Seller's pension plan as of the Closing Date,
(i) as of the Closing Date, the Company and Equitable Agri-Business shall
reverse on their financial statements the deferred federal and state tax
liability related to the prepaid pension assets transferred to the Selling
Subsidiary pursuant to the preceding clause (h),
(j) as of the Closing Date, the Company and Equitable Agri-Business shall
transfer to the Selling Subsidiary their post-retirement health and life
insurance benefits liability (commonly referred to as FAS 106 liabilities)
related to employees of the Company and Equitable Agri-Business, who retired
prior to January 1, 1994, it being understood that no post-retirement health or
life insurance benefits liability for active personnel are included in such
transfer,
(k) as of the Closing Date, the Company and Equitable Agri-Business shall
reverse on their financial statements the deferred federal and state tax asset
related to the post-retirement health and life liability transferred to the
Selling Subsidiary pursuant to the preceding clause (j),
(l) on or prior to the Closing Date, the Company shall reclassify or pay to
the "Equitable Real Estate Investment Management, Inc. Supplemental Retirement
Trust" $1,700,000, which amount was included in cash on the December 31, 1996
audited balance sheet of the Company,
(m) on or prior to the Closing Date, the Selling Subsidiary shall
contribute $5,000,000 in cash to the Company's paid in capital which is to be
used to partially fund a long-term employee incentive plan,
(n) on or prior to the Closing Date, the Seller shall:
(i) cause the liability of EREIM Managers Corp., "Due to Equitable Real
Estate" currently carried on the financial statements of the EREIM Managers
Corp. to be offset against the "Accrued Interest Receivable" from the Company
shown on such statement;
(ii) cause the Selling Subsidiary to assume the Company's obligation to
EREIM Managers Corp. for the Demand Fixed Rate Capital Notes I and II together
with the unsatisfied interest payable on such Notes;
(iii) cause EREIM Managers Corp. to release the Company from any liability
associated with such Notes or interest thereon; and
(iv) cause the Company to dividend all the shares of EREIM Managers Corp.
to the Selling Subsidiary,
(o) as of the Closing Date, the Company and Equitable Agri-Business shall
add to "retained earnings" as shown in their respective financial statements
their respective net income for the period from January 1, 1997 to closing,
(p) as of the Closing Date, the Company and Equitable Agri-Business shall,
in their respective financial statements as of the Closing Date, adjust, in
accordance with GAAP, the net unrealized gain/loss on marketable equity
investments net of tax effects which reflects the change in status which has
occurred in the normal course of operations from December 31, 1996 to the
Closing Date,
(q) as of the Closing Date, the Company and Equitable Agri-Business shall
adjust in their respective financial statements as of the Closing Date, in
accordance with GAAP, the minimum pension liability which has occurred in the
normal course of operations from December 31, 1996 to the Closing Date, and
(r) as of the Closing Date, the Company and Equitable Agri-Business shall
make such other adjustments to shareholder's equity in their respective
financial statements which would be required under GAAP to reflect events from
December 31, 1996 to the Closing Date and the actions and adjustments set forth
in Sections 4.14, 4.15 and 4.16 hereof.
<PAGE>
4.16. Insurance. (a) Prior to the Closing Date, the Seller shall estimate,
in a manner consistent with its past practice and cause the Company and
Equitable Agri-Business, Inc. to record on their financial statements reserves
(the "Insurance Reserves") for the worker's compensation, general liability and
automobile liability claims and related loss adjustments expenses (i) arising
from the respective operations of the Companies and (ii) incurred prior to the
Closing Date, provided, however, that the Insurance Reserves shall not exceed
$2,000,000.
(b) After the Closing Date the Company and its Subsidiaries and Equitable
Agri-Business shall be responsible for the costs of the claims and expenses
described in the preceding paragraph (a) (notwithstanding the fact that reserves
related to such matters have historically been maintained on the financial
statements of the Seller); provided that the Seller shall indemnify the
Purchaser to the extent actual costs of such claims and expenses exceed the
Insurance Reserves; and provided, further, that Seller shall retain full control
of the administration and settlement of such claims.
(c) The Seller shall indemnify the Purchaser for the costs of any claims
(i) arising from the respective operations of the Companies and (ii) of the type
customarily covered by director and officer, errors and omissions, fidelity,
fiduciary liability or employment practices insurance to the extent such claims
were incurred on or prior to December 31, 1996, and the Purchaser shall bear
sole responsibility for and indemnify the Seller against the costs of any such
claims to the extent incurred after December 31, 1996, provided that the Seller
shall have no obligation to indemnify the Purchaser pursuant to this paragraph
with respect to claims relating to any matter disclosed in this Agreement or the
Schedules hereto.
4.17. [This section intentionally left blank]
<PAGE>
4.18. Affiliate Transactions. The Seller shall cooperate with the
Purchaser in implementing procedures prior to the Closing Date with respect to
transactions between Affiliates of the Purchaser and the Seller and its
Affiliates, including the Company, which are necessary to qualify for exemptions
from ERISA's prohibited transaction rules on the Closing Date or, if no such
procedures can be implemented, to cooperate in applying to the U.S. Department
of Labor on a timely basis for appropriate prohibited transaction exemptions.
4.19. Seventh Avenue Lease. Prior to the Closing, the Seller and the
Company will negotiate a mutually acceptable lease (the "Seventh Avenue Lease")
with respect to the Company's occupancy of the 46th floor of Tower West, 787
Seventh Avenue, New York, New York, 10019, incorporating the principal terms (as
incorporated from the terms of the letter agreement, dated September 22, 1986)
of the letter agreement, dated November 6, 1996, pursuant to which the Company
currently occupies such premises, and using the form of lease currently used at
such property.
4.20. Delegation Guidelines. Prior to the Closing, Seller and Purchaser
shall negotiate mutually acceptable guidelines for delegation of authority to be
used in connection with the General Account Advisory Agreement relating to
Equitable Agri-Business, Inc.
4.21. Bulk Sale. The Seller has not taken and will not take within the
first five months after the Closing Date any action that would require it under
applicable securities laws to announce a "Bulk Sale" (as that term is defined in
the Property Disposition Agreement) within such five-month period
4.22. Long Term Employee Incentive Plan. Promptly following the Closing
Date, the Purchaser shall cause the Company to record a reserve of $5,000,000 to
partially fund a long-term employee incentive plan.
4.23. Berlin Property. Prior to the Closing, the Seller and the Company
will confirm in a mutually acceptable writing that the Company will continue to
render services to the Seller as advisor in connection with the Seller's
interest in certain property in Berlin, on the same basis as on the date hereof.
5. Employee Benefit Matters.
5.1. Performance of Obligations. From and after the Closing Date, the
Purchaser will, and will cause the Companies to, honor, pay and perform all
liabilities and obligations as of the Closing Date which have been disclosed to
the Purchaser under each Plan (other than a Plan sponsored by the Seller) and
under each employment, severance, termination, retention, change in control
agreement or arrangement of the Company with any current or former officer or
other employee of any of the Companies which is listed in Schedule 5.1 in
accordance with the terms thereof in effect as of the Closing Date. The
Purchaser will, and will cause the Companies to, (i) from the Closing to the
first anniversary of the Closing Date, maintain for the benefit of those
individuals who are actively employed by the Companies as of the Closing Date
and their respective eligible dependents employee benefit and compensation plans
and policies that are substantially comparable, in the aggregate, to the
benefits and compensation plans and programs of such employees in effect
immediately prior to the Closing; provided, however, that with respect to those
employees of the Companies who currently participate in the Retirement Plan or
the Investment Plan, the Purchaser shall make available defined contribution
pension and profit-sharing plans and trusts qualified under section 401(a) and
section 501(a) of the Code, respectively, which provide benefits at least as
favorable as those provided by the current benefit plans for the employees of
the Companies, and provided further that no new participants shall be admitted
to the Pension Restoration Plan of the Company; and (ii) for all purposes under
all benefit and compensation plans and policies, treat all service by employees
with any of the Companies, including such service completed prior to the Closing
Date, as service with the Purchaser and its subsidiaries. On or after the
Closing Date, the Seller shall transfer funds to an escrow account or rabbi
trust established by the Company in such amounts and at such times as provided
under the Company's Special Incentive Compensation Program. The Seller agrees to
retain sole and exclusive financial responsibility for such Program in its
entirety.
<PAGE>
5.2 Employee Benefit Plans. (a) The Seller shall cause each Employee who is
actively employed by any of the Companies on the Closing Date and who is a
participant in the Equitable Retirement Plan for Employees, Managers and Agents
(the "Retirement Plan") to become fully vested as of the Closing Date in his or
her accrued benefit as of the Closing Date under the Retirement Plan and such
Employee shall be considered as retiring directly from service when such
Employee separates from the service of the Company. From and after the Closing
Date, the Seller shall cause such accrued benefits under the Retirement Plan to
be paid to such Employees in accordance with the terms of the Retirement Plan as
in effect from time to time.
(b) As soon as reasonably practicable following the Closing Date, the
Seller shall cause each Employee who is actively employed by any of the
Companies on the Closing Date and who is a participant in the Equitable
Investment Plan for Employees, Managers and Agents (the "Investment Plan") to
become fully vested as of the Closing Date in his or her accrued benefit as of
Closing Date under the Investment Plan and to be provided an option under the
Investment Plan to (i) elect to receive a distribution of their account balances
under the Investment Plan and to transfer such distribution amount to a similar
plan established by the Purchaser for the benefit of the Employees or (ii)
retain their account balances in the Investment Plan, subject to terms and
conditions of the Investment Plan. Employees who have Investment Plan loans
outstanding on the Closing Date will be allowed to continue to repay their loans
on the same payment schedule, provided such Employees retain their account
balances in the Investment Plan during the repayment period. During such period
Employees will not be allowed to make additional Investment Plan loans or
contributions but may continue to transfer among investment options under the
Investment Plan.
(c) From and after the Closing Date, the Seller shall be solely
responsible, and shall retain exclusive liability, for any retiree health
benefits that it currently provides to employees of the Companies and the Seller
who retired under the terms of the Retirement Plan prior to the adoption by the
Companies of their health plan effective as of January 1, 1994. No new
participants will be admitted to the Companies' retiree health benefit plans.
5.3 Stock Plans. Those Employees who currently participate in The
Equitable Companies Incorporated 1991 Stock Incentive Plan (the "Option Plan")
or The Equitable Stock Purchase Plan for Employees, Managers and Agents (the
"Stock Plan") shall be considered as having terminated from employment as of the
Closing in accordance with the terms of each such plan and, accordingly, each
such Employee shall, effective as of the Closing, (i) forfeit all options
granted to such Employee under the Option Plan that are not vested as of the
Closing Date based solely on such Employee's service through such date, (ii)
have the right to exercise all other options granted to such Employee under the
Option Plan that are vested as of the Closing Date solely during the thirty day
period immediately following the Closing Date and (iii) not be eligible to
receive matching contributions with respect to any unmatched Employee
contributions of such Employee to the Stock Plan.
5.4. No Third Party Beneficiaries. Nothing expressed or implied in this
Section 5 or elsewhere in this Agreement shall confer upon any employee of the
Companies, or upon any legal representative of any such employee, or upon any
collective bargaining agent, any rights or remedies of any nature or kind
whatsoever under or by reason of this Agreement including, without limitation,
any right to continued employment for any specified period. Nothing in this
Agreement shall be deemed to confer upon any person (or any beneficiary thereof)
any rights under or with respect to any plan, program, or arrangement described
in or contemplated by this Agreement, and each person (and any beneficiary
thereof) shall be entitled to look only to the express terms of any such plan,
program or arrangement for his rights thereunder.
6. Conditions Precedent.
6.1. General. The respective obligations set forth herein of the Seller
and the Purchaser to consummate the sale and purchase of the Shares at the
Closing shall be subject to the fulfillment, on or before the Closing Date, in
the case of the Seller, of the conditions set forth in Sections 6.2 and 6.3, and
in the case of the Purchaser, of the conditions set forth in Sections 6.2 and
6.4 (collectively, the "Closing Conditions").
6.2. Conditions to Obligations of Both Parties.
6.2.1. HSR Act. The waiting period under the HSR Act shall have expired or
been terminated.
6.2.2. New York Insurance Department. The Seller shall have obtained the
approval of the New York Insurance Department with respect to the changes to the
Equitable Separate Account Plans of Operations referred to in Section 2.2 and
any other approval or consent required by the New York Insurance Department, and
<PAGE>
such approvals and consents shall not have been issued subject to conditions
which, in the sole judgment of the Seller, are unreasonably burdensome to the
Seller or its Affiliates. Prior to any decision by the Seller to decline to
consummate the transaction contemplated hereunder due to non-satisfaction of the
condition of Closing set forth in this Section 6.2.2, the Seller shall advise
the Purchaser of the nature of the conditions imposed or threatened to be
imposed by the New York Insurance Department and shall use all reasonable
efforts to negotiate an acceptable compromise. In the event that the Seller
shall exercise its sole discretion to decline to consummate the transactions
contemplated hereunder due to non-satisfaction of the condition of Closing set
forth in this Section 6.2.2 by reason of the imposition of unreasonably
burdensome conditions, in recognition of the time and attention of Purchaser's
management devoted to the completion of this transaction and the associated
out-of-pocket expenses of the Purchaser, the Seller shall pay to the Purchaser,
by wire transfer of immediately available funds, within 10 days following the
date of the Seller's notice to the Purchaser of its decision to decline to
consummate the Closing for such reason, an amount equal to the lesser of
Purchaser's Actual Expenses, as documented to the satisfaction of the Seller,
and $5 million.
6.2.3. No Injunction, etc. Consummation of the transactions contemplated
hereby shall not have been restrained, enjoined or otherwise prohibited by any
applicable law, including any order, injunction, decree or judgment of any court
or other Governmental Authority, and no action or proceeding by any Governmental
Authority shall be pending (or shall have been threatened) at the Closing Date
before any court or other Governmental Authority to restrain, enjoin or
otherwise prevent the consummation of the transactions contemplated hereby, and
there shall not have been promulgated, entered, issued or determined by any
court or other Governmental Authority to be applicable to this Agreement any
applicable law making illegal the consummation of the transactions contemplated
hereby and no proceeding brought by any Governmental Authority with respect to
the application of any such applicable law shall be pending (or shall have been
threatened).
6.2.4. Governmental Consents. All consents of Governmental Authorities
required to be made or obtained prior to the Closing in connection with the
execution and delivery of this Agreement and the transactions contemplated
hereby in addition to those referred to in Sections 6.2.1 and 6.2.2 shall have
been made or obtained, except for such authorizations, consents and approvals
the failure of which to be made or obtained would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect.
6.2.5. Third Party Consents. All consents of third parties identified on
Schedule 2.2 required to be obtained prior to the Closing in connection with the
execution and delivery of this Agreement and the transactions contemplated
hereby, shall have been obtained, except for those consents which if not
obtained would not have, individually or in the aggregate, a Material Adverse
Effect.
6.2.6 Department of Labor. The Seller and the Purchaser shall each be
reasonably satisfied with the outcome of the discussions of matters relating to
this transaction with the U.S. Department of Labor between the execution of this
Agreement and the Closing Date.
6.3. Conditions to Obligations of the Seller.
6.3.1. Representations and Warranties of the Purchaser. The representations
and warranties in Section 3 shall be true and correct in all material respects
when made and at and as of the Closing with the same effect as though made at
and as of such time, except that those representations and warranties which are
made as of a specific date shall be correct in all material respects only as of
such date and those representations and warranties which already are qualified
by any materiality standard shall be correct in all respects as of the relevant
date and time, and each of the Persons listed in Exhibit F (or such Person's
successor in office if any such Person prior to the Closing Date ceases to be
employed by the Seller or one of the Companies, as the case may be) shall have
delivered to Seller a certificate, dated the Closing Date, certifying the same
to his actual knowledge. The Purchaser shall have duly performed and complied in
all material respects with all agreements contained herein required to be
performed or complied with by it at or before the Closing.
6.3.2. Officer's Certificate. The Purchaser shall have delivered to the
Seller a certificate, dated the Closing Date and signed by its President or any
Vice President and its Chief Financial Officer, as to the fulfillment of the
conditions set forth in Section 6.3.1.
6.3.3. Opinions of Counsel. The Seller shall have received such customary
legal opinions from internal and external counsel for the Purchaser as it may
reasonably request, which opinions shall be in form and substance reasonably
satisfactory to the Seller.
<PAGE>
6.4. Conditions to Obligations of the Purchaser.
6.4.1. Representations and Warranties of the Seller. The representations
and warranties in Section 2 shall be true and correct in all material respects
when made and at and as of the Closing with the same effect as though made at
and as of such time, except that those representations and warranties which are
made as of a specific date shall be correct in all material respects only as of
such date and those representations and warranties which already are qualified
by any materiality standard shall be correct in all respects as of the relevant
date and time. The Seller shall have duly performed and complied in all material
respects with all agreements contained herein required to be performed or
complied with by it at or before the Closing.
6.4.2. Officer's Certificate. The Seller shall have delivered to the
Purchaser a certificate, dated the Closing Date and signed by a Senior Vice
President and an Executive Vice President, as to the fulfillment of the
conditions set forth in Section 6.4.1.
6.4.3. Opinion of Counsel. The Purchaser shall have received such
customary legal opinions from internal and external counsel for the Seller, as
it may reasonably request, which opinions shall be reasonably satisfactory in
form and substance to the Purchaser.
6.4.4. Tax Certificate. The Seller, on behalf of the Selling Subsidiary,
shall have delivered to Purchaser the certificate described in Treasury
Regulations section 1.1445-2(b)(2)(i) to the effect that the Selling Subsidiary
is not a foreign person within the meaning of section 1445 of the Code.
6.4.5. Resignations. The directors of the Companies specified in a notice
delivered by the Purchaser to the Seller at least five days prior to the Closing
shall have submitted their resignations from the Boards of Directors of the
Companies, effective as of the Closing Date.
7. Indemnification.
7.1. Survival of Representations and Warranties. Any claim for
indemnification under Section 7 with respect to the representations and
warranties contained in Sections 2 and 3 of this Agreement must be brought on or
prior to February 28, 1999, except (i) any claim for indemnification with
respect to the representations and warranties contained in Section 2.4 or with
respect to the Special Indemnification Matters referred to in Section 7.2.1 may
be brought at any time, (ii) any claim for indemnification with respect to the
representations and warranties contained in Section 2.14 may be brought at any
time prior to the expiration of the applicable statute of limitations (including
any extensions thereof), (iii) any claim for indemnification with respect to the
representations and warranties contained in Section 2.12 (f) and relating to the
offering and sale of securities may be brought at any time on or prior to the
fifth anniversary of the offering of such securities or the second anniversary
of the Closing Date, whichever is later and (iv) any claim for indemnification
with respect to the representations and warranties contained in Section 2.6
relating to the respective audited balance sheets as of December 31, 1996 of the
Company and its subsidiaries and of Equitable Agri-Business must be brought on
or prior to July 31, 1998. Any claim for indemnification under Section 7 must be
brought in accordance with Section 7.2.3.
7.2. Indemnification.
7.2.1. By the Seller. From and after the Closing, the Seller agrees to
indemnify the Purchaser and the Purchasing Subsidiary and hold the Purchaser and
the Purchasing Subsidiary harmless from and against any loss, liability or
damage, including reasonable attorneys' fees and other costs and expenses, but
excluding lost profits and consequential damages (collectively, "Damages"),
incurred or sustained by the Purchaser, the Purchasing Subsidiary or any of the
Companies as a result of (i) the breach of any covenant on the part of the
Seller under this Agreement, provided that any claim for indemnification arising
from the breach of any of the covenants contained in Sections 4.14, 4.15 or 4.16
must be brought on or prior to July 31, 1998, (ii) subject to Section 7.1, the
breach of any representation or warranty on the part of the Seller under this
Agreement, or (iii) Special Indemnification Matters (it being understood that
solely for purposes of this Section 7, including, without limitation, the
calculation of Damages pursuant to this Section 7.2.1, and notwithstanding
anything to the contrary in this Agreement, such representation and warranty
shall be read as if it were not qualified by any materiality standard,
including, without limitation, qualifications indicating accuracy "in all
material respects" or accuracy "except to the extent the inaccuracy would not
have a Material Adverse Effect" or words to similar effect), provided that none
of the Purchaser, the Purchasing Subsidiary or any of the Companies shall have
any claim against the Seller for Taxes described in the first sentence of
Section 4.4.3 except as provided in Section 4.4 (which claim may be brought at
any time prior to the expiration of the applicable statute of limitations
(including any extensions thereof) plus 60 days provided that the Purchaser
shall have complied with Section 4.4.4), the terms of which shall govern
<PAGE>
exclusively with respect to all claims or disputes with respect thereto and,
provided, further, that there shall not be any duplicative payments or
indemnities by the Seller.
The Purchaser's and the Purchasing Subsidiary's rights to indemnification
under Section 7 shall be limited as follows:
(a) The amount of any Damages incurred by the Purchaser or the Purchasing
Subsidiary shall be reduced by the net amount the Purchaser, the Purchasing
Subsidiary or any of the Companies recovers (after deducting all attorneys'
fees, expenses and other costs of recovery) from any insurer or other party
liable for such Damages, and the Purchaser or the Purchasing Subsidiary shall
use reasonable efforts to effect any such recovery; provided, however, that the
Seller, at its option, shall have the right of subrogation to the Purchaser's or
the Purchasing Subsidiary's rights to effect any such recovery.
(b) The Purchaser and the Purchasing Subsidiary shall be entitled to
indemnification under this Section 7 only to the extent that the aggregate
amount of such Damages (reduced as provided in paragraph (a) above) exceeds $5
million; provided, however, that (i) no limitation under this paragraph (b)
shall be applicable to any claim for indemnification with respect to the Special
Indemnification Matters or any breach of Section 2.6 relating to the respective
audited balance sheets as of December 31, 1996 of the Company and its
subsidiaries and of Equitable Agri-Business, or Section 4.14, 4.15 or 4.16 and
(ii) notwithstanding the foregoing, the Purchaser shall be entitled to
indemnification in respect of any single claim as to which the amount of Damages
(reduced as provided in paragraph (a) above) exceeds $1 million.
(c) The aggregate amount of Damages payable to the Purchaser under this
Section 7.2.1 shall not exceed 100% of the Purchase Price, as adjusted pursuant
to Section 1.3, provided, however, that no limitation under this paragraph (c)
shall be applicable to any claim for indemnification with respect to the Special
Indemnification Matters; and, provided, further, that damages payable for any
claim for indemnification with respect to the DOL Investigation shall be subject
to the limits set forth in Section 7.2.3(b).
7.2.2. By the Purchaser. From and after the Closing, the Purchaser agrees
to, and agrees to cause the Company and the Subsidiaries to, indemnify the
Seller and hold the Seller harmless from and against any Damages incurred or
sustained by the Seller as a result of the nonfulfillment of any agreement or,
subject to Section 7.1, the breach of any representation or warranty on the part
of the Purchaser under this Agreement, provided that there shall not be any
duplicative payments or indemnities by the Purchaser.
The Seller's rights to indemnification under Section 7 shall be limited as
follows:
(a) The amount of any Damages incurred by the Seller shall be reduced by
the net amount the Seller recovers (after deducting all attorneys' fees,
expenses and other costs of recovery) from any insurer or other party liable for
such loss, liability or damage, and the Seller shall use reasonable efforts to
effect any such recovery; provided, however, that the Purchaser, at its option,
shall have the right of subrogation to the Seller's rights to effect any such
recovery.
(b) The Seller shall be entitled to indemnification under this Section 7
only to the extent that the aggregate amount of such Damages (reduced as
provided in paragraph (a) above) exceeds $5 million, provided, that
notwithstanding the foregoing, the Seller shall be entitled to indemnification
in respect of any single claim as to which the amount of Damages (reduced as
provided in paragraph (a) above) exceeds $1 million.
7.2.3. Indemnification Procedures. (a) A party entitled to indemnification
hereunder shall herein be referred to as an "Indemnitee." A party obligated to
indemnify an Indemnitee hereunder shall herein be referred to as an
"Indemnitor." Promptly after an Indemnitee either (a) receives notice of any
claim or the commencement of any action by any third party which such Indemnitee
reasonably believes may give rise to a claim for indemnification from an
Indemnitor hereunder or (b) sustains any Damages not involving a third-party
claim or action which such Indemnitee reasonably believes may give rise to a
claim for indemnification from an Indemnitor hereunder, such Indemnitee shall,
if a claim in respect thereof is to be made against an Indemnitor under Section
7, notify such Indemnitor in writing in reasonable detail of such claim, action
or Damages, as the case may be. Upon receipt of such notice, the Indemnitor
shall be entitled to participate in such claim or action, to assume the defense
thereof (provided that the Indemnitor shall first have agreed in writing that
the claim is a proper subject of indemnification hereunder) with counsel
reasonably satisfactory to the Indemnitee, and to settle or compromise such
claim or action, provided that (i) if the Indemnitee has elected to be
represented by separate counsel pursuant to the proviso to the following
<PAGE>
sentence, such settlement or compromise shall be effected only with the consent
of the Indemnitee, which consent shall not be unreasonably withheld, and (ii) if
the terms of such settlement or compromise impose any materially burdensome
continuing obligations or compliance requirements upon the Indemnitee, such
settlement or compromise shall be effected only with the consent of the
Indemnitee. After notice to the Indemnitee of the Indemnitor's election to
assume the defense of such claim or action, the Indemnitor shall not be liable
to the Indemnitee under Section 7 for any legal or other expenses subsequently
incurred by the Indemnitee in connection with the defense thereof other than
reasonable costs of investigation, provided that the Indemnitee shall have the
right to employ counsel to represent it if the Indemnitee has available to it
one or more defenses or counterclaims which are inconsistent with one or more of
those claims alleged by the Indemnitor, and in any such event the fees and
expenses of such separate counsel shall be paid by the Indemnitee. If the
Indemnitor does not elect to assume the defense of such claim or action, the
Indemnitee shall act reasonably and in accordance with its good faith business
judgment with respect thereto, and shall not settle or compromise any such claim
or action without the consent of the Indemnitor, which consent shall not be
unreasonably withheld. The parties hereto agree to render to each other such
assistance as may reasonably be requested in order to insure the proper and
adequate defense of any such claim or action. Notwithstanding anything to the
contrary in this Section 7.2.3, this Section 7.2.3 shall not apply to claims,
actions or damages in respect of Taxes, which shall be governed by Section 4.4.
Notwithstanding anything to the contrary in this Section 7.2.3, Section 7.2.3(a)
shall not apply to the DOL Investigation, which shall be governed by Section
7.2.3(b).
(b) The Seller and the Purchaser shall have joint control over any
settlement discussions in connection with the DOL Investigation and both the
Seller and the Purchaser must consent to any proposed settlement of the DOL
Investigation. If the Purchaser refuses to consent to a proposed settlement of
the DOL Investigation, then the aggregate amount of Damages relating to the DOL
Investigation payable to the Purchaser under Section 7.2.1 hereof shall not
exceed the sum of (i) any fines, penalties and rebates that would have been
payable pursuant to the rejected settlement and (ii) the net present value of
the actual economic cost to the Company of any other actions that the Company
would have been required to take pursuant to the rejected settlement.
Notwithstanding anything to the contrary in this Section 7.2.3, Section 7.2.3(b)
shall apply only to the DOL Investigation.
8. Definitions.
As used herein, the following terms have the following meanings:
Account Contracts: as defined in Section 2.9(a).
Actual Expenses: shall mean the out-of-pocket expenses incurred by the
Purchaser and its advisors in connection with the Purchaser's due diligence
investigation and the preparation and negotiation of this Agreement.
Advisers: as defined in Section 2.12.
Advisers Act: as defined in Section 2.12.
Advisers' Regulatory Filings: as defined in Section 2.12(b).
Affiliate: of a person or entity means a person or entity that directly or
indirectly controls, is controlled by, or is under common control with, the
first person or entity.
Affiliated Group: any affiliated, consolidated, combined or unitary Tax
group of which any of the Companies is or has been a member.
Agreement: shall mean this Agreement, including the Schedules and Exhibits
hereto.
Applicable Law: with respect to any Person, any domestic or foreign,
federal, state, provincial or local statute, law, ordinance, rule,
administrative interpretation, regulation, order, writ, injunction, directive,
judgment, decree or other requirement of any Governmental Authority applicable
to such Person, its business or any of its respective properties or assets.
Business Day: any day that is not a Saturday, Sunday or other day on which
banking institutions in New York, New York or Sydney, Australia are authorized
or required by law to close.
<PAGE>
California Section 338(h)(10) Amount: as defined in Section 4.4.1(b).
Cash Amount: as defined in Section 1.2(b).
Client Queue Assets: as defined in Section 1.3.3(a).
Closing: as defined in Section 1.2.
Closing Conditions: as defined in Section 6.1.
Closing Date: as defined in Section 1.2.
Code: the Internal Revenue Code of 1986, as amended.
Companies: as defined in the "Whereas" clauses.
Company: as defined in the "Whereas" clauses.
Company Shares: as defined in the "Whereas" clauses.
Competitive Services: as defined in Section 4.8.
Confidentiality Agreement: as defined in Section 4.2.2.
Consolidated State Tax Return: as defined in Section 4.4.1(b).
Consolidated Taxes: any Taxes reportable on a consolidated federal income
tax return filed by the Affiliated Group that includes the Selling Subsidiary or
on any Consolidated State Tax Return.
Contracts: as defined in Section 2.9.
CPI: as defined in Section 1.3.1(a).
DOL Investigation: shall mean the currently pending national investigation
by the U.S. Department of Labor of commingled real estate funds with pension
investors, including Prime Property Fund.
Damages: as defined in Section 7.2.1.
Employee Laws: as defined in Section 2.10.2.
Employees: as defined in Section 2.10.1.
Equitable Agri-Business: as defined in the "Whereas" clauses.
Equitable Agri-Business Shares: as defined in the "Whereas" clauses.
Equitable Agri-Business Statements: as defined in Section 2.6(a).
Equitable Capital Markets: as defined in Section 2.12(j).
Equitable General Account: shall mean the general account of the Seller to
which the Company and Equitable Agri-Business render investment advisory
services.
Equitable Holding: as defined in the "Whereas" clauses.
Equitable Separate Accounts: shall mean the separate accounts listed on
Exhibit A-4 for which the Seller is the investment manager and to which the
Company and Equitable Agri-Business render investment advisory services.
ERE Financial Statements: as defined in Section 2.6(a).
ERECHA: as defined in Section 2.12(a).
ERISA: as defined in Section 2.10.3.
Exchange Act: as defined in Section 2.12(c).
Excluded Companies: as defined in Section 4.8(a)(i).
<PAGE>
Final Determination: with respect to any Tax item, means the final
resolution of liability for any Tax for a Tax period, by formal agreement with
the IRS or any other taxing authority, by a decision, judgment or decree of a
court of competent jurisdiction that has become final and unappealable or by any
other final disposition.
Financial Statements: as defined in Section 2.6(a).
Former Employees: as defined in Section 2.10.1.
Fund: shall mean any registered investment company as to which any of the
Companies (i) acts as general partner, managing general partner, managing member
or in a similar capacity, provided that such similar capacity shall not be
deemed to exist merely on the basis of a contractual relationship pursuant to an
Account Contract or a Property Management Contract, and (ii) provides investment
management or investment advisory services.
GAAP: shall mean generally accepted accounting principles in the United
States applied on a consistent basis.
General Account Advisory Agreements: shall mean the real estate investment
advisory agreements, in the forms of Exhibits B-1 and B-2, to be entered into
between the Seller and, the Company and Equitable Agri-Business, respectively,
as of the Closing Date, pursuant to which the Company and Equitable
Agri-Business, respectively, will act as investment advisors to Seller with
respect to the management of assets held in the Equitable General Account.
General Account Purchase Price Adjustment: as defined in Section 1.3.1.
Governmental Authority: any national government, any state or other
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
including, without limitation, any government authority, agency, department,
board, commission or instrumentality of the United States, any State of the
United States or any political subdivision thereof, or of Australia, any State
of Australia or any political subdivision thereof.
Guarantee: shall mean the Guarantee of the Purchaser to the Note.
HSR Act: as defined in Section 2.2(b).
INA: as defined in Section 2.10.2.
Indemnitee: as defined in Section 7.2.3.
Indemnitor: as defined in Section 7.2.3.
Insurance Reserves: as defined in Section 4.16(a).
Intellectual Property: as defined in Section 2.11.
IRS: as defined in Section 2.10.3.
Investment Company Act: as defined in Section 2.12(c).
Investment Contracts: as defined in Section 2.9(b).
Investment Entity: shall mean any partnership or limited liability company
(other than any Fund) as to which any of the Companies (i) acts as general
partner, managing general partner, managing member or in a similar capacity,
provided that such similar capacity shall not be deemed to exist merely on the
basis of a contractual relationship pursuant to an Account Contract or a
Property Management Contract, and (ii) provides investment management or
investment advisory services.
Investment Entity Audited Statements: as defined in Section 2.6(b).
Investment Entity Unaudited Statements: as defined in Section 2.6(b).
Investment Plan: as defined in Section 5.2(b).
Knowledge of the Seller: shall mean the actual knowledge of any of the
Persons listed in Exhibit F (or such Person's successor in office if any such
Person prior to the Closing Date ceases to be employed by the Seller or one of
the Companies, as the case may be).
<PAGE>
Liens: as defined in Section 2.2(a).
Material Adverse Effect: shall mean a material adverse effect on the
financial condition, results of operations or business of the Companies taken as
a whole (unless the context of the usage of the term clearly indicates an intent
that it applies to a single one of the Companies) or on the consummation of the
transactions contemplated by this Agreement. Effects attributable to either (x)
the transactions contemplated by this Agreement or (y) changes in general
economic conditions, including, without limitation, changes in prevailing real
estate values and interest rates, affecting the industries in which the
Companies operate, shall not be considered to be, or to contribute to, a
Material Adverse Effect.
ML/EQ Agreement: an agreement to be entered into as of the Closing Date
between the Company and the Selling Subsidiary pursuant to which the Company
will be engaged on a non-discretionary basis to perform duties that are
currently being performed by EREIM Managers Corp. relating to the management of
the ML/EQ properties substantially on the terms agreed by the parties in the
statement of principles exchanged on the date hereof.
Multiemployer Plan: as defined in Section 2.10.5.
NASD: shall mean the National Association of Securities Dealers, Inc.
New York City Retention Agreement: shall mean the letter agreement, dated
December 21, 1994, among Union Square - 14th Street Associates, L.P., Equitable
Real Estate Investment Management, Inc., the City of New York and New York City
Industrial Development Agency.
Note: as defined in Section 1.2(b).
Option Plan: as defined in Section 5.3.
Person: any natural person, firm, limited liability company, association,
corporation, trust, Governmental Authority or other entity.
Plans: as defined in Section 2.10.3.
Property Disposition Agreement: shall mean the agreement of such name to be
entered into substantially in the form of the draft thereof exchanged between
the parties on the date hereof.
Property Management Contracts: as defined in Section 2.9(a).
Purchase Price: as defined in Section 1.2(b).
Purchaser: as defined in the "Whereas" clauses.
Purchasing Subsidiary: as defined in the "Whereas" clauses.
Queue Clients: as defined in Section 1.3.3(a).
Queue Purchase Price Adjustment: as defined in Section 1.3.3.
Real Property: as defined in Section 2.8.
Regulatory Filings: as defined in Section 2.12.
Related Persons: as defined in Section 2.10.5.
Retirement Plan: as defined in Section 5.2(a).
Section 338(h)(10) Elections: as defined in Section 4.4.6(a).
Section 338 Forms: as defined in Section 4.4.6(b).
Securities Act: as defined in Section 2.12(c).
SEC: as defined in Section 2.12(b).
Seller: as defined in the "Whereas" clauses.
Seller's Marks: as defined in Section 4.7(b).
Selling Subsidiary: as defined in the "Whereas" clauses.
<PAGE>
Separate Account Advisory Agreements: shall mean the several real estate
investment advisory agreements in the form of Exhibit B-3, each to be entered
into between the Company, the Seller and Equitable Agri-Business as of the
Closing Date pursuant to which the Company and Equitable Agri-Business will act
as investment advisors to Seller with respect to the management of the assets
held in the Equitable Separate Accounts.
Separate Account Purchase Price Adjustment: as defined in Section 1.3.2.
Seventh Avenue Lease: as defined in Section 4.19.
Shares: as defined in the "Whereas" clauses.
Special Indemnification Matters: shall mean (i) any fines, penalties and
rebates to clients in connection with the DOL Investigation and (ii) any claim,
cause of action, loss, liability or damage (x) arising due to the conduct of
business of EQ Services, Inc., EREIM Managers Corp., ECLC, Inc. and Column
Financial, Inc. or due to the sale of the business of EQ Services, Inc. or (y)
arising under any federal, state, or local environmental statute or regulation
and relating to any alleged action or failure to act on the part of any of the
Companies with respect to any properties owned by either the General Account or
any of the Separate Accounts at any time prior to the Closing Date; and (iii)
any damages arising from the ROM, Carone, Lindbloom and Tannenbaum litigations
(as more specifically identified in Schedule 2.13) and the Brookhaven matter (as
more specifically identified in Schedule 2.7).
Stock Plan: as defined in Section 5.3.
Subsidiary: means, as to any Person, any corporation in which such Person
owns or controls, directly or indirectly, at least a majority of the securities
having by the terms thereof ordinary voting power to elect a majority of the
board of directors of such corporation.
Tax Dispute Resolution Procedure: Any disputed item shall be submitted to
the national office of an independent accounting firm of national reputation
selected by the Seller and reasonably acceptable to the Purchaser (the "Tax
Dispute Accountants"). The Purchaser and the Seller shall present their
arguments to the Tax Dispute Accountants within 15 days after such submission
and the Tax Dispute Accountants shall resolve the dispute, in a fair and
equitable manner and in accordance with the applicable Tax law, which
determination shall be binding and conclusive on the parties, provided that any
dispute arising with respect to a Tax Return submitted to the Seller for its
review pursuant to Section 4.4.2(b) shall be resolved in favor of the Seller
unless the Tax Dispute Resolution Accountants determine that there is no
reasonable basis for the Seller's position. The Purchaser and the Seller shall
each be responsible for one-half of the cost and fees of the Tax Dispute
Accountants.
Tax Reserve: $2,863,164, which is equal to the combined amount of the
current liabilities for "State and Local Taxes Payable" with respect to the
Company and its Subsidiaries, and Equitable Agri-Business, respectively,
reflected on the December 31, 1996 Financial Statements, reduced by any payments
made by the Companies to any state, local or foreign taxing authority during the
period beginning on January 1, 1997 and ending on the Closing Date with respect
to Taxes for which such liabilities were established.
Tax Return: any report, return, statement or other written information
required to be supplied to a taxing authority in connection with Taxes.
Tax Sharing Agreement: any Tax allocation or Tax sharing agreement or
arrangement that, prior to the Closing Date, may have been entered into between
any of the Companies, on the one hand, and the Seller or any Affiliate of the
Seller other than any of the Companies, on the other hand.
<PAGE>
Taxes: all taxes, levies or other like assessments, charges or fees
(including estimated taxes, charges and fees), including, without limitation,
income, corporation, add-on minimum, ad valorem, advance corporation, gross
receipts, transfer, excise, property, sales, use, value-added, license, payroll,
employment, severance, withholding, social security and franchise or other
governmental taxes, imposed by the United States or any state, local or foreign
government or any subdivision or agency of any thereof, and also including
interest and penalties attributable to any thereof as well as additions to any
thereof.
Third Party Advisory Agreements: shall mean the investment management
contracts between any of the Companies and
their Third Party Clients.
Third Party Clients: shall mean the clients under Account Contracts or
Property Management Contracts other than the General Account or any of the
Separate Accounts.
Total Queue Assets: as defined in Section 1.3.3(a).
9. General Provisions.
9.1. Modification; Waiver. This Agreement may be modified only by a written
instrument executed by the parties hereto. Any of the terms and conditions of
this Agreement may be waived in writing at any time on or prior to the Closing
Date by the party entitled to the benefits thereof.
9.2. Entire Agreement . This Agreement, including the Schedules and
Exhibits hereto (which are hereby incorporated by reference and made a part
hereof), together with the ancillary agreements to which specific reference is
made herein, constitute the entire agreement of the parties with respect to the
subject matter hereof and supersedes all other prior agreements, understandings,
statements, representations and warranties, oral or written, express or implied,
between the parties hereto and their respective affiliates, representatives and
agents in respect of the subject matter hereof (including, without limitation,
the Offering Memorandum, dated November 1996, prepared by J.P. Morgan & Co.
Incorporated, with respect to the Company and any supplements thereto), except
that this Agreement does not supersede the Confidentiality Agreement, the terms
and conditions of which the parties hereto expressly reaffirm.
9.3. Exclusivity of Representations and Warranties and Indemnification
Provision; Relationship Between the Parties . It is the explicit intent and
understanding of each of the parties hereto that neither party nor any of its
affiliates, representatives or agents is making any representation or warranty
whatsoever, oral or written, express or implied, other than those set forth in
Section 2 and 3 and neither party is relying on any statement, representation or
warranty, oral or written, express or implied, made by the other party or such
other party's affiliates, representatives or agents, except for the
representations and warranties set forth in such sections. EXCEPT AS OTHERWISE
SPECIFICALLY SET FORTH IN THIS AGREEMENT, THE PARTIES EXPRESSLY DISCLAIM ANY
IMPLIED WARRANTY OR REPRESENTATION AS TO CONDITION, MERCHANTABILITY OR
SUITABILITY AS TO ANY OF THE ASSETS OF THE BUSINESS OF THE COMPANIES TAKEN AS A
WHOLE AND, EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN THIS AGREEMENT, IT IS
UNDERSTOOD THAT THE PURCHASER TAKES THE ASSETS OF THE BUSINESS "AS IS" AND
"WHERE IS". The indemnity provided for in Section 7 shall be the sole and
exclusive remedy of the Purchaser after the Closing for any inaccuracy of any
representation or warranty of the Seller or any failure or breach of any
covenant, obligation, condition or agreement to be performed or fulfilled by the
Seller. The parties agree that this is an arm's length transaction in which the
parties' undertakings and obligations are limited to the performance of their
obligations under this Agreement and that there is no special relationship of
trust or reliance between the Purchaser and the Seller.
<PAGE>
9.4. Termination. This Agreement may be terminated:
(a) at any time prior to the Closing Date by mutual consent of the
Purchaser and the Seller;
(b) by the Seller upon notice to the Purchaser if any of the conditions set
forth in Sections 6.2 and 6.3 shall have become incapable of fulfillment and
shall not have been waived in writing by the Seller;
(c) by the Purchaser upon notice to the Seller if any of the conditions set
forth in Sections 6.2 and 6.4 shall have become incapable of fulfillment and
shall not have been waived in writing by the Purchaser; or
(d) by the Purchaser or the Seller, if the Closing shall not have taken
place on or before October 10, 1997 or such later date as the parties may have
agreed to in writing, provided that the non-occurrence of the Closing is not
attributable to a breach of the terms hereof by the party seeking termination.
In the event of such termination, no party shall have any further liability
hereunder, except (i) with respect to any breach of this Agreement prior to such
termination, (ii) pursuant to Section 6.2.2, and (iii) under the Confidentiality
Agreement. This Section 9.4 and Section 9.5 shall survive such termination and
shall remain in full force and effect.
9.5. Expenses. Except as expressly provided herein, whether or not the
transactions contemplated herein shall be consummated, each party shall pay its
own expenses incident to the preparation and performance of this Agreement. None
of such expenses of the Seller shall be borne by the Company.
9.6. Further Actions. Each party shall execute and deliver such
certificates and other documents and take such other actions as may reasonably
be requested by the other party in order to consummate or implement the
transactions contemplated hereby.
9.7. Post-Closing Access. In connection with any matter relating to any
period prior to, or any period ending on, the Closing, the Purchaser shall, upon
the request and at the expense of the Seller, permit the Seller and its
representatives full access at all reasonable times to the books and records of
the Companies which shall have been transferred to the Purchaser, and the
Purchaser shall execute (and shall cause the Companies to execute) such
documents as the Seller may reasonably request to enable the Seller to file any
required reports or Tax Returns relating to the Companies. The Purchaser shall
not dispose of such books and records during the ten-year period beginning with
the Closing Date without the Seller's consent, which shall not be unreasonably
withheld. Following the expiration of such ten-year period, the Purchaser may
dispose of such books and records at any time upon giving 60 days' prior written
notice to the Seller, unless the Seller agrees to take possession of such books
and records within 60 days at no expense to the Purchaser.
9.8. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given or
made as follows: (a) if sent by registered or certified mail in the United
States return receipt requested, upon receipt; (b) if sent by reputable
overnight air courier (such as DHL or Federal Express), two business days after
mailing; (c) if sent by facsimile transmission, with a copy mailed on the same
day in the manner provided in (a) or (b) above, when transmitted and receipt is
confirmed by telephone; or (d) if otherwise actually personally delivered, when
delivered and shall be delivered as follows:
<PAGE>
if to the Seller:
The Equitable Life Assurance
Society of the United States
1290 Avenue of the Americas
New York, New York 10019
Attention: General Counsel
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Fax Number: (212) 909-6836
Attention: Thomas M. Kelly, Esq.
if to the Purchaser or the Purchasing Subsidiary:
Lend Lease Corporation Limited
Level 46, Australia Square
Sydney NSW 2000
Australia
Fax Number: (612) 9236-6113
Attention: Company Secretary
with a copy to:
Coudert Brothers
1114 Avenue of the Americas
New York, New York 10036
Fax Number: (212) 626-4120
Attention: Andrew S. Hedden, Esq.
or to such other address or to such other person as either party hereto shall
have last designated by notice to the other party.
9.9. Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns, but shall not be assignable, by operation of law or otherwise, by
either party hereto without the prior written consent of the other party and any
purported assignment or other transfer without such consent shall be void and
unenforceable.
9.10. No Third Party Beneficiaries. Except as otherwise provided herein,
nothing in this Agreement shall confer any rights upon any person or entity
which is not a party or a successor or permitted assignee of a party to this
Agreement.
9.11. Counterparts. This Agreement may be executed in counterparts, both of
which shall constitute one and the same instrument.
9.12. Interpretation. The section headings in this Agreement are for
convenience of reference only and shall not be deemed to alter or affect the
meaning or interpretation of any provision hereof.
9.13. Governing Law. This Agreement shall be construed, performed and
enforced in accordance with the laws of the State of New York.
9.14. Dispute Resolution; Arbitration . The Purchaser and the Seller shall
attempt in good faith to resolve any dispute arising out of or relating to this
Agreement promptly by negotiation between executives who have authority to
settle the dispute. All reasonable requests for information by one party to the
other will be honored and all negotiations shall be confidential and treated as
compromise and settlement negotiations. If the dispute has not been resolved by
negotiation within 20 days after either party notifies the other in writing that
a dispute exists, the parties shall endeavor to settle the dispute by mediation
under the then current CPR Model Mediation Procedure for Business Disputes. If
the dispute has not been resolved by such mediation within 30 days following the
submission of such dispute to mediation, either party may submit such dispute to
binding arbitration under the Rules for Non-Administered Arbitration of Business
Disputes of the CPR Institute for Dispute Resolution, and judgment on the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof. In any such arbitration there shall be three arbitrators and the
arbitration shall take place in New York, New York.
<PAGE>
9.15. Consent to Jurisdiction, etc. (a) Each of the parties hereto
acknowledges that mediation and arbitration under the provisions of Section 9.14
is intended to be the exclusive method for resolution of disputes arising under
this Agreement, and agrees that neither party to this Agreement shall commence
any action or proceeding in any court with respect to such dispute, except (i)
to enforce Section 9.14; (ii) to obtain provisional judicial assistance in aid
of arbitration under Section 9.14; or (iii) to enforce an arbitral award made
under Section 9.14. The provisions of Section 9.15(b) through 9.15(d) below and
of Section 9.16 shall be interpreted in a manner consistent with the parties'
acknowledgment and agreement set forth in the preceding sentence.
(b) Each of the parties hereto hereby irrevocably and unconditionally
submits, for itself and its property, to the exclusive jurisdiction of any New
York State court or Federal court of the United States of America sitting in New
York City, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby or for recognition or enforcement of any judgment relating thereto, and
each of the parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be heard and
determined in such New York State court or, to the extent permitted by law, in
such Federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
(c) Each of the parties hereto hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby in any New York State or Federal court. Each of
the parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of process
in any manner permitted by law at such party's address as set forth in Section
9.8. Nothing in this Agreement will affect the right of any party to this
Agreement to commence legal proceedings or otherwise proceed against another
party in any other jurisdiction.
9.16 Waiver of Punitive and Other Damages and Jury Trial. (a) THE PARTIES
TO THIS AGREEMENT EXPRESSLY WAIVE AND FOREGO ANY RIGHT TO RECOVER PUNITIVE,
EXEMPLARY, LOST PROFITS, CONSEQUENTIAL OR SIMILAR DAMAGES IN ANY ARBITRATION,
LAWSUIT, LITIGATION OR PROCEEDING ARISING OUT OF OR RESULTING FROM ANY
CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(c) EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT
OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER
OF THE FOREGOING WAIVERS, (ii) IT UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF SUCH WAIVERS, (iii) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (iv)
IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.16.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By:/s/ Jerry M. de St. Paer
Jerry M. de St. Paer
Title: Senior Executive Vice President
LEND LEASE CORPORATION LIMITED
By: /s/ Matthew Banks
Matthew Banks
Title: Chief Executive Officer
Lend Lease Global Property
Investment Division
NEPTUNE REAL ESTATE, INC.
By: /s/ Matthew Banks
Matthew Banks
Title: President
<PAGE>
Omitted Attachments to the Purchase Agreement, dated April 10, 1997, by and
among The Equitable Life Insurance Society of the United States, Lend Lease
Corporation Limited and Neptune Real Estate, Inc. for the sale of Equitable
Real Estate Investment Management, Inc., and Equitable Agri-Business, Inc.
Omitted Attachment to Exhibit A-1 (Note)
- ----------------------------------------
Schedule A Schedule of Projected Revenues
Omitted Attachments to Exhibit B-1 (Real Estate Advisory Agreement:
general account)
- --------------------------------------------------------------------------------
Schedule 1.2(a) Fee Schedule
Schedule 1.2(a)-1 Modified Mortgage Pool
Schedule 1.2(b)(including Annex A) Principles Applicable to Additional Fees
Exhibit 2.3 Mortgage Loan Servicing
Exhibit 2.4(k) Mortgage Reinspection Program
Schedule 2.7(d) List of Reports
Schedule 4.2 Form of Allocation Report
Schedule 5.5.1 List of Continuing Employees
Schedule 5.5.2 List of Employee Positions Subject to
ELAS Approval
Exhibit 7.7 Performance Standards
Exhibit 7.7 (Annex A) Brief for Mediator and Arbitrator
Omitted Attachments to Exhibit B-2 (Real Estate Advisory Agreement:
general account -- agricultural)
- --------------------------------------------------------------------------------
Schedule 1.2(a) Fee Schedule
Schedule 1.2(a)-1 Mortgages Earning Negotiated Service Fees
Schedule 1.2(b)(including Annex A) Principles Applicable to Additional Fees
Exhibit 2.3 Mortgage Loan Servicing
Schedule 2.7(d) List of Reports
Schedule 5.5.1 List of Continuing Employees
Schedule 5.5.2 List of Employee Positions Subject to
ELAS Approval
Exhibit 7.7 Performance Standards
Exhibit 7.7 (Annex A) Brief for Mediator and Arbitrator
Omitted Attachments to Exhibit B-3 (Real Estate Advisory Agreement:
separate accounts)
- --------------------------------------------------------------------------------
Schedule 2.4(b) List of Additional Reports
Exhibit 3.3(c) Form of Certificate and Covered
Transaction Checklist
Exhibit 3.3(g) Form of Power of Attorney
Schedule 3.3(g) Initial Holders of Power of Attorney
Schedule 3.7 List of Tax Review Transactions
Schedule 4.2 Form of Allocation Report
Schedule 7.4(a) Performance Standards
Schedule 7.4(b) Specified Events
Schedule IX List of Accounts
Schedule IX(a) Copies of Plans of Operations
In lieu of filing these attachments to the Purchase Agreement, the
Registrant agrees to furnish supplementally a copy of any such omitted schedule
or exhibit to the Securities and Exchange Commission upon request.
<PAGE>
Exhibit A-1 to Purchase Agreement
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES LAWS OF ANY STATE. THUS, THIS NOTE MAY NOT BE TRANSFERRED UNLESS
REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE LAWS OR UNLESS AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
NEPTUNE REAL ESTATE, INC.
NOTE
$100,000,000 (1) New York, New York
_____, 1997 (2)
Neptune Real Estate, Inc. (the "Company"), a Delaware corporation and a
wholly-owned subsidiary of Lend Lease Corporation Limited (ACN 000 226 228), a
corporation incorporated in the state of New South Wales, Australia ("Lend
Lease"), for value received, hereby promises to pay on _____, 2005 (3) (the
"Maturity Date") to The Equitable Life Assurance Society of the United States
("Equitable") ,(4) a New York stock life insurance company, or its assigns, the
principal amount of $100,000,000.
Interest shall accrue on the unpaid balance of the principal amount of this
Note from, and including, the date hereof, but excluding the date of payment
thereof, at a rate of 7.40% per annum, subject to potential reduction or
increase as set forth below. Interest shall be payable annually on each _____(5)
following the date hereof and on the date of any payment or prepayment of the
principal amount of this Note (any such date, an "Interest Payment Date"), and
shall be calculated on the basis of actual days elapsed and a year of 365 or 366
days, as the case may be.
The amount of interest due on each annual Interest Payment Date shall be
reduced by an amount calculated pursuant to the following formula:
x = .3(a-b)
where:
"x" equals the amount of such reduction;
"a" equals the projected amount of Actual Revenues (as defined below), as
set forth on Schedule A, for the calendar year most recently completed prior to
such Interest Payment Date; and
"b" equals the amount of Actual Revenues recognized, in accordance with
financial statement accounting principles, practices and procedures consistent
with United States generally accepted accounting principles as in effect on
December 31, 1996 and as applied in the audited financial statements of
Equitable Real Estate Investment Management, Inc. ("ERE") as of such date, in
the calendar year most recently completed prior to such Interest Payment Date;
provided, however, that the resulting reduced amount of interest due shall not
be less than zero, and the amount of any such reduction that would reduce such
interest due to less than zero shall not be carried over to interest due in
other years, reduce principal or have any other effect on payments due under
this Note. To the extent that Actual Revenues recognized in any calendar year
exceed the projected revenues for such year, the product of (a) .3 and (b) such
excess shall constitute a surplus which shall be applied first, to increase the
amount of interest due on the next Annual Interest Payment Date, but not in an
amount greater than the amount, if any, by which interest payable on the prior
Annual Interest Payment Date was reduced pursuant to the preceding sentence; and
second, to offset interest rate reductions, if any, in future years which would
otherwise be applicable pursuant to the preceding sentence.
- --------
(1) Initial principal amount potentially subject to reduction to reflect
Closing Date purchase price adjustment pursuant to Section 1.3.2(a) of the
Purchase Agreement.
(2) The Closing Date.
(3) The eighth anniversary of the Closing Date.
(4) Or, at Equitable's option, to its designee.
(5) Anniversary of the Closing Date.
<PAGE>
"Actual Revenues" shall mean all revenues of ERE or any Affiliate thereof
derived from services to the general account of Equitable or with respect to any
asset in which the general account of Equitable holds an interest (pro-rated as
appropriate in the case of partial interests), plus all revenues of ERE or an
Affiliate thereof derived from continued asset management, property management,
leasing and other services with respect to assets owned by the general account
of Equitable and sold to a purchaser who engages ERE or an Affiliate to provide
such services with respect to such property after December 31, 1996, plus all
fees paid by the general account of Equitable to an adviser not affiliated with
ERE as a result of ERE and its Affiliates having a conflict of interest with
respect to a transaction involving an asset of the general account of Equitable.
Notwithstanding the foregoing, (a) if the General Account Advisory Agreement (as
such term is defined in the Purchase Agreement, dated as of April 10, 1997,
between Lend Lease, the Company and Equitable (the "Purchase Agreement") is
terminated, the portion of the projected revenues set forth on Schedule A to
this Note attributable to the General Account Advisory Agreement for the
calendar year including the effective date of such termination and calendar
years thereafter shall be deemed to be "Actual Revenues" pursuant to the General
Account Advisory Agreement for such years and (b) if fees payable to ERE and its
Affiliates pursuant to the General Account Advisory Agreement are reduced as a
result of underperformance, the amount by which such fees are so reduced shall
be deemed "Actual Revenues" pursuant to the General Account Advisory Agreement
for the applicable years.
If the Company becomes entitled to receive a purchase price adjustment
payment from Equitable pursuant to Section 1.3 of the Purchase Agreement, either
of Equitable or the Company may elect to reduce the unpaid principal amount of
this Note (but not to an amount less than zero) in lieu of paying or receiving,
as the case may be, such purchase price adjustment in cash, which election shall
be effective upon irrevocable notice thereof in accordance with Section 7.
This Note is a direct, unconditional and unsecured obligation of the
Company and ranks and will rank pari passu and rateably with all other unsecured
and unsubordinated obligations of the Company from time to time outstanding
other than those which are preferred by mandatory provisions of law and in
priority to all subordinated obligations of the Company from time to time
outstanding.
1. Payments on the Note.
1.1 Currency. Cash payments of principal and interest on this Note shall be
made in lawful currency of the United States of America.
1.2 Method of Payment. Cash payments shall be made by wire transfer of
immediately available funds to the order of the holder of this Note, at its
principal place of business, or at the option of such holder, in such manner or
at such other place as such holder shall have designated to the Company in
writing.
1.3 Mandatory Prepayment. This Note shall forthwith mature and become due
and payable immediately, together with interest accrued thereon, all without
presentment, demand, protest or notice, all of which are hereby waived, if (a)
the Company, ERE, Equitable Agri-Business, Inc., Compass Management and Leasing,
Inc., Compass Retail, Inc. or any other Affiliate of ERE, which Affiliate
provides services to the general account of Equitable that in the calendar year
most recently completed before the date of determination accounted for Actual
Revenues of more than $500,000, ceases to be a Subsidiary (as such term is
defined in Section 3), of Lend Lease.
1.4 No Set-off. All payments due under this Note shall be made in full
without set-off, counterclaim, recoupment or defense and without deduction or
withholding of any kind.
1.5 Payments on Business Day. In the event any day for payment of an amount
due and payable hereunder is not a Business Day, such payment shall be due and
payable on the immediately succeeding Business Day and interest shall accrue on
the amount of such payment from and after such scheduled date to the time of
such payment on such next succeeding Business Day. As used herein, the term
"Business Day" shall mean any day which is not a Saturday, Sunday or other day
on which banking institutions in New York, New York or Sydney, Australia are
authorized or required by law to close.
<PAGE>
2. Representations and Warranties. The Company represents and warrants as
follows:
2.1 Corporate Status and Authority. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of [Delaware] and has the power and authority to execute and deliver this Note
and perform its obligations hereunder. The execution, delivery and performance
of this Note have been duly authorized by the Company's Board of Directors,
which constitutes all necessary corporate action on the part of the Company for
such authorization. This Note has been duly executed and delivered by the
Company and constitutes the valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, reorganization,
insolvency, fraudulent conveyance, moratorium, receivership or similar laws
affecting creditors' rights generally and by general principles of equity
(whether considered at law or in equity).
2.2 No Conflicts. (a) The execution, delivery and performance of this Note
by the Company will not result in (i) any conflict with the charter documents or
by-laws of the Company, (ii) any breach or violation of or default or
requirement of consent of any third party under any statute, regulation,
judgment, order or decree or any mortgage, agreement, deed of trust, indenture
or any other instrument to which the Company is a party or by which the Company
or any of its properties or assets are bound, or (iii) the creation or
imposition of any Lien. The term "Lien" shall include any mortgage, pledge,
security interest, encumbrance, lien, adverse claim or charge of any kind
(including any agreement to give any of the foregoing), any conditional sale or
other title retention agreement or any lease in the nature thereof on or with
respect to any asset of any kind, or any preferential arrangement with respect
to the payment of any obligation for borrowed money with or from the proceeds of
any asset of any kind (including, without limitation, through the creation of
any fund, deposit or other device for the purpose of setting aside funds for the
preferential payment of, or for the purpose of facilitating payments to, any
creditor or group of creditors).
(b) No consent, approval or authorization of or filing with any
Governmental Authority is required on the part of the Company in connection with
the execution and delivery of this Note. "Governmental Authority" shall mean any
national government, any state or other political subdivision thereof, and any
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, including, without limitation, any
government authority, agency, department, board, commission or instrumentality
of the United States, any State of the United States or any political
subdivision thereof, or of Australia, any State or Territory of Australia or any
political subdivision thereof.
3. Covenants. The Company agrees that, so long as any amount payable under
this Note remains unpaid:
(a) Corporate Existence. The Company will preserve and maintain in full
force and effect its corporate existence, rights (charter and statutory),
franchises and privileges.
(b) Compliance with Laws. The Company will comply in all material respects
with all applicable laws, rules, regulations and orders, the non-compliance with
which could adversely affect the ability of the Company to make payments on this
Note when due.
(c) Reporting Requirements. The Company will furnish to the holder of this
Note:
(1) copies of its annual audited and quarterly or semiannual, as the case
may be, unaudited financial statements promptly after the issuance thereof, and
copies of Lend Lease's annual audited and quarterly or semiannual, as the case
may be, unaudited financial statements promptly after the same are publicly
issued in accordance with the Listing Rules of the Australian Stock Exchange
Limited;
(2) copies of all other of its and Lend Lease's material financial
documents and certificates as may be required to be publicly filed or which are
delivered to any other lender or holder of Debt for borrowed money which is
outstanding in a principal amount of at least $20 million promptly after
delivery thereof to such other lender or holder of such Debt;
<PAGE>
(3) no later than 30 days after the completion of each calendar quarter, a
detailed statement of Actual Revenues (including, without limitation, Actual
Revenues derived from properties no longer owned by the General Account)
recognized in such calendar quarter, such detailed statement to include, without
limitation, an accounting of the services and/or agreement to which such Actual
Revenues were attributable and, with respect to property management and leasing
fees (which are reported as expenses to Equitable) which are paid at the
property level, a property-by-property accounting of Actual Revenues;
(4) no later than 30 days after the completion of each calendar year, a
statement of the Company's calculation of Actual Revenues (including, without
limitation, Actual Revenues derived from properties no longer owned by the
General Account) recognized in such calendar year together with a report of
ERE's independent auditors stating that such calculation was made in accordance
with the terms of this Note; and
(5) any other material information with respect to the financial condition,
business and property of Lend Lease that is required to be made publicly
available in accordance with the Rules of the Australian Stock Exchange.
(d) Notice of Defaults. The Company will, no later than three Business Days
after the Company or any authorized representative of the Company obtains
knowledge thereof, give notice to the holder of this Note of a Default or Event
of Default, under this Note, each such notice being in the form of a
certificate, signed by an officer of the Company, specifying the nature and
period of existence of any such event and what action the Company has taken, is
taking or proposes to take with respect thereto.
(e) Maintenance of Rating. If the rating for senior long-term debt of Lend
Lease shall be lowered to below "BBB" or its equivalent by Standard & Poor's
Ratings Group or below "Baa2" or its equivalent by Moody's Investors Service,
the Company will at its own expense secure an unconditional, irrevocable letter
of credit securing its obligations hereunder from a financial institution
acceptable to both the Company and Equitable with a rating of "A" or its
equivalent or higher by Standard & Poor's Ratings Group or of A2 or its
equivalent or higher by Moody's Investors Service.
For purposes of this Note the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
"Affiliate" of any Person means (a) any Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with
such Person. For purposes of this definition, control of a Person shall mean the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of such Person whether through the ownership of
voting securities, by contract or otherwise.
"Debt" mean, at any date, without duplication, (a) all indebtedness of such
Person for borrowed money or for the deferred purchase price of property or
services (other than trade liabilities incurred in the ordinary course of
business and payable in accordance with customary practices), (b) any other
indebtedness of such Person which is evidenced by a note, bond, debenture or
<PAGE>
similar instrument, (c) all obligations of such Person under financing leases,
(d) all obligations of such Person contingent or otherwise in respect of
banker's acceptances or similar instruments issued or created for the account of
such Person, (e) all obligations, contingent or otherwise, of such Person as an
account party under acceptance, letter of credit or similar facilities and (f)
all liabilities of the type described in clauses (a) through (e) above secured
by any Lien or any property owned by such Person (not to exceed the value of
such property) even though such Person has not assumed or otherwise become
liable for the payment thereof.
"Default" means any event or condition that, with notice or lapse of time
or both, could become an Event of Default.
"Guarantee" means the Guarantee of this Note by Lend Lease issued on the
date hereof.
"Person" means any natural person, firm, limited liability company,
association, corporation, trust, Governmental Authority or other entity.
"Subsidiary" means, as to any Person, a corporation, company or other
entity in which such Person owns or controls, directly or indirectly, at least a
majority of (i) in the case of a corporation or company, the securities having
by the terms thereof ordinary voting power to elect a majority of the board of
directors of such corporation or company or (ii) in the case of any other
entity, the ownership interests representing the right to make decisions for
such other entity.
4. Defaults. If one or more of the following events ("Events of Default")
shall have occurred and be continuing:
(a) if the Company shall default in the payment of any principal of this
Note after the same shall become due and payable, whether at maturity or at a
date fixed for prepayment or by acceleration or otherwise; or
(b) if the Company shall default in the payment of any interest on this
Note after the same shall become due and payable and such default shall have
continued for a period of ten days after the same shall become due and payable;
or
(c) if any representation or warranty made by the Company herein or by Lend
Lease in the Guarantee shall prove to have been incorrect in any material
respect on or as of the date made; or
(d) if the Company fails to perform or observe any of its other obligations
hereunder and (except in each case where the holder of this Note reasonably
considers such failure to be incapable of remedy when no such notice or
continuation as is hereinafter referred to will be required) such failure
continues for the period of 30 days (or such longer period as the holder of this
Note may permit) next following the service by the holder of this Note on the
Company of notice requiring the same to be remedied; or
(e) if an order is made or a resolution is passed for the winding up or
dissolution of the Company, Lend Lease or any Material Subsidiary (as defined
below) of either of them, except in respect of a Material Subsidiary where such
winding up (i) is a voluntary solvent winding up or (ii) is for the purposes of
a corporate reorganization with the prior consent in writing of the holder of
this Note (which consent shall not be unreasonably withheld or delayed); or
(f) if a distress, execution or other process is levied or enforced upon or
against any part of the property of the Company, Lend Lease or any Subsidiary of
either of them in an amount of $20 million or more and is not paid out or
satisfied within 30 days; or
<PAGE>
(g) if the Company, Lend Lease or any Material Subsidiary of either of them
stops payment of its debts generally or is unable to pay its debts or (except,
in the case of a Subsidiary for the purpose of a corporate reorganization
referred to in paragraph (e)) ceases to carry on business or threatens so to do;
or
(h) if proceedings are initiated against the Company, Lend Lease or any
Material Subsidiary of either of them under any applicable bankruptcy,
insolvency or other similar laws and such proceedings are not discharged or
stayed within a period of 30 days; or
(i) if the Company, Lend Lease or any Material Subsidiary of either of them
initiates or consents to proceedings relating to itself under any applicable
bankruptcy, insolvency or other similar laws or makes a conveyance or assignment
for the benefit of its creditors generally or any class thereof; or
(j) if a receiver, custodian, trustee, rehabilitator, liquidator,
administrator or other officer with similar powers is appointed with respect to
the assets or properties or any part thereof of the Company, Lend Lease or any
Material Subsidiary of either of them; or
(k) if the Company, Lend Lease or any Subsidiary of either of them shall
(i) default in any payment of principal of or interest on any indebtedness
(other than the Note) or in the payment of any guarantee obligation, beyond the
period of grace, if any, provided in the instrument or agreement under which
such indebtedness or the obligations that are the subject of such guarantee
obligation was created; or (ii) default in the observance or performance of any
other agreement or condition relating to any such indebtedness or guarantee
obligation or contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event shall occur or condition exist, the effect
of which default or other event or condition is to cause, [or to permit the
holder or holders of such indebtedness or beneficiary or beneficiaries of such
guarantee obligation (or a trustee or agent on behalf of such holder or holders
or beneficiary or beneficiaries) to cause,] with the giving of notice if
required, such indebtedness to become due prior to its stated maturity or such
guarantee obligation to become payable; provided, however, that no Event of
Default shall exist under this paragraph unless the aggregate amount of
indebtedness and/or guarantee obligation in respect of which any default or
other event or condition referred to in this paragraph shall have occurred shall
be equal to at least $20 million; and provided, further, that the bracketed
language in the preceding clause (ii) shall be deemed not to be a part of this
paragraph (k) unless at the time of determination the Company, Lend Lease or any
Subsidiary of either of them, as the case may be, has granted cross-default
rights similar to those set out in clause (ii) of this paragraph (k) (including
the bracketed language) to another holder of indebtedness or guarantee
obligation;
and in the case of any such event referred to in paragraph (c), (d)
or (k) of this Section 4 and, in the case of a Material Subsidiary of the
Company or Lend Lease only, paragraph (e), (g), (h), (i) or (k) of this Section
4 the same shall be certified in writing by the holder of this Note to be in its
reasonable opinion materially prejudicial to its interests, then the holder may
accelerate the maturity of this Note by written notice to the Company declaring
this Note to be due and payable, whereupon the same shall forthwith mature and
become due and payable immediately, together with interest accrued thereon, all
without presentment, demand, protest or notice, all of which are hereby waived.
For purposes of this Note, "Material Subsidiary" shall mean any Subsidiary whose
assets, revenues or net income constitute ten (10) per cent or more in dollar
value of the total assets, revenues or net income, respectively, of Lend Lease
and its consolidated Subsidiaries; provided, however, that in no event shall any
Subsidiary formed solely to act as a special purpose entity in connection with a
non-recourse financing transaction be deemed to be a Material Subsidiary.
5. Remedies upon Default. In case any one or more Events of Default shall
occur and be continuing, the holder of this Note may proceed to protect and
enforce the rights of such holder by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any agreement
contained herein, or for an injunction against a violation of any power granted
hereby or in aid of the exercise of any power granted hereby or by law or
otherwise. In case of a default in the payment of any principal of or interest
on this Note, the Company will pay to the holder hereof such further amount as
shall be sufficient to cover the cost and expenses of collection, including,
without limitation, reasonable attorneys' fees, expenses and disbursements. No
course of dealing and no delay on the part of the holder of this Note in
exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers or remedies. No right, power or
remedy conferred by this Note upon the holder hereof shall be exclusive of any
other right, power or remedy referred to herein or now or hereafter available at
law, in equity, by statute or otherwise.
<PAGE>
6. Entire Agreement. This Note represents the entire agreement of the
parties with respect to the subject matter hereof and supersedes all other prior
agreements, understandings, statements, representations and warranties, oral or
written, express or implied, between the parties hereto and their respective
affiliates, representatives and agents in respect of the subject matter hereof.
7. Notices. All notices, requests and other communications required or
permitted to be given under this Note shall be deemed to have been duly given if
(a) personally delivered, (b) mailed, certified or registered mail with postage
prepaid, (c) sent by next day or overnight mail or delivery or (d) sent by fax
as follows:
If to the Company:
Lend Lease Corporation
Level 46, Australia Square
Sydney NSW 2000
Australia
Attn: Company Secretary
Fax Number: (612)9236-6113
with a copy to:
Coudert Brothers
1114 Avenue of theAmericas
New York, New York 10036
Fax Number: (212) 626-4120
Attn: Andrew S. Hedden,Esq.
If to Equitable:
The Equitable Life Assurance
Society of the United States
1290 Avenue of the Americas
New York, New York 10019
Attn: Treasurer
Fax Number:
with copies to:
The Equitable Life Assurance
Society of the United States
1290 Avenue of the Americas
New York, New York 10019
Attn: Law Department
Fax Number:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attn: Thomas M. Kelly,Esq.
Fax Number: (212)909-6836
or to such other address, or to the attention of such other person as any party
hereto shall specify to the other parties hereto by notice delivered in
accordance herewith.
8. Successors and Assigns. This Note shall be binding upon and inure to the
benefit of the Company and the holder hereof and their respective permitted
successors and assigns.
9. Amendments. This Note may not be changed, modified or discharged orally,
nor may any waivers or consents be given orally hereunder, and every such
change, modification, discharge, waiver or consent shall be in writing, duly
signed by or on behalf of the Company, Lend Lease and the holder.
10. Headings. The headings contained in this Note are inserted for
convenience only and do not constitute a part of this Note and shall not affect
in any way the meaning or interpretation of this Note.
<PAGE>
11. Governing Law. This Note is made and delivered in New York, New York,
and shall be governed by and construed and enforced in accordance with the laws
of the State of New York, without regard to conflicts of law principles.
12. No Third Party Beneficiaries. Except as otherwise provided herein,
nothing in this Note shall confer any rights upon any person or entity which is
not a holder of this Note or a successor or permitted assignee of the Company or
such holder.
13. Consent to Jurisdiction, etc. (a) The Company hereby irrevocably and
unconditionally submits, for itself and its property, to the exclusive
jurisdiction of any New York State court or Federal court of the United States
of America sitting in New York City, and any appellate court from any thereof,
in any action or proceeding arising out of or relating to this Note or the
transactions contemplated hereby or for recognition or enforcement of any
judgment relating thereto, and the Company hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State court or, to the
extent permitted by law, in such Federal court. The Company agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
(b) The Company hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Note or the transactions contemplated hereby
in any New York State or Federal court. The Company hereby irrevocably waives,
to the fullest extent permitted by law, the defense of an inconvenient forum to
the maintenance of such action or proceeding in any such court.
(c) The Company irrevocably consents to service of process out of the
aforementioned courts in any action or proceeding arising under this Note, by
the mailing of copies thereof by certified mail, return receipt requested,
postage prepaid, to the Company's address as set forth in Section 6. Nothing in
this Note will affect the right of the holder of this Note to serve process in
any other manner permitted by law.
14. Waiver of Punitive and Other Damages and Jury Trial. (a) THE PARTIES TO
THIS NOTE EXPRESSLY WAIVE AND FOREGO ANY RIGHT TO RECOVER PUNITIVE, EXEMPLARY,
LOST PROFITS, CONSEQUENTIAL OR SIMILAR DAMAGES IN ANY ARBITRATION, LAWSUIT,
LITIGATION OR PROCEEDING ARISING OUT OF OR RESULTING FROM ANY CONTROVERSY OR
CLAIM ARISING OUT OF OR RELATING TO THIS NOTE.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS NOTE IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF OR RELATING TO THIS NOTE.
(c) EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT
OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER
OF THE FOREGOING WAIVERS, (ii) IT UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF SUCH WAIVERS, (iii) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (iv)
IT HAS BEEN INDUCED TO ENTER INTO THIS NOTE BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION 14.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by
its duly authorized officer as of the day and year first above written.
NEPTUNE REAL ESTATE, INC.
By:______________________
Name:
Title:
<PAGE>
Exhibit A-2 to Purchase Agreement
Guarantee
This GUARANTEE, dated __________ __, 1997, by Lend Lease Corporation
Limited (ACN 000 226 228), a corporation incorporated in the state of New South
Wales, Australia ("Lend Lease"), in favor of The Equitable Life Assurance
Society of the United States, a New York stock life insurance company
("Equitable").
W I T N E S S E T H:
WHEREAS, Lend Lease, Neptune Real Estate, Inc., a Delaware corporation and
a wholly-owned subsidiary of Lend Lease ("Neptune"), and Equitable have entered
into a Purchase Agreement, dated as of April 10, 1997 (the "Purchase
Agreement").
WHEREAS, this Guarantee is delivered by Lend Lease pursuant to Section
1.2(c) of the Purchase Agreement to guarantee to the holder of the Note (as
defined herein) payment when due and payable of each installment of the
principal and interest on the note in the principal amount of $100 million
issued by Neptune to Equitable or its designee on the date hereof pursuant to
Section 1.2(b) of the Agreement (the "Note");
Now, THEREFORE, in consideration of the premises, Lend Lease hereby agrees
as follows:
1. Guarantee.
1.1. Guarantee of Payments on the Note. Lend Lease hereby unconditionally
and irrevocably guarantees to the holder of the Note the due and punctual
payment of each installment of the principal of and interest on the Note, as
such amounts may be computed pursuant to the Note, in each case when due and
payable according to the terms of the Note (the "Guaranteed Obligations").
1.2. Rank of Guarantee. This Guarantee is a direct, unconditional and
unsecured obligation of Lend Lease and ranks and will rank pari passu and
rateably with all other unsecured and unsubordinated obligations of Lend Lease
from time to time outstanding other than those which are preferred by mandatory
provisions of law and in priority to all subordinated obligations of Lend Lease
from time to time outstanding.
1.3. Guarantee Not Subject to Counterclaims and Setoffs. This Guarantee is
a present and continuing guarantee of payment and not of collectibility and
shall be absolute and unconditional and, to the extent permitted by applicable
law, the Guaranteed Obligations shall not be subject to any counterclaim,
setoff, deduction or defense based upon any claim Lend Lease may have, at any
time or from time to time, against Equitable, Neptune or any other person. All
amounts payable by Lend Lease under this Guarantee shall be paid without
deduction or withholding for or on account of any present or future tax,
assessment or other governmental charge, or any interest or penalty thereon
(collectively, "Tax") imposed, collected, assessed, or required to be deducted,
withheld or paid by or for the account of the Government of Australia, or any
other taxing jurisdiction from which payment is made hereunder, or any taxing
authority or political subdivision thereof or therein. If any Tax is required by
law to be withheld or deducted from any payment due under this Guarantee, Lend
Lease will pay the full amount of such Tax and will pay such additional amounts
to the holder of the Note as may be necessary so that the net amount actually
received by the holder of the Note in respect of any payment required to be made
under this Guarantee is equal to the amount such holder would have received if
no such Tax had been withheld or deducted from such payment. If the holder of
the Note receives a refund of any Tax to which reference is made in the two
preceding sentences (including any refund in the form of a credit against taxes
imposed by the jurisdiction to which such Tax was paid), the holder of the Note
will pay over the amount of such refund, together with any interest or
accompanying reimbursements, to Lend Lease. This Guarantee shall remain in full
force and effect without regard to, and shall not be released, discharged or in
any way affected or impaired by:
<PAGE>
(a) any amendment or modification of any provision of the Note or any
assignment or transfer thereof, including, without limitation, the renewal or
extension of the time of payment of the Note or the granting of time in respect
of such payment thereof, or of any furnishing or acceptance of security or any
additional guarantee or any release of any security or guarantee so furnished or
accepted for the Note;
(b) any waiver, consent, extension, granting of time, forbearance,
indulgence or other action or inaction under or in respect of the Note, or any
exercise or non-exercise of any right, remedy or power in respect hereof or
thereof;
(c) any bankruptcy, receivership, insolvency, reorganization,
rehabilitation, arrangement, readjustment, composition, liquidation or similar
proceedings with respect to Neptune or any other person or the properties or
creditors of any of them;
(d) any impossibility or illegality or performance on the part of Neptune
under the Note or the invalidity, irregularity or unenforceability of the Note;
or
(e) any default, failure or delay, willful or otherwise, on the part of
Neptune or any other person in the performance or compliance with any term of
the Note.
1.4. Waiver of Defenses. Lend Lease hereby unconditionally and expressly
waives, to the fullest extent permitted by law, any and all defenses available
to guarantors, sureties and other secondary parties at law or in equity,
including, without limiting the generality of the foregoing:
(a) diligence, presentment, dishonor and demand for payment and protest of
nonpayment;
(b) acceptance by the holder of the Note or notice of acceptance of this
Guarantee and of presentment, demand and protest;
(c) demand by the holder of the Note for observance or performance of, or
enforcement of, any terms or provisions of this Guarantee or the Note; and
(d) all other notices and demands otherwise required by law which Lend
Lease may lawfully waive.
1.5. Rights are Cumulative. All rights and remedies afforded to the holder
of the Note by reason of this Guarantee, the Note or by law, are separate and
cumulative and the exercise of one shall not in any way limit or prejudice the
exercise of any other such rights or remedies.
1.6. Bankruptcy. The obligations of Lend Lease to make payment in
accordance with the terms of this Guarantee shall not be impaired, modified,
changed, released or limited in any manner whatsoever by any impairment,
modification, change, release or limitation of the liability of Neptune, its
estate in bankruptcy or reorganization resulting from the operation of any
present or future provision of any applicable bankruptcy, rehabilitation or
reorganization statute or from the decision of any court. This Guarantee shall
automatically terminate and Lend Lease shall have no further obligations
hereunder from and after the third anniversary of the date on which all of the
Guaranteed Obligations have been paid in full, provided, however, that Lend
Lease agrees that this Guarantee shall be automatically reinstated if and to the
extent that for any reason any payment by or on behalf of Neptune is rescinded
or must be otherwise restored by the holder of the Note, whether as a result of
any proceeding in bankruptcy or insolvency or reorganization or otherwise.
1.7 Maximum Amount Guaranteed. Notwithstanding anything to the contrary
herein, the aggregate amount required to be paid by Lend Lease to the holder of
the Note pursuant to the terms of this Guarantee shall not exceed: (a) $100
million; plus (b) all interest payable on the Note; plus (c) all reasonable
costs and expenses (including, without limitation, reasonable attorneys' fees)
incurred by the holder of the Note in the enforcement of the Note and this
Guarantee.
<PAGE>
2. Representations and Warranties. Lend Lease represents and warrants as
follows:
2.1. Corporate Status and Authority. Lend Lease is a corporation duly
incorporated and validly existing under the laws of the state of New South
Wales, Australia and has the power and authority to execute and deliver this
Guarantee and perform its obligations hereunder and has obtained all necessary
consents to enable it to do so. The execution, delivery and performance of this
Guarantee have been duly authorized by Lend Lease's Board of Directors, which
constitutes all necessary corporate action on the part of Lend Lease for such
authorization. This Guarantee has been duly executed and delivered by Lend Lease
and constitutes the valid and binding obligation of Lend Lease, enforceable
against Lend Lease in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, reorganization, insolvency, fraudulent
conveyance, moratorium, receivership or similar laws affecting creditors' rights
generally and by general principles of equity (whether considered at law or in
equity).
2.2 No Conflicts. (a) The execution, delivery and performance of this
Guarantee by Lend Lease will not result in (i) any conflict with the memorandum
and articles of association of Lend Lease, (ii) any breach or violation of or
default or requirement of consent of any third party under any statute,
regulation, judgment, order or decree or any mortgage, agreement, deed of trust,
indenture or any other instrument to which Lend Lease is a party or by which
Lend Lease or any of its properties or assets are bound, or (iii) the creation
or imposition of any Lien. The term "Lien" shall include any mortgage, pledge,
security interest, encumbrance, lien, adverse claim or charge of any kind
(including any agreement to give any of the foregoing), any conditional sale or
other title retention agreement or any lease in the nature thereof on or with
respect to any asset of any kind, or any preferential arrangement with respect
to the payment of any obligation for borrowed money with or from the proceeds of
any asset of any kind (including, without limitation, through the creation of
any fund, deposit or other device for the purpose of setting aside funds for the
preferential payment of, or for the purpose of facilitating payments to, any
creditor or group of creditors).
(b) No consent, approval or authorization of or filing with any
Governmental Authority is required on the part of Lend Lease in connection with
the execution and delivery of this Guarantee. "Governmental Authority" shall
mean any national government, any state or other political subdivision thereof,
and any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, including, without
limitation, any government authority, agency, department, board, commission or
instrumentality of the United States, any State of the United States or any
political subdivision thereof, or of Australia, any State of Australia or any
political subdivision thereof.
2.3 Not a trustee. Lend Lease does not enter into this Guarantee in the
capacity of a trustee of any trust or settlement.
2.4 Insolvency. There are no reasonable grounds to suspect that Lend Lease
is unable to pay its debts as and when they become due and payable.
3. Entire Agreement. This Guarantee represents the entire agreement of the
parties with respect to the subject matter hereof and supersedes all other prior
agreements, understandings, statements, representations and warranties, oral or
written, express or implied, between the parties hereto and their respective
affiliates, representatives and agents in respect of the subject matter hereof.
4. Notices. All notices, requests and other communications required or
permitted to be given under this Guarantee shall be deemed to have been duly
given if (a) personally delivered, (b) mailed, certified or registered mail with
postage prepaid, (c) sent by next day or overnight mail or delivery or (d) sent
by fax as follows:
<PAGE>
If to Lend Lease:
Lend Lease Corporation Limited
Level 46, Australia Square
Sydney NSW 2000
Australia
Fax Number: (612)9236-6113
Attn: Company Secretary
with a copy to:
Coudert Brothers
1114 Avenue of the Americas
New York, New York 10036
Fax Number: (212)626-4120
Attention: Andrew S.Hedden, Esq.
If to Equitable:
The Equitable Life Assurance
Society of the United States
1290 Avenue of the Americas
New York, New York 10019
Attn: Treasurer
Fax Number: (212) 707-1504
with copies to:
The Equitable Life Assurance
Society of the United States
1290 Avenue of the Americas
New York, New York 10019
Attn: Law Department
Fax Number:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attn: Thomas M. Kelly, Esq.
Fax Number: (212) 909-6836
or to such other address, or to the attention of such other person as any party
hereto shall specify to the other parties hereto by notice delivered in
accordance herewith.
5. Successors and Assigns. This Guarantee shall remain in full force and
effect, be binding upon and inure to the benefit of Lend Lease and the holder of
the Note and their respective permitted successors and assigns.
6. Amendments. This Guarantee may not be changed, modified or discharged
orally, nor may any waivers or consents be given orally hereunder, and every
such change, modification, discharge, waiver or consent shall be in writing,
duly signed by or on behalf of Lend Lease and the holder of the Note.
7. Headings. The headings contained in this Guarantee are inserted for
convenience only and do not constitute a part of this Guarantee and shall not
affect in any way the meaning or interpretation of this Guarantee.
8. Governing Law. This Guarantee is made and delivered in New York, New
York, and shall be governed by and construed and enforced in accordance with the
laws of the State of New York, without regard to conflicts of law principles.
9. No Third Party Beneficiaries. Except as otherwise provided herein,
nothing in this Guarantee shall confer any rights upon any person or entity
other than the holder of the Note or a successor or permitted assignee of the
holder of the Note.
10. Consent to Jurisdiction, etc. (a) Lend Lease hereby irrevocably and
unconditionally submits, for itself and its property, to the exclusive
jurisdiction of any New York State court or Federal court of the United States
of America sitting in New York City, and any appellate court from any thereof,
in any action or proceeding arising out of or relating to this Guarantee or the
transactions contemplated hereby or for recognition or enforcement of any
judgment relating thereto, and Lend Lease hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State court or, to the extent permitted by law,
in such Federal court. Lend Lease agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
<PAGE>
(b) Lend Lease hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Guarantee or the transactions contemplated
hereby in any New York State or Federal court. Lend Lease hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) Lend Lease irrevocably consents to service of process out of the
aforementioned courts in any action or proceeding arising under this Guarantee,
by the mailing of copies thereof by certified mail, return receipt requested,
postage prepaid, to Lend Lease's address as set forth in Section 10. Nothing in
this Guarantee will affect the right of Equitable to serve process in any other
manner permitted by law.
11. Waiver of Punitive and Other Damages and Jury Trial. (1) THE PARTIES TO
THIS GUARANTEE EXPRESSLY WAIVE AND FOREGO ANY RIGHT TO RECOVER PUNITIVE,
EXEMPLARY, LOST PROFITS, CONSEQUENTIAL OR SIMILAR DAMAGES IN ANY ARBITRATION,
LAWSUIT, LITIGATION OR PROCEEDING ARISING OUT OF OR RESULTING FROM ANY
CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS GUARANTEE.
(2) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS GUARANTEE IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF OR RELATING TO THIS GUARANTEE.
(3) EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT
OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER
OF THE FOREGOING WAIVERS, (ii) IT UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF SUCH WAIVERS, (iii) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (iv)
IT HAS BEEN INDUCED TO ENTER INTO THIS GUARANTEE BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.
IN WITNESS WHEREOF, the undersigned has caused this Guarantee to be duly
executed and delivered by its duly authorized officer as of the date first above
written.
LEND LEASE CORPORATION LIMITED
By:
Name:
Title:
<PAGE>
Exhibit B-1 to Purchase Agreement
Real Estate Investment Advisory Agreement
(general account)
between
The Equitable Life Assurance Society
of the United States
and
Equitable Real Estate
Investment Management, Inc.
dated ________ __, 1997
<PAGE>
TABLE OF CONTENTS
PREAMBLE
Article I Engagement; Compensation; and Standard of Performance
1.1 Engagement and Acceptance
1.2 Compensation; Fees for Services
1.3 Standard of Performance
Article II Duties of the Advisor
2.1 Investment Advice, Services
and Assistance Generally
2.2 Acquisitions
2.3 Mortgage Origination and Loan Servicing
2.4 Advisory and Investment
Management Services
2.5 Dispositions
2.6 Books, Records, Instruments, Documents and Files
2.7 Reports and Information
2.8 Cooperation; Meetings
2.9 Administrative and Other Services
2.10 Data Processing and Computer Services
Article III Authority of the Advisor
3.1 Authority
3.2 Limitations on Authority
Article IV Covenants of the Advisor
4.1 Status and Registration of the Advisor.
4.2 Other Business; Allocation.
4.3 No Assignment or Delegation
4.4 Confidentiality; Proprietary Materials
4.5 No Affiliate Benefits
4.6 Information Relating to the Advisor
4.7 Insurance
4.8 Environmental Compliance
4.9 Property Managers and Other Service Providers
Article V Rights of ELAS
5.1 Execution of Documents
5.2 Audit Review
5.3 Legal Counsel
5.4 Other Advisors
5.5 Personnel
Article VI Indemnification and Related Matters
6.1 Indemnification By the Advisor
6.2 Indemnification By ELAS
6.3 Notices
6.4 Defense of Claims
6.5 Subrogation
Article VII Term and Termination
7.1 Term
7.2 Termination Due to Material Breach
7.3 Termination Due to Legal Duties
7.4 Termination For Material Underperformance
7.5 Additional Remedies
7.6 Obligations Upon Termination
7.7 Termination as to Specified Investment or Service
7.8 Further Assurances on Termination
7.9 License After Termination
7.10 Deliveries and Retention of Records
7.11 Obligations that Survive Termination
Article VII Notices
8.1 Notices
Article IX Definitions
<PAGE>
Article X Miscellaneous
10.1 Dispute Resolution; Arbitration
10.2 Agreements of ELAS.
10.3 Entire Agreement
10.4 Amendments and Waivers
10.5 Governing Law
10.6 Consent to Jurisdiction, etc.
10.7 Waiver of Punitive and Other Damages and Jury Trial
10.8 Interpretation
10.9 Cumulative Remedies
10.10 Binding Effect
10.11 Further Assurances
10.12 Publicity
10.13 Counterparts
10.14 Section Headings
10.15 Severability
10.16 No Third Party Rights
10.17 Successors and Assigns
Schedule 1.2(a) - Fee Schedule
Schedule 1.2(b) - Principles Applicable to Additional Fees
Exhibit 2.3 - Mortgage Loan Servicing
Exhibit 2.4(k) - Mortgage Reinspection Program
Schedule 2.7(d) - List of Reports
Schedule 4.2 - Form of Allocation Report
Schedule 5.5.1 - List of Continuing Employees
Schedule 5.5.2 - List of Employee Positions Subject to ELAS Approval
Exhibit 7.7 - Performance Standards
<PAGE>
Real Estate Investment
Advisory Agreement
(general account)
Real Estate Investment Advisory Agreement, dated as of _______ __, 1997,
between The Equitable Life Assurance Society of the United States, a New York
corporation and life insurance company ("ELAS"), and Equitable Real Estate
Investment Management, Inc., a Delaware corporation (the "Advisor").
PREAMBLE
Lend Lease Corporation Limited is, on the date hereof, purchasing the
Advisor. Prior to the date hereof, the Advisor was a wholly owned indirect
subsidiary of ELAS and ELAS and the Advisor have had a long-standing, mutually
beneficial and profitable business relationship based on business practices
which have been developed during the course of the relationship. It is the
intention and objective of ELAS, the Advisor and Lend Lease Corporation Limited
to continue this relationship under this Agreement. This Agreement is designed
to provide for a continuation of the same high level of services which the
Advisor has been providing to ELAS, in exchange for a fee structure during the
initial term, as set forth in Schedule 1.2(a), which is similar to the current
fee structure, and to provide for ELAS's needs which may change in the future.
At the same time, and in recognition of the goals of Lend Lease Corporation
Limited in purchasing the Advisor, this Agreement is also designed to provide
for a continued long-term relationship between the Advisor and ELAS under
circumstances in which the Advisor will be compensated by ELAS for certain
increases in the requirements of ELAS as provided for in Section 1.2(b).
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, ELAS and the Advisor hereby agree as follows:
Article I
Engagement; Compensation; and Standard of Performance
1.1 Engagement and Acceptance. ELAS hereby engages the Advisor to provide
nondiscretionary investment advisory and asset management services of the kinds
described in this Agreement, upon the terms and conditions set forth in this
Agreement. The Advisor hereby accepts such engagement, acknowledges that ELAS
shall have complete and absolute discretion with respect to decisions to be made
regarding Investments (as such term and certain other terms used in this
Agreement are defined in Article IX), and agrees to perform the covenants and
obligations under this Agreement on its part to be performed. In accepting such
engagement, the Advisor recognizes that ELAS has special circumstances and needs
as a wholly owned subsidiary of a publicly traded company, an insurance company
and a company controlled by a non-United States company. Notwithstanding any
other provision of this Agreement, the Advisor shall not, in connection with new
or additional services requested hereunder, be required to undertake any new
line of business or to engage in any business activity other than those in which
the Advisor has been engaged on or prior to the date of this Agreement.
1.2 Compensation; Fees for Services. (a) Subject to Section 1.2(b),
Section 1.2(c) and Section 1.2(d), ELAS shall pay to the Advisor the fees set
forth in Schedule 1.2(a), as the sole compensation for the services to be
rendered by the Advisor under this Agreement and for all of the Advisor's costs
and expenses incurred in the performance of its duties under this Agreement.
ELAS represents that Schedule 1.2(a) accurately reflects in all material
respects current practice of ELAS and the Advisor relating to the determination
and calculation of fees. Payment of fees shall be made as provided in Schedule
1.2(a). Except as payable under this Section 1.2(a) or pursuant to Section
1.2(b) or as otherwise allocated to an Investment as provided in this Agreement,
the Advisor shall not be reimbursed for any costs and expenses relating to its
duties under this Agreement or to the general operation of its business,
including without limitation, travel expenses, administrative expenses,
employment expenses, legal fees, insurance of the Advisor and its employees,
rent, telephone, utilities and other office expenses.
<PAGE>
(b) If at any time ELAS requests a service under this Agreement, which
service (i) is not part of investment advisory or asset management services
(which services shall include, without limitation, the services described in
Sections 2.1, 2.2, 2.3, 2.4 (a) through (g), 2.4(i) through (q), 2.5, 2.9(a),
2.9(d), 2.9(f), and 2.9(g)) but rather is ancillary to such services (which
ancillary services shall include without limitation, recordkeeping, accounting,
tax, appraisal and related reporting services), and either has not been, prior
to the date hereof, a regularly provided or recurring ancillary service (which
regularly provided or recurring ancillary services shall include without
limitation, all recordkeeping, accounting, tax, appraisal and related reporting
services recurring or regularly provided by the Advisor to ELAS prior to the
date hereof, including those services related to the reports set forth on
Schedule 2.7(d)) or, although constituting such a regularly provided or
recurring ancillary service, has become materially more extensive or burdensome
to provide as a result of an increase in the level of such service requested by
ELAS (in which case ELAS shall, subject to the proviso to this sentence, be
obligated to compensate the Advisor only for the incremental increase in cost
caused thereby), or (ii) although arguably an investment advisory or asset
management service required to be provided hereunder, constitutes a unique or
special project for which investment managers providing investment advisory or
asset management services to institutional clients under arrangements comparable
to this Agreement customarily would receive a separate and special fee, ELAS
will, in addition to the fees payable to the Advisor under Schedule 1.2(a),
compensate the Advisor in respect of the provision of such service in accordance
with the principles set forth in Schedule 1.2(b), provided that the Advisor
shall, with respect to any calendar year, be entitled to compensation under this
Section 1.2(b) only to the extent the amounts which, but for this proviso, would
be payable to the Advisor in respect of all services falling within this Section
1.2(b) and Section 1.2(b) of the Real Estate Investment Advisory Agreement,
dated the date hereof, between ELAS and Equitable Agri-Business Inc. shall
exceed the aggregate sum of $200,000 in such calendar year (appropriately
adjusted annually on January 1 in each year to reflect changes in the consumer
price index and appropriately adjusted for any portion of a calendar year at the
beginning or end of the term hereof). As a condition to the payment of any
amount due the Advisor under this paragraph (b), prior to providing a service
which the Advisor believes is subject to this Section 1.2(b), the Advisor shall
so notify ELAS in writing, which notice shall also contain the information
required by Schedule 1.2(b). With respect to any services provided which fall
within this Section 1.2(b), the Advisor shall submit invoices to ELAS setting
forth the amounts chargeable in respect of such services, the basis of the
calculation thereof and in such other detail and with such back-up documentation
as reasonably requested by ELAS. Payments of such invoices shall, subject to the
proviso contained in the first sentence of this Section 1.2(b), be made to the
Advisor within 15 days after the submission thereof.
(c) As provided in Section 7.1, the term of this Agreement shall be
automatically renewed for one additional four-year period beginning on January
1, 2005. ELAS and the Advisor agree that, commencing on September 1, 2004, and
effective as of such renewal term, they will, in good faith, consider amendments
to the fee schedule contained in Schedule 1.2(a) to reflect then current market
practice and, as necessary, will resolve any disagreement with respect to such
fees in accordance with Section 10.1.
(d) As provided in Exhibit 7.7 attached hereto, the fees payable by ELAS to
the Advisor under this Section 1.2 shall be subject to reduction under the
circumstances provided for and in accordance with the terms set forth therein.
1.3 Standard of Performance. The Advisor shall (a) discharge its duties
with the care, skill, prudence and diligence under the circumstances then
prevailing that a prudent person acting in a like capacity and familiar with
such matters would use in the conduct of an enterprise of a like character and
with like aims and (b) act in accordance with the standards in effect from time
to time under federal and New York law (with respect to New York Insurance Law
only, to the extent communicated by the ELAS Law Department to the Advisor from
time to time or as otherwise known to the Advisor) which apply to any person
serving in the capacity with respect to ELAS in which the Advisor is then
serving.
<PAGE>
Article II
Duties of the Advisor
2.1 Investment Advice, Services and Assistance Generally . The Advisor
shall advise, assist and provide services and make recommendations to ELAS with
respect to the Investments. The Advisor shall provide ELAS with the advice,
analyses, recommendations and other services and support set forth in this
Agreement.
2.2 Acquisitions. The Advisor shall, to the extent such investments are
within the categories of investments in which ELAS has indicated an investment
interest, seek out and recommend to ELAS, in accordance with guidelines (as such
term is defined in Article IX), potential Equity Investments, Mortgage
Investments and Real Estate Securities for acquisition by ELAS which conform to
such portfolio objectives and policies as may be specified from time to time by
ELAS and shall negotiate for such acquisitions on such terms and conditions as
ELAS shall determine. To the extent requested by ELAS and in accordance with
guidelines, the Advisor shall assist ELAS in the acquisition of each Investment,
shall prepare an investment analysis thereof, shall conduct or cause to be
conducted due diligence with respect to each potential property and Investment
and shall certify to ELAS in writing that such investment analysis and due
diligence has been completed in all material respects in accordance with the
applicable guidelines.
2.3 Mortgage Origination and Loan Servicing. The Advisor shall, to the
extent such investments are within the categories of investments in which ELAS
has indicated an investment interest, seek out and recommend to and assist ELAS
in originating, negotiating and closing mortgage loan Investments which conform
to such portfolio objectives and policies as may be specified from time to time
by ELAS. In accordance with guidelines, the Advisor shall prepare an investment
analysis of each proposed mortgage loan Investment, shall conduct or cause to be
conducted due diligence with respect to each such proposed Investment and shall
certify to ELAS in writing that such investment analysis and due diligence has
been completed in all material respects in accordance with the applicable
guidelines. The Advisor shall perform standard mortgage loan servicing functions
in accordance with guidelines. Such functions shall include the preparation of
reports, the making of recommendations, the assistance and the services
described in Exhibit 2.3 attached hereto.
2.4 Advisory and Investment Management Services. The Advisor shall provide
real estate investment advice and advisory services and shall provide a full
range of asset management services for ELAS as set forth herein. As part of such
services, the Advisor shall, in accordance with guidelines, perform the
following asset management services with respect to the portfolio of Investments
and with respect to each Investment or property which is the subject of an
Investment, as the case may be, and as appropriate depending on whether an
Investment is an Equity Investment, a Mortgage Investment or a Real Estate
Security, in each case subject to the provisions of Section 1.2 hereof:
(a) keep abreast of and inform ELAS with respect to real estate investment
activity and markets generally and current investment trends, structures,
techniques and practices for real estate and real estate related investment
products and investigate, develop, analyze, recommend and assist with real
estate investment and related strategies and products;
(b) advise and assist ELAS regarding the nature, size, mix, geographic
distribution and timing of Investments, uses of cash flow from operations and
capital transactions and the establishment of investment and operational goals,
policies and procedures;
(c) report and make recommendations to ELAS with respect to the
acquisition, sale, ownership, management, leasing, operation, maintenance and
improvement of properties held or being considered as possible Investments by
the general account;
<PAGE>
(d) report and make recommendations to ELAS with respect to on-site
property management, leasing, operation, maintenance and improvement of each
property, including without limitation, recommendations relating to the
collection of revenues therefrom, the payment of operating and capital expenses
relating thereto and the procedures for forwarding the net receipts to ELAS;
(e) supervise and institute appropriate procedures with respect to the
activities of the property manager and leasing agent for each property and
monitor the operational results of each property and formulate operating
policies and leasing guidelines and report and make recommendations to ELAS with
respect thereto;
(f) advise ELAS with respect to standard form documentation for Equity
Investments and Mortgage Investments;
(g) implement all transactions with respect to Investments or potential
Investments, conduct negotiations relating to Investments, supervise compliance
with contractual undertakings of ELAS with respect to Investments, manage and
act on behalf of ELAS with respect to participants in Mortgage Investments and
partners or other co-owners in joint venture, partnership or other arrangements
with respect to Investments, assist ELAS with respect to third-party financing
for Investments, and report and make recommendations to ELAS with respect
thereto;
(h) review, develop and implement financial, banking, recordkeeping,
accounting, management and information systems and controls for the portfolio of
Investments and for each Investment;
(i) develop for ELAS's approval annual and short, intermediate and
long-term operating plans for each Investment, including forecasts, operating
programs and budgets, capital expenditures, insurance data and marketing or
leasing strategies;
(j) timely report and make recommendations to ELAS with respect to any
pending or threatened litigation or Regulatory Authority investigation or
proceeding concerning or relating to the general account portfolio of
Investments as a whole or any Investment or property now or formerly therein or
any actual or alleged conduct or practices of ELAS, the Advisor or any of their
agents with respect thereto and monitor and assist ELAS with respect thereto;
(k) physically inspect each Equity property on a regular basis, in
accordance with past practice, to monitor that it is being maintained in a good
state of repair and in compliance with applicable legal and insurance
requirements, and comply with ELAS's mortgage reinspection program (as set forth
in Exhibit 2.4(k) hereto) with respect to each Mortgage property;
(l) timely report and make recommendations to ELAS with respect to any
damage, destruction or condemnation of a property or any other event or
development which may be covered by insurance and assist ELAS with respect
thereto, with respect to the repair or other cure of any such damage or damage
caused thereby and with respect to timely notification of appropriate insurance
carriers, negotiation and settlement with such carriers and the collection of
insurance proceeds and condemnation awards with respect thereto;
(m) identify, monitor, report on and make recommendations to ELAS
concerning, and attend quarterly meetings of ELAS's Investments Under
Surveillance Committee or any successor thereto (the "Committee") with respect
to (i) any Mortgage Investments having negative financial trends or
demonstrating such other characteristics as may be established by ELAS from time
to time in connection with its valuation policies in order to enable the
Committee to determine whether the values of such Mortgage Investments are
impaired, whether valuation allowances or reserves should be established for
such Mortgage Investments and/or whether the classification of such Mortgage
Investments should be changed; (ii) any Mortgage Investments whose terms are
being renegotiated in order to enable the Committee to determine if the
classification of valuation of such Mortgage Investments should be changed;
(iii) any Equity Investment identified by ELAS as being held for sale or which
is a potential candidate for sale in order to enable the Committee to determine
if any additions, changes or deletions should be made to ELAS's schedule of
Equity Investments held for sale and (iv) any Equity Investments identified by
ELAS as being held for the production of income in order to enable the Committee
to determine whether the values of such Equity Investments are impaired;
<PAGE>
(n) provided the Advisor is permitted to do so under agreements applicable
to such Investments, oversee and monitor the preparation and delivery by each
property manager, and review and recommend to ELAS, an annual operating and
capital budget for each Equity Investment, using its best efforts to cause the
same to be delivered to ELAS by not less than 90 days prior to the beginning of
each calendar year (and, unless and until ELAS disapproves such budget, the
property manager may operate such property in accordance with such budget);
(o) timely notify ELAS if the Advisor becomes aware of any material
violation of a Regulatory Requirement applicable to any Investment or any
property;
(p) form, maintain, qualify to do business, direct and dissolve any title
holding company or entity to hold title to any Investment, serve as (and provide
employees of the Advisor to serve as) officers, directors, members or other
representatives of any such title holding company or entity and take all such
lawful action with respect to any such title holding company or entity as may be
directed by ELAS, with the out-of-pocket costs associated therewith to be
charged to the Investment; and
(q) prepare committee presentations and related reports, committee or
delegated authority sheets, resolutions and similar materials relating to
Investments or proposed Investments, and assist ELAS in responding to any
requests, investigations or inquiries by any direct or indirect parent of ELAS
or any Regulatory Authority, including without limitation, assisting and
providing support to ELAS in connection with each quinquennial examination
conducted by the New York State Insurance Department.
2.5 Dispositions. The Advisor shall develop guidelines for the disposition
of Investments. In connection therewith, the Advisor shall recommend, for the
approval of ELAS, real estate brokers to assist in marketing, selling and
otherwise disposing of a particular Investment or group of Investments and
negotiate for such dispositions on such terms and conditions as ELAS shall
determine.
2.6 Books, Records, Instruments, Documents and Files. The Advisor shall
keep accurate books, records, data and files (including without limitation,
computerized material) with respect to the Investments and proposed Investments,
in accordance with guidelines and in such detail as is appropriate under the
circumstances. In accordance with and subject to Regulatory Requirements, the
Advisor shall have full responsibility for the maintenance, care and
safe-keeping of all Investment Information presently being maintained by the
Advisor or hereafter generated or obtained by the Advisor in performing its
obligations under this Agreement. All Investment Information shall be kept and
maintained by the Advisor at its office address set forth in Section 8.1 or such
other office addresses or locations as ELAS may approve, which approval shall
not be unreasonably withheld, or, to the extent in accordance with current
practice and permitted by Regulatory Requirements, at the regional offices of
the Advisor, as the same may change from time to time, and the Advisor will give
ELAS prior notice of any such change. All Investment Information shall be and
remain the sole and exclusive property of, and shall belong to and remain under
the ultimate control of, ELAS who shall at all times have, subject to Section
2.10, complete and unrestricted access to all Investment Information. ELAS may
at any time and from time to time revoke the Advisor's responsibility to keep
and maintain any Investment Information, provided that the Advisor shall be
given copies of or access to any Investment Information to the extent necessary
to enable the Advisor to perform its obligations under this Agreement. The
Advisor shall not in any way interfere with or deprive ELAS of its ownership,
control or right of access to such written and computerized Investment
Information which may be enforced by ELAS by an action at law or in equity,
whether for specific performance or injunction or otherwise, even if ELAS is in
default hereunder or after this Agreement has terminated. All Investment
Information shall be open to inspection and audit, at all reasonable times, by
ELAS, its designees and Regulatory Authorities, and the Advisor shall, if
requested, make and deliver copies and extracts therefrom to any such person,
without charge (unless copying costs become unreasonable in which case ELAS
shall reimburse the Advisor therefor). All Investment Information may be audited
from time to time by independent accountants selected and paid for by ELAS.
<PAGE>
2.7 Reports and Information. The Advisor shall provide to ELAS, with
respect to the Investments, the following reports and information, in such form
as provided prior to the date hereof or such other form as ELAS may reasonably
request, whether in computerized form (if not provided in computerized form
prior to the date hereof, computerized form shall only be required to the extent
the same are capable of being generated on the systems of the Advisor) or on
paper, in each case subject to the provisions of Section 1.2 hereof:
(a) as soon after the end of each such period as may be reasonably
requested (with due regard to Regulatory Requirements) by ELAS from time to
time, monthly, quarterly, semiannual (as to Purchase GAAP only) and annual
reports, general ledger journal entries and other information prepared in
accordance with Regulatory Requirements (including without limitation,
Securities and Exchange Commission and New York Insurance Department) and on
segmented, IYAM, GAAP and Purchase GAAP bases;
(b) as soon after the end of each quarter as may be reasonably requested
(with due regard to Regulatory Requirements) by ELAS, a management
representation letter to the controller of ELAS, on accounting, reporting and
disclosure issues in support of the quarterly management representation letter
to be issued by ELAS to its independent accountants, signed by such appropriate
officers of the Advisor as ELAS may request;
(c) at such time or times as ELAS may request upon reasonable notice (with
due regard to Regulatory Requirements), such reports, returns, disclosures or
other communications to ELAS, ELAS's independent accountants, property managers,
tenants and other persons, as ELAS is required to prepare, obtain, provide or
file or deems it advisable to prepare, obtain, provide or file according to,
pursuant to or in conformity with any Regulatory Requirement, including any
information requested by ELAS to enable it to prepare any such reports, returns,
disclosures or other communications; and
(d) such additional data, reports, analyses and information as are set
forth on Schedule 2.7(d) hereto or as ELAS shall otherwise request upon
reasonable notice (with due regard to Regulatory Requirements), whether in
connection with the portfolio of Investments or any Investment.
Each of the reports and information set forth in Schedule 2.7(d) shall be
delivered to ELAS not later than the business day or days, if any, specified on
such Schedule with respect thereto or on such other date as ELAS may reasonably
request from time to time, and where no date is specified on such Schedule, on
such date as ELAS may reasonably request from time to time.
2.8 Cooperation; Meetings. ELAS and the Advisor shall cooperate and carry
on a regular dialogue with each other. The Advisor, represented by such officers
and other employees of the Advisor as ELAS may reasonably require, shall meet
with representatives of ELAS regularly at such times as are reasonably
established by ELAS to discuss and review the performance of the Investments,
the performance of the Advisor under this Agreement and any other matters
relating or pertaining to this Agreement and shall attend meetings, as
reasonably requested by ELAS, on-site at any property, at the offices of ELAS or
at any other location as may be reasonably designated by ELAS. In addition,
appropriate officers and employees of the Advisor reasonably designated by the
Chief Investment Officer of ELAS shall attend and participate in meetings of an
investment advisory committee comprised of ELAS officers and employees. Such
committee shall be chaired by ELAS's Chief Investment Officer or his or her
designee and shall meet, as frequently as ELAS and the Advisor may in good faith
agree, by telephone or video conference. The Chief Investment Officer of ELAS or
his or her designee shall also be entitled to attend by telephone, video
conference or in person formal meetings of the investment committee of the
Advisor concerning the Investments or proposed Investments and the Advisor shall
keep ELAS informed of the time and place of all such meetings.
2.9 Administrative and Other Services. The Advisor shall provide the
following administrative and other services in accordance with guidelines,
subject in each case to the provisions of Section 1.2 hereof:
(a) Cash Management Services. The Advisor shall (i) deposit all payments
related to Mortgage Investments collected by the Advisor in a commingled lockbox
account in the name of the Advisor or, if ELAS so requests, in a Designated
Account, and if deposited in a commingled lockbox, transfer the same to a
Designated Account within one business day and pay all expenses with respect to
Mortgage Investments from such Designated Account, (ii) cause all property
managers of Equity properties to deposit all revenues collected therefrom into
and pay all expenses relating thereto out of Designated Accounts in accordance
with annual operating and capital budgets with respect thereto approved by ELAS
or otherwise as agreed to by ELAS and the Advisor, (iii) send or cause to be
sent to ELAS on a daily basis all sums in such Designated Accounts in excess of
such expenses, provided, however, that sums in excess of expenses in Designated
<PAGE>
Accounts for Equity properties managed by property managers unrelated to the
Advisor shall be sent to ELAS not less frequently than monthly, (iv) advise ELAS
before 12:00 noon New York time each business day of the total amount in such
accounts to be sent that day to ELAS or as ELAS may designate or of such
additional amount, if any, as may be required from ELAS on such date, (v)
deliver to ELAS, not less frequently than quarterly, a list (in computerized
form and/or such other form as ELAS may request) of all bank accounts with such
information as ELAS may request, (vi) deliver to ELAS, not less frequently than
quarterly, a list (in computerized form and/or such other form as ELAS may
request) of all bank accounts, containing the then book balance in each such
account, (vii) deliver to ELAS, on such regular basis as ELAS may request, a
forecast of sale proceeds, mortgage payoffs and other sums which the Advisor
expects that ELAS will be receiving from third parties with respect to the
Investments to the extent the same exceed $3,000,000 in the aggregate (other
than payments related to Mortgages and net cash flow from Equities in the
ordinary course) and a forecast of acquisition payments, advances for capital
improvements, mortgage loan advances and other sums which the Advisor expects
that ELAS will have to pay to third parties to the extent the same exceed
$3,000,000 in the aggregate, and (viii) adopt appropriate check and electronic
funds transfer fraud prevention procedures. The Advisor will pay the cost of
maintaining any commingled lockbox account (and will be entitled to retain all
interest earned in respect thereof) referred to above, and the cost of any
Designated Account (interest on which shall belong to ELAS) will be charged to
the Investment for which such Account has been established.
(b) Accounting Services. The Advisor shall (i) establish and maintain (and
require and assist property managers and other contractors to establish and
maintain) a system of internal accounting and financial controls designed to
provide reasonable assurance of the reliability of financial reporting, the
effectiveness and efficiency of operations and compliance with Regulatory
Requirements (provided that any audit of the Advisor's internal controls shall
be provided by ELAS internal audit personnel without cost to the Advisor), (ii)
maintain records for each Investment on cash (in the form currently provided),
regulatory, tax, GAAP, Purchase GAAP and other bases as may be requested by
ELAS, (iii) develop accounting entries and reports (including without
limitation, schedules for periodic and annual filings with Regulatory
Authorities) required by ELAS to meet its reporting obligations, (iv) consult
with ELAS with respect to proposed or new accounting/regulatory rules identified
by ELAS or the Advisor, (v) consult with ELAS regarding implications of proposed
and actual transactions, (vi) provide data for gain and loss analyses, risk
based capital analyses, projections, discontinued and closed block analyses,
asset valuation reserve (AVR) analyses and segmentation changes, (vii) assist
ELAS in meeting its accounting and reporting needs, including without
limitation, assisting ELAS with responses to Regulatory Authorities and ELAS's
direct or indirect parent and assisting ELAS with unique insurance accounting
calculations, and (viii) deliver to ELAS on an annual basis, for no additional
fee under Section 1.2(b), on such date as ELAS may reasonably designate, an SAS
70 opinion letter (containing reports on both controls placed in operation and
tests of operating effectiveness), prepared by a nationally recognized
accounting firm.
(c) Tax Related Services. The Advisor shall (i) assemble, maintain and
provide ELAS with information and data with respect to the Investments required
for the preparation of quarterly and annual financial statement tax liabilities
and forecasts, federal, state, local and foreign tax returns, any audits,
examinations or administrative or legal proceedings related thereto or any
contractual tax indemnity rights or obligations, (ii) assist ELAS tax planning
by providing factual data reasonably requested by ELAS to enable it to prepare
projections of gains, losses and tax obligations and by determining depreciation
schedules to enable ELAS to determine related tax treatment of particular items,
(iii) assemble, record, organize and report to ELAS data and information with
respect to the Investments relative to taxes and tax returns in such form as may
be requested by ELAS, and (iv) prepare, file and send to appropriate persons
(including ELAS tax accountants and counsel) applicable tax information
reporting forms with respect to the Investments, the properties and transactions
involving the Investments and the properties (including without limitation,
information reporting forms, whether on Form 1099 or otherwise, with respect to
sales, foreclosures, interest received, interest paid, partnership reports and
other relevant transactions); it being understood that, in the context of the
foregoing, ELAS shall rely on its own tax advisers in the preparation of its own
tax returns (other than those reporting forms to be prepared by the Advisor
under this Section 2.9(c)) and the conduct of any audits, examinations or
administrative or legal proceedings related thereto and that, without limiting
its obligation to provide the information, data, reports and other assistance
provided herein, the Advisor will not be responsible for the preparation of such
returns or the conduct of such audits, examinations or other proceedings.
(d) Engineering and Environmental Services. The Advisor shall (i) provide
engineering and environmental services consistent with those currently provided
by the Advisor to ELAS, and (ii) have as employees individuals with appropriate
background and expertise to fulfill the Advisor's duties under Section 4.8 of
this Agreement and to evaluate and analyze engineering and environmental
reports.
<PAGE>
(e) Appraisal and Valuation Services. The Advisor shall (i) provide
appraisal and valuation services consistent with those currently provided by the
Advisor to ELAS, (ii) have as employees individuals with appropriate background
and expertise to appraise and value properties and to evaluate and analyze real
estate appraisals and to prepare certificates of value which shall be signed by
an employee of the Advisor who is a Member of the Appraisal Institute, and (iii)
prepare, maintain and update a valuation file for each property, containing such
information and in such detail as may be reasonably requested by ELAS from time
to time, including without limitation, an annually current recommended valuation
based on generally accepted appraisal principles and applicable insurance
regulatory requirements.
(f) Public Relations Services. The Advisor (i) shall submit to ELAS, for
approval, public relations plans and strategies pertaining to the portfolio of
Investments, and individual Investments or proposed Investments or properties,
(ii) shall promptly notify ELAS of any issues, events and activities with
respect to any of the foregoing which may generate adverse media interest, (iii)
shall, pursuant to guidelines, submit to ELAS for prior review and approval
advertising, marketing and other public communications materials with respect to
the foregoing, (iv) shall not communicate with or respond to any inquiry of the
media with respect to the foregoing, other than pursuant to guidelines, without
the prior approval of ELAS on a case by case basis or pursuant to a strategy
previously approved by ELAS in writing, and (v) may include ELAS in its list of
clients or make reference to ELAS as a client in any proposal, advertising or
other communication, but may not otherwise mention ELAS or any of its affiliates
in any of the foregoing or otherwise use or display the name or logo of ELAS or
any ELAS affiliate without ELAS's prior written consent.
(g) Insurance Services. The Advisor shall (i) provide ELAS with information
needed to place and maintain policies of insurance on the properties, (ii)
provide ELAS and ELAS's insurers, if so requested, with timely notice of any
loss or claim with respect to any property, (iii) cooperate with ELAS and ELAS's
insurers in the assertion and collection of any insurance claims and in the
defense of any actions brought against ELAS in connection therewith, and (iv)
monitor ELAS's compliance with insurance and risk management requirements as
communicated to the Advisor by ELAS.
(h) Other Services. The Advisor shall provide such other services as ELAS
may request from time to time consistent with the purposes of this Agreement and
either consistent with services generally provided by real estate investment
advisors or related to unique requirements of ELAS as indicated in this
Agreement.
2.10 Data Processing and Computer Services. (a) The Advisor shall, subject
to the provisions of Section 1.2 hereof, provide ELAS (i) such information
technology, data processing, computer services and related reports as are
necessary to provide the services which the Advisor is to provide under this
Agreement, (ii) such other information technology, data processing, computer
services and related reports as the Advisor has customarily provided to ELAS
prior to the date hereof and (iii) such other information technology, data
processing, computer services and related reports relating to the general
account as ELAS may reasonably request during the term of this Agreement (for
purposes of this clause 2.10(a)(iii), the reasonableness of ELAS's request will
take into account the effect of such request on the Advisor's security needs).
Without limiting the foregoing, the Advisor will provide ELAS via electronic
transmission, in accordance with Schedule 2.7(d) or at such other times as ELAS
may reasonably request, the electronic data that the Advisor has customarily
provided to ELAS prior to the date hereof and such other data relating to the
general account as ELAS may reasonably request during the term of this Agreement
(collectively, the "Data Transmissions"). In addition, ELAS may access and use
the software and hardware (and any replacements thereof) used to provide the
foregoing services to ELAS (collectively, the "Advisor Systems") (i) to view the
data relating to the general account, on a query-only basis for audit purposes,
to the extent and in the manner that ELAS so accessed and used such software and
hardware prior to the date hereof and such access and use does not conflict with
the Advisor's confidentiality obligations with respect to its other clients and
(ii) as ELAS may otherwise reasonably request during the term of this Agreement,
subject to the Advisor's security and confidentiality needs, provided that, at
the request and cost of ELAS, the Advisor will make reasonable provision to
enable ELAS to otherwise access data relating to the general account as
reasonably requested by ELAS through the downloading of such data to separate
magnetic tape, disc or hard drive or through the use of some other technical
infrastructure (whether by separate file server or otherwise) which will enable
ELAS to access such data without conflicting with the Advisor's confidentiality
obligations to its other clients.
<PAGE>
(b) In addition to the computer services referred to in Section 2.10(a)
above, the Advisor shall, subject to the provisions of Section 1.2 hereof,(i)
provide ELAS via electronic transmission on a monthly basis or as ELAS may
otherwise reasonably request with such electronic data (in addition to the Data
Transmissions) with respect to the Investments as ELAS may reasonably request,
(ii) provide ELAS via magnetic tape or disc at such times as ELAS may reasonably
request, but not more frequently than monthly, with a copy of all data with
respect to the Investments in its PROJECT property valuation system, its MRI
management reporting information system and such other of the Advisor Systems as
ELAS may designate (the "Systems Data") and (iii) at the request and cost of
ELAS, make reasonable provision to enable ELAS to otherwise access the Systems
Data through the downloading of such data to separate magnetic tape, disc or
hard drive or through the use of some other technical infrastructure (whether by
separate file server or otherwise) which will enable ELAS to access the Systems
Data without conflicting with the Advisor's confidentiality obligations to its
other clients. ELAS may access the Advisor Systems at any of the Advisor's
offices, by one or more terminals installed in ELAS's offices to the extent and
in the manner currently so accessed or, if the technology should become
available and at the cost of ELAS, through ELAS's own computer systems. In
determining the reasonableness of any request made pursuant to this Section
2.10(b), the effect of such request on the Advisor's security and
confidentiality needs shall be taken into account.
(c) The Advisor may modify or upgrade the Advisor Systems at its
discretion, provided that (i) the Advisor shall ensure, at its expense, that the
Data Transmissions remain compatible with the ELAS hardware and software (the
"ELAS Systems") to the extent that such transmissions were compatible
immediately prior to such modification or upgrade and (ii) that the Advisor
Systems and ELAS Systems remain compatible to the extent necessary to enable
ELAS to access the Advisor Systems and Systems Data as provided above, provided
that if a third-party provider of communications services is the cause of the
incompatibility the parties will negotiate in good faith the costs of any
necessary modifications. In the event that ELAS modifies the ELAS Systems such
that they become incompatible with the Advisor Systems, the Advisor shall use
its best efforts, at ELAS's expense, to modify the Advisor Systems as may be
necessary to maintain or restore compatibility with the ELAS Systems, provided
that the Advisor shall consult with ELAS with respect to such costs.
(d) To the extent the Advisor develops any software at the request and cost
of ELAS, the Advisor shall have no right to use the same for its other clients
or for any other purpose, unless otherwise agreed in writing by ELAS, provided
that, if such software cannot be integrated into the Advisor Systems in such a
manner as will avoid its use for its other clients, the Advisor will, after
consultation with ELAS where material costs are involved, in good faith seek to
collect the pro-rata (based on revenues received from clients) costs thereof
from each of such other clients, in which event such collections will be
delivered to ELAS in reimbursement of a portion of the costs of such
development.
(e) The Advisor shall be responsible for implementing necessary procedures
to enable the Advisor Systems to be Year 2000 Compliant and will advise ELAS on
a regular basis as to the status of such efforts. For purposes of this Section
2.10(e), "Year 2000 Compliant" means that all software that contains or calls on
a calendar function, including but not limited to any function that is indexed
to a computer processing unit clock, provides specific dates or calculates spans
of dates, and is able to record, store, process and provide true and accurate
dates and calculations for dates and spans of dates including and following
January 1, 2000.
(f) Except as may otherwise be required to adhere to the Advisor's
obligations under subsection (c), the Advisor shall maintain and upgrade the
Advisor Systems as necessary to conform such systems to then-current industry
standards applicable to institutional real estate investment advisors and, to
the extent consistent with industry standards, will use only versions of
third-party software that are then-available for sale from vendors. The Advisor
shall also be responsible for implementing computer maintenance and operating
procedures, in accordance with standard industry practice, which shall include,
but shall not be limited to, making back-up copies of the Advisor Systems and
the ELAS data contained therein and making appropriate provision for the secure
storage thereof.
(g) The Advisor shall have all necessary licenses and rights from third
parties to enable it to provide the services contemplated hereunder, including
but not limited to any rights from third parties, whether by license or
otherwise, to any software or other technology necessary to provide the services
described in this Section 2.10 and the rights granted to ELAS hereunder, except
to the extent that the Advisor does not, at the date of this Agreement, possess
necessary consents or licenses from third parties.
<PAGE>
Article III
Authority of the Advisor
3.1 Authority. The Advisor and ELAS are not partners or joint venturers
with each other under or with respect to this Agreement or the investments and
properties covered by this Agreement, and nothing contained in this Agreement
nor any transaction or activity conducted pursuant to this Agreement shall be so
construed or interpreted or impose any liability as such on either the Advisor
or ELAS. The Advisor shall perform its duties under this Agreement as an
independent contractor and not as an agent of ELAS. Except to the extent
expressly authorized and directed by ELAS in writing, no officer, employee or
agent of the Advisor shall, under any circumstances or for any purpose, become
or be an officer, employee or agent of ELAS by reason of this Agreement, and the
Advisor's officers, employees and agents shall, when acting on behalf of ELAS,
represent themselves as officers, employees or agents, as the case may be, of
the Advisor and not of ELAS.
3.2 Limitations on Authority. The Advisor's authority under this Agreement
shall be subject to limitations imposed by the New York Insurance Law and other
applicable federal and state law. The Advisor shall also be governed by the
investment policies, practices and procedures established by ELAS from time to
time for its general account, as communicated to the Advisor by ELAS. In
providing the services contemplated by this Agreement, the Advisor will comply
in all material respects with all applicable provisions of the New York
Insurance Law of which it has been advised by ELAS or of which it is otherwise
aware and other applicable federal, state and other laws.
Article IV
Covenants of the Advisor
4.1 Status and Registration of the Advisor. The Advisor shall at all times
(a) be validly existing and in good standing under the laws of its state of
incorporation, (b) be duly registered with the United States Securities and
Exchange Commission as an investment adviser under the Investment Advisers Act
of 1940, as amended, to the extent required to perform its obligations under
this Agreement, (c) be duly qualified to do business and duly registered or
licensed as an investment adviser, a real estate broker and a mortgage broker in
each state or jurisdiction necessary to perform its obligations under this
Agreement, and (d) have completed, obtained or performed all registrations,
filings, approvals, licenses, consents and examinations required by any
Regulatory Authority which are required in connection with the performance of
its obligations under this Agreement.
4.2 Other Business; Allocation. The Advisor may engage in any other
business or act as advisor to or investment manager for any other person, even
though such other person has or may have investment policies similar to those
followed by the Advisor with respect to ELAS for its general account, provided
that the Advisor shall at all times allocate investment opportunities among
clients of the Advisor on a fair and equitable basis. Subject only to the
foregoing requirement, the Advisor shall be free from any obligation to
recommend to ELAS for its general account any particular investment opportunity
which may come to the attention of the Advisor, provided that any such
investment opportunity that is reasonably related to an existing Investment
shall, to the extent the Advisor is not prohibited from doing so (the Advisor
agreeing not to initiate any such prohibition) and subject to its general
obligation to clients to allocate investment opportunities on a fair and
equitable basis, first be presented and made available to ELAS, for the general
account. Except to the extent expressly prohibited or limited by confidentiality
(in which case the Advisor shall so inform ELAS as to the bases thereof) and to
the extent such investments are within the category of investments in which ELAS
has indicated an investment interest, the Advisor shall continue to deliver an
allocation report (in the form attached as Schedule 4.2 hereto) to ELAS, as
often and in such detail as is currently provided.
4.3 No Assignment or Delegation. (a) Neither this Agreement nor any of the
Advisor's right, title or interest herein or hereunder may be directly or
indirectly (including without limitation, by any "assignment" within the meaning
of the Investment Advisers Act of 1940, as amended, whether direct or indirect,
and whether by operation of law or otherwise) assigned, transferred, conveyed or
otherwise disposed of to any person, including without limitation, any
subsidiary or other affiliate of the Advisor, without the prior written consent
of ELAS, and any attempt to so assign, transfer, convey or otherwise dispose of
any thereof without such prior written consent shall be null and void.
<PAGE>
(b) No duty or obligation of the Advisor hereunder may be contracted for or
otherwise delegated by the Advisor to any person, including without limitation,
any subsidiary or other affiliate of the Advisor, without the prior written
consent of ELAS, and any attempt to so contract or otherwise delegate any
thereof without such prior written consent shall be null and void, provided that
the Advisor may, with the consent of ELAS, which shall not be unreasonably
withheld, delegate any service to be provided by the Advisor under this
Agreement, other than investment advisory services, asset management services,
acquisition, mortgage origination and disposition services, and tax, accounting
and recordkeeping services. If ELAS consents to the contracting or other
delegation to any person of any duty or the performance of any function required
to be performed hereunder by the Advisor, the Advisor shall pay all costs and
expenses incurred in connection therewith. No consent to any contracting or
other delegation shall release the Advisor from its obligations hereunder to
perform the duty or function so delegated (and, in the case of any contracting
or delegation of engineering or environmental or appraisal services, such
consent shall not relieve the Advisor of its obligations under Sections
2.9(d)(ii) or 2.9(e)(ii), respectively), the Advisor shall continue to be liable
to ELAS with respect to such delegated duty or function and with respect to the
performance thereof by such other person, notwithstanding such contracting or
other delegation, and any person to whom any duty or function hereunder is so
delegated shall be deemed an agent of the Advisor for purposes of this
Agreement. Notwithstanding the foregoing, the Advisor shall be entitled to
arrange for tax and accounting services in respect of specific joint venture
Investments under circumstances and on the basis on which such services are
currently so delegated.
4.4 Confidentiality; Proprietary Materials. Except as may be required by
applicable law or as may be necessary to perform its obligations hereunder, the
Advisor and its affiliates shall maintain in strict confidence and shall not
disclose, and shall neither use nor permit to be used, for any purpose, any
Investment Information or other non-public information with respect to or
concerning ELAS, any affiliate thereof, the portfolio of Investments, any
individual Investment or any property which is the subject thereof or, to the
extent prepared by ELAS or any of its affiliates or prepared by the Advisor
specifically for ELAS, any proposed Investment or any property which is the
subject thereof.
4.5 No Affiliate Benefits. Without the prior written consent of ELAS, none
of the Advisor, its affiliates or their respective officers, directors or
employees shall (a) be retained by the Advisor (other than in their capacities
as officers, directors or employees of the Advisor) to provide any services to
ELAS or (b) receive any benefit from any Investment of ELAS other than as
contemplated by this Agreement. Notwithstanding the foregoing, no consent of
ELAS under this Agreement, except as required by Section 4.9, shall be required
to the continuation of any services with respect to a specific property or
Investment being provided to ELAS by any affiliate of the Advisor or of Lend
Lease Corporation Limited or any of their respective officers, directors or
employees as of the date of this Agreement.
4.6 Information Relating to the Advisor. The Advisor will notify ELAS
promptly of any changes in the ownership (whether direct or indirect, other than
in respect of Lend Lease Corporation Limited so long as its shares are publicly
traded), control (whether direct or indirect) or corporate structure of the
Advisor. The Advisor shall promptly notify ELAS in writing of any material
change in the Advisor's or any of its affiliates' business or financial or other
condition or any investigation, action, suit or proceeding commenced or
threatened against the Advisor or any of its affiliates, in each case which may
adversely affect the Advisor's ability to perform its duties and obligations
hereunder or may otherwise adversely affect ELAS, the Investments or the
properties. No later than 90 days following the last day of each fiscal year of
the Advisor, the Advisor will prepare and deliver to ELAS the Advisor's
consolidated balance sheet and related consolidated statements of income,
shareholder's equity and cash flows at and for each year end, including
supporting footnotes, all in accordance with generally accepted accounting
principles, and related reports of independent accountants. All such financial
and other information shall be held in confidence by ELAS.
<PAGE>
4.7 Insurance. The Advisor shall maintain the following insurance
coverages, with such deductibles as are reasonable and customary practice in the
industry or as ELAS may otherwise approve:
(a) Workers Compensation in accordance with statutory requirements and
Employers Liability in an amount not less than $1,000,000;
(b) commercial general liability insurance and umbrella liability
insurance, on an occurrence basis, in an amount not less than $25,000,000
Combined Single Limit and annual aggregate;
(c) a comprehensive crime policy, or fidelity bond, covering all officers,
directors and employees of the Advisor with responsibility for any monies
belonging to ELAS in an amount not less than $10,000,000 per occurrence and
annual aggregate;
(d) errors and omissions insurance, covering all services provided by the
Advisor to ELAS, in an amount not less than $5,000,000 per claim and annual
aggregate;
(e) comprehensive automobile liability insurance covering the Advisor's
owned, leased and hired vehicles in an amount not less than $5,000,000 Combined
Single Limit; and
(f) such other insurance as may be reasonably required by ELAS at any time
or from time to time and which is in accordance with reasonable and customary
practice in the industry.
ELAS and the Advisor will from time to time, at the request of ELAS, review and,
as appropriate, increase the amounts set forth in Sections 4.7(a) through (e) to
reflect reasonable and customary practice in the industry. All insurance
required hereunder shall be written with insurance companies authorized to do
business in the State of New York, and having a Best's rating of not less than A
VIII, shall be in a form and with insurers reasonably satisfactory to ELAS, and
shall include a provision that coverage provided by such policy shall not be
cancelled or materially changed without giving ELAS at least thirty (30) days'
prior written notice. ELAS, its subsidiaries, officers, directors and employees
shall be named as additional insureds with respect to the coverages required in
Sections 4.7(b) and (e), and ELAS shall be named as a joint loss payee as its
interests may appear with respect to the coverage required in Section 4.7(c). A
certificate or certificates of insurance evidencing the coverages required
hereunder shall be delivered to ELAS at the time this Agreement is executed, and
at least ten (10) days prior to each renewal of such insurance.
4.8 Environmental Compliance. The Advisor shall promptly notify ELAS
whenever the Advisor acquires knowledge that there exists, with respect to any
property or any property which is the subject of a proposed Investment, any
violation or alleged violation of any Regulatory Requirement relating to any
environmental condition on, under or adjacent to such property or that any
person has used, generated, manufactured, stored or disposed of on, under or
about such property or transported to or from such property any hazardous
materials or substances in violation of any applicable Regulatory Requirement.
Prior to the acquisition (including without limitation, by foreclosure) by ELAS
of any property or any Investment in accordance with this Agreement, the Advisor
shall implement the procedures required by environmental guidelines in order to
evaluate any potential exposure to ELAS under any Regulatory Requirement with
respect to hazardous materials or substances as a result of the acquisition or
ownership of any interest in such property or such Investment. If and to the
extent so directed by ELAS, the Advisor shall recommend, for the approval of
ELAS, environmental and other consultants to perform a Phase I environmental
assessment, including a visual inspection and other appropriate inspections of
such property, to conduct an examination of the ownership, use and permit
history of such property and to examine those publicly available records
customarily examined in connection with the performance of a Phase I
environmental assessment. The Advisor shall review and analyze such assessment,
examinations and the findings thereof and any reports of such consultants and
shall submit to ELAS the Advisor's review, analysis and recommendations with
respect thereto. In addition, with respect to any existing Investment, the
Advisor shall, as directed by ELAS, arrange for and supervise environmental
assessments (including Phase I and Phase II assessments), studies, testing,
remediation, monitoring and reporting with respect to environmental conditions.
<PAGE>
4.9 Property Managers and Other Service Providers . Subject to Section
4.3(b), the Advisor may, from time to time, recommend, for the approval of ELAS,
property managers, real estate and leasing brokers, engineering and
environmental consultants, appraisers and other independent service providers to
perform services not normally or ordinarily provided heretofore by the Advisor
to ELAS as part of the Advisor's services. Any such property manager, broker,
consultant, appraiser or other service provider shall be retained by ELAS and
the cost thereof shall be charged to the appropriate Investment. In recommending
any such property manager, broker, consultant, appraiser or other service
provider, the Advisor shall recommend (or, if the service providers are not in
default, renew the contracts of) only such service providers (which may include
affiliates of the Advisor) that are capable of providing the optimum level of
service consistent with investment strategy and competitive pricing. If
requested by ELAS, the Advisor shall furnish ELAS with the information on which
the Advisor is relying to establish the capabilities and competitiveness of the
pricing for a provider it has recommended, except in the case of property
management or other services then being provided by an affiliate of the Advisor,
in which case, at the request of ELAS, the Advisor shall furnish ELAS with a
statement and such other information as ELAS may reasonably request, as to the
basis upon which the Advisor has determined to renew such services. Except for
contracts for the management of properties managed by an affiliate of the
Advisor on the date of this Agreement (which shall be renewed so long as the
affiliate continues to provide the optimum level of service consistent with
investment strategy and competitive pricing), a competitive bidding process
pursuant to specifications prepared by the Advisor and approved by ELAS shall be
utilized for contracts requiring payment of more than $100,000 per year. If
ELAS, in connection with any renewal of a contract with an affiliate of the
Advisor, believes the Advisor's judgment was incorrect, the dispute may be
resolved by dispute resolution in accordance with Section 10.1, and, if a
mediator or arbitrator determines that the standards set forth in this Section
4.9 were not met, the contract shall be cancelled. The Advisor shall not
recommend an affiliate of the Advisor (other than Hyperion Capital Advisors
L.L.C., Compass Management and Leasing, Inc., Compass Retail, Inc. or The
Yarmouth Group) to act as such property manager, broker or other service
provider unless the Advisor shall disclose such affiliation to ELAS in writing.
Subject to its obligations under Section 1.3 in recommending and monitoring any
such third party service provider, the Advisor shall not be responsible for or
liable in respect of the performance of its services by such third party service
provider.
Article V
Rights of ELAS
5.1 Execution of Documents. Only ELAS or a duly authorized designee of
ELAS may execute documents with respect to any Investment or otherwise effect
any transaction on behalf of ELAS. The Advisor shall not execute any documents
or effect any transactions on behalf of ELAS without the express prior written
authorization of ELAS. The Advisor shall and shall cause its officers to, if, as
and when requested by ELAS, execute and deliver documents on behalf of ELAS with
respect to the Investments and proposed Investments pursuant to a power of
attorney to be provided by ELAS, but only in accordance with guidelines.
5.2 Audit Review. ELAS shall have the absolute right (even if ELAS is in
default hereunder or after this Agreement has expired or been terminated), at
any time and from time to time upon reasonable notice, to undertake or cause to
be undertaken an audit review of all Investments and proposed Investments, the
Advisor's performance of its services under this Agreement, the fees payable to
the Advisor hereunder and all reimbursable costs and expenses hereunder, if any,
and the Advisor's compliance herewith. Such audit review may be undertaken
directly by ELAS or by third parties engaged by ELAS, and the fees and
disbursements of any third party auditor retained by ELAS shall be paid by ELAS.
The Advisor shall, as provided in Section 2.6, cooperate fully with ELAS and
each such third party in connection with any such audit review. The rights of
ELAS under this Section 5.2 may be enforced by an action at law or in equity,
whether for specific performance or injunction or otherwise.
5.3 Legal Counsel. ELAS shall have the exclusive authority to engage, at
the cost and expense of ELAS, legal counsel to act on behalf of ELAS in
connection with Investments, including without limitation, acquisitions and
dispositions, originations, investment management, property management and
leasing, mortgage loan servicing and any other matters contemplated by or
arising under this Agreement, provided that, with respect to day-to-day and
routine legal issues arising in connection with the management and operation of
specific properties covered by this Agreement, the Advisor may, at the cost and
expense of ELAS, engage local counsel selected from a list from time to time
furnished or approved in writing by ELAS and in accordance with guidelines.
<PAGE>
5.4 Other Advisors. Except as permitted by the Property Disposition
Agreement, dated the date hereof, among ELAS, the Advisor and Lend Lease
Corporation Limited, ELAS shall not appoint or engage other advisors to provide
advisory or investment management services in respect of Investments which are
the same as or similar to the services to be performed by the Advisor under this
Agreement, provided that, without affecting ELAS's obligation to pay the Advisor
fees and costs and expenses to the extent required by Section 1.2, ELAS may so
engage other advisors (a) to provide services in respect of Investments relating
to matters falling within the scope of this Agreement which the Advisor is not
able to provide, in which case the Advisor shall be responsible for recommending
to ELAS, in accordance with Section 4.9, appropriate service providers for such
purpose, and (b) to provide second opinions in respect of advice or
recommendations of the Advisor hereunder or to provide specialized assistance on
a non-recurring basis to supplement the services of the Advisor, when so
requested by the Chief Investment Officer of ELAS, the Board of Directors of
ELAS or any committee of such Board of Directors or if so required by any
Regulatory Authority.
5.5 Personnel. The Advisor shall at all times assign, to perform the
Advisor's duties with respect to the Investments, officers and employees with
appropriate background and expertise to fulfill the Advisor's duties under this
Agreement and as is consistent with past and current practice of ELAS and the
Advisor with respect to the Investments. All persons at or above the level of
Vice President (or equivalent level in the future) assigned at any time and from
time to time by the Advisor to perform all or any part of the Advisor's duties
under this Agreement shall, unless hereafter expressly approved by ELAS in
writing, be direct employees of the Advisor and not of any subsidiary or other
affiliate thereof, whether or not such persons are presently employed by any
such subsidiary or other affiliate. Schedule 5.5.1 identifies certain persons
who currently perform those duties of the Advisor indicated on Schedule 5.5.1,
and the Advisor agrees that, unless otherwise directed by ELAS or otherwise
approved in advance by ELAS in each case, such persons shall continue to be
assigned to work regularly in the performance of such duties and will not be
reassigned from such duties for the period ending on the later of March 31, 1998
and six months from the date of this Agreement, provided that they remain
employed by or otherwise controlled by or responsible to the Advisor. Schedule
5.5.2 identifies certain employee positions relevant to the performance of the
Advisor's duties hereunder, and the Advisor agrees that such positions shall
only be held by persons who, after consultation between the Advisor and ELAS,
have been and continue to be approved by ELAS. Subject to the foregoing, the
Advisor may assign and reassign any person performing all or any part of the
Advisor's duties under this Agreement. Any dispute concerning the nature or the
adequacy of the performance of any employee assigned by the Advisor to perform
any of its duties hereunder shall be resolved in accordance with the procedures
provided for in Section 10.1. In addition, if special circumstances arise
relating to incompatibilities between Advisor personnel and ELAS personnel or
other persons with whom Advisor personnel must interact in the performance of
their duties hereunder in reference to a specific situation or transaction, any
disputes concerning changes or reassignments of personnel in response to such
situation shall be resolved by executives of the Advisor and ELAS at a higher
level of management than the persons with direct responsibility for
administration of this Agreement.
<PAGE>
Article VI
Indemnification and Related Matters
6.1 Indemnification By the Advisor. The Advisor shall indemnify, defend
and hold harmless ELAS and its directors, officers, agents and employees (each
an "ELAS Indemnitee" and collectively, the "ELAS Indemnitees") from and against
any and all losses, costs, liabilities, damages or deficiencies, including
interest, penalties and reasonable attorneys' fees and disbursements
(collectively, "Losses") incurred as a result of, pursuant to or in connection
with any action, suit, proceeding or claim of any nature whatsoever (a "Claim")
by any third party arising out of, based upon or resulting from (a) a breach of
any representation, warranty, covenant or agreement of the Advisor contained in
this Agreement, or (b) any act, omission or failure to act by the Advisor or any
of its directors, officers, agents or employees constituting a breach of the
standard of conduct set forth in Section 1.3 or bad faith, willful misconduct,
gross negligence or reckless disregard of its duties in connection with the
performance by the Advisor or any of its directors, officers, agents or
employees of any of the Advisor's obligations under this Agreement.
6.2 Indemnification By ELAS. ELAS shall indemnify, defend and hold harmless
the Advisor and its directors, officers, agents and employees (each an "Advisor
Indemnitee" and collectively, the "Advisor Indemnitees") from and against any
and all Losses incurred as a result of, pursuant to or in connection with any
Claim by any third party arising out of, based upon or resulting from any
Investment or proposed Investment where the Advisor is acting on behalf of ELAS
under this Agreement or arising out of, based upon or resulting from the
performance by the Advisor or any of its directors, officers, agents or
employees of the Advisor's obligations under this Agreement, but only to the
extent such Claim does not arise out of, is not based upon or does not result
from (a) a breach of any representation, warranty, covenant or agreement of the
Advisor contained in this Agreement or (b) any act, omission or failure to act
by the Advisor or any of its directors, officers, agents or employees
constituting a breach of the standard of conduct set forth in Section 1.3 or bad
faith, willful misconduct, gross negligence or reckless disregard of the
Advisor's obligations under this Agreement.
6.3 Notices. If any Advisor Indemnitee or ELAS Indemnitee shall obtain
knowledge of any Claim indemnified against under this Article VI, such
Indemnitee shall give prompt written notice thereof to the Advisor and ELAS,
provided that the failure of such Indemnitee to so notify the Advisor and ELAS
shall not affect the indemnification obligations to such Indemnitee under this
Article VI except to the extent of any increase in the amount of such Claim
resulting from such failure or to the extent the contest of such Claim is
impaired as a result of such failure.
6.4 Defense of Claims. The Advisor shall control the defense of any Claim
as to which the Advisor is required to provide indemnification under Section 6.1
and ELAS shall control the defense of any Claim as to which ELAS is required to
provide indemnification under Section 6.2, in either case with counsel selected
by the Advisor or ELAS, as the case may be, which counsel shall be reasonably
acceptable to the other party. Neither the Advisor nor ELAS may settle any claim
without the consent of the other party, which consent shall not be unreasonably
withheld. ELAS or the Advisor, as the case may be, shall be entitled, at its
sole cost and expense and acting through counsel reasonably acceptable to the
other party, to participate in the defense and settlement of any claim for which
the other party is required to provide indemnification. If the party entitled to
control the defense of any Claim does not assume the defense thereof, the other
party shall have the right to select its own counsel and control the defense
thereof at the expense of the party failing to assume such defense.
6.5 Subrogation. Upon payment of any Claim pursuant to this Article VI, to
or on behalf of an ELAS Indemnitee or an Advisor Indemnitee, the party paying
such Claim, whether the Advisor or ELAS, as the case may be, shall be subrogated
to any and all claims that such Indemnitee may have in respect of the matters
against which such indemnity was given. Such Indemnitee shall cooperate with the
Advisor or ELAS, as the case may be, and shall execute such further instruments
to permit the Advisor or ELAS, as the case may be, to pursue such claims.
<PAGE>
Article VII
Term and Termination
7.1 Term. This Agreement shall have an initial term from the date hereof
until December 31, 2004 and shall be automatically renewed for one four-year
period thereafter, unless sooner terminated pursuant to Section 7.2, 7.3 or 7.4.
7.2 Termination Due to Material Breach. ELAS may terminate this Agreement
at any time on not less than thirty days prior written notice in the event of a
Material Breach of this Agreement by the Advisor. A "Material Breach" is a
breach (or a series of breaches constituting a pattern of behavior or practice)
of the representations, covenants or obligations of the Advisor hereunder that
reflects willful misconduct or willful failure to comply with such
representations or to perform such covenants or obligations, or gross negligence
in the compliance with such representations or the performance of such covenants
or obligations, that is, either individually or in the aggregate, material in
relation to the activities and responsibilities of the Advisor under this
Agreement as a whole, provided that no breach or series of breaches shall be
considered a Material Breach if such breach or breaches and all material
consequences thereof have been cured as provided below. Prior to providing
notice terminating this Agreement on the basis of any Material Breach, ELAS
shall provide written notice to the Advisor describing the nature of the
Advisor's default with specificity, and the Advisor shall have a period of 30
days following receipt of any such notice to cure such default. If during such
30-day period, the Advisor takes reasonable actions to commence a cure of such
default and if the nature of such default is such that it cannot, through the
exercise of reasonable diligence, be cured during such 30-day period, such
30-day period shall be extended for up to 60 additional days so long as the
Advisor shall continue to take reasonable actions to cure such default during
such 60-day period. A Material Breach on the part of the Advisor and the
consequences thereof shall be deemed to be cured for the purpose of this Section
7.2:
(a) if the Material Breach and such consequences can be completely cured by
the payment of money, if all such money is paid in cash within the 30-day period
immediately following receipt of such notice to cure such default; and
(b) if the Material Breach and such consequences cannot be completely cured
by the payment of money and the actions required for cure are such that they
could be taken within the time periods for cure set forth above in this Section
7.2, if such actions are taken in all material respects within such time
periods.
Notwithstanding anything to the contrary contained in this Section, the
occurrence of any event constituting a default under Section 4.3(a) of this
Agreement shall be a Material Breach hereunder, and no cure period shall be
available with respect thereto.
7.3 Termination Due to Legal Duties. ELAS may terminate this Agreement at
any time on not less than thirty days prior written notice if ELAS reasonably
determines, upon the advice of independent counsel to ELAS, that, and provides a
certificate to the Advisor to the effect that, a state of facts or law exists
(in determining whether such a state of facts exists, such counsel and ELAS will
consider, among other factors, the matters to be considered by the arbitrators
in accordance with Exhibit 7.7) that requires ELAS to terminate this Agreement
in order to comply with its legal duties, including without limitation its
duties and obligations in respect of investments under the New York Insurance
law , provided that (a) prior to giving any notice of such termination, ELAS
will provide the Advisor with written notice of the reason for the proposed
termination, including the legal or regulatory basis therefor, (b) ELAS, the
Advisor and their respective counsel will, within five days after the delivery
of such notice by ELAS, meet to determine what, if any, measures may be taken to
alleviate the legal or regulatory basis for such proposed termination, including
without limitation, any alternative arrangements or structures which may be
used, in whole or in part, in substitution or replacement of the arrangements
contemplated hereunder, or the basis of any approach by ELAS, in the case of any
matter relating to the New York Insurance Department, or jointly by ELAS and the
Advisor, in the case of any matter involving any other Regulatory Authority, to
any relevant Regulatory Authority in order to alleviate the legal or regulatory
basis for the proposed termination and shall work together in good faith for a
period of thirty days to determine whether such measures are available, and (c)
only following the determination by ELAS after such period that there are no
available measures which may be taken to alleviate the legal or regulatory basis
for the proposed termination, may ELAS proceed to deliver to the Advisor a
notice of termination under this Section 7.3.
7.4 Termination For Material Underperformance. ELAS may terminate this
Agreement at any time on not less than thirty days prior written notice under
the circumstances set forth in Exhibit 7.7.
<PAGE>
7.5 Additional Remedies. The right to terminate this Agreement as provided
in this Article VII is not exclusive of any rights or remedies that the Advisor
or ELAS may otherwise have at law or in equity for breaches of this Agreement,
whether for indemnification or otherwise, provided that no such other right or
remedy may result in a termination of this Agreement other than as specifically
provided herein. In addition, ELAS and the Advisor agree that fines, penalties,
costs, charges and damages for breaches of any provision of this Agreement may
be assessed by any mediator or arbitrator in connection with proceedings
conducted pursuant to Section 10.1.
7.6 Obligations Upon Termination. Except as provided in Section 7.8, from
and after the effective date of termination of this Agreement for any reason
whatsoever, the Advisor shall not be entitled to compensation for further
services hereunder but shall be paid all compensation accrued and unpaid to the
date of termination, if any. Any compensation so accrued at the time of
termination, but payable only upon the occurrence of one or more conditions
subsequent, shall be paid only after satisfaction of all such conditions.
7.7 Termination as to Specified Investment or Service. Notwithstanding any
other provision of this Agreement to the contrary,
(a) this Agreement shall automatically terminate with respect to any
particular Investment upon the sale, transfer, conveyance or other disposition
of such Investment, subject to the payment of all fees payable to the Advisor as
a result of any such event;
(b) ELAS may at any time, under the circumstances set forth in Exhibit 7.7,
upon not less than thirty days' prior written notice, terminate this Agreement
as to any specified Investment without affecting this Agreement as a whole and,
upon such termination of the Advisor's duties with respect to any specific
Investment (i) the Advisor shall, in accordance with and subject to Section 7.8,
transfer all duties and Investment Information with respect to such Investment
as directed by ELAS, (ii) such Investment shall, effective upon such termination
and subject to Section 7.8, cease to be an Investment for any purpose under this
Agreement and the Advisor shall receive no fees with respect thereto and (iii)
the Advisor shall continue to provide at cost such accounting, tax and other
administrative services with respect to such terminated Investment as ELAS may
request; and
(c) ELAS may at any time, under the circumstances set forth in Exhibit 7.7,
upon not less than thirty days' prior written notice, terminate this Agreement
as to any service provided by an affiliate of the Advisor or any service to be
provided by the Advisor pursuant to this Agreement ancillary to the investment
advisory or management services to be provided hereunder, including without
limitation, accounting, tax, recordkeeping and similar services, and upon such
termination (i) ELAS shall cooperate with the Advisor so that ELAS's terminating
such service shall not prevent the Advisor from performing its obligations under
this Agreement and (ii) the fees payable to the Advisor under Section 1.2 shall
be reduced in such amount as shall reasonably equal ELAS's actual costs of
providing or reasonable costs of obtaining such terminated service. If the
Advisor and ELAS are unable to reach agreement on such reduction, they shall
submit the dispute for resolution pursuant to Section 10.1.
7.8 Further Assurances on Termination. Upon the termination of this
Agreement for any reason whatsoever or upon the termination with respect to any
specific Investment or service under Section 7.7, the Advisor shall cooperate
fully with ELAS, including without limitation, providing to ELAS access to and
opportunity to consult with the Advisor's officers and employees, in order to
facilitate a smooth transition of the responsibilities and records so as to
avoid a disruption of services to ELAS. In the case of a termination by notice,
any such transition shall begin immediately upon the giving of such termination
notice and the parties shall use their best efforts to complete such transition
by the termination date. If such transition is not completed by the termination
date or if ELAS requests that the Advisor continue to provide services or
undertake duties and responsibilities under this Agreement after such
termination date, the Advisor shall do so for a period of up to 12 months,
unless otherwise mutually agreed between the Advisor and ELAS, and this
Agreement shall be deemed to continue in effect with respect to the services so
provided or duties or responsibilities so undertaken and the Advisor shall be
entitled to receive such compensation as shall reasonably reflect the nature,
scope and extent of such services, duties or responsibilities. If the Advisor
and ELAS are unable to reach agreement on such compensation, they shall submit
the dispute for resolution pursuant to Section 10.1.
<PAGE>
7.9 License After Termination. (a) If notice of termination is given under
this Agreement, ELAS shall have the right to receive from the Advisor, in
accordance with Section 7.9(b), a perpetual, worldwide, non-exclusive license to
reproduce, distribute, make derivative works from and otherwise use all, or, at
ELAS's sole discretion, part of, the Advisor Software in connection with the
provision of investment advisory, asset management and other services to ELAS of
the types provided under this Agreement. Such license shall include the right to
sublicense the foregoing to any third party in connection with such party's
provision of such services to ELAS. In connection with the foregoing, the
Advisor shall have no obligation, except as provided in Section 7.8, following
any termination of this Agreement, to maintain, correct or otherwise support any
of the Advisor Software so licensed to ELAS. "Advisor Software" shall mean the
source code and object code versions of the application, operating, reporting
and other software used by the Advisor in the performance of accounting,
valuation, reporting, treasury, data processing and computing and other services
for ELAS and its affiliates under this Agreement. If ELAS wishes to exercise
such right, it shall give notice thereof promptly after notice of termination is
given under this Agreement and, upon receipt of such notice, the Advisor shall
promptly deliver to ELAS copies of the Advisor Software (other than the
Third-Party Software) in a form and medium reasonably acceptable to ELAS. Any
such license would be subject to obtaining required approvals, if any, from
third parties, which the Advisor will use its reasonable efforts (which shall
not include incurring additional cost on the part of the Advisor) to obtain.
With respect to any Advisor Software hereafter purchased or licensed by the
Advisor, the Advisor will use its reasonable efforts to negotiate terms which,
without additional cost to the Advisor, would permit the granting of the
foregoing license. In the event that the Advisor has not obtained the rights to
sublicense any Advisor Software to ELAS (such software, the "Third-Party
Software"), the Advisor shall use its reasonable efforts (which shall not
include incurring additional cost on the part of the Advisor) to assist ELAS in
obtaining licenses to such software directly from the relevant third parties,
which shall include providing to ELAS a list of all Third-Party Software used by
the Advisor in connection with the general account and waiving any of the
Advisor's rights of exclusivity that it may have with respect to its licensing
of such software.
(b) Upon termination of this Agreement for any reason, the Advisor shall
grant ELAS the license described in Section 7.9(a) without additional charge to
ELAS and ELAS shall be responsible for all license fees to be paid to third
parties for the Third-Party Software.
7.10 Deliveries and Retention of Records. The Advisor shall forthwith upon
any termination of this Agreement:
(a) as soon as practicable after such termination, pay over to ELAS all
monies held for the account of ELAS pursuant to this Agreement;
(b) as soon as practicable after such termination, deliver to ELAS a report
containing, among other things, a statement of Investments and properties
covered by this Agreement as of the date of termination and such other
information regarding such Investments and properties as ELAS may reasonably
request; and
(c) retain, or, to the extent ELAS does not then possess such Investment
Information, deliver to ELAS or its designee all or such part thereof and at
such time or times as ELAS so requests, all Investment Information for seven
years after termination of this Agreement, provided that the Advisor shall have
the right, subject to Regulatory Requirements, to have such Investment
Information held in the custody of a responsible third party service provider,
and provided further that the Advisor or such third party service provider shall
give ELAS access to all Investment Information in accordance with the provisions
of Section 2.6 and ELAS shall reimburse the Advisor for its reasonable costs
incurred in retaining such records, including its costs for the third party
service provider.
7.11 Obligations that Survive Termination. The provisions of Section 4.4,
Section 5.2, Article VI, this Article VII and Section 10.1 and each party's
respective rights to bring claims arising in connection with the statements and
obligations set forth in this Agreement shall survive the termination of this
Agreement.
<PAGE>
Article VIII
Notices
8.1 Notices. Any notice or other communication provided hereunder shall be
in writing and shall be delivered personally or by telefacsimile with confirmed
answerback or sent by certified, registered and return receipt requested mail or
by a nationally-recognized overnight courier, postage prepaid, and shall be
deemed given when so delivered personally or by telefacsimile with confirmed
answerback or sent by overnight mail or courier and three days after the date of
mailing if sent by certified or registered mail to the following addresses:
To ELAS:
The Equitable Life Assurance Society
of the United States
1290 Avenue of the Americas
New York, NY 10104
Attention: Chief Investment Officer
Fax No.:
with a copy to:
The Equitable Life Assurance Society
of the United States
1290 Avenue of the Americas
New York, NY 10104
Attention: Law Department
Counsel, Real Estate Law Group
Fax No.:
To the Advisor:
Equitable Real Estate Investment
Management, Inc.
3424 Peachtree Road, N.E.
Suite 800
Atlanta, GA 30326
Attention: Chairman and Chief Executive Officer
Fax No.:
with a copy to:
Equitable Real Estate Investment
Management, Inc.
3424 Peachtree Road, N.E.
Suite 800
Atlanta, GA 30326
Attention: General Counsel
Fax No.:
and:
[Neptune, Inc.]
Swiss Bank Tower
10 East 50th Street
New York, NY 10022
Attention: Chief Financial Officer
Fax No.:
Either party hereto may from time to time by notice in writing served upon
the other as aforesaid designate a different mailing address or telefacsimile
number or a different or additional person to which all such notices or demands
to that party thereafter are to be addressed.
Article IX
Definitions
The following terms shall have the following meanings:
"Designated Account" shall mean a lockbox account or, with ELAS's prior
approval, a depository account in ELAS's name in a bank designated by ELAS with
such signatories as ELAS shall designate, which signatories may include officers
and employees of the Advisor and/or the appropriate property manager.
<PAGE>
"Equities" shall mean U.S. equity real estate, joint venture or partnership
or other entity interests in U.S. equity real estate, in-substance equities and
equities in lieu and notes (other than mortgage notes) from real estate joint
venture partnerships (and partners therein) in which ELAS is a partner, in each
case held by ELAS for investment and (a) allocated to ELAS's general account and
managed by the Advisor on the date hereof or (b) which ELAS acquires for its
general account after the date hereof other than Real Estate Securities.
"guidelines" shall mean guidelines, requirements and/or procedures
established by ELAS and whenever this Agreement provides that the Advisor shall
render specific advice, service or assistance in accordance with guidelines or
if ELAS otherwise so requests (a) the Advisor shall recommend to ELAS for its
approval a detailed set of guidelines, requirements and/or procedures for such
provision, and shall from time to time thereafter recommend modifications in
such guidelines, requirements and/or procedures, and ELAS and the Advisor shall
work cooperatively with each other in good faith to consider and implement
practicable guidelines, requirements and/or procedures and modifications thereof
to be established by ELAS, and (b) the fact that such guidelines may not be
established shall not in any way diminish or otherwise affect the Advisor's
obligations under this Agreement, including without limitation, any provision of
this Agreement referring to guidelines or requiring the Advisor to act in
accordance with guidelines and, in the absence of relevant guidelines, any such
provision shall be applicable as written without giving effect to the guidelines
reference. In connection with the foregoing, the parties acknowledge that
existing guidelines and/or practices are intended to provide the initial basis
for the operation of this Agreement and will use their reasonable efforts to
mutually agree upon and establish, within three months of the date of this
Agreement, written guidelines in respect of each matter for which guidelines are
provided for in this Agreement, to the extent they do not currently exist,
documenting current practice.
"Investment Information" shall mean such books, records, data, information,
instruments, documents, files, reports, manuals, policies, guidelines and
procedures (including without limitation, computerized materials), as relate to
Investments and the properties which are the subject thereof and, to the extent
prepared by the Advisor for ELAS, proposed Investments and the properties which
are the subject thereof. "Investment Information" shall not include any of the
foregoing prepared by the Advisor generally for use in its business or generally
for use by its clients.
"Investments" shall mean Equities, Mortgages and Real Estate Securities.
"Mortgages" shall mean debt investments in the form of promissory notes
secured, with or without recourse, by security interests in real property or
partnership or other entity interests therein and participation interests in
loans secured by interests in real property or partnership or other entity
interests therein, excluding any such investments classified as equity property
(a) allocated to ELAS's general account and managed by the Advisor on the date
hereof or (b) which ELAS and the Advisor hereafter agree to subject to this
Agreement.
"property" shall mean each individual parcel of real estate which is the
subject of any Investment.
"Real Estate Securities" shall mean real estate investment trusts, mortgage
backed securities, commercial mortgage backed securities (CMBSs), interests in
pooled investment entities sponsored by a third party and marketed to
institutional investors and other forms of securities relating to or involving
real estate and mortgages (a) allocated to ELAS's general account and managed by
the Advisor on the date hereof or (b) which ELAS and the Advisor hereafter agree
to subject to this Agreement.
"Regulatory Authority" shall mean any nation or government, any state,
county, municipality or other political subdivision thereof or any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government or any rating agency or entity which
sets accounting and/or reporting standards.
"Regulatory Requirement" shall mean any statute, law, rule, ruling, code,
ordinance, decision, official pronouncement, regulation, requirement, procedure,
permit, directive, decree, judgment or order of any Regulatory Authority now or
hereafter in effect, in each case, as and to the extent available in published
or other publicly available form, and, in each case, as amended from time to
time and any interpretation thereof published by any Regulatory Authority.
<PAGE>
Article X
Miscellaneous
10.1 Dispute Resolution; Arbitration. The Advisor and ELAS shall attempt
in good faith to resolve any dispute arising out of or relating to this
Agreement promptly by negotiation between executives who have authority to
settle the dispute and who are at a higher level of management than the persons
with direct responsibility for administration of this Agreement. All reasonable
requests for information by one party to the other will be honored and all
negotiations shall be confidential and treated as compromise and settlement
negotiations. If the dispute has not been resolved by negotiation within 20 days
after either party notifies the other in writing that a dispute exists, the
parties shall endeavor to settle the dispute by mediation under the then current
CPR Model Mediation Procedure for Business Disputes. The parties have selected
Mr. Blake Eagle of Massachusetts Institute of Technology as the mediator in any
such dispute and he has agreed to serve in that capacity. In the event that Mr.
Blake Eagle is unwilling or unable to serve, the parties have selected Mr. Peter
Linnemann of The Wharton School as an alternative mediator and he has agreed to
serve in that capacity. In the event that Mr. Peter Linnemann is unwilling or
unable to serve, the mediator shall be the most senior real property consultant
at Frank Russell and Associates at that time. In the event that he/she is
unwilling or unable to serve, the mediator shall be a person of similar stature
selected by the CPR Institute for Dispute Resolution. If the dispute has not
been resolved by such mediation within 30 days following the submission of such
dispute to mediation, either party may submit such dispute to binding
arbitration under the Rules for Non-Administered Arbitration of Business
Disputes of the CPR Institute for Dispute Resolution, and judgment on the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof. In any such arbitration there shall be three arbitrators, each of whom
shall have experience in the real estate investment advisory industry, and the
arbitration shall take place in New York, New York.
10.2 Agreements of ELAS. ELAS agrees and acknowledges that (a) the Advisor
makes no representation or warranty as to the investment performance of the
Investments or any particular Investment, and (b) immediately following the
execution and delivery hereof, the Advisor will not be in breach of any of its
duties or obligations hereunder. ELAS represents and warrants to the Advisor
that (x) all requirements have been satisfied for an exemption under the U.S.
Department of Labor's Prohibited Transaction Exemption 95-60 (60 FR 35935, July
12, 1995) with respect to the general account assets covered by this Agreement
and (y) the general account assets covered by this Agreement are covered by the
exemption provided by Section 401(c)(a)(5)(B) of the Employee Retirement Income
Security Act of 1974, as amended . In addition, ELAS shall provide to the
Advisor and update on a timely basis a list of persons, if any, with whom
transactions would be prohibited or restricted under ERISA. ELAS shall also
provide guidance to the Advisor, on which the Advisor is entitled to rely,
concerning ERISA or other regulatory exemptions, if any, which are necessary for
the Advisor to perform its duties under this Agreement. ELAS also agrees that
the Advisor shall be named as an additional insured under the liability
insurance maintained in respect of each property to the extent ELAS is able to
do so without additional cost to ELAS.
10.3 Entire Agreement. This Agreement contains the entire agreement
between the parties hereto with respect to the provision of investment advisory
and asset management services by the Advisor to ELAS and supersedes all prior
agreements, written and oral, with respect thereto.
10.4 Amendments and Waivers. This Agreement may be amended, modified,
superseded, canceled, renewed, extended or supplemented, and the terms and
conditions hereof may be waived, only by a written instrument signed by ELAS and
the Advisor or, in the case of a waiver, by the party waiving compliance,
provided that no such amendment, modification, renewal, extension or supplement
shall authorize or permit any assets of ELAS to be used or directed to purposes
other than for the exclusive benefit of ELAS and any such amendment,
modification, renewal, extension or supplement shall comply with all applicable
requirements of the New York Insurance Law. No delay on the part of either party
in exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of either party of, or failure on the
part of either party to exercise, any right, power or privilege hereunder, nor
any single or partial exercise of any right, power or privilege hereunder,
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder.
<PAGE>
10.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York as at the time in effect and,
to the extent of any federal preemption, the laws of the United States of
America.
10.6 Consent to Jurisdiction, etc. (a) Each of the parties hereto
acknowledges that mediation and arbitration under the provisions of Section 10.1
is intended to be the exclusive method for resolution of disputes arising under
this Agreement, and agrees that neither party to this Agreement shall commence
any action or proceeding in any court with respect to such dispute, except (i)
to enforce Section 10.1; (ii) to obtain provisional judicial assistance in aid
of arbitration under Section 10.1; or (iii) to enforce an arbitral award made
under Section 10.1. The provisions of Section 10.6(b) through 10.6(d) below and
of Section 10.7 shall be interpreted in a manner consistent with the parties'
acknowledgment and agreement set forth in the preceding sentence.
(b) Each of the parties hereto hereby irrevocably and unconditionally
submits, for itself and its property, to the exclusive jurisdiction of any New
York State court or Federal court of the United States of America sitting in New
York City, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State court or, to the extent permitted by law,
in such Federal court. Each of the parties hereto agrees that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law.
(c) Each of the parties hereto hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby in any New York State or Federal court. Each of
the parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of process
in any manner permitted by law at such party's address as set forth in Section
8.1.
10.7 Waiver of Punitive and Other Damages and Jury Trial. (a) THE PARTIES
TO THIS AGREEMENT EXPRESSLY WAIVE AND FOREGO ANY RIGHT TO RECOVER PUNITIVE,
EXEMPLARY, LOST PROFITS, CONSEQUENTIAL OR SIMILAR DAMAGES IN ANY ARBITRATION,
LAWSUIT, LITIGATION OR PROCEEDING ARISING OUT OF OR RESULTING FROM ANY
CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(c) EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT
OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER
OF THE FOREGOING WAIVERS, (ii) IT UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF SUCH WAIVERS, (iii) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (iv)
IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.7.
10.8 Interpretation. This Agreement has been negotiated at arm's length
and between persons sophisticated and knowledgeable in the matters dealt with in
this Agreement and each party has been represented by experienced and
knowledgeable legal counsel. Accordingly, any rule of law or legal decisions
that would require interpretation of any ambiguities in this Agreement against
the party that has drafted it shall not be applicable and are hereby waived. The
provisions of this Agreement shall be interpreted in a reasonable manner to
effectuate the purpose of the parties and this Agreement.
<PAGE>
10.9 Cumulative Remedies. The rights and remedies herein provided are
cumulative and not exclusive of any rights or remedies which either party may
have hereunder or otherwise at law or in equity.
10.10 Binding Effect. This Agreement and the rights, covenants, conditions
and obligations of the respective parties hereto and any instrument or agreement
executed pursuant hereto shall be binding upon the parties and their respective
successors and assigns.
10.11 Further Assurances. Each of the parties hereto shall execute such
further documents and other papers and perform such further acts as may be
reasonably required or desirable to carry out the provisions hereof.
10.12 Publicity. No publicity release, public statement or announcement
concerning this Agreement or any Investment or any property or any proposed
Investment or property which is the subject thereof or any aspect hereof or
thereof or the transactions or Investments contemplated hereby shall be issued
by the Advisor or any affiliate of the Advisor without the prior written
approval of the form and substance thereof by ELAS, nor shall any such publicity
release, public statement or announcement which names or otherwise refers to the
Advisor be issued by ELAS or any affiliate of ELAS without the prior written
approval of the form and substance thereof by the Advisor.
10.13 Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed an original, but both of which together shall
constitute one and the same instrument.
10.14 Section Headings. The section headings of this Agreement are for
convenience of reference only and shall not be deemed to alter or affect any
provision hereof.
10.15 Severability. Should one or more provisions of this Agreement be
held by any court to be invalid, void or unenforceable, the remaining provisions
shall nevertheless continue in full force.
10.16 No Third Party Rights. By execution of this Agreement ELAS and the
Advisor do not intend to create any rights of any kind in any third parties and
nothing in this Agreement shall confer any rights upon any person or entity
which is not a party or a successor or permitted assignee of a party to this
Agreement.
10.17 Successors and Assigns. This Agreement shall inure to the benefit of
the parties hereto and their respective successors and assigns to the extent
permitted by Section 4.3.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their indicated officers thereunto duly authorized, as of the day
and year first above written.
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By
Name:
Title:
EQUITABLE REAL ESTATE
INVESTMENT MANAGEMENT, INC.
By
Name:
Title:
<PAGE>
Exhibit B-2 to Purchase Agreement
Real Estate Investment Advisory Agreement
(general account - agricultural)
between
The Equitable Life Assurance Society
of the United States
and
Equitable Agri-Business, Inc.
dated ________ __, 1997
<PAGE>
TABLE OF CONTENTS
PREAMBLE
Article I Engagement; Compensation and Standard of Performance
1.1 Engagement and Acceptance
1.2 Compensation; Fees for Services
1.3 Standard of Performance
Article II Duties of the Advisor
2.1 Investment Advice, Services and Assistance Generally
2.2 Acquisitions
2.3 Mortgage Origination and Loan Servicing
2.4 Advisory and Investment Management Services
2.5 Dispositions
2.6 Books, Records, Instruments, Documents and Files
2.7 Reports and Information
2.8 Cooperation; Meetings
2.9 Administrative and Other Services
2.10 Data Processing and Computer Services
Article III Authority of the Advisor
3.1 Authority
3.2 Limitations on Authority
Article IV Covenants of the Advisor
4.1 Status and Registration of the Advisor.
4.2 Other Business; Allocation.
4.3 No Assignment or Delegation
4.4 Confidentiality; Proprietary Materials
4.5 No Affiliate Benefits
4.6 Information Relating to the Advisor
4.7 Insurance
4.8 Environmental Compliance
4.9 Property Managers and Other Service Providers
Article V Rights of ELAS
5.1 Execution of Documents
5.2 Audit Review
5.3 Legal Counsel
5.4 Other Advisors
5.5 Personnel
Article VI Indemnification and Related Matters
6.1 Indemnification By the Advisor
6.2 Indemnification By ELAS
6.3 Notices
6.4 Defense of Claims
6.5 Subrogation
Article VII Term and Termination
7.1 Term
7.2 Termination Due to Material Breach
7.3 Termination Due to Legal Duties
7.4 Termination By Reason of ERE Termination
7.5 Additional Remedies
7.6 Obligations Upon Termination
7.7 Termination as to Specified Investment or Service
7.8 Further Assurances on Termination
7.9 License After Termination
7.10 Deliveries and Retention of Records
7.11 Obligations that Survive Termination
Article VIII Notices
8.1 Notices
Article IX Definitions
<PAGE>
Article X Miscellaneous
10.1 Dispute Resolution; Arbitration
10.2 Agreements of ELAS.
10.3 Entire Agreement
10.4 Amendments and Waivers
10.5 Governing Law
10.6 Consent to Jurisdiction, etc.
10.7 Waiver of Punitive and Other Damages and Jury Trial
10.8 Interpretation
10.9 Cumulative Remedies
10.10 Binding Effect
10.11 Further Assurances
10.12 Publicity
10.13 Counterparts
10.14 Section Headings
10.15 Severability
10.16 No Third Party Rights
10.17 Successors and Assigns
Schedule 1.2(a) - Fee Schedule
Schedule 1.2(b) - Principles Applicable to Additional Fees
Exhibit 2.3 - Mortgage Loan Servicing
Schedule 2.7(d) - List of Reports
Schedule 5.5.1 - List of Continuing Employees
Schedule 5.5.2 - List of Employee Positions Subject to ELAS Approval
Schedule 7.7 - Performance Standards
<PAGE>
Real Estate Investment
Advisory Agreement
(general account - agricultural)
Real Estate Investment Advisory Agreement, dated as of _______ __, 1997,
between The Equitable Life Assurance Society of the United States, a New York
corporation and life insurance company ("ELAS"), and Equitable Agri-Business,
Inc., a Delaware corporation (the "Advisor").
PREAMBLE
Lend Lease Corporation Limited is, on the date hereof, purchasing the
Advisor. Prior to the date hereof, the Advisor was a wholly owned indirect
subsidiary of ELAS and ELAS and the Advisor have had a long-standing, mutually
beneficial and profitable business relationship based on business practices
which have been developed during the course of the relationship. It is the
intention and objective of ELAS, the Advisor and Lend Lease Corporation Limited
to continue this relationship under this Agreement. This Agreement is designed
to provide for a continuation of the same high level of services which the
Advisor has been providing to ELAS, in exchange for a fee structure during the
initial term, as set forth in Schedule 1.2(a), which is similar to the current
fee structure, and to provide for ELAS's needs which may change in the future.
At the same time, and in recognition of the goals of Lend Lease Corporation
Limited in purchasing the Advisor, this Agreement is also designed to provide
for a continued long-term relationship between the Advisor and ELAS under
circumstances in which the Advisor will be compensated by ELAS for certain
increases in the requirements of ELAS as provided for in Section 1.2(b).
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, ELAS and the Advisor hereby agree as follows:
Article I
Engagement; Compensation and Standard of Performance
1.1 Engagement and Acceptance. ELAS hereby engages the Advisor to provide
nondiscretionary investment advisory and asset management services of the kinds
described in this Agreement, upon the terms and conditions set forth in this
Agreement. The Advisor hereby accepts such engagement, acknowledges that ELAS
shall have complete and absolute discretion with respect to decisions to be made
regarding Investments (as such term and certain other terms used in this
Agreement are defined in Article IX), and agrees to perform the covenants and
obligations under this Agreement on its part to be performed. In accepting such
engagement, the Advisor recognizes that ELAS has special circumstances and needs
as a wholly owned subsidiary of a publicly traded company, an insurance company
and a company controlled by a non-United States company. Notwithstanding any
other provision of this Agreement, the Advisor shall not, in connection with new
or additional services requested hereunder, be required to undertake any new
line of business or to engage in any business activity other than those in which
the Advisor has been engaged on or prior to the date of this Agreement.
1.2 Compensation; Fees for Services. (a) Subject to Section 1.2(b),
Section 1.2(c) [and Section 7.7], ELAS shall pay to the Advisor the fees set
forth in Schedule 1.2(a), as the sole compensation for the services to be
rendered by the Advisor under this Agreement and for all of the Advisor's costs
and expenses incurred in the performance of its duties under this Agreement.
ELAS represents that Schedule 1.2(a) accurately reflects in all material
respects current practice of ELAS and the Advisor relating to the determination
and calculation of fees. Payment of fees shall be made as provided in Schedule
1.2(a). Except as payable under this Section 1.2(a) or pursuant to Section
1.2(b) or as otherwise allocated to an Investment as provided in this Agreement,
the Advisor shall not be reimbursed for any costs and expenses relating to its
duties under this Agreement or to the general operation of its business,
including without limitation, travel expenses, administrative expenses,
employment expenses, legal fees, insurance of the Advisor and its employees,
rent, telephone, utilities and other office expenses.
<PAGE>
(b) If at any time ELAS requests a service under this Agreement, which
service (i) is not part of investment advisory or asset management services
(which services shall include, without limitation, the services described in
Sections 2.1, 2.2, 2.3, 2.4 (a) through (g), 2.4(i) through (q), 2.5, 2.9(a),
2.9(d), 2.9(f), and 2.9(g)) but rather is ancillary to such services (which
ancillary services shall include without limitation, recordkeeping, accounting,
tax, appraisal and related reporting services), and either has not been, prior
to the date hereof, a regularly provided or recurring ancillary service (which
regularly provided or recurring ancillary services shall include without
limitation, all recordkeeping, accounting, tax, appraisal and related reporting
services recurring or regularly provided by the Advisor to ELAS prior to the
date hereof including those services related to the reports set forth on
Schedule 2.7(d)), or, although constituting such a regularly provided or
recurring ancillary service, has become materially more extensive or burdensome
to provide as a result of an increase in the level of such service requested by
ELAS (in which case ELAS shall, subject to the proviso to this sentence, be
obligated to compensate the Advisor only for the incremental increase in cost
caused thereby), or (ii) although arguably an investment advisory or asset
management service required to be provided hereunder, constitutes a unique or
special project for which investment managers providing investment advisory or
asset management services to institutional clients under arrangements comparable
to this Agreement customarily would receive a separate and special fee, ELAS
will, in addition to the fees payable to the Advisor under Schedule 1.2(a),
compensate the Advisor in respect of the provision of such service in accordance
with the principles set forth in Schedule 1.2(b), provided that the Advisor
shall, with respect to any calendar year, be entitled to compensation under this
Section 1.2(b) only to the extent the amounts which, but for this proviso, would
be payable to the Advisor in respect of all services falling within this Section
1.2(b) and Section 1.2(b) of the Real Estate Investment Advisory Agreement,
dated the date hereof, between ELAS and Equitable Real Estate Investment
Management, Inc. shall exceed the aggregate sum of $200,000 in such calendar
year (appropriately adjusted to reflect changes in the consumer price index
annually on January 1 in each year and as appropriately adjusted for any portion
of a calendar year at the beginning or end of the term hereof). As a condition
to the payment of any amount due the Advisor under this paragraph (b), prior to
providing a service which the Advisor believes is subject to this Section
1.2(b), the Advisor shall so notify ELAS in writing, which notice shall also
contain the information required by Schedule 1.2(b). With respect to any
services provided which fall within this Section 1.2(b), the Advisor shall
submit invoices to ELAS setting forth the amounts chargeable in respect of such
services, the basis of the calculation thereof and in such other detail and with
such back-up documentation as reasonably requested by ELAS. Payments of such
invoices shall, subject to the proviso contained in the first sentence of this
Section 1.2(b), be made to the Advisor within 15 days after the submission
thereof.
(c) As provided in Section 7.1, the term of this Agreement shall be
automatically renewed for one additional four-year period beginning on January
1, 2005. ELAS and the Advisor agree that, commencing on September 1, 2004, and
effective as of such renewal term, they will, in good faith, consider amendments
to the fee schedule contained in Schedule 1.2(a) to reflect then current market
practice and, as necessary, will resolve any disagreement with respect to such
fees in accordance with Section 10.1.
1.3 Standard of Performance. The Advisor shall (a) discharge its duties
with the care, skill, prudence and diligence under the circumstances then
prevailing that a prudent person acting in a like capacity and familiar with
such matters would use in the conduct of an enterprise of a like character and
with like aims and (b) act in accordance with the standards in effect from time
to time under federal and New York law (with respect to New York Insurance Law
only, to the extent communicated by the ELAS Law Department to the Advisor from
time to time or as otherwise known to the Advisor) which apply to any person
serving in the capacity with respect to ELAS in which the Advisor is then
serving.
<PAGE>
Article II
Duties of the Advisor
2.1 Investment Advice, Services and Assistance Generally. The Advisor
shall advise, assist and provide services and make recommendations to ELAS with
respect to the Investments. The Advisor shall provide ELAS with the advice,
analyses, recommendations and other services and support set forth in this
Agreement.
2.2 Acquisitions. The Advisor shall, to the extent such investments are
within the categories of investments in which ELAS has indicated an investment
interest, seek out and recommend to ELAS, in accordance with guidelines (as such
term is defined in Article IX), potential Equity Investments, Mortgage
Investments and Real Estate Securities for acquisition by ELAS which conform to
such portfolio objectives and policies as may be specified from time to time by
ELAS and shall negotiate for such acquisitions on such terms and conditions as
ELAS shall determine. To the extent requested by ELAS and in accordance with
guidelines, the Advisor shall assist ELAS in the acquisition of each Investment,
shall prepare an investment analysis thereof, shall conduct or cause to be
conducted due diligence with respect to each potential property and Investment
and, by submitting such proposed Investment to ELAS, shall be automatically
without further action deemed to have certified to ELAS that such investment
analysis and due diligence has been completed in all material respects in
accordance with the applicable guidelines.
2.3 Mortgage Origination and Loan Servicing. The Advisor shall, to the
extent such investments are within the categories of investments in which ELAS
has indicated an investment interest, seek out and recommend to and assist ELAS
in originating, negotiating and closing mortgage loan Investments which conform
to such portfolio objectives and policies as may be specified from time to time
by ELAS. In accordance with guidelines, the Advisor shall prepare an investment
analysis of each proposed mortgage loan Investment, shall conduct or cause to be
conducted due diligence with respect to each such proposed Investment and, by
submitting such proposed Investment to ELAS, shall be automatically without
further action deemed to have certified to ELAS that such investment analysis
and due diligence has been completed in all material respects in accordance with
the applicable guidelines. The Advisor shall perform standard mortgage loan
servicing functions in accordance with guidelines. Such functions shall include
the preparation of reports, the making of recommendations, the assistance and
the services described in Exhibit 2.3 attached hereto.
2.4 Advisory and Investment Management Services. The Advisor shall provide
real estate investment advice and advisory services and shall provide a full
range of asset management services for ELAS as set forth herein. As part of such
services, the Advisor shall, in accordance with guidelines, perform the
following asset management services with respect to the portfolio of Investments
and with respect to each Investment or property which is the subject of an
Investment, as the case may be, and as appropriate depending on whether an
Investment is an Equity Investment, a Mortgage Investment or a Real Estate
Security, in each case subject to the provisions of Section 1.2 hereof:
(a) keep abreast of and inform ELAS with respect to real estate investment
activity and markets generally and current investment trends, structures,
techniques and practices for real estate and real estate related investment
products and investigate, develop, analyze, recommend and assist with real
estate investment and related strategies and products;
(b) advise and assist ELAS regarding the nature, size, mix, geographic
distribution and timing of Investments, uses of cash flow from operations and
capital transactions, and the establishment of investment and operational goals,
policies and procedures;
(c) report and make recommendations to ELAS with respect to the
acquisition, sale, ownership, management, leasing, operation, maintenance and
improvement of properties held or being considered as possible Investments by
the general account;
(d) report and make recommendations to ELAS with respect to on-site
property management, leasing, operation, maintenance and improvement of each
property, including without limitation, recommendations relating to the
collection of revenues therefrom, the payment of operating and capital expenses
relating thereto, and the procedures for forwarding the net receipts to ELAS;
(e) supervise and institute appropriate controls with respect to the
activities of the property manager and leasing agent for each property and
monitor the operational results of each property and formulate operating
policies and leasing guidelines and report and make recommendations to ELAS with
respect thereto;
<PAGE>
(f) advise ELAS with respect to standard form documentation for Equity
Investments and Mortgage Investments;
(g) implement all transactions with respect to Investments or potential
Investments, conduct negotiations relating to Investments, supervise compliance
with contractual undertakings of ELAS with respect to Investments, manage and
act on behalf of ELAS with respect to participants in Mortgage Investments and
partners or other co-owners in joint venture, partnership or other arrangements
with respect to Investments, assist ELAS with respect to third-party financing
for Investments, and report and make recommendations to ELAS with respect
thereto;
(h) review, develop and implement financial, banking, recordkeeping,
accounting, management and information systems and controls for the portfolio of
Investments and for each Investment;
(i) with respect to each Equity Investment, develop for ELAS's approval
annual and short, intermediate and long-term operating plans for each
Investment, including forecasts, operating programs and budgets, capital
expenditures, insurance data and marketing or leasing strategies;
(j) timely report and make recommendations to ELAS with respect to any
pending or threatened litigation or Regulatory Authority investigation or
proceeding concerning or relating to the general account portfolio of
Investments as a whole or any Investment or property now or formerly therein or
any actual or alleged conduct or practices of ELAS, the Advisor or any of their
agents with respect thereto and monitor and assist ELAS with respect thereto;
(k) physically inspect, to monitor that it is being maintained in a good
state of repair and in compliance with applicable legal and insurance
requirements, (i) on a periodic basis, but not less frequently than annually,
each Mortgage property as to which (x) the mortgage loan has been in default for
more than 90 days with respect to a required payment to ELAS or (y) the Advisor
receives information that the property or any material part thereof has been
damaged, left vacant, abandoned or as to which waste is occurring, and (ii) on a
periodic basis, but not less frequently than every six months, each Mortgage
property which is improved and classified as an "agri-business loan" and, in
each of the above cases, report to ELAS in writing on the current form of the
Loan Status Report with respect thereto;
(l) timely report and make recommendations to ELAS with respect to any
damage, destruction or condemnation of a property or any other event or
development which may be covered by insurance and assist ELAS with respect
thereto, with respect to the repair or other cure of any such damage or damage
caused thereby and with respect to timely notification of appropriate insurance
carriers, negotiation and settlement with such carriers and the collection of
insurance proceeds and condemnation awards with respect thereto, provided that
where the cost of repair and the insurance proceeds or condemnation awards are
less than $50,000, the Advisor may handle such event on its own and report to
ELAS after doing so;
(m) identify, monitor, report on and make recommendations to ELAS
concerning, and attend quarterly meetings of ELAS's Investments Under
Surveillance Committee or any successor thereto (the "Committee") with respect
to (i) any Mortgage Investments having negative financial trends or
demonstrating such other characteristics as may be established by ELAS from time
to time in connection with its valuation policies in order to enable the
Committee to determine whether the values of such Mortgage Investments are
impaired, whether valuation allowances or reserves should be established for
such Mortgage Investments and/or whether the classification of such Mortgage
Investments should be changed; (ii) any Mortgage Investments whose terms are
being renegotiated in order to enable the Committee to determine if the
classification of valuation of such Mortgage Investments should be changed;
(iii) any Equity Investment identified by ELAS as being held for sale or which
is a potential candidate for sale in order to enable the Committee to determine
if any additions, changes or deletions should be made to ELAS's schedule of
Equity Investments held for sale and (iv) any Equity Investments identified by
ELAS as being held for the production of income in order to enable the Committee
to determine whether the values of such Equity Investments are impaired;
<PAGE>
(n) provided the Advisor is permitted to do so under agreements applicable
to such Investments, oversee and monitor the preparation and delivery by each
property manager, and review and recommend for approval by ELAS, an annual
operating and capital budget for each Investment whose GAAP amortized cost
exceeds $1,000,000, using its best efforts to cause the same to be delivered to
ELAS for approval by not less than 90 days (unless otherwise agreed to by ELAS
and such property manager) prior to the beginning of each calendar year (and,
unless and until ELAS disapproves such budget, the property manager may operate
such property in accordance with such budget);
(o) timely notify ELAS if the Advisor becomes aware of any material
violation of a Regulatory Requirement applicable to any Investment or any
property;
(p) form, maintain, qualify to do business, direct and dissolve any title
holding company or entity to hold title to any Investment, serve as (and provide
employees of the Advisor to serve as) officers, directors, members or other
representatives of any such title holding company or entity and take all such
lawful action with respect to any such title holding company or entity as may be
directed by ELAS, with the out-of-pocket costs associated therewith to be
charged to the Investment; and
(q) prepare committee presentations and related reports, committee or
delegated authority sheets, resolutions and similar materials relating to
Investments or proposed Investments (except that, unless otherwise requested by
ELAS, Mortgage Investments under $5,000,000 may be reported in a summary
fashion), and assist ELAS in responding to any requests, investigations or
inquiries by any direct or indirect parent of ELAS or any Regulatory Authority,
including without limitation, assisting and providing support to ELAS in
connection with each quinquennial examination conducted by the New York State
Insurance Department.
2.5 Dispositions. The Advisor shall develop guidelines for the disposition
of Investments. In connection therewith, the Advisor shall recommend, for the
approval of ELAS, real estate brokers to assist in marketing, selling and
otherwise disposing of a particular Investment or group of Investments and
negotiate for such dispositions on such terms and conditions as ELAS shall
determine, provided that the Advisor may (i) select and engage real estate
brokers, without ELAS's prior approval, for sales of properties with a GAAP
amortized cost of less than $1,000,000, and (ii) in accordance with guidelines,
negotiate for dispositions of foreclosed properties with a GAAP amortized cost
of less than $1,000,000.
2.6 Books, Records, Instruments, Documents and Files. The Advisor shall
keep accurate books, records, data and files (including without limitation,
computerized material) with respect to the Investments and proposed Investments,
in accordance with guidelines and in such detail as is appropriate under the
circumstances. In accordance with and subject to Regulatory Requirements, the
Advisor shall have full responsibility for the maintenance, care and
safe-keeping of all Investment Information presently being maintained by the
Advisor or hereafter generated or obtained by the Advisor in performing its
obligations under this Agreement. All Investment Information shall be kept and
maintained by the Advisor at its office address set forth in Section 8.1 or such
other office addresses or locations as ELAS may approve, which approval shall
not be unreasonably withheld, or, to the extent in accordance with current
practice and permitted by Regulatory Requirements, at the regional offices of
the Advisor, as the same may change from time to time and the Advisor will give
ELAS prior notice of any such change. All Investment Information shall be and
remain the sole and exclusive property of, and shall belong to and remain under
the ultimate control of, ELAS who shall at all times have, subject to Section
2.10, complete and unrestricted access to all Investment Information. ELAS may
at any time and from time to time revoke the Advisor's responsibility to keep
and maintain any Investment Information, provided that the Advisor shall be
given copies of or access to any Investment Information to the extent necessary
to enable the Advisor to perform its obligations under this Agreement. The
Advisor shall not in any way interfere with or deprive ELAS of its ownership,
control or right of access to such written and computerized Investment
Information which may be enforced by ELAS by an action at law or in equity,
whether for specific performance or injunction or otherwise, even if ELAS is in
default hereunder or after this Agreement has terminated. All Investment
Information shall be open to inspection and audit, at all reasonable times, by
ELAS, its designees and Regulatory Authorities, and the Advisor shall, if
requested, make and deliver copies and extracts therefrom to any such person,
without charge (unless copying costs become unreasonable in which case ELAS
shall reimburse the Advisor therefor). All Investment Information may be audited
from time to time by independent accountants selected and paid for by ELAS.
<PAGE>
2.7 Reports and Information. The Advisor shall provide to ELAS, with
respect to the Investments, the following reports and information, in such form
as provided prior to the date hereof or such other form as ELAS may reasonably
request, whether in computerized form (if not provided in computerized form
prior to the date hereof, computerized form shall only be required to the extent
the same are capable of being generated on the systems of the Advisor) or on
paper, in each case subject to the provisions of Section 1.2 hereof:
(a) as soon after the end of each such period as may be reasonably
requested (with due regard to Regulatory Requirements) by ELAS from time to
time, monthly, quarterly, semiannual (as to Purchase GAAP only) and annual
reports, general ledger journal entries and other information prepared in
accordance with Regulatory Requirements (including without limitation,
Securities and Exchange Commission and New York Insurance Department) and on
segmented, IYAM, GAAP and Purchase GAAP bases;
(b) as soon after the end of each quarter as may be reasonably requested
(with due regard to Regulatory Requirements) by ELAS, a management
representation letter to the controller of ELAS, on accounting reporting and
disclosure issues in support of the quarterly management representation letter
to be issued by ELAS to its independent accountants, signed by such appropriate
officers of the Advisor as ELAS may request;
(c) at such time or times as ELAS may request upon reasonable notice (with
due regard to Regulatory Requirements), such reports, returns, disclosures or
other communications to ELAS, ELAS's independent accountants, property managers,
tenants and other persons, as ELAS is required to prepare, obtain, provide or
file or deems it advisable to prepare, obtain, provide or file according to,
pursuant to or in conformity with any Regulatory Requirement, including any
information requested by ELAS to enable it to prepare any such reports, returns,
disclosures or other communications; and
(d) such additional data, reports, analyses and information as are set
forth on Schedule 2.7(d) hereto or as ELAS shall otherwise request upon
reasonable notice (with due regard to Regulatory Requirements), whether in
connection with the portfolio of Investments or any Investment.
Each of the reports and information set forth in Schedule 2.7(d) shall be
delivered to ELAS not later than the business day or days, if any, specified on
such Schedule with respect thereto or on such other date as ELAS may reasonably
request from time to time, and where no date is specified on such Schedule, on
such date as ELAS may reasonably request from time to time.
2.8 Cooperation; Meetings. ELAS and the Advisor shall cooperate and carry
on a regular dialogue with each other. The Advisor, represented by such officers
and other employees of the Advisor as ELAS may reasonably require, shall meet
with representatives of ELAS regularly at such times as are reasonably
established by ELAS to discuss and review the performance of the Investments,
the performance of the Advisor under this Agreement and any other matters
relating or pertaining to this Agreement and shall attend meetings, as
reasonably requested by ELAS, on-site at any property, at the offices of ELAS or
at any other location as may be reasonably designated by ELAS. In addition,
appropriate officers and employees of the Advisor reasonably designated by the
Chief Investment Officer of ELAS shall attend and participate in meetings of an
investment advisory committee comprised of ELAS officers and employees. Such
committee shall be chaired by ELAS's Chief Investment Officer or his or her
designee and shall meet, as frequently as ELAS and the Advisor may in good faith
agree, by telephone or video conference. The Chief Investment Officer of ELAS or
his or her designee shall also be entitled to attend by telephone, video
conference or in person formal meetings of the investment committee of the
Advisor concerning the Investments or proposed Investments and the Advisor shall
keep ELAS informed of the time and place of all such meetings.
2.9 Administrative and Other Services. The Advisor shall provide the
following administrative and other services in accordance with guidelines,
subject in each case to the provisions of Section 1.2 hereof:
(a) Cash Management Services. The Advisor shall (i) deposit all payments
related to Mortgage Investments collected by the Advisor in a commingled lockbox
account in the name of the Advisor or in a Designated Account, and if deposited
in a commingled lockbox, transfer the same to a Designated Account within three
business days, (ii) cause all property managers of Equity properties to deposit
all revenues collected therefrom in a commingled lockbox account in the name of
the Advisor or in a Designated Account, and if deposited in a commingled
lockbox, transfer the same to a Designated Account within three business days,
(iii) pay all expenses with respect to Investments out of an imprest account
<PAGE>
established in accordance with guidelines or out of funds provided to the
Advisor by ELAS, (iv) send or cause to be sent to ELAS on a daily basis all sums
in such Designated Accounts in excess of such expenses, provided, however, that
sums in excess of expenses in Designated Accounts for Equity properties managed
by property managers unrelated to the Advisor shall be sent to ELAS not less
frequently than monthly, (v) advise ELAS before 12:00 noon New York time each
business day of the total amount in such accounts to be sent that day to ELAS or
as ELAS may designate or of such additional amount, if any, as may be required
from ELAS on such date, (vi) deliver to ELAS, not less frequently than
quarterly, a list (in computerized form and/or such other form as ELAS may
request) of all bank accounts with such information as ELAS may request, (vii)
deliver to ELAS, not less frequently than quarterly, a list (in computerized
form and/or such other form as ELAS may request) of all bank accounts,
containing the then book balance in each such account, (viii) deliver to ELAS,
on such regular basis as ELAS may request, a forecast of sale proceeds, mortgage
payoffs and other sums which the Advisor expects that ELAS will be receiving
from third parties with respect to the Investments to the extent the same exceed
$3,000,000 in the aggregate (other than payments related to Mortgages and net
cash flow from Equities in the ordinary course) and a forecast of acquisition
payments, advances for capital improvements, mortgage loan advances and other
sums which the Advisor expects that ELAS will have to pay to third parties to
the extent the same exceed $3,000,000 in the aggregate, and (ix) adopt
appropriate check and electronic funds transfer fraud prevention procedures. The
Advisor will pay the cost of maintaining any such commingled lockbox account
(and will be entitled to retain all interest earned in respect thereof), and the
cost of any Designated Account (interest on which shall belong to ELAS) will be
charged to the Investment for which such Account has been established.
(b) Accounting Services. The Advisor shall (i) establish and maintain (and
require and assist property managers and other contractors to establish and
maintain) a system of internal accounting and financial controls designed to
provide reasonable assurance of the reliability of financial reporting, the
effectiveness and efficiency of operations and compliance with Regulatory
Requirements, (provided that any audit of the Advisor's internal controls shall
be provided by ELAS internal audit personnel without cost to the Advisor), (ii)
maintain records for each Investment on cash (in the form currently provided),
regulatory, tax, GAAP, Purchase GAAP and other bases as may be requested by
ELAS, (iii) develop accounting entries and reports (including without
limitation, schedules for periodic and annual filings with Regulatory
Authorities) required by ELAS to meet its reporting obligations, (iv) consult
with ELAS with respect to proposed or new accounting/regulatory rules identified
by ELAS or the Advisor, (v) consult with ELAS regarding implications of proposed
and actual transactions, (vi) provide data for gain and loss analyses, risk
based capital analyses, projections, discontinued and closed block analyses,
asset valuation reserve (AVR) analyses, and segmentation changes, (vii) assist
ELAS in meeting its accounting and reporting needs, including without
limitation, assisting ELAS with responses to Regulatory Authorities and ELAS's
direct or indirect parent and assisting ELAS with unique insurance accounting
calculations, and (viii) deliver to ELAS on an annual basis for no additional
fee under Section 1.2(b), on such date as ELAS may reasonably designate an SAS
70 opinion letter (containing reports on both controls placed in operation and
tests of operating effectiveness), prepared by a nationally recognized
accounting firm.
(c) Tax Related Services. The Advisor shall (i) assemble, maintain and
provide ELAS with information and data with respect to the Investments required
for the preparation of quarterly and annual financial statement tax liabilities
and forecasts, federal, state, local and foreign tax returns, any audits,
examinations or administrative or legal proceedings related thereto or any
contractual tax indemnity rights or obligations, (ii) assist ELAS tax planning
by providing factual data reasonably requested by ELAS to enable it to prepare
projections of gains, losses and tax obligations and by determining depreciation
schedules to enable ELAS to determine related tax treatment of particular items,
(iii) assemble, record, organize and report to ELAS data and information with
respect to the Investments relative to taxes and tax returns in such form as may
be requested by ELAS, and (iv) prepare, file and send to appropriate persons
(including ELAS tax accountants and counsel) applicable tax information
reporting forms with respect to the Investments, the properties and transactions
involving the Investments and the properties (including without limitation,
information reporting forms, whether on Form 1099 or otherwise, with respect to
sales, foreclosures, interest received, interest paid, partnership reports and
other relevant transactions); it being understood that, in the context of the
foregoing, ELAS shall rely on its own tax advisers in the preparation of its own
tax returns (other than those reporting forms to be prepared by the Advisor
under this Section 2.9(c)) and the conduct of any audits, examinations or
administrative or legal proceedings related thereto and that, without limiting
its obligation to provide the information, data, reports and other assistance
provided herein, the Advisor will not be responsible for the preparation of such
returns or the conduct of such audits, examinations or other proceedings.
<PAGE>
(d) Engineering and Environmental Services. The Advisor shall (i) provide
engineering and environmental services consistent with those currently provided
by the Advisor to ELAS, and (ii) have as employees (or rely on employees of its
affiliate, Equitable Real Estate Investment Management, Inc.) individuals with
appropriate background and expertise to fulfill the Advisor's duties under
Section 4.8 of this Agreement and to evaluate and analyze engineering and
environmental reports.
(e) Appraisal and Valuation Services. The Advisor shall (i) provide
appraisal and valuation services consistent with those currently provided by the
Advisor to ELAS, (ii) have as employees individuals with appropriate background
and expertise to appraise and value properties and to evaluate and analyze real
estate appraisals and to prepare certificates of value which shall be signed by
an employee of the Advisor who is state licensed or certified in at least one
state or a Member of the American Society of Farm Managers and Rural Appraisers,
and (iii) prepare, maintain and update a valuation file for each property,
containing such information and in such detail as may be reasonably requested by
ELAS from time to time, including without limitation, an annually current
recommended valuation based on generally accepted appraisal principles and
applicable insurance regulatory requirements.
(f) Public Relations Services. The Advisor (i) shall submit to ELAS, for
approval, public relations plans and strategies pertaining to the portfolio of
Investments and individual Investments or proposed Investments or properties,
(ii) shall promptly notify ELAS of any issues, events and activities with
respect to any of the foregoing which may generate adverse media interest, (iii)
shall, pursuant to guidelines, submit to ELAS for prior review and approval
advertising, marketing and other public communications materials with respect to
the foregoing, (iv) shall not communicate with or respond to any inquiry of the
media with respect to the foregoing, other than pursuant to guidelines, without
the prior approval of ELAS on a case by case basis or pursuant to a strategy
previously approved by ELAS in writing, and (v) may include ELAS in its list of
clients or make reference to ELAS as a client in any proposal, advertising or
other communication, but may not otherwise mention ELAS or any of its affiliates
in any of the foregoing or otherwise use or display the name or logo of ELAS or
any ELAS affiliate without ELAS's prior written consent.
(g) Insurance Services. The Advisor shall (i) provide ELAS with information
needed to place and maintain policies of insurance on the properties, (ii)
provide ELAS and ELAS's insurers, if so requested, with timely notice of any
loss or claim with respect to any property, (iii) cooperate with ELAS and ELAS's
insurers in the assertion and collection of any insurance claims and in the
defense of any actions brought against ELAS in connection therewith, and (iv)
monitor ELAS's compliance with insurance and risk management requirements as
communicated to the Advisor by ELAS.
(h) Other Services. The Advisor shall provide such other services as ELAS
may request from time to time consistent with the purposes of this Agreement and
either consistent with services generally provided by real estate investment
advisors or related to unique requirements of ELAS as indicated in this
Agreement, subject in each case to the provisions of Section 1.2.
2.10 Data Processing and Computer Services. (a) The Advisor shall, subject
to the provisions of Section 1.2 hereof, provide ELAS (i) such information
technology, data processing, computer services and related reports as are
necessary to provide the services which the Advisor is to provide under this
Agreement, (ii) such other information technology, data processing, computer
services and related reports as the Advisor has customarily provided to ELAS
prior to the date hereof and (iii) such other information technology, data
processing, computer services and related reports relating to the general
account as ELAS may reasonably request during the term of this Agreement (for
purposes of this clause 2.10(a)(iii), the reasonableness of ELAS's request will
take into account the effect of such request on the Advisor's security needs).
Without limiting the foregoing, the Advisor will provide ELAS via electronic
transmission, in accordance with Schedule 2.7(d) or at such other times as ELAS
may reasonably request, the electronic data that the Advisor has customarily
provided to ELAS prior to the date hereof and such other data relating to the
general account as ELAS may reasonably request during the term of this Agreement
(collectively, the "Data Transmissions"). In addition, ELAS may access and use
the software and hardware (and any replacements thereof) used to provide the
foregoing services to ELAS (collectively, the "Advisor Systems") (i) to view the
data relating to the general account, on a query-only basis for audit purposes,
to the extent and in the manner that ELAS so accessed and used such software and
hardware prior to the date hereof and such access and use does not conflict with
the Advisor's confidentiality obligations with respect to its other clients and
(ii) as ELAS may otherwise reasonably request during the term of this Agreement,
subject to the Advisor's security and confidentiality needs, provided that, at
the request and cost of ELAS, the Advisor will make reasonable provision to
enable ELAS to otherwise access data relating to the general account as
reasonably requested by ELAS through the downloading of such data to separate
magnetic tape, disc or hard drive or through the use of some other technical
infrastructure (whether by separate file server or otherwise) which will enable
ELAS to access such data without conflicting with the Advisor's confidentiality
obligations to its other clients.
<PAGE>
(b) In addition to the computer services referred to in Section 2.10(a)
above, the Advisor shall, subject to the provisions of Section 1.2 hereof, (i)
provide ELAS via electronic transmission on a monthly basis or as ELAS may
otherwise reasonably request with such electronic data (in addition to the Data
Transmissions) with respect to the Investments as ELAS may reasonably request,
(ii) provide ELAS via magnetic tape or disc at such times as ELAS may reasonably
request, but not more frequently than monthly, with a copy of all data with
respect to the Investments (the "Systems Data") and (iii) at the request and
cost of ELAS, make reasonable provision to enable ELAS to otherwise access the
Systems Data through the downloading of such data to separate magnetic tape,
disc or hard drive or through the use of some other technical infrastructure
(whether by separate file server or otherwise) which will enable ELAS to access
the Systems Data without conflicting with the Advisor's confidentiality
obligations to its other clients. ELAS may access the Advisor Systems at any of
the Advisor's offices, by one or more terminals installed in ELAS's offices to
the extent and in the manner currently so accessed or, if the technology should
become available and at the cost of ELAS, through ELAS's own computer systems.
In determining the reasonableness of any request made pursuant to this Section
2.10(b), the effect of such request on the Advisor's security and
confidentiality needs shall be taken into account.
(c) The Advisor may modify or upgrade the Advisor Systems at its
discretion, provided that (i) the Advisor shall ensure, at its expense, that the
Data Transmissions remain compatible with the ELAS hardware and software (the
"ELAS Systems") to the extent that such transmissions were compatible
immediately prior to such modification or upgrade and (ii) that the Advisor
Systems and ELAS Systems remain compatible to the extent necessary to enable
ELAS to access the Advisor Systems and Systems Data as provided above, provided
that if a third-party provider of communications services is the cause of the
incompatibility the parties will negotiate in good faith the costs of any
necessary modifications. In the event that ELAS modifies the ELAS Systems such
that they become incompatible with the Advisor Systems, the Advisor shall use
its best efforts, at ELAS's expense, to modify the Advisor Systems as may be
necessary to maintain or restore compatibility with the ELAS Systems, provided
that the Advisor shall consult with ELAS with respect to such costs.
(d) To the extent the Advisor develops any software at the request and cost
of ELAS, the Advisor shall have no right to use the same for its other clients
or for any other purpose, unless otherwise agreed in writing by ELAS, provided
that, if such software cannot be integrated into the Advisor Systems in such a
manner as will avoid its use for its other clients, the Advisor will, after
consultation with ELAS where material costs are involved, in good faith seek to
collect the pro-rata (based on revenues received from clients) costs thereof
from each of such other clients, in which event such collections will be
delivered to ELAS in reimbursement of a portion of the costs of such
development.
(e) The Advisor shall be responsible for implementing necessary procedures
to enable the Advisor Systems to be Year 2000 Compliant and will advise ELAS on
a regular basis as to the status of such efforts. For purposes of this Section
2.10(e), "Year 2000 Compliant" means that all software that contains or calls on
a calendar function, including but not limited to any function that is indexed
to a computer processing unit clock, provides specific dates or calculates spans
of dates, and is able to record, store, process and provide true and accurate
dates and calculations for dates and spans of dates including and following
January 1, 2000.
(f) Except as may otherwise be required to adhere to the Advisor's
obligations under subsection (c), the Advisor shall maintain and upgrade the
Advisor Systems as necessary to conform such systems to then-current industry
standards applicable to institutional real estate investment advisors and, to
the extent consistent with industry standards, will use only versions of
third-party software that are then-available for sale from vendors. The Advisor
shall also be responsible for implementing computer maintenance and operating
procedures, in accordance with standard industry practice, which shall include,
but shall not be limited to, making back-up copies of the Advisor Systems and
the ELAS data contained therein and making appropriate provision for the secure
storage thereof.
(g) The Advisor shall have all necessary licenses and rights from third
parties to enable it to provide the services contemplated hereunder, including
but not limited to any rights from third parties, whether by license or
otherwise, to any software or other technology necessary to provide the services
described in this Section 2.10 and the rights granted to ELAS hereunder, except
to the extent that the Advisor does not, at the date of this Agreement, possess
necessary consents or licenses from third parties.
<PAGE>
Article III
Authority of the Advisor
3.1 Authority. The Advisor and ELAS are not partners or joint venturers
with each other under or with respect to this Agreement or the investments and
properties covered by this Agreement, and nothing contained in this Agreement
nor any transaction or activity conducted pursuant to this Agreement shall be so
construed or interpreted or impose any liability as such on either the Advisor
or ELAS. The Advisor shall perform its duties under this Agreement as an
independent contractor and not as an agent of ELAS. ELAS shall from time to
time, in accordance with guidelines, elect employees of the Advisor (and,
notwithstanding Section 5.5, not employees of ERE) to serve as officers of ELAS
authorized to execute documents in ELAS's name. Except as provided in the
preceding sentence or as expressly authorized and directed by ELAS in writing,
(a) no officer, employee or agent of the Advisor shall, under any circumstances
or for any purpose, become or be an officer, employee or agent of ELAS by reason
of this Agreement, and (b) the Advisor's officers, employees and agents shall,
when acting on behalf of ELAS, represent themselves as officers, employees or
agents, as the case may be, of the Advisor and not of ELAS.
3.2 Limitations on Authority. The Advisor's authority under this Agreement
shall be subject to limitations imposed by the New York Insurance Law and other
applicable federal and state law. ELAS shall delegate authority to originate,
acquire and service agricultural Investments in accordance with guidelines. The
Advisor and such of its officers, employees and agents as may be serving as ELAS
officers shall also be governed by the investment policies, practices and
procedures established by ELAS from time to time for its general account, as
communicated to the Advisor by ELAS. In providing the services contemplated by
this Agreement, the Advisor will comply in all material respects with all
applicable provisions of the New York Insurance Law of which it has been advised
by ELAS or of which it is otherwise aware and other applicable federal, state
and other laws.
Article IV
Covenants of the Advisor
4.1 Status and Registration of the Advisor. The Advisor shall at all times
(a) be validly existing and in good standing under the laws of its state of
incorporation, (b) be duly registered, or have an affiliate which is duly
registered, with the United States Securities and Exchange Commission as an
investment adviser under the Investment Advisers Act of 1940, as amended, to the
extent required to perform its obligations under this Agreement, (c) be duly
qualified to do business and duly registered or licensed as an investment
adviser, a real estate broker and a mortgage broker, in each state or
jurisdiction necessary to perform its obligations under this Agreement, and (d)
have completed, obtained or performed all registrations, filings, approvals,
licenses, consents and examinations required by any Regulatory Authority which
are required in connection with the performance of its obligations under this
Agreement.
4.2 Other Business; Allocation. The Advisor may engage in any other
business or act as advisor to or investment manager for any other person, even
though such other person has or may have investment policies similar to those
followed by the Advisor with respect to ELAS for its general account, provided,
that the Advisor shall at all times allocate investment opportunities among
clients of the Advisor on a fair and equitable basis. Subject only to the
foregoing requirement, the Advisor shall be free from any obligation to
recommend to ELAS for its general account any particular investment opportunity
which may come to the attention of the Advisor, provided that any such
investment opportunity that is reasonably related to an existing Investment
shall, to the extent the Advisor is not prohibited from doing so (the Advisor
agreeing not to initiate any such prohibition) and subject to its general
obligation to clients to allocate investment opportunities on a fair and
equitable basis, first be presented and made available to ELAS, for the general
account. Except to the extent expressly prohibited or limited by confidentiality
(in which case the Advisor shall so inform ELAS as to the bases thereof) and to
the extent such investments are within the category of investments in which ELAS
has indicated an investment interest, the Advisor shall continue to deliver an
allocation report to ELAS, as often and in such detail as is currently provided.
<PAGE>
4.3 No Assignment or Delegation. (a) Neither this Agreement nor any of the
Advisor's right, title or interest herein or hereunder may be directly or
indirectly (including without limitation, by any "assignment" within the meaning
of the Investment Advisers Act of 1940, as amended, whether direct or indirect,
and whether by operation of law or otherwise) assigned, transferred, conveyed or
otherwise disposed of to any person, including without limitation, any
subsidiary or other affiliate of the Advisor, without the prior written consent
of ELAS, and any attempt to so assign, transfer, convey or otherwise dispose of
any thereof without such prior written consent shall be null and void.
(b) Except as provided in Section 4.3(c), no duty or obligation of the
Advisor hereunder may be contracted for or otherwise delegated by the Advisor to
any person, including without limitation, any subsidiary or other affiliate of
the Advisor, without the prior written consent of ELAS, and any attempt to so
contract or otherwise delegate any thereof without such prior written consent
shall be null and void, provided that the Advisor may, with the consent of ELAS,
which shall not be unreasonably withheld, delegate any service to be provided by
the Advisor under this Agreement, other than investment advisory services, asset
management services, acquisition, mortgage origination and disposition services,
and tax, accounting and recordkeeping services. If ELAS consents to the
contracting or other delegation to any person of any duty or the performance of
any function required to be performed hereunder by the Advisor, the Advisor
shall pay all costs and expenses incurred in connection therewith. No consent to
any contracting or other delegation shall release the Advisor from its
obligations hereunder to perform the duty or function so delegated (and, in the
case of any contracting or delegation of engineering or environmental or
appraisal services, such consent shall not relieve the Advisor of its
obligations under Sections 2.9(d)(ii) or 2.9(e)(ii), respectively), the Advisor
shall continue to be liable to ELAS with respect to such delegated duty or
function and with respect to the performance thereof by such other person,
notwithstanding such contracting or other delegation, and any person to whom any
duty or function hereunder is so delegated shall be deemed an agent of the
Advisor for purposes of this Agreement.
(c) Notwithstanding the provisions of the first sentence of clause (b), the
Advisor shall be entitled, without the prior written consent of ELAS, (i) to
delegate the performance of its duties and obligations hereunder to employees of
Equitable Real Estate Investment Management, Inc. to the extent and in the
manner currently so delegated, subject to the last two sentences of clause (b),
and (ii) to arrange for tax and accounting services in respect of specific joint
venture Investments under circumstances and on the basis provided for in the
relevant joint venture agreements.
4.4 Confidentiality; Proprietary Materials. Except as may be required by
applicable law or as may be necessary to perform its obligations hereunder, the
Advisor and its affiliates shall maintain in strict confidence and shall not
disclose, and shall neither use nor permit to be used, for any purpose, any
Investment Information or other non-public information with respect to or
concerning ELAS, any affiliate thereof, the portfolio of Investments, any
individual Investment or any property which is the subject thereof or, to the
extent prepared by ELAS or any of its affiliates or prepared by the Advisor
specifically for ELAS, any proposed Investment or any property which is the
subject thereof.
4.5 No Affiliate Benefits. Without the prior written consent of ELAS, none
of the Advisor, its affiliates or their respective officers, directors or
employees shall (a) be retained by the Advisor (other than in their capacities
as officers, directors or employees of the Advisor) to provide any services to
ELAS or (b) receive any benefit from any Investment of ELAS other than as
contemplated by this Agreement. Notwithstanding the foregoing, no consent of
ELAS under this Agreement, except as required by Section 4.9, shall be required
to the continuation of any services with respect to a specific property or
Investment being provided to ELAS by any affiliate of the Advisor or of Lend
Lease Corporation Limited or any of their respective officers, directors or
employees as of the date of this Agreement.
4.6 Information Relating to the Advisor. The Advisor will notify ELAS
promptly of any changes in the ownership (whether direct or indirect, other than
in respect of Lend Lease Corporation Limited so long as its shares are publicly
traded), control (whether direct or indirect) or corporate structure of the
Advisor. The Advisor shall promptly notify ELAS in writing of any material
change in the Advisor's or any of its affiliates' business or financial or other
condition or any investigation, action, suit or proceeding commenced or
threatened against the Advisor or any of its affiliates, in each case which may
adversely affect the Advisor's ability to perform its duties and obligations
hereunder or may otherwise adversely affect ELAS, the Investments or the
properties. No later than 90 days following the last day of each fiscal year of
the Advisor, the Advisor will prepare and deliver to ELAS the Advisor's
<PAGE>
consolidated balance sheet and related consolidated statements of income,
shareholder's equity and cash flows at and for each year end, including
supporting footnotes, all in accordance with generally accepted accounting
principles and related reports of independent accountants. All such financial
and other information shall be held in confidence by ELAS.
4.7 Insurance. The Advisor shall maintain the following insurance
coverages, with such deductibles as are reasonable and customary practice in the
industry or as ELAS may otherwise approve:
(a) Workers Compensation in accordance with statutory requirements and
Employers Liability in an amount not less than $1,000,000;
(b) commercial general liability insurance and umbrella liability
insurance, on an occurrence basis, in an amount not less than $25,000,000
Combined Single Limit and annual aggregate;
(c) a comprehensive crime policy, or fidelity bond, covering all officers,
directors and employees of the Advisor with responsibility for any monies
belonging to ELAS in an amount not less than $10,000,000 per occurrence and
annual aggregate;
(d) errors and omissions insurance, covering all services provided by the
Advisor to ELAS, in an amount not less than $5,000,000 per claim and annual
aggregate;
(e) comprehensive automobile liability insurance covering the Advisor's
owned, leased and hired vehicles in an amount not less than $5,000,000 Combined
Single Limit; and
(f) such other insurance as may be reasonably required by ELAS at any time
or from time to time and which is in accordance with reasonable and customary
practice in the industry.
ELAS and the Advisor will from time to time, at the request of ELAS, review and,
as appropriate, increase the amounts set forth in Sections 4.7(a) through (e) to
reflect reasonable and customary practice in the industry. All insurance
required hereunder shall be written with insurance companies authorized to do
business in the State of New York, and having a Best's rating of not less than A
VIII, shall be in a form and with insurers reasonably satisfactory to ELAS, and
shall include a provision that coverage provided by such policy shall not be
cancelled or materially changed without giving ELAS at least thirty (30) days'
prior written notice. ELAS, its subsidiaries, officers, directors and employees
shall be named as additional insureds with respect to the coverages required in
Sections 4.7(b) and (e), and ELAS shall be named as a joint loss payee as its
interests may appear with respect to the coverage required in Section 4.7(c). A
certificate or certificates of insurance evidencing the coverages required
hereunder shall be delivered to ELAS at the time this Agreement is executed, and
at least ten (10) days prior to each renewal of such insurance.
4.8 Environmental Compliance. The Advisor shall promptly notify ELAS
whenever the Advisor acquires knowledge that there exists, with respect to any
property or any property which is the subject of a proposed Investment, any
violation or alleged violation of any Regulatory Requirement relating to any
environmental condition on, under or adjacent to such property or that any
person has used, generated, manufactured, stored or disposed of on, under or
about such property or transported to or from such property any hazardous
materials or substances in violation of any applicable Regulatory Requirement.
Prior to the acquisition (including without limitation, by foreclosure) by ELAS
of any property or any Investment in accordance with this Agreement, the Advisor
shall implement the procedures required by environmental guidelines in order to
evaluate any potential exposure to ELAS under any Regulatory Requirement with
respect to hazardous materials or substances as a result of the acquisition or
ownership of any interest in such property or such Investment. If and to the
extent so directed by ELAS, the Advisor shall recommend, for the approval of
ELAS, environmental and other consultants to perform a Phase I environmental
assessment, including a visual inspection and other appropriate inspections of
such property, to conduct an examination of the ownership, use and permit
history of such property and to examine those publicly available records
customarily examined in connection with the performance of a Phase I
environmental assessment. The Advisor shall review and analyze such assessment,
examinations and the findings thereof and any reports of such consultants and
shall submit to ELAS the Advisor's review, analysis and recommendations with
respect thereto. In addition, with respect to any existing Investment, the
Advisor shall, as directed by ELAS, arrange for and supervise environmental
assessments (including Phase I and Phase II assessments), studies, testing,
remediation, monitoring and reporting with respect to environmental conditions.
<PAGE>
4.9 Property Managers and Other Service Providers. Subject to Section
4.3(b), the Advisor may, from time to time, recommend, for the approval of ELAS,
property managers, real estate and leasing brokers, engineering and
environmental consultants, appraisers and other independent service providers to
perform services not normally or ordinarily provided heretofore by the Advisor
to ELAS as part of the Advisor's services. Any such property manager, broker,
consultant, appraiser or other service provider shall be retained by ELAS and
the cost thereof shall be charged to the appropriate Investment. In recommending
any such property manager, broker, consultant, appraiser or other service
provider, the Advisor shall recommend (or, if the service providers are not in
default, renew the contracts of) only such service providers (which may include
affiliates of the Advisor) that are capable of providing the optimum level of
service consistent with investment strategy and competitive pricing. If
requested by ELAS, the Advisor shall furnish ELAS with the information on which
the Advisor is relying to establish the capabilities and competitiveness of the
pricing for a provider it has recommended except in the case of property
management or other services then being provided by an affiliate of the Advisor,
in which case, at the request of ELAS, the Advisor shall furnish ELAS with a
statement and such other information as ELAS may reasonably request, as to the
basis upon which the Advisor has determined to renew such services.. Except for
contracts for the management of properties managed by an affiliate of the
Advisor on the date of this Agreement (which shall be renewed so long as the
affiliate continues to provide the optimum level of service consistent with
investment strategy and competitive pricing), a competitive bidding process
pursuant to specifications prepared by the Advisor and approved by ELAS shall be
utilized for contracts requiring payment of more than $100,000 per year. If
ELAS, in connection with any renewal of a contract with an affiliate of the
Advisor, believes the Advisor's judgment was incorrect, the dispute may be
resolved by dispute resolution in accordance with Section 10.1, and, if a
mediator or arbitrator determines that the standards set forth in this Section
4.9 were not met, the contract shall be cancelled. The Advisor shall not
recommend an affiliate of the Advisor (other than Hyperion Capital Advisors
L.L.C., Compass Management and Leasing, Inc., Compass Retail, Inc. or The
Yarmouth Group) to act as such property manager, broker or other service
provider unless the Advisor shall disclose such affiliation to ELAS in writing.
Subject to its obligations under Section 1.3 in recommending and monitoring any
such third party service provider, the Advisor shall not be responsible for or
liable in respect of the performance of its services by such third party service
provider.
<PAGE>
Article V
Rights of ELAS
5.1 Execution of Documents. Only ELAS or a duly authorized designee of
ELAS may execute documents with respect to any Investment or otherwise effect
any transaction on behalf of ELAS. The Advisor shall not execute any documents
or effect any transactions on behalf of ELAS without the express prior written
authorization of ELAS. The Advisor shall and shall cause its officers to, if, as
and when requested by ELAS, execute and deliver documents on behalf of ELAS with
respect to the Investments and proposed Investments pursuant to a power of
attorney to be provided by ELAS, or as otherwise provided in Section 3.1, but
only in accordance with guidelines.
5.2 Audit Review. ELAS shall have the absolute right (even if ELAS is in
default hereunder or after this Agreement has expired or been terminated), at
any time and from time to time upon reasonable notice, to undertake or cause to
be undertaken an audit review of all Investments and proposed Investments, the
Advisor's performance of its services under this Agreement, the fees payable to
the Advisor hereunder and all reimbursable costs and expenses hereunder, if any,
and the Advisor's compliance herewith. Such audit review may be undertaken
directly by ELAS or by third parties engaged by ELAS, and the fees and
disbursements of any third party auditor retained by ELAS shall be paid by ELAS.
The Advisor shall, as provided in Section 2.6, cooperate fully with ELAS and
each such third party in connection with any such audit review. The rights of
ELAS under this Section 5.2 may be enforced by an action at law or in equity,
whether for specific performance or injunction or otherwise.
5.3 Legal Counsel. ELAS shall have the exclusive authority to engage, at
the cost and expense of ELAS, legal counsel to act on behalf of ELAS in
connection with Investments, including without limitation, acquisitions and
dispositions, originations, investment management, property management and
leasing, mortgage loan servicing and any other matters contemplated by or
arising under this Agreement, provided, that with respect to day-to-day and
routine legal issues arising in connection with the management and operation of
specific properties covered by this Agreement, the Advisor may, at the cost and
expense of ELAS, engage local counsel selected from a list from time to time
furnished or approved in writing by ELAS and in accordance with guidelines.
5.4 Other Advisors. ELAS shall not appoint or engage other advisors to
provide advisory or investment management services in respect of Investments
which are the same as or similar to the services to be performed by the Advisor
under this Agreement, provided that, without affecting ELAS's obligation to pay
the Advisor fees and costs and expenses to the extent required by Section 1.2,
ELAS may so engage other advisors (a) to provide services in respect of
Investments relating to matters falling within the scope of this Agreement which
the Advisor is not able to provide, in which case the Advisor shall be
responsible for recommending to ELAS, in accordance with Section 4.9,
appropriate service providers for such purpose, and (b) to provide second
opinions in respect of advice or recommendations of the Advisor hereunder or to
provide specialized assistance on a non-recurring basis to supplement the
services of the Advisor, when so requested by the Chief Investment Officer of
ELAS, the Board of Directors of ELAS or any committee of such Board of Directors
or if so required by any Regulatory Authority.
5.5 Personnel. The Advisor shall at all times assign, to perform the
Advisor's duties with respect to the Investments, officers and employees with
appropriate background and expertise to fulfill the Advisor's duties under this
Agreement and as is consistent with past and current practice of ELAS and the
Advisor with respect to the Investments. All persons at or above the level of
Vice President (or equivalent level in the future) assigned at any time and,
from time to time by the Advisor to perform all or any part of the Advisor's
duties under this Agreement shall, unless hereafter expressly approved by ELAS
in writing, be direct employees of the Advisor and not of any subsidiary or
other affiliate thereof, whether or not such persons are presently employed by
any such subsidiary or other affiliate. Schedule 5.5.1 identifies certain
persons who currently perform those duties of the Advisor indicated on Schedule
5.5.1, and the Advisor agrees that, unless otherwise directed by ELAS or
otherwise approved in advance by ELAS in each case, such persons shall continue
to be assigned to work regularly in the performance of such duties and will not
be reassigned from such duties for a period ending on the later of March 31,
1998 and six months from the date of this Agreement, provided that they remain
employed by or otherwise controlled by or responsible to the Advisor. Schedule
5.5.2 identifies certain employee positions relevant to the performance of the
Advisor's duties hereunder, and the Advisor agrees that such positions shall
only be held by persons who, after consultation between the Advisor and ELAS,
<PAGE>
have been and continue to be approved by ELAS. Subject to the foregoing, the
Advisor may assign and reassign any person performing all or any part of the
Advisor's duties under this Agreement. Any dispute concerning the nature or the
adequacy of the performance of any employee assigned by the Advisor to perform
any of its duties hereunder shall be resolved in accordance with the procedures
provided for in Section 10.1. In addition, if special circumstances arise
relating to incompatibilities between Advisor personnel and ELAS personnel or
other persons with whom Advisor personnel must interact in the performance of
their duties hereunder in reference to a specific situation or transaction, any
disputes concerning changes or reassignments of personnel in response to such
situation shall be resolved by executives of the Advisor and ELAS at a higher
level of management than the persons with direct responsibility for
administration of this Agreement. Notwithstanding any other provision of this
Agreement, the Advisor and ELAS acknowledge that, as of the date hereof, the
Advisor has no employees and, accordingly, ELAS and the Advisor agree that any
reference in this Agreement to employees of the Advisor shall mean and include
employees of the Advisor's affiliate, ERE, as well as employees of the Advisor,
if any, and any obligations imposed on the Advisor's employees under this
Agreement shall be imposed on ERE's employees to the extent such ERE employees
are performing the Advisor's obligations.
Article VI
Indemnification and Related Matters
6.1 Indemnification By the Advisor. The Advisor shall indemnify, defend
and hold harmless ELAS and its directors, officers, agents and employees (each
an "ELAS Indemnitee" and collectively, the "ELAS Indemnitees") from and against
any and all losses, costs, liabilities, damages or deficiencies, including
interest, penalties and reasonable attorneys' fees and disbursements
(collectively, "Losses"), incurred as a result of, pursuant to or in connection
with any action, suit, proceeding or claim of any nature whatsoever (a "Claim")
by any third party arising out of, based upon or resulting from (a) a breach of
any representation, warranty, covenant or agreement of the Advisor contained in
this Agreement, or (b) any act, omission or failure to act by the Advisor or any
of its directors, officers, agents or employees constituting a breach of the
standard of conduct set forth in Section 1.3 or bad faith, willful misconduct,
gross negligence or reckless disregard of its duties in connection with the
performance by the Advisor or any of its directors, officers, agents or
employees of any of the Advisor's obligations under this Agreement.
6.2 Indemnification By ELAS. ELAS shall indemnify, defend and hold
harmless the Advisor, ERE and their respective directors, officers, agents and
employees (each an "Advisor Indemnitee" and collectively, the "Advisor
Indemnitees") from and against any and all Losses incurred as a result of,
pursuant to or in connection with any Claim by any third party arising out of,
based upon or resulting from any Investment or proposed Investment where the
Advisor is acting on behalf of ELAS under this Agreement or arising out of,
based upon or resulting from the performance by the Advisor or any of its
directors, officers, agents or employees of the Advisor's obligations under this
Agreement, but only to the extent such Claim does not arise out of, is not based
upon or does not result from (a) a breach of any representation, warranty,
covenant or agreement of the Advisor contained in this Agreement or (b) any act,
omission or failure to act by the Advisor or any of its directors, officers,
agents or employees constituting a breach of the standard of conduct set forth
in Section 1.3 or bad faith, willful misconduct, gross negligence or reckless
disregard of the Advisor's obligations under this Agreement.
6.3 Notices. If any Advisor Indemnitee or ELAS Indemnitee shall obtain
knowledge of any Claim indemnified against under this Article VI, such
Indemnitee shall give prompt written notice thereof to the Advisor and ELAS,
provided that the failure of such Indemnitee to so notify the Advisor and ELAS
shall not affect the indemnification obligations to such Indemnitee under this
Article VI except to the extent of any increase in the amount of such Claim
resulting from such failure or to the extent the contest of such Claim is
impaired as a result of such failure.
6.4 Defense of Claims. The Advisor shall control the defense of any Claim
as to which the Advisor is required to provide indemnification under Section 6.1
and ELAS shall control the defense of any Claim as to which ELAS is required to
provide indemnification under Section 6.2, in either case with counsel selected
by the Advisor or ELAS, as the case may be, which counsel shall be reasonably
acceptable to the other party. Neither the Advisor nor ELAS may settle any claim
without the consent of the other party, which consent shall not be unreasonably
withheld. ELAS or the Advisor, as the case may be, shall be entitled, at its
sole cost and expense and acting through counsel reasonably acceptable to the
other party, to participate in the defense and settlement of any claim for which
the other party is required to provide indemnification. If the party entitled to
control the defense of any Claim does not assume the defense thereof, the other
party shall have the right to select its own counsel and control the defense
thereof at the expense of the party failing to assume such defense.
<PAGE>
6.5 Subrogation. Upon payment of any Claim pursuant to this Article VI, to
or on behalf of an ELAS Indemnitee or an Advisor Indemnitee, the party paying
such Claim, whether the Advisor or ELAS, as the case may be, shall be subrogated
to any and all claims that such Indemnitee may have in respect of the matters
against which such indemnity was given. Such Indemnitee shall cooperate with the
Advisor or ELAS, as the case may be, and shall execute such further instruments
to permit the Advisor or ELAS, as the case may be, to pursue such claims.
Article VII
Term and Termination
7.1 Term. This Agreement shall have an initial term from the date hereof
until December 31, 2004 and shall be automatically renewed for one four-year
period thereafter, unless sooner terminated pursuant to Section 7.2, 7.3 or 7.4.
7.2 Termination Due to Material Breach. ELAS may terminate this Agreement
at any time on not less than thirty days prior written notice in the event of a
Material Breach of this Agreement by the Advisor. A "Material Breach" is a
breach (or a series of breaches constituting a pattern of behavior or practice)
of the representations, covenants or obligations of the Advisor hereunder that
reflects willful misconduct or willful failure to comply with such
representations or to perform such covenants or obligations, or gross negligence
in the compliance with such representations or the performance of such covenants
or obligations, that is, either individually or in the aggregate, material in
relation to the activities and responsibilities of the Advisor under this
Agreement as a whole, provided that no breach or series of breaches shall be
considered a Material Breach if such breach or breaches and all material
consequences thereof have been cured as provided below. Prior to providing
notice terminating this Agreement on the basis of any Material Breach, ELAS
shall provide written notice to the Advisor describing the nature of the
Advisor's default with specificity, and the Advisor shall have a period of 30
days following receipt of any such notice to cure such default. If during such
30-day period, the Advisor takes reasonable actions to commence a cure of such
default and if the nature of such default is such that it cannot, through the
exercise of reasonable diligence, be cured during such 30-day period, such
30-day period shall be extended for up to 60 additional days so long as the
Advisor shall continue to take reasonable actions to cure such default during
such 60-day period. A Material Breach on the part of the Advisor and the
consequences thereof shall be deemed to be cured for the purpose of this Section
7.2:
(a) if the Material Breach and such consequences can be completely cured by
the payment of money, if all such money is paid in cash within the 30-day period
immediately following receipt of such notice to cure such default; and
(b) if the Material Breach and such consequences cannot be completely cured
by the payment of money and the actions required for cure are such that they
could be taken within the time periods for cure set forth above in this Section
7.2, if such actions are taken in all material respects within such time
periods.
Notwithstanding anything to the contrary contained in this Section, the
occurrence of any event constituting a default under Section 4.3(a) of this
Agreement shall be a Material Breach hereunder, and no cure period shall be
available with respect thereto.
7.3 Termination Due to Legal Duties. ELAS may terminate this Agreement at
any time on not less than thirty days prior written notice if ELAS reasonably
determines, upon the advice of independent counsel to ELAS, that, and provides a
certificate to the Advisor to the effect that, a state of facts or law exists
that requires ELAS to terminate this Agreement in order to comply with its legal
duties, including without limitation its duties and obligations in respect of
investments under the New York Insurance law , provided that (a) prior to giving
any notice of such termination, ELAS will provide the Advisor with written
notice of the reason for the proposed termination, including the legal or
regulatory basis therefor, (b) ELAS, the Advisor and their respective counsel
will, within five days after the delivery of such notice by ELAS, meet to
determine what, if any, measures may be taken to alleviate the legal or
regulatory basis for such proposed termination, including without limitation,
any alternative arrangements or structures which may be used, in whole or in
part, in substitution or replacement of the arrangements contemplated hereunder,
or the basis of any approach by ELAS, in the case of any matter relating to the
New York Insurance Department, or jointly by ELAS and the Advisor, in the case
of any matter involving any other Regulatory Authority, to any relevant
Regulatory Authority in order to alleviate the legal or regulatory basis for the
proposed termination and shall work together in good faith for a period of
thirty days to determine whether such measures are available, and (c) only
following the determination by ELAS after such period that there are no
available measures which may be taken to alleviate the legal or regulatory basis
for the proposed termination, may ELAS proceed to deliver to the Advisor a
notice of termination under this Section 7.3.
<PAGE>
7.4 Termination By Reason of ERE Termination. Contemporaneously herewith
ELAS and Equitable Real Estate Investment Management, Inc. ("ERE"), an affiliate
of the Advisor, have entered into a Real Estate Investment Advisory Agreement
with respect to ELAS's general account (the "ERE Agreement"). If the ERE
Agreement shall at any time terminate or be terminated for any reason
whatsoever, ELAS may, contemporaneously therewith or at any time thereafter,
terminate this Agreement on not less than thirty days prior written notice.
7.5 Additional Remedies. The right to terminate this Agreement as provided
in this Article VII is not exclusive of any rights or remedies that the Advisor
or ELAS may otherwise have at law or in equity, for breaches of this Agreement,
whether for indemnification or otherwise, provided that no such other right or
remedy may result in a termination of this Agreement other than as specifically
provided herein. In addition, ELAS and the Advisor agree that fines, penalties,
costs, charges and damages for breaches of any provision of this Agreement may
be assessed by any mediator or arbitrator in connection with proceedings
conducted pursuant to Section 10.1.
7.6 Obligations Upon Termination. Except as provided in Section 7.8, from
and after the effective date of termination of this Agreement for any reason
whatsoever, the Advisor shall not be entitled to compensation for further
services hereunder but shall be paid all compensation accrued and unpaid to the
date of termination, if any. Any compensation so accrued at the time of
termination, but payable only upon the occurrence of one or more conditions
subsequent, shall be paid only after satisfaction of all such conditions.
7.7 Termination as to Specified Investment or Service. Notwithstanding any
other provision of this Agreement to the contrary,
(a) this Agreement shall automatically terminate with respect to any
particular Investment upon the sale, transfer, conveyance or other disposition
of such Investment, subject to the payment of all fees payable to the Advisor as
a result of any such event;
(b) ELAS may at any time, under the circumstances set forth in Exhibit 7.7,
upon not less than thirty days' prior written notice, terminate this Agreement
as to any specified Investment without affecting this Agreement as a whole and,
upon such termination of the Advisor's duties with respect to any specific
Investment (i) the Advisor shall, in accordance with and subject to Section 7.8,
transfer all duties and Investment Information with respect to such Investment
as directed by ELAS, (ii) such Investment shall, effective upon such termination
and subject to Section 7.8, cease to be an Investment for any purpose under this
Agreement and the Advisor shall receive no fees with respect thereto not already
accrued and (iii) the Advisor shall continue to provide at cost such accounting,
tax and other administrative services with respect to such terminated Investment
as ELAS may request; and
(c) ELAS may at any time, under the circumstances set forth in Exhibit 7.7,
upon not less than thirty days' prior written notice, terminate this Agreement
as to any service provided by an affiliate of the Advisor or any service to be
provided by the Advisor pursuant to this Agreement ancillary to the investment
advisory or management services to be provided hereunder, including without
limitation, accounting, tax, recordkeeping and similar services, and upon such
termination (i) ELAS shall cooperate with the Advisor so that ELAS's terminating
such service shall not prevent the Advisor from performing its obligations under
this Agreement and (ii) the fees payable to the Advisor under Section 1.2 shall
be reduced in such amount as shall reasonably equal ELAS's actual costs of
providing or reasonable costs of obtaining such terminated service. If the
Advisor and ELAS are unable to reach agreement on such reduction, they shall
submit the dispute for resolution pursuant to Section 10.1.
7.8 Further Assurances on Termination. Upon the termination of this
Agreement for any reason whatsoever or upon the termination with respect to any
specific Investment or service under Section 7.7, the Advisor shall cooperate
fully with ELAS, including without limitation, providing to ELAS access to and
opportunity to consult with the Advisor's officers and employees, in order to
facilitate a smooth transition of the responsibilities and records so as to
avoid a disruption of services to ELAS. In the case of a termination by notice,
any such transition shall begin immediately upon the giving of such termination
notice and the parties shall use their best efforts to complete such transition
by the termination date. If such transition is not completed by the termination
date or if ELAS requests that the Advisor continue to provide services or
undertake duties and responsibilities under this Agreement after such
termination date, the Advisor shall do so for a period of up to 12 months,
unless otherwise mutually agreed between the Advisor and ELAS, and this
Agreement shall be deemed to continue in effect with respect to the services so
provided or duties or responsibilities so undertaken and the Advisor shall be
entitled to receive such compensation as shall reasonably reflect the nature,
scope and extent of such services, duties or responsibilities. If the Advisor
and ELAS are unable to reach agreement on such compensation, they shall submit
the dispute for resolution pursuant to Section 10.1.
<PAGE>
7.9 License After Termination. (a) If notice of termination is given under
this Agreement, ELAS shall have the right to receive from the Advisor, in
accordance with Section 7.9(b), a perpetual, worldwide, non-exclusive license to
reproduce, distribute, make derivative works from and otherwise use all, or, at
ELAS's sole discretion, part of, the Advisor Software in connection with the
provision of investment advisory, asset management and other services to ELAS of
the types provided under this Agreement. Such license shall include the right to
sublicense the foregoing to any third party in connection with such party's
provision of such services to ELAS. In connection with the foregoing, the
Advisor shall have no obligation, except as provided in Section 7.8, following
any termination of this Agreement, to maintain, correct or otherwise support any
of the Advisor Software so licensed to ELAS. "Advisor Software" shall mean the
source code and object code versions of the application, operating, reporting
and other software used by the Advisor in the performance of accounting,
valuation, reporting, treasury, data processing and computing and other services
for ELAS and its affiliates under this Agreement. If ELAS wishes to exercise
such right, it shall give notice thereof promptly after notice of termination is
given under this Agreement and, upon receipt of such notice, the Advisor shall
promptly deliver to ELAS copies of the Advisor Software (other than the
Third-Party Software) in a form and medium reasonably acceptable to ELAS. Any
such license would be subject to obtaining required approvals, if any, from
third parties, which the Advisor will use its reasonable efforts (which shall
not include incurring additional cost on the part of the Advisor) to obtain.
With respect to any Advisor Software hereafter purchased or licensed by the
Advisor, the Advisor will use its reasonable efforts to negotiate terms which,
without additional cost to the Advisor, would permit the granting of the
foregoing license. In the event that the Advisor has not obtained the rights to
sublicense any Advisor Software to ELAS (such software, the "Third-Party
Software"), the Advisor shall use its reasonable efforts (which shall not
include incurring additional cost on the part of the Advisor) to assist ELAS in
obtaining licenses to such software directly from the relevant third parties,
which shall include providing to ELAS a list of all Third-Party Software used by
the Advisor in connection with the general account and waiving any of the
Advisor's rights of exclusivity that it may have with respect to its licensing
of such software.
(b) Upon termination of this Agreement for any reason, the Advisor shall
grant ELAS the license described in Section 7.9(a) without additional charge to
ELAS and ELAS shall be responsible for all license fees to be paid to third
parties for the Third-Party Software.
7.10 Deliveries and Retention of Records. The Advisor shall forthwith upon
any termination of this Agreement:
(a) as soon as practicable after such termination, pay over to ELAS all
monies held for the account of ELAS pursuant to this Agreement;
(b) as soon as practicable after such termination, deliver to ELAS a report
containing, among other things, a statement of Investments and properties
covered by this Agreement as of the date of termination and such other
information regarding such Investments and properties as ELAS may reasonably
request; and
(c) retain, or, to the extent ELAS does not then possess such Investment
Information, deliver to ELAS or its designee all or such part thereof and at
such time or times as ELAS so requests, all Investment Information for seven
years after termination of this Agreement, provided that the Advisor shall have
the right, subject to Regulatory Requirements, to have such Investment
Information held in the custody of a responsible third party service provider,
and provided further that the Advisor or such third party service provider shall
give ELAS access to all Investment Information in accordance with the provisions
of Section 2.6 and ELAS shall reimburse the Advisor for its reasonable costs
incurred in retaining such records, including its costs for the third party
service provider.
7.11 Obligations that Survive Termination. The provisions of Section 4.4,
Section 5.2, Article VI, this Article VII and Section 10.1 and each party's
respective rights to bring claims arising in connection with the statements and
obligations set forth in this Agreement shall survive the termination of this
Agreement.
<PAGE>
Article VIII
Notices
8.1 Notices. Any notice or other communication provided hereunder shall be
in writing and shall be delivered personally or by telefacsimile with confirmed
answerback or sent by certified, registered and return receipt requested mail or
by a nationally-recognized overnight courier, postage prepaid, and shall be
deemed given when so delivered personally or by telefacsimile with confirmed
answerback or sent by overnight mail or courier and three days after the date of
mailing if sent by certified or registered mail to the following addresses:
To ELAS:
The Equitable Life Assurance Society
of the United States
1290 Avenue of the Americas
New York, NY 10104
Attention: Chief Investment Officer
Fax No.:
with a copy to:
The Equitable Life Assurance Society
of the United States
1290 Avenue of the Americas
New York, NY 10104
Attention: Law Department
Counsel, Real Estate Law Group
Fax No.:
To the Advisor:
Equitable Agri-Business, Inc.
12747 Olive Street Road
Suite 350
St. Louis, MO 63141
Attention: President and Chief Operating Officer
Fax No.:
with a copy to:
Equitable Agri-Business, Inc.
12747 Olive Street Road
Suite 350
St. Louis, MO 63141
Attention: Vice President and Counsel
Fax No.:
and
[Neptune, Inc.]
Swiss Bank Tower
10 East 50th Street
New York, NY 10022
Attention: Chief Financial Officer
Fax No.:
Either party hereto may from time to time by notice in writing served upon
the other as aforesaid designate a different mailing address or telefacsimile
number or a different or additional person to which all such notices or demands
to that party thereafter are to be addressed.
Article IX
Definitions
The following terms shall have the following meanings:
"Designated Account" shall mean a lockbox account or, with ELAS's prior
approval, a depository account in ELAS's name in a bank designated by ELAS with
such signatories as ELAS shall designate, which signatories may include officers
and employees of the Advisor and/or the appropriate property manager.
"Equities" shall mean U.S. equity real estate, joint venture or partnership
or other entity interests in U.S. equity real estate, in-substance equities and
equities in lieu, and notes (other than mortgage notes) from real estate joint
venture partnerships, (and partners therein) in which ELAS is a partner, in each
case held by ELAS for investment and (a) allocated to ELAS's general account and
managed by the Advisor on the date hereof or (b) which ELAS acquires for its
general account after the date hereof other than Real Estate Securities.
<PAGE>
"guidelines" shall mean guidelines, requirements and/or procedures
established by ELAS and whenever this Agreement provides that the Advisor shall
render specific advice, service or assistance in accordance with guidelines or
if ELAS otherwise so requests (a) the Advisor shall recommend to ELAS for its
approval a detailed set of guidelines, requirements and/or procedures for such
provision, and shall from time to time thereafter recommend modifications in
such guidelines, requirements and/or procedures, and ELAS and the Advisor shall
work cooperatively with each other in good faith to consider and implement
practicable guidelines, requirements and/or procedures and modifications thereof
to be established by ELAS, and (b) the fact that such guidelines may not be
established shall not in any way diminish or otherwise affect the Advisor's
obligations under this Agreement, including without limitation, any provision of
this Agreement referring to guidelines or requiring the Advisor to act in
accordance with guidelines and, in the absence of relevant guidelines, any such
provision shall be applicable as written without giving effect to the guidelines
reference. In connection with the foregoing, the parties acknowledge that
existing guidelines and/or practices are intended to provide the initial basis
for the operation of this Agreement and will use their reasonable efforts to
mutually agree upon and establish, within three months of the date of this
Agreement, written guidelines in respect of each matter for which guidelines are
provided for in this Agreement, to the extent they do not currently exist,
documenting current practice.
"Investment Information" shall mean such books, records, data, information,
instruments, documents, files, reports, manuals, policies, guidelines and
procedures (including without limitation, computerized materials) as relate to
Investments and the properties which are the subject thereof and, to the extent
prepared by the Advisor for ELAS, proposed Investments and the properties which
are the subject thereof. "Investment Information" shall not include any of the
foregoing prepared by the Advisor generally for use in its business or generally
for use by its clients.
"Investments" shall mean Equities, Mortgages and Real Estate Securities.
"Mortgages" shall mean debt investments in the form of promissory notes
secured, with or without recourse, by security interests in real property or
partnership or other entity interests therein and participation interests in
loans secured by interests in real property or partnership or other entity
interests therein, excluding any such investments classified as equity property
(a) allocated to ELAS's general account and managed by the Advisor on the date
hereof or (b) which ELAS and the Advisor hereafter agree to subject to this
Agreement.
"property" shall mean each individual parcel of real estate which is the
subject of any Investment.
"Real Estate Securities" shall mean real estate investment trusts, mortgage
backed securities, commercial mortgage backed securities (CMBSs), interests in
pooled investment entities sponsored by a third party and marketed to
institutional investors and other forms of securities relating to or involving
real estate and mortgages (a) allocated to ELAS's general account and managed by
the Advisor on the date hereof or (b) which ELAS and the Advisor hereafter agree
to subject to this Agreement.
"Regulatory Authority" shall mean any nation or government, any state,
county, municipality or other political subdivision thereof or any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government or any rating agency or entity which
sets accounting and/or reporting standards.
"Regulatory Requirement" shall mean any statute, law, rule, ruling, code,
ordinance, decision, official pronouncement, regulation, requirement, procedure,
permit, directive, decree, judgment or order of any Regulatory Authority now or
hereafter in effect, in each case, as and to the extent available in published
or other publicly available form, and, in each case, as amended from time to
time and any interpretation thereof published by any Regulatory Authority.
<PAGE>
Article X
Miscellaneous
10.1 Dispute Resolution; Arbitration. The Advisor and ELAS shall attempt
in good faith to resolve any dispute arising out of or relating to this
Agreement promptly by negotiation between executives who have authority to
settle the dispute and who are at a higher level of management (who may be
officers of ERE in the case of the Advisor) than the persons with direct
responsibility for administration of this Agreement. All reasonable requests for
information by one party to the other will be honored and all negotiations shall
be confidential and treated as compromise and settlement negotiations. If the
dispute has not been resolved by negotiation within [20] days after either party
notifies the other in writing that a dispute exists, the parties shall endeavor
to settle the dispute by mediation under the then current CPR Model Mediation
Procedure for Business Disputes. The parties have selected Mr. Blake Eagle of
Massachusetts Institute of Technology as the mediator in any such dispute and he
has agreed to serve in that capacity. In the event that Mr. Blake Eagle is
unwilling or unable to serve, the parties have selected Mr. Peter Linnemann of
The Wharton School as an alternative mediator and he has agreed to serve in that
capacity. In the event that Mr. Peter Linnemann is unwilling or unable to serve,
the mediator shall be the most senior real property consultant at Frank Russell
and Associates at that time. In the event that he/she is unwilling or unable to
serve, the mediator shall be a person of similar stature selected by the CPR
Institute for Dispute Resolution. If the dispute has not been resolved by such
mediation within 30 days following the submission of such dispute to mediation,
either party may submit such dispute to binding arbitration under the Rules for
Non-Administered Arbitration of Business Disputes of the CPR Institute for
Dispute Resolution, and judgment on the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. In any such arbitration there
shall be three arbitrators, each of whom shall have experience in the real
estate investment advisory industry, and the arbitration shall take place in New
York, New York.
10.2 Agreements of ELAS. ELAS agrees and acknowledges that (a) the Advisor
makes no representation or warranty as to the investment performance of the
Investments or any particular Investment, and (b) immediately following the
execution and delivery hereof, the Advisor will not be in breach of any of its
duties or obligations hereunder. ELAS represents and warrants to the Advisor
that (x) all requirements have been satisfied for an exemption under the U.S.
Department of Labor's Prohibited Transaction Exemption 95-60 (60 FR 35935, July
12, 1995) with respect to the general account assets covered by this Agreement
and (y) the general account assets covered by this Agreement are covered by the
exemption provided by Section 401(c)(a)(5)(B) of the Employee Retirement Income
Security Act of 1974, as amended. In addition, ELAS shall provide to the Advisor
and update on a timely basis a list of persons, if any, with whom transactions
would be prohibited or restricted under ERISA. ELAS shall also provide guidance
to the Advisor, on which the Advisor is entitled to rely, concerning any ERISA
or other regulatory exemptions, if any, which are necessary for the Advisor to
perform its duties under this Agreement. ELAS also agrees that the Advisor shall
be named as an additional insured under the liability insurance maintained in
respect of each property to the extent ELAS is able to do so without additional
cost to ELAS.
10.3 Entire Agreement. This Agreement contains the entire agreement
between the parties hereto with respect to the provision of investment advisory
and asset management services by the Advisor to ELAS and supersedes all prior
agreements, written and oral, with respect thereto.
10.4 Amendments and Waivers. This Agreement may be amended, modified,
superseded, canceled, renewed, extended or supplemented, and the terms and
conditions hereof may be waived, only by a written instrument signed by ELAS and
the Advisor or, in the case of a waiver, by the party waiving compliance,
provided that no such amendment, modification, renewal, extension or supplement
shall authorize or permit any assets of ELAS to be used or directed to purposes
other than for the exclusive benefit of ELAS and any such amendment,
modification, renewal, extension or supplement shall comply with all applicable
requirements of the New York Insurance Law. No delay on the part of either party
in exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of either party of, or failure on the
part of either party to exercise, any right, power or privilege hereunder, nor
any single or partial exercise of any right, power or privilege hereunder,
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder.
<PAGE>
10.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York as at the time in effect and,
to the extent of any federal preemption, the laws of the United States of
America.
10.6 Consent to Jurisdiction, etc. (a) Each of the parties hereto
acknowledges that mediation and arbitration under the provisions of Section 10.1
is intended to be the exclusive method for resolution of disputes arising under
this Agreement, and agrees that neither party to this Agreement shall commence
any action or proceeding in any court with respect to such dispute, except (i)
to enforce Section 10.1; (ii) to obtain provisional judicial assistance in aid
of arbitration under Section 10.1; or (iii) to enforce an arbitral award made
under Section 10.1. The provisions of Section 10.6(b) through 10.6(d) below and
of Section 10.7 shall be interpreted in a manner consistent with the parties'
acknowledgment and agreement set forth in the preceding sentence.
(b) Each of the parties hereto hereby irrevocably and unconditionally
submits, for itself and its property, to the exclusive jurisdiction of any New
York State court or Federal court of the United States of America sitting in New
York City, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State court or, to the extent permitted by law,
in such Federal court. Each of the parties hereto agrees that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law.
(c) Each of the parties hereto hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby in any New York State or Federal court. Each of
the parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of process
in any manner permitted by law at such party's address as set forth in Section
8.1.
10.7 Waiver of Punitive and Other Damages and Jury Trial . (a) THE PARTIES
TO THIS AGREEMENT EXPRESSLY WAIVE AND FOREGO ANY RIGHT TO RECOVER PUNITIVE,
EXEMPLARY, LOST PROFITS, CONSEQUENTIAL OR SIMILAR DAMAGES IN ANY ARBITRATION,
LAWSUIT, LITIGATION OR PROCEEDING ARISING OUT OF OR RESULTING FROM ANY
CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(c) EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT
OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER
OF THE FOREGOING WAIVERS, (ii) IT UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF SUCH WAIVERS, (iii) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (iv)
IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.7.
10.8 Interpretation. This Agreement has been negotiated at arm's length
and between persons sophisticated and knowledgeable in the matters dealt with in
this Agreement and each party has been represented by experienced and
knowledgeable legal counsel. Accordingly, any rule of law or legal decisions
that would require interpretation of any ambiguities in this Agreement against
the party that has drafted it shall not be applicable and are hereby waived. The
provisions of this Agreement shall be interpreted in a reasonable manner to
effectuate the purpose of the parties and this Agreement.
<PAGE>
10.9 Cumulative Remedies. The rights and remedies herein provided are
cumulative and not exclusive of any rights or remedies which either party may
have hereunder or otherwise at law or in equity.
10.10 Binding Effect. This Agreement and the rights, covenants, conditions
and obligations of the respective parties hereto and any instrument or agreement
executed pursuant hereto shall be binding upon the parties and their respective
successors and assigns.
10.11 Further Assurances. Each of the parties hereto shall execute such
further documents and other papers and perform such further acts as may be
reasonably required or desirable to carry out the provisions hereof.
10.12 Publicity. No publicity release, public statement or announcement
concerning this Agreement or any Investment or any property or any proposed
Investment or property which is the subject thereof or any aspect hereof or
thereof or the transactions or Investments contemplated hereby shall be issued
by the Advisor or any affiliate of the Advisor without the prior written
approval of the form and substance thereof by ELAS, nor shall any such publicity
release, public statement or announcement which names or otherwise refers to the
Advisor be issued by ELAS or any affiliate of ELAS without the prior written
approval of the form and substance thereof by the Advisor.
10.13 Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed an original, but both of which together shall
constitute one and the same instrument.
10.14 Section Headings. The section headings of this Agreement are for
convenience of reference only and shall not be deemed to alter or affect any
provision hereof.
10.15 Severability. Should one or more provisions of this Agreement be held
by any court to be invalid, void or unenforceable, the remaining provisions
shall nevertheless continue in full force.
10.16 No Third Party Rights. By execution of this Agreement ELAS and the
Advisor do not intend to create any rights of any kind in any third parties and
nothing in this Agreement shall confer any rights upon any person or entity
which is not a party or a successor or permitted assignee of a party to this
Agreement.
10.17 Successors and Assigns. This Agreement shall inure to the benefit of
the parties hereto and their respective successors and assigns to the extent
permitted by Section 4.3.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their indicated officers thereunto duly authorized, as of the day
and year first above written.
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By
Name:
Title:
EQUITABLE AGRI-BUSINESS, INC.
By
Name:
Title:
EQUITABLE REAL ESTATE INVESTMENT MANAGEMENT, INC. has caused this Agreement to
be executed by its indicated officer thereunto duly authorized, as of the day
and year first above written, in order to establish and confirm its agreement to
guaranty the performance by the Advisor of each and every obligation of the
Advisor under and in accordance with this Agreement.
EQUITABLE REAL ESTATE
INVESTMENT MANAGEMENT, INC.
By
Name:
Title:
<PAGE>
Exhibit B-3 to Purchase Agreement
Real Estate Investment Advisory Agreement
(separate accounts)
between
The Equitable Life Assurance Society
of the United States
and
Equitable Real Estate
Investment Management, Inc.
dated ________ __, 1997
<PAGE>
TABLE OF CONTENTS
PREAMBLE
Article I Engagement; Compensation; and Standard of Performance
1.1 Engagement and Acceptance
1.2 Compensation; Fees for Services
1.3 Standard of Performance
Article II Duties of the Advisor
2.1 Investment Advice, Services and Assistance Generally
2.2 Advisory and Investment Management Services
2.3 Books, Records, Instruments, Documents and Files
2.4 Reports and Information
2.5 Meetings
2.6 Public Relations Services
2.7 Tax Related Services
2.8 Administrative and Other Services
Article III Authority of the Advisor
3.1 Authority
3.2 Limitations on Authority
3.3 Special Procedures for ELAS Exercise of Discretion
3.4 Third Party Inquiries and Investigations
3.5 Special Situations
3.6 Liabilities
3.7 Certain Tax Matters
3.8 ERISA
3.9 Other Matters
3.10 Marketing and Disclosures to Account Clients
Article IV Covenants of the Advisor
4.1 Status and Registration of the Advisor
4.2 Other Business; Allocation
4.3 No Assignment or Delegation
4.4 Confidentiality
4.5 No Affiliate Benefits
4.6 Information Relating to the Advisor
4.7 Insurance
4.8 Environmental Compliance
4.9 Property Managers and Other Service Providers
Article V Rights of ELAS
5.1 Execution of Documents
5.2 Legal Counsel
5.3 Personnel
Article VI Indemnification and Related Matters
6.1 Indemnification by the Advisor
6.2 Indemnification by ELAS
6.3 Notices
6.4 Defense of Claims
6.5 Subrogation
6.6 Contribution
Article VII Term and Termination
7.1 Term
7.2 Termination Due to Material Breach
7.3 Termination Due to Legal Duties
7.4 Termination Due to Fiduciary Duties
7.5 Additional Remedies
7.6 Obligations Upon Termination
7.7 Further Assurances on Termination
7.8 License after Termination
7.9 Deliveries and Retention of Records
7.10 Obligations that Survive Termination
Article VIII Notices
8.1 Notices
Article IX Definitions
<PAGE>
Article X Miscellaneous
10.1 Dispute Resolution; Arbitration
10.2 Agreements of ELAS
10.3 Entire Agreement
10.4 Amendments and Waivers
10.5 Governing Law
10.6 Consent to Jurisdiction, etc.
10.7 Waiver of Punitive and Other Damages and Jury Trial
10.8 Interpretation
10.9 Cumulative Remedies
10.10 Binding Effect
10.11 Further Assurances
10.12 Publicity
10.13 Counterparts
10.14 Section Headings
10.15 Severability
10.16 No Third Party Rights
10.17 Successors and Assigns
Schedule 2.4(b) - List of Additional Reports
Exhibit 3.3(c) - Form of Certificate and Covered Transaction Checklist
Exhibit 3.3(g) - Form of Power of Attorney
Schedule 3.3(g) - Initial Holders of Power of Attorney
Schedule 3.7 - List of Tax Review Transactions
Schedule 4.2 - Form of Allocation Report
Schedule 7.4(a) - Performance Standards
Schedule 7.4(b) - Specified Events
Schedule IX - List of Accounts
Exhibit IX(a) - Copies of Plans of Operations
<PAGE>
Real Estate Investment
Advisory Agreement
(separate accounts)
Real Estate Investment Advisory Agreement, dated as of _______ __, 1997,
between The Equitable Life Assurance Society of the United States, a New York
corporation and life insurance company ("ELAS"), and Equitable Real Estate
Investment Management, Inc., a Delaware corporation (the "Advisor").
PREAMBLE
The Advisor is the largest real estate manager and adviser to pension funds
in the United States and one of the world's most diversified real estate
investment organizations. Prior to the date hereof, the Advisor was an indirect
wholly-owned subsidiary of ELAS with responsibility for providing ELAS with
investment and asset management advice, which advice served as the basis for
decisions by ELAS as investment manager of assets held in various separate
accounts maintained by ELAS. ELAS believes that the Advisor has unique expertise
and familiarity in providing advice to ELAS with respect to its separate
accounts. Following the purchase of the Advisor by Lend Lease Corporation
Limited, the Advisor and ELAS wish to continue their relationship, and ELAS
wishes to continue to rely on the Advisor's expertise and recommendations, as
set forth herein. The parties hereto have designed the procedures set forth in
this Agreement to allow ELAS to fulfill its fiduciary obligations as "investment
manager" under ERISA while providing Account clients whose assets are invested
in the separate accounts covered by this Agreement the benefit of the Advisor's
business judgment as the sole source of real estate investment and asset
management advice for such accounts.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, ELAS and the Advisor hereby agree as follows:
Article I
Engagement; Compensation; and Standard of Performance
1.1 Engagement and Acceptance. ELAS, as sponsor of the Accounts, hereby
engages the Advisor as the sole source of investment and asset management
advisory services for the Accounts, to provide such investment and asset
management services as are contemplated by the Account Agreements and related
Plans of Operation, upon the terms and conditions set forth in this Agreement.
The Advisor hereby accepts such engagement, and the parties acknowledge that
ELAS shall act as "investment manager" within the meaning of ss. 3(38) of ERISA
with respect to the Accounts in accordance with this Agreement. In accepting
such engagement, the Advisor recognizes that the Accounts contain assets of one
or more employee benefit plans subject to ERISA and acknowledges that it will be
a fiduciary with respect to such plans in fulfilling its duties hereunder.
1.2 Compensation; Fees for Services. (a) The Advisor shall be entitled to
all investment management fees, service charges, expense reimbursements and
other amounts payable by Account clients under or pursuant to Account Agreements
(excluding any payments to ELAS by an Account client to purchase an annuity
pursuant to an Account Agreement) and properly charged to and collected from
Account clients. To the extent that the relevant Account Agreements permit, the
Advisor on behalf of ELAS will bill Account clients for such amounts and, to the
extent such Agreements do not so permit, either (i) ELAS will bill Account
clients for such amounts, or (ii) ELAS, or the Advisor on behalf of ELAS, will
deduct such amounts from the Accounts maintained for such Account clients under
the Agreements, and all such amounts shall be paid to the Advisor.
(b) Except as otherwise provided in this Agreement, the amounts received by
the Advisor pursuant to subsection (a) above shall be in full satisfaction of
all fees for services under this Agreement.
<PAGE>
1.3 Standard of Performance. The Advisor and ELAS shall each (a) discharge
their duties with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent person acting in a like capacity
and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims, (b) act in accordance with the standards in
effect from time to time under ERISA and other federal and New York law (with
respect to New York Insurance Law only, the Advisor shall act to the extent
communicated by the ELAS Law Department to the Advisor from time to time or as
otherwise known to the Advisor) which apply to any person serving in the
respective capacities of the parties under this Agreement, and (c) act in
accordance with the provisions of the Account Agreements, the Plans of Operation
and this Agreement, provided that the provisions of this Section 1.3 shall not
diminish or detract from ELAS's right to rely on certificates and other
materials furnished by the Advisor in accordance with this Agreement.
Article II
Duties of the Advisor
2.1 Investment Advice, Services and Assistance Generally. The Advisor
shall advise, assist and provide services with respect to the Investments for
the Accounts as provided in this Agreement. ELAS has previously provided to the
Advisor copies of all Account Agreements and Plans of Operation currently in
effect with respect to each of the Accounts, all amendments thereto and such
other contracts, instruments, documents and information relating thereto as
shall be necessary to enable the Advisor to perform its functions hereunder. The
nature and the scope of the advice and services to be rendered under this
Agreement shall be not less than the existing practice of ELAS and the Advisor
and shall include such advice, service and assistance with respect to the
Accounts as may be necessary to enable ELAS to fulfill its obligations under the
Account Agreements, the Plans of Operation and any law applicable to ELAS, the
Advisor or the Accounts, including without limitation, ERISA.
2.2 Advisory and Investment Management Services. As required by each
Account Agreement and Plan of Operation, the Advisor shall provide real estate
asset management and investment advice and advisory services to the Accounts as
set forth herein. As part of such services, the Advisor shall perform, where
required or appropriate under each Account Agreement or Plan of Operation, the
services currently performed by the Advisor, including, but not limited to, the
following:
(a) making recommendations with respect to the acquisition, sale,
ownership, management, leasing, operation, maintenance and improvement of
Investments and/or properties held or being considered as possible Investments
by an Account;
(b) arranging for on-site property management, leasing, operation,
maintenance and improvement of each property, including without limitation,
arrangements for the collection of revenues therefrom, the payment of operating
and capital expenses relating thereto and forwarding the net receipts to the
appropriate bank account in ELAS's name (with signatory authority remaining with
the Advisor in accordance with current practice) for each Account;
(c) supervising and instituting appropriate procedures with respect to the
activities of the property manager and leasing agent for each property,
monitoring the operational results of each such property and timely notifying
ELAS if the Advisor becomes aware of any material violation of a Regulatory
Requirement applicable to any Investment or any property;
(d) implementing all transactions with respect to Investments or potential
Investments, conducting negotiations relating to the foregoing, supervising
compliance with contractual undertakings of the Account with respect to
Investments, managing and acting on behalf of the Account with respect to
participants in Mortgage Investments and partners or other co-owners in joint
venture, partnership or other arrangements with respect to Investments and
third-party financing for Investments;
(e) reviewing, developing and implementing financial, banking,
recordkeeping, accounting, management and information systems and controls for
the Investments in each Account;
<PAGE>
(f) developing annual business plans for each Investment and consulting
with ELAS with respect thereto as provided in Section 3.3(f);
(g) physically inspecting each Equity property on a regular basis in
accordance with current practice;
(h) to the extent appropriate, forming, maintaining, qualifying to do
business, directing and dissolving any title holding company or entity to hold
title to any Investment of an Account and serving as (and providing employees of
the Advisor to serve as) officers, directors, members or other representatives
of any such title holding company or entity, with the out-of-pocket cost
associated therewith to be charged to the Account;
(i) preparing committee presentations and related reports, committee or
delegated authority sheets, resolutions and similar materials relating to
Investments or proposed Investments of an Account, and assisting in responding
to any requests, investigations or inquiries by any Regulatory Authority,
including without limitation, assisting and providing support to ELAS in
connection with each quinquennial examination conducted by the New York State
Insurance Department; and
(j) maintaining a property insurance program for the Accounts the cost of
which shall be chargeable to the Accounts.
2.3 Books, Records, Instruments, Documents and Files. The Advisor shall
keep accurate books, records, data and files (including without limitation,
computerized material) with respect to the Accounts and the Investments and
proposed Investments of the Accounts, in accordance with guidelines and in such
detail as is appropriate under the circumstances. In accordance with and subject
to Regulatory Requirements, the Advisor shall have full responsibility for the
maintenance, care and safe-keeping of all Investment Information presently being
maintained by the Advisor or hereafter generated or obtained by the Advisor in
performing its obligations under this Agreement. All Investment Information
shall be kept and maintained by the Advisor at its office address set forth in
Section 8.1 or such other office addresses or locations as ELAS may approve,
which approval shall not be unreasonably withheld, or, to the extent permitted
by Regulatory Requirements and in accordance with current practice, at the
regional offices of the Advisor, as the same may change from time to time, and
the Advisor will give ELAS prior notice of any such change. All Investment
Information shall be and remain property of, and shall belong to ELAS who shall
at all times have complete and unrestricted access to all Investment
Information, provided that the foregoing shall not limit the Advisor's right to
such Investment Information at all times or the Advisor's right to maintain
books and records as may be required by Regulatory Requirements. The Advisor
shall not however in any way interfere with or deprive ELAS of its ownership,
control or right of access to such written and computerized Investment
Information which may be enforced by ELAS by an action at law or in equity,
whether for specific performance or injunction or otherwise, even if ELAS is in
default hereunder or after this Agreement has terminated. All Investment
Information shall be open to inspection and audit, at all reasonable times, by
ELAS, its designees and Regulatory Authorities, and the Advisor shall, if
requested, make and deliver copies and extracts therefrom to any such person for
such purpose, without charge (unless copying costs become unreasonable in which
case ELAS shall reimburse the Advisor therefor unless such costs are properly
chargeable to the Accounts). All Investment Information may be audited from time
to time by independent accountants selected and, unless properly chargeable to
the Accounts, paid for by ELAS. Any such audit may also include an audit of the
fees payable to the Advisor hereunder and reimbursable costs and expenses
hereunder, if any.
2.4 Reports and Information. The Advisor shall provide to ELAS, with
respect to the Investments, the following reports and information, in such form
as ELAS may reasonably request, whether in computerized form or on paper, in
each case prepared and presented in accordance with generally accepted
accounting principles and on a statutory basis and otherwise in the manner in
which such reports and information have been and are currently being furnished
by the Advisor to ELAS:
(a) on a timely basis and as soon as practicable after the end of each
relevant accounting period, such reports and other information as are required
by the Account Agreements and any Regulatory Requirements; and
(b) at such times as are set forth in Schedule 2.4(b), such additional
reports as are set forth on Schedule 2.4(b).
<PAGE>
2.5 Meetings. The Advisor shall meet with representatives of ELAS
regularly at such times as are mutually agreed, not less frequently than
quarterly, to discuss and review the Accounts and any matters relating or
pertaining to this Agreement.
2.6 Public Relations Services. The Advisor shall notify ELAS of material
issues, events and activities with respect to the portfolio of Investments in
the Accounts or proposed Investments or properties which may generate adverse
media interest and consult with ELAS with respect to responses thereto. The
Advisor and ELAS shall jointly control the response to media issues relating to
ELAS or the management of the Accounts prior to the date hereof.
2.7 Tax Related Services. The Advisor shall, in each case to the extent
consistent with current practice or as may otherwise be required by any
Regulatory Requirement, (i) assemble, maintain and provide ELAS with information
and data with respect to the Investments required for the preparation of
federal, state, local and foreign tax returns, any audits, examinations or
administrative or legal proceedings related thereto or any contractual tax
indemnity rights or obligations, (ii) provide factual data reasonably requested
by ELAS to enable ELAS to prepare projections of tax obligations, (iii)
assemble, record, organize and report to ELAS data and information with respect
to the Investments relative to taxes and tax returns in such form as may be
reasonably requested by ELAS, and (iv) prepare, file and send to appropriate
persons applicable tax information reporting forms with respect to the
Investments, the properties and transactions involving the Investments and the
properties (including without limitation, information reporting forms, whether
on Form 1099 or otherwise with respect to sales, foreclosures, interest
received, interest paid, partnership reports and other relevant transactions);
it being understood that, in the context of the foregoing, ELAS shall rely on
its own tax advisers in the preparation of its tax returns (other than those
returns to be prepared by Advisor under this Section 2.7) and the conduct of any
audits, examinations or administrative or legal proceedings related thereto and
that, without limiting the Advisor's obligation to provide the information,
data, reports and other assistance provided herein, the Advisor will not be
responsible for the preparation of such returns or the conduct of such audits,
examinations or other proceedings.
2.8 Administrative and Other Services. The Advisor shall continue to
provide the following administrative and other services for the Accounts to the
extent currently provided or as otherwise may be required by any Regulatory
Requirement: cash management, accounting, engineering, environmental, appraisal,
valuation, public relations, Account client relations, data processing and
computer services. Such administrative services shall also include the
preparation and issuance of responses to any questions or concerns that may from
time to time be raised by Account clients which relate to the Accounts and such
annual, periodic and other reports as may be required by any Regulatory
Requirements, the Account Agreements or Plans of Operation. The Advisor shall
promptly notify ELAS of any complaint from an Account client which alleges
misconduct by the Advisor. The Advisor shall maintain copies of all
correspondence with Account clients relating to the Accounts and shall make such
correspondence available for inspection and copying by ELAS during normal
business hours.
<PAGE>
Article III
Authority of the Advisor
3.1 Authority. The Advisor and ELAS are not partners or joint venturers
with each other under or with respect to this Agreement or the Investments and
properties of the Accounts covered by this Agreement, and nothing contained in
this Agreement nor any transaction or activity conducted pursuant to this
Agreement shall be so construed or interpreted or impose any liability as such
on either the Advisor or ELAS. The Advisor shall perform its duties under this
Agreement as an independent contractor and not as an agent of ELAS. Except to
the extent expressly authorized and directed by ELAS in writing, no officer,
employee or agent of the Advisor shall, under any circumstances or for any
purpose, become or be an officer, employee or agent of ELAS by reason of this
Agreement, and the Advisor's officers, employees and agents shall, when acting
on behalf of ELAS in respect of the Accounts, represent themselves as officers,
employees or agents, as the case may be, of the Advisor and not of ELAS.
3.2 Limitations on Authority. In providing the services contemplated by
this Agreement, the Advisor will comply with applicable provisions of the New
York Insurance Law, and other applicable federal, state and other laws and the
Account Agreements and Plans of Operation. At the request of the Advisor, ELAS
will provide assistance and advice for the Accounts with regard to New York
Insurance Law matters and ELAS may charge the Advisor standard hourly fees, or,
with the approval of the Advisor, secure such assistance or advice from outside
counsel. The fees and expenses of outside counsel shall be paid by the Account,
to the extent permitted, or by the Advisor. The Advisor shall be entitled to
rely on such advice in respect of the matters so advised on. Notwithstanding the
foregoing, except as otherwise provided in this Agreement, it is understood and
agreed that no such fees shall be charged by ELAS in connection with any review
of documents or other matters related to the performance by ELAS of its rights
and obligations under this Agreement, including without limitation its rights
and obligations under Sections 3.3 and 3.4.
3.3 Special Procedures for ELAS Exercise of Discretion. (a) ELAS and the
Advisor acknowledge that, during the term of this Agreement, ELAS shall act as
"investment manager" as defined in ss. 3(38) of ERISA with respect to each
Account covered by this Agreement, and the Advisor shall provide investment and
asset management advice with respect to the acquisition, management and
disposition of the Investments of each such Account, subject to the terms and
conditions of this Agreement. In such capacity, ELAS shall rely on the
investment and asset management advice and expertise of the Advisor with respect
to real estate investment matters and the Investments and proposed Investments
of the Accounts pursuant to the procedures provided for herein. The following
provisions are intended to govern the process whereby the Advisor furnishes
investment and asset management advice and expertise and ELAS relies thereon in
acting as investment manager for the Accounts.
(b) For purposes of this Section 3.3, a "covered transaction" with respect
to any Account shall mean any acquisition, mortgage origination, disposition,
borrowing, refinancing, capital improvement (involving an expenditure exceeding
$10 million), lease (relating to more than 75,000 square feet of leasable
space), ground lease (having an annual rental in excess of $1 million or a term
in excess of 99 years), creation of a joint venture, joint venture workout or
mortgage loan workout (whether as lender or borrower) or a significant
modification of any of the foregoing transactions. For purposes of this Section
3.3, a "significant modification" shall have the meaning set forth in guidelines
to be agreed upon by ELAS and the Advisor and will generally not include any
modification permitted to be approved by officers of the Advisor or dual
officers of the Advisor and ELAS under ELAS's current Investment Committee
Delegations of Authority.
(c) In connection with a covered transaction, the Advisor shall furnish
ELAS with a certificate, signed by a duly authorized officer of the Advisor,
containing a checklist in the relevant "covered transaction" form attached
hereto as Exhibit 3.3(c), which form may be amended from time to time as
mutually agreed by ELAS and the Advisor to reflect current law or market
practice. The parties agree that ELAS is entitled to rely on the checklist to
determine whether the recommended covered transaction complies with applicable
law. With the certificate, the Advisor shall also provide ELAS with the form of
the ELAS committee or delegated authority sheet in form and content
substantially similar to that in use on the date of this Agreement describing
the proposed covered transaction, together with copies of the major
transactional documentation to the extent then available. In recognition of, and
<PAGE>
in reliance on, the procedures and standards contemplated by this Agreement,
ELAS, after consulting with the Advisor, may object to the proposed covered
transaction only as follows: if ELAS, based on its review of the proposed
covered transaction, as set forth in the checklist, the certificate, the ELAS
committee or delegated authority sheet and any knowledge of the covered
transaction which ELAS may otherwise have, reasonably believes that the covered
transaction would violate (i) the prudence requirement of ERISA, New York
Insurance Law or other laws which impose a prudence standard or requirement in
that the applicable checklist has not been fully or accurately completed by the
Advisor or (ii) other applicable law (other than laws which impose a prudence
standard or requirement), ELAS shall, within three business days after receiving
such certificate, so notify the Advisor in writing of its objection and, if
requested, the basis for its objection and the grounds on which its belief has
been formed and the Advisor shall consult with ELAS to resolve the issue to the
mutual satisfaction of the parties. The Advisor shall provide ELAS with such
documents or other information available to the Advisor as ELAS may reasonably
request in connection with such objection. If the objection by ELAS is not
ultimately resolved by mutual agreement within five days of the receipt of such
documents or information, ELAS, as the "investment manager," shall notify the
Advisor within two business days after the expiration of the five day period
that ELAS will not permit the proposed covered transaction to proceed, in which
case the transaction shall not proceed and the provisions of Section 6.2 shall
be applicable. If the required notice is not received by the Advisor within the
required three business day period, in the case of a notice of objection, or two
business day period, in the case of a notice not to proceed, as applicable, ELAS
shall be deemed to have permitted the proposed covered transaction to proceed,
in which case the provisions of Section 6.1 shall be applicable. In the event a
covered transaction requires the approval of the ELAS Investment Committee, the
Advisor will use its reasonable efforts, with due regard to commercial
exigencies affecting both parties, to schedule covered transactions so that the
certificates, committee sheets and other documents required hereby may be
delivered to ELAS at least 12 business days prior to the date of regularly
scheduled ELAS Investment Committee meetings, and ELAS shall be required to
notify the Advisor of any objection by the business day immediately following
the date of the applicable meeting. ELAS shall use its reasonable efforts to
establish reasonable procedures (whether by a designated sub-committee, by
consent or otherwise) so that, to the extent the Advisor is unable to so
schedule covered transactions to coincide with the regularly scheduled meetings
of the ELAS Investment Committee, such consideration of the ELAS Investment
Committee may be accomplished within a 10 business day period.
(d) Prior to the closing of a covered transaction, in respect of any
certificate delivered pursuant to clause (c) above, the Advisor shall provide an
updated certificate and related checklist if the terms of the proposed covered
transaction have materially changed or the certification is no longer accurate
in any material respect. Any proposed covered transaction covered by a
certificate hereunder may be consummated by the Advisor if ELAS fails to provide
a notice of objection under clause (c) above within three business days from the
delivery to ELAS of the most recent certificate relating to such proposed
covered transaction.
(e) Each certificate shall be deemed to include a representation by the
Advisor that it, or third party service providers consulted by it, have the
requisite competence to evaluate and pass upon the items on the checklist.
(f) The Advisor shall invite ELAS to participate in the annual investor
meeting with Account clients, shall provide ELAS with quarterly reviews and
annual reports and shall meet periodically with ELAS to discuss operating plans
for the forthcoming year for each Account portfolio, as well as annual
Investment level business plans relating to the Equities held in each Account.
(g) With respect to any transaction relating to an Account which is not a
covered transaction, ELAS shall grant appropriate authority, by way of a power
of attorney in substantially the form attached as Exhibit 3.3(g) hereto, to each
Account portfolio manager and two officers of the Advisor located in each of the
Advisor's regional offices authorizing each of them to execute, in the name of
ELAS and subject to the requirements of this Agreement, including without
limitation, Section 3.6, any and all documentation required in connection with
the implementation of such transaction. Such powers of attorney shall initially
be granted to those officers of the Advisor listed on Schedule 3.3(g) hereto.
ELAS shall grant such powers of attorney to such other officers of the Advisor
as the Advisor may reasonably request from time to time so that at all times
each Portfolio manager and two persons in each Regional Office hold the same.
<PAGE>
Subject to the following sentence of this subsection (g), it shall be a
condition to exercise of any such power of attorney in connection with any
transaction that (i) the Advisor shall have received a letter from legal
counsel, engaged by the Advisor in accordance with Section 5.2, to the effect
that the documentation to be executed in connection with the implementation of
the transaction is in reasonable and customary form in the context of the
transaction and complies with Section 3.6(b) and (ii) copies of all
documentation executed pursuant to any such power of attorney with the letter
referred to in (i) above shall be provided to ELAS within five business days
prior to the closing of the transaction. Notwithstanding the foregoing, any such
power of attorney may be utilized without complying with the foregoing
requirements in connection with routine non-covered transactions occurring in
the ordinary course of business relating to matters such as contracts with
vendors having a term of less than one year terminable on not more than sixty
days' notice, utility contracts, short-term leases for space pending the longer
term letting of such space and the like.
(h) With respect to any proposed covered transaction which is not objected
to by ELAS in accordance with the foregoing procedures or, if objected to, is
otherwise permitted to proceed by ELAS, the Advisor will provide ELAS with all
final documents requiring execution by ELAS, accompanied by a letter from legal
counsel, engaged by the Advisor in accordance with Section 5.2, to the effect
that such documents are in reasonable and customary form in the context of the
transaction and comply with Section 3.6(b), in sufficient time so that ELAS
shall have reasonable time, with due regard to commercial exigencies affecting
both parties, to review the same (which in no event shall be more than five
business days) prior to the date on which such documents are required to be
executed. The parties acknowledge that to the extent that prior drafts of
documents requiring execution have been provided to ELAS, the time required for
ELAS to review and execute documents may be reduced. Subject to the foregoing,
ELAS shall execute and deliver, or cause to be executed and delivered, all
documentation reasonably required in connection with the implementation of the
transaction.
(i) ELAS's rights to receive certificates, checklists and other documents
and to review the same under this Section 3 shall not in any way affect any
other provision of this Agreement, including without limitation, the
indemnification obligations of the Advisor under Section 6.1.
3.4 Third Party Inquiries and Investigations. ELAS and the Advisor shall
promptly notify the other of any claim by an Account client or any investigation
or non-routine inquiry by any Regulatory Authority relating to any Account. ELAS
and the Advisor shall cooperate in responding to any such claim, inquiry or
investigation and shall, subject to the provisions of Section 7.2.3(b) of the
Purchase Agreement, jointly control any such response, provided that ELAS shall
control any matter with material insurance regulatory implications for ELAS or
other regulatory implications solely for ELAS and the Advisor shall control
matters having only financial (as distinct from regulatory or public relations)
consequences to ELAS and matters having regulatory implications solely for the
Advisor.
3.5 Special Situations. ELAS and the Advisor shall cooperate closely,
coordinate and keep each other apprised with respect to (i) any Account
transactions subject to the securities laws, (ii) any Account transactions
involving rating agencies or (iii) on an ongoing basis, any material issues
potentially affecting ELAS as owner, e.g., environmental issues or significant
property level litigation. In connection with any Account transactions subject
to the securities laws, ELAS shall act in a commercially reasonable fashion
recognizing the exigencies of public and private financing, provided that ELAS
shall have a right of prior approval, which shall not be unreasonably withheld
or delayed, over the timing and content of any public disclosure which relates
to or could materially affect ELAS (including any offering or solicitation
documents), and further provided that nothing shall require ELAS to take any
action which in the opinion of its counsel would result in any violation by ELAS
of the securities laws. ELAS will be entitled to reimbursement for actual costs
incurred by it in connection with matters covered by this Section 3.5 (including
reimbursement of the reasonable costs of counsel at standard hourly rates).
3.6 Liabilities. All liabilities arising with respect to an Account shall
be solely for the account of such Account and not for the account of ELAS's
general account or any other Account. The Advisor shall not propose for approval
or execution by ELAS nor shall it execute or deliver any document, instrument or
agreement on behalf of ELAS under this Agreement or otherwise with respect to an
<PAGE>
Account unless such document, instrument or agreement contains (a) provisions
under which all other parties thereto agree that the only recourse by the other
parties thereto will be solely against the assets of such Account and not ELAS
or its assets and that they will seek to enforce such document, instrument or
agreement with recourse solely against the assets of such Account and not
against ELAS or its assets and (b) no covenants or agreements binding on ELAS
(as opposed to the Account) other than in its capacity as sponsor of the Account
or affecting ELAS or its assets or properties, as distinguished from assets or
properties of any Account.
3.7 Certain Tax Matters. (a) The Advisor shall consult with ELAS regarding
(i) material federal, state, local and foreign tax consequences of transactions
to be proposed for any Account and (ii) any statements regarding tax matters
contained in any marketing or solicitation materials and annual reports and
newsletters to Account clients or potential Account clients. The Advisor shall
not take any action which would cause any contract or policy issued with respect
to an Account to fail to qualify as a "variable contract" within the meaning of
section 817 of the Code. Any title holding company or other entity formed to
hold title to any Investment of an Account (as described in Section 2.2(h))
shall either (x) be formed as an entity that is exempt from taxation under
Section 501(c)(2) of the Code or otherwise not subject to federal income tax
(e.g., a partnership, a single member limited liability company or other
flow-through entity) or (y) enter into an agreement, in form and substance
acceptable to ELAS and the Advisor, providing, in a manner consistent with
current practice, that the entity will pay, and will indemnify and hold harmless
ELAS and its affiliates from and against, any tax liabilities attributable to
the ownership of the assets or conduct of the activities of such entity.
(b) In connection with any Covered Transaction that is described in
Schedule 3.7, the Advisor shall provide to ELAS, at the time a certificate and
checklist is first provided to ELAS pursuant to Section 3.3(c), or earlier if
practicable, one additional copy (designated "Section 3.7 Tax Review Documents")
of the delegated authority sheet and major transactional documentation for a
review of tax matters by ELAS. If, within three business days following the
delivery of the certificate pursuant to Section 3.3(c), ELAS provides the
Advisor with a written request for an opinion of tax counsel (which counsel
shall be reasonably acceptable to ELAS) that, based on assumptions reasonably
acceptable to ELAS and the Advisor, (i) "substantial authority", within the
meaning of section 6662 of the Code, exists for those tax positions to be taken
in connection with such transaction with respect to which ELAS shall have
reasonably requested an opinion; and, at ELAS's option, (ii) to the extent that
such transaction contemplates that ELAS will report in a particular manner (or
fail to report) any item of income, loss, deduction or credit on a tax return or
report (including any information return) that must be filed by or with respect
to ELAS, that such tax reporting is more likely than not the proper treatment of
such items, the Advisor will not proceed with such transaction in the absence of
the provision to ELAS of such opinion. The costs of any such opinion shall be
shared equally by the Advisor and ELAS to the extent not properly chargeable to
the Account.
3.8 ERISA. ELAS acknowledges that, in performing its duties under this
Agreement, the Advisor is entitled to rely on the availability to ELAS, and on
compliance by ELAS with the requirements of Prohibited Transaction Class
Exemption 84-14 (relating to Qualified Professional Asset Managers), Prohibited
Transaction Class Exemption 90-1 (relating to Insurance Company Pooled Separate
Accounts) and individual prohibited transaction exemptions affecting the
Accounts. ELAS shall be solely responsible for any consequences arising from the
failure of the Department of Labor to issue an exemption similar to PTE 91-8
covering the period from the expiration of PTE 91-8 to the date hereof.
3.9 Other Matters. ELAS shall provide to the Advisor and update on a
timely basis (i) a list of persons who are "parties in interest" within the
meaning of Section 3(14) of ERISA or "disqualified persons" within the meaning
of Section 4975(e) of the Code with respect to plans invested in the Accounts by
virtue of their relationship to ELAS and its affiliates, and (ii) language
designed to assure that the parties to a transaction agree that their only
recourse will be solely against the assets of an Account and not the assets of
ELAS and that they will seek to enforce any document, instrument or agreement
relating to such transaction with recourse solely against the assets of such
Account and not against the assets of ELAS.
3.10 Marketing and Disclosures to Account Clients. (a) Solicitation of New
Deposits and New Account Clients. Subject to the terms of this Section 3.10, the
Advisor is authorized to solicit additional deposits and new Account clients (i)
for the Prime Property Fund and (ii) with respect to Accounts other than the
Prime Property Fund, only to the extent previously approved in writing by ELAS,
<PAGE>
such approval not to be unreasonably withheld. Without limiting the generality
of the foregoing, the Advisor acknowledges that it shall not be unreasonable for
ELAS to withhold such consent, in the case of an Account other than the Prime
Property Fund, if the solicitation would result in, or is related to, a material
change in the investment objectives of an Account or a material extension in the
term of the Account that is not necessary to protect the interests of existing
Account clients.
(b) Authority to Distribute Contracts. Subject to this Section 3.10, ELAS
hereby authorizes the Advisor to distribute new Account Agreements. The Advisor
acknowledges that ELAS has the right to approve all applications for Account
Agreements, which approval may not be unreasonably withheld or delayed. In the
event that ELAS properly does not approve any application, any monies or other
consideration tendered by the applicant shall be promptly returned by the
Advisor to the applicant.
(c) Suitability. Prior to making any recommendation to a potential Account
client to purchase an Account Agreement, the Advisor shall have reasonable
grounds for believing that the Account Agreement is suitable for the potential
Account client based on information that is known by, or after reasonable
inquiry made available by such entity to, the Advisor regarding such entity's
qualification under the Internal Revenue Code as a corporate or governmental
pension plan, and the plan's investment objectives, financial situation and
condition and needs.
(d) Compliance with Applicable Laws. In offering or selling the Account
Agreements, the Advisor shall comply in all material respects with all
Regulatory Requirements. Without limiting the generality of the foregoing, and
subject to clause (e) below, the Advisor agrees that it shall not offer, attempt
to offer, solicit applications for, sell or deliver Account Agreements in any
state or other jurisdiction in which the Account Agreements may not be lawfully
sold or offered for sale. In order to facilitate compliance with law, ELAS will
appoint as its agents or brokers in each appropriate jurisdiction, all employees
of the Advisor who solicit applications for, sell or deliver Account Agreements
and who meet all applicable Regulatory Requirements for such appointment. The
Advisor shall train, supervise and be responsible for the actions and omissions
of its employees and agents in connection with the sale of the Account
Agreements. The Advisor shall promptly notify ELAS in writing if it becomes
aware that it or any of its employees or agents has failed to comply in any
material respect with any law or regulation applicable to the offer or sale of
any Account Agreement.
(e) ELAS Filings. For the purposes of this section 3.10, a "new
solicitation" shall mean the solicitation of additional deposits from current
Account clients or new deposits from potential Account clients or offering,
selling or delivering Account Agreements. ELAS and the Advisor acknowledge that
new solicitations may be prohibited in various states and other jurisdictions by
applicable Regulatory Requirements, in the absence of filings therein by ELAS.
At the request of the Advisor and on a timely basis, ELAS shall at the Advisor's
expense, in accordance with existing practice and if not materially burdensome
to ELAS, make any filings with Regulatory Authorities, and use its reasonable
efforts to obtain any approvals from Regulatory Authorities, required to avoid
any proposed new solicitations being prohibited provided that such filings, if
approved (or required), will not increase the costs or materially increase the
burdens to ELAS or expose ELAS to any material risk.
(f) Limitations on Authority. Neither the Advisor nor any of its employees
or agents shall possess or exercise any authority on behalf of ELAS in
connection with the Account Agreements except as provided in this Agreement.
Without limiting the generality of the foregoing, neither the Advisor nor any of
its employees or agents shall, without the prior written consent of ELAS, have
or grant any authority (i) to make, alter or discharge any Account Agreement or
other contract entered into pursuant to an Account Agreement, (ii) to waive any
Account Agreement provisions or (iii) to receive any monies or consideration
from applicants for or purchasers of any Account Agreement (except for the sole
purpose of forwarding monies or consideration to ELAS (or its designee, which
may be the Advisor)) for purpose of deposit into an Account.
(g) Restrictions on Communications. Neither the Advisor nor any of its
employees or agents shall give any information or make any representation or
statement, written or oral, about the Accounts or ELAS that is inaccurate or
misleading in any material respect. Neither the Advisor nor any of its employees
or agents shall use or authorize for use, in connection with the sale or any
offer for sale of any Account Agreement, any promotional, sales or advertising
material relating to the Account Agreements, the Accounts or ELAS (except for
individualized communications) without the prior written approval of ELAS, which
approval shall not be unreasonably withheld.
<PAGE>
(h) Restrictions on Compensation. The Advisor shall not receive any
commission or other compensation in connection with the sale of the Account
Agreements, except for compensation paid to it in connection with the management
of the Accounts.
(i) Maintenance of Books and Records. The Advisor shall maintain such books
and records as required by any Regulatory Authority in connection with the sale
of Account Agreements and shall make such books and records available to ELAS
upon request and to Regulatory Authorities as the Advisor is required by such
Regulatory Authorities.
Article IV
Covenants of the Advisor
4.1 Status and Registration of the Advisor. The Advisor shall at all times
(a) be validly existing and in good standing under the laws of its state of
incorporation, (b) be duly registered with the United States Securities and
Exchange Commission as an investment adviser under the Investment Advisers Act
of 1940, as amended, to the extent required to perform its obligations under
this Agreement, (c) be duly qualified to do business and duly registered or
licensed as an investment adviser, a real estate broker and a mortgage broker in
each state or jurisdiction necessary to perform its obligations under this
Agreement, and (d) have completed, obtained or performed all registrations,
filings, approvals, licenses, consents and examinations required by any
Regulatory Authority which are required in connection with the performance of
its obligations under this Agreement.
4.2 Other Business; Allocation. The Advisor may engage in any other
business or act as advisor to or investment manager for any other person, even
though such other person has or may have investment policies similar to those
followed by the Advisor with respect to ELAS for the Accounts, provided that the
Advisor shall at all times allocate investment opportunities among clients of
the Advisor on a fair and equitable basis. Subject only to the foregoing
requirement, the Advisor shall be free from any obligation to recommend to ELAS
for any Account any particular investment opportunity which may come to the
attention of the Advisor. Except to the extent expressly prohibited or limited
by confidentiality (in which case the Advisor shall so inform ELAS as to the
bases thereof) and to the extent such investments are within the category of
investments in which the Prime Property Fund has an investment interest, the
Advisor shall continue to deliver an allocation report (in the form attached as
Schedule 4.2 hereto) to ELAS, as often and in such detail as is currently
provided.
4.3 No Assignment or Delegation. (a) Neither this Agreement nor any of the
Advisor's right, title or interest herein or hereunder may be directly or
indirectly (including without limitation, by any "assignment" within the meaning
of the Investment Adviser's Act of 1940, as amended, whether direct or indirect,
and whether by operation of law or otherwise) assigned, transferred, conveyed or
otherwise disposed of to any person, including without limitation, any
subsidiary or other affiliate of the Advisor, without the prior written consent
of ELAS, and any attempt to so assign, transfer, convey or otherwise dispose of
any thereof without such prior written consent shall be null and void, provided
that ELAS shall provide such written consent if so requested by an Account
client in respect of such Account client's interest in an Account and if
consistent with ERISA.
(b) No duty or obligation of the Advisor hereunder may be contracted for or
otherwise delegated by the Advisor to any person, including without limitation,
any subsidiary or other affiliate of the Advisor, without the prior written
consent of ELAS, and any attempt to so contract or otherwise delegate any
thereof without such prior written consent shall be null and void, provided that
the Advisor may, with the consent of ELAS, which shall not be unreasonably
withheld, delegate any service to be provided by the Advisor under this
Agreement other than investment advisory services, asset management services,
acquisition, mortgage origination and disposition services, and tax, accounting
and recordkeeping services. If ELAS consents to the contracting or other
delegation to any person of any duty or the performance of any function required
to be performed hereunder by the Advisor, the Advisor shall pay all costs and
expenses incurred in connection therewith unless chargeable to the Account. No
consent to any contracting or other delegation shall release the Advisor from
its obligations hereunder to perform the duty or function so delegated, the
<PAGE>
Advisor shall continue to be liable to ELAS with respect to such delegated duty
or function and with respect to the performance thereof by such other person,
notwithstanding such contracting or other delegation, and any person to whom any
duty or function hereunder is so delegated shall be deemed an agent of the
Advisor for purposes of this Agreement.
4.4 Confidentiality. Except as may be required by Regulatory Requirements
or as may be necessary or appropriate to perform their respective obligations
hereunder or otherwise in respect of the Accounts, the Advisor, ELAS and their
respective affiliates shall maintain in strict confidence and shall not
disclose, and shall neither use nor permit to be used, for any purpose, any
Investment Information or other non-public information with respect to or
concerning the Accounts.
4.5 No Affiliate Benefits. Without the prior written consent of ELAS,
which ELAS shall give if so requested by any Account client and consistent with
ERISA, none of the Advisor, its affiliates or their respective officers,
directors or employees shall (a) be retained by the Advisor (other than in their
capacities as officers, directors or employees of the Advisor) to provide any
services to ELAS for the Accounts or (b) receive any benefit from any Investment
of the Accounts other than as contemplated by this Agreement, including, without
limitation, Section 4.9. Notwithstanding the foregoing, no consent of ELAS under
this Agreement shall be required to the continuation of any services with
respect to a specific property or Investment being provided to ELAS for the
Accounts by any affiliate of the Advisor or Lend Lease Corporation Limited or
any of their respective officers, directors or employees as of the date of this
Agreement, subject, in any such case, to compliance with ERISA.
4.6 Information Relating to the Advisor. The Advisor will notify ELAS
promptly of any changes in the ownership (whether direct or indirect, other than
in respect of Lend Lease Corporation Limited so long as its shares are publicly
traded), control (whether direct or indirect) or corporate structure of the
Advisor. The Advisor shall promptly notify ELAS in writing of any material
change in the Advisor's or any of its affiliates' business or financial or other
condition or any investigation, action, suit or proceeding commenced or
threatened against the Advisor or any of its affiliates, in each case which may
adversely affect the Advisor's ability to perform its duties and obligations
hereunder or may otherwise adversely affect ELAS, the Investments or the
properties. No later than 90 days following the last day of each fiscal year of
the Advisor, the Advisor will prepare and deliver to ELAS the Advisor's
consolidated balance sheet, related consolidated statements of income,
shareholder's equity and cash flows at and for each year end, including
supporting footnotes, all in accordance with generally accepted accounting
principles and related reports of independent accountants. All such financial
and other information shall be held in confidence by ELAS.
4.7 Insurance. The Advisor shall maintain for itself the following
insurance coverages, with such deductibles as are reasonable and customary
practice in the industry or as ELAS may otherwise approve:
(a) Workers Compensation in accordance with statutory requirements and
Employers Liability in an amount not less than $1,000,000;
(b) commercial general liability insurance and umbrella liability
insurance, on an occurrence basis, in an amount not less than $25,000,000
Combined Single Limit and annual aggregate;
(c) a comprehensive crime policy, or fidelity bond, covering all officers,
directors and employees of the Advisor with responsibility for any monies
belonging to ELAS or the Accounts in an amount not less than $10,000,000 per
occurrence and annual aggregate;
(d) errors and omissions insurance, covering all services provided by the
Advisor to ELAS for the Accounts, in an amount not less than $5,000,000 per
claim and annual aggregate;
(e) comprehensive automobile liability insurance covering the Advisor's
owned, leased and hired vehicles in an amount not less than $5,000,000 Combined
Single Limit; and
(f) bonding coverage meeting the requirements of ss. 412 of ERISA.
All insurance required hereunder shall be written with insurance companies
authorized to do business in the State of New York, and having a Best's rating
of not less than A VIII, shall be in a form and with insurers reasonably
satisfactory to ELAS, and shall include a provision that coverage provided by
<PAGE>
such policy shall not be cancelled or materially changed without giving ELAS at
least thirty (30) days' prior written notice. ELAS, its subsidiaries, officers,
directors and employees and the Accounts shall be named as additional insureds
with respect to the coverages required in Sections 4.7(b) and (e), and ELAS and
the Accounts shall be named as a joint loss payee as its interests may appear
with respect to the coverage required in Section 4.7(c). A certificate or
certificates of insurance evidencing the coverages required hereunder shall be
delivered to ELAS at the time this Agreement is executed, and at least ten (10)
days prior to each renewal of such insurance.
4.8 Environmental Compliance. The Advisor shall promptly notify ELAS
whenever the Advisor acquires knowledge that there exists, with respect to any
property of an Account, any violation or alleged violation of any federal, state
or local law, rule, regulation, permit or directive relating to any
environmental condition on, under or adjacent to such property or that any
person has used, generated, manufactured, stored or disposed of on, under or
about such property or transported to or from such property any hazardous
materials or substances in violation of any applicable Regulatory Requirement.
In addition, with respect to any existing Investment of an Account, the Advisor
shall, as reasonably directed by ELAS, arrange for and supervise environmental
assessments (including Phase I and Phase II assessments), studies, testing,
remediation, monitoring and reporting with respect to environmental conditions,
provided the same may be properly charged to the Account.
4.9 Property Managers and Other Service Providers. Subject to Section
4.3(b) and any applicable requirements of ERISA, the Advisor may, at the expense
of the Account, from time to time, arrange for property managers, real estate
and leasing brokers, engineering and environmental consultants, appraisers,
insurance consultants and other independent service providers to perform
services, which services have not normally or ordinarily been provided
heretofore by the Advisor to ELAS for the Accounts as part of the Advisor's
services, as and to the extent not prohibited by the relevant Account Agreement.
Subject to its obligations under Section 1.3 in recommending and monitoring any
such third party service provider, the Advisor shall not be responsible for or
liable in respect of the performance of its services by such third party service
provider. Property management or other services may be provided (or continued)
to any Account by any affiliate of the Advisor or Lend Lease Corporation
Limited, provided that such affiliate renders such services at an optimum level
consistent with investment strategy.
Article V
Rights of ELAS
5.1 Execution of Documents. Only ELAS or a duly authorized designee of
ELAS may execute documents with respect to any Investment or otherwise effect
any transaction on behalf of any Account. The Advisor shall not execute any
documents or effect any transactions on behalf of any Account without the
express prior written authorization of ELAS or as provided in Section 3.3(g). In
addition to the actions contemplated by Section 3.3(g), the Advisor shall and
shall cause its officers to, if, as and when requested by ELAS, otherwise
execute and deliver documents on behalf of ELAS with respect to the Investments
and proposed Investments of the Accounts pursuant to a power of attorney to be
provided by ELAS, but only in accordance with guidelines established by ELAS for
such purpose.
5.2 Legal Counsel. The Advisor, with the prior approval of ELAS, shall
have the exclusive authority to engage legal counsel to act on behalf of the
Accounts in connection with Investments, including without limitation,
acquisitions and dispositions, originations, investment management, property
management and leasing, mortgage loan servicing and any other matters
contemplated by or arising under this Agreement.
5.3 Personnel. The Advisor shall at all times assign, to perform the
Advisor's duties with respect to the Accounts, officers and employees with
appropriate background and expertise to fulfill the Advisor's duties under this
Agreement and the Account Agreements.
Article VI
Indemnification and Related Matters
6.1 Indemnification by the Advisor. The Advisor and its indirect parent,
Lend Lease Corporation Limited, shall indemnify, defend and hold harmless ELAS
and its directors, officers, agents and employees (each an "ELAS Indemnitee" and
collectively, the "ELAS Indemnitees") from and against any and all losses,
costs, liabilities, damages or deficiencies, including interest, penalties and
reasonable attorneys' fees and disbursements (collectively, "Losses") incurred
as a result of, pursuant to or in connection with any action, suit, proceeding
<PAGE>
or claim of any nature whatsoever (a "Claim") by any third party (including
without limitation any Account client) arising out of, based on, resulting from
or relating to this Agreement, any Account Agreement, any Investment or proposed
Investment or the operation of any Account (other than a Claim indemnified
against by ELAS under Section 6.2 or a Claim arising out of, based on, resulting
from or relating to the negotiation or execution of this Agreement or its
approval by any Regulatory Authority or the allocation (as distinct from
performance) of responsibilities hereunder or a breach by any ELAS Indemnitee of
any duty or obligation under ERISA).
6.2 Indemnification by ELAS. ELAS shall indemnify, defend and hold
harmless the Advisor and its directors, officers, agents and employees (each an
"Advisor Indemnitee" and collectively, the "Advisor Indemnitees") from and
against any and all Losses incurred as a result of, pursuant to or in connection
with any Claim by any third party (including without limitation any Account
client) arising out of, based on, resulting from or relating to this Agreement,
any Account Agreement, any Investment or proposed Investment or the operation of
any Account, if and to the extent such Claim arises out of, is based on, results
from or relates to (a) the failure, at the direction of ELAS, to complete a
covered transaction recommended by the Advisor pursuant to Section 3.3, (b) a
breach of any representation, warranty, covenant or agreement of ELAS contained
in this Agreement or (c) action taken or omitted to be taken by ELAS in respect
of the operation of any Account which relates to its contractual relationship
with any Account client as the issuer of any insurance, annuity or funding
contract or agreement underlying such Account or its administrative or other
duties relating thereto, provided that ELAS's indemnification obligations under
this Section 6.2 shall not be applicable in respect of (i) a covered transaction
described in clause (a) of this Section 6.2, if it is established that such
covered transaction would constitute a violation of ERISA or other Regulatory
Requirement, or (ii) a Claim arising out of, based on, resulting from or
relating to the negotiation or execution of this Agreement or its approval by
any Regulatory Authority or the allocation (as distinct from performance) of
responsibilities hereunder or a breach by any Advisor Indemnitee of any duty or
obligation under ERISA, and provided further that nothing in clause (c) of this
Section 6.2 shall require ELAS to take or omit to take any particular action.
6.3 Notices. If any Advisor Indemnitee or ELAS Indemnitee shall obtain
knowledge of any Claim indemnified against under this Article VI, such
Indemnitee shall give prompt written notice thereof to the Advisor and ELAS,
provided that the failure of such Indemnitee to so notify the Advisor and ELAS
shall not affect the indemnification obligations to such Indemnitee under this
Article VI except to the extent of any increase in the amount of such Claim
resulting from such failure or to the extent the contest of such Claim is
impaired as a result of such failure.
6.4 Defense of Claims. The Advisor shall control the defense in respect of
any Claim as to which the Advisor is required to provide indemnification under
Section 6.1 and ELAS shall control the defense of any Claim as to which ELAS is
required to provide indemnification under Section 6.2, in either case with
counsel selected by the Advisor or ELAS, as the case may be, which counsel shall
be reasonably acceptable to the other party. Neither the Advisor nor ELAS may
settle any claim without the consent of the other party, which consent shall not
be unreasonably withheld. ELAS or the Advisor, as the case may be, shall be
entitled, at its sole cost and expense and acting through counsel reasonably
acceptable to the other party, to participate in the defense and settlement of
any claim for which the other party is required to provide indemnification. If
the party entitled to control the defense of any Claim does not assume the
defense thereof, the other party shall have the right to select its own counsel
and control the defense thereof at the expense of the party failing to assume
such defense.
6.5 Subrogation. Upon payment of any Claim pursuant to this Article VI, to
or on behalf of an ELAS Indemnitee or an Advisor Indemnitee, the party paying
such Claim, whether the Advisor or ELAS, as the case may be, shall be subrogated
to any and all claims that such Indemnitee may have in respect of the matters
against which such indemnity was given. Such Indemnitee shall cooperate with the
Advisor or ELAS, as the case may be, and shall execute such further instruments
to permit the Advisor or ELAS, as the case may be, to pursue such claims.
6.6 Contribution. If the indemnification provided for in this Article 6 is
for any reason unavailable to or insufficient to hold harmless an indemnified
party in respect of any Loss referred to herein, then each indemnifying party
shall contribute to the aggregate amount of such Loss incurred by such
indemnified party, as incurred, (i) in such proportion as is appropriate to
reflect the relative benefits received by ELAS on the one hand and the Advisor
on the other hand from the rendering of investment management services and
advice pursuant to this Agreement or (ii) if the allocation provided by clause
(i) is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of ELAS on the one hand and of the Advisor on the other hand
<PAGE>
in connection with the events which resulted in such Loss, as well as any other
relevant equitable considerations. The relative fault of ELAS on the one hand
and the Advisor on the other hand shall be determined by reference to, among
other things, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent the Loss referred to in Section 6.1 or 6.2
hereof. Notwithstanding the foregoing, in the event of any Loss arising from the
unavailability to ELAS after the date of this Agreement of any prohibited
transaction exemption other than Prohibited Transaction Class Exemption 90-1
(relating to insurance company pooled separate accounts), ELAS and the Advisor
agree that the contribution referred to herein with respect to such Loss shall
be evenly divided between ELAS and the Advisor after ELAS has borne the first
$2.5 million of such Losses on a cumulative basis.
Article VII
Term and Termination
7.1 Term. This Agreement shall have an initial term of four years from the
date hereof and shall be automatically renewed for successive one-year periods
thereafter, until terminated pursuant to Section 7.2, 7.3 or 7.4 or by the
mutual agreement of the parties.
7.2 Termination Due to Material Breach. ELAS may terminate this Agreement
at any time on not less than thirty days' prior written notice in the event of a
Material Breach of this Agreement by the Advisor. A "Material Breach" is a
breach (or a series of breaches constituting a pattern of behavior or practice)
of the representations, covenants or obligations of the Advisor hereunder that
reflects willful misconduct or willful failure to comply with such
representations or to perform such covenants or obligations, or gross negligence
in the compliance with such representations or the performance of such covenants
or obligations, that is, either individually or in the aggregate, material in
relation to the activities and responsibilities of the Advisor under this
Agreement as a whole, provided that no breach or series of breaches shall be
considered a Material Breach if such breach or breaches and all material
consequences thereof have been cured as provided below . Prior to providing
notice terminating this Agreement on the basis of any Material Breach, ELAS
shall provide written notice to the Advisor describing the nature of the
Advisor's default with specificity, and the Advisor shall have a period of 30
days following receipt of any such notice to cure such default. If during such
30-day period, the Advisor takes reasonable actions to commence a cure of such
default and if the nature of such default is such that it cannot, through the
exercise of reasonable diligence, be cured during such 30-day period, such
30-day period shall be extended for up to 60 additional days so long as the
Advisor shall continue to take reasonable actions to cure such default during
such 60 day period. A Material Breach on the part of the Advisor and the
consequences thereof shall be deemed to be cured for the purpose of this Section
7.2:
(a) if the Material Breach and such consequences can be completely cured by
the payment of money, if all such money is paid in cash within the 30-day period
immediately following receipt of such notice to cure such default; and
(b) if the Material Breach and such consequences cannot be completely cured
by the payment of money and the actions required for cure are such that they
could be taken within the time periods for cure set forth above in this Section
7.2, if such actions are taken in all material respects within such time
periods.
Notwithstanding anything to the contrary contained in this Section, the
occurrence of any event constituting a default under Section 4.3(a) of this
Agreement shall be a Material Breach hereunder, and no cure period shall be
available with respect thereto.
7.3 Termination Due to Legal Duties. ELAS may terminate this Agreement at
any time on not less than thirty days' prior written notice if ELAS reasonably
determines, upon the advice of independent counsel to ELAS, that a state of law
exists that requires ELAS to terminate this Agreement in order to comply with
its legal duties, provided that (a) prior to giving any notice of such
termination, ELAS will provide the Advisor with written notice of the reason for
the proposed termination, including the legal or regulatory basis therefor, (b)
ELAS, the Advisor and their respective counsel will, within five days after the
delivery of such notice by ELAS, meet to determine what, if any, measures may be
taken to alleviate the legal or regulatory basis for such proposed termination,
including without limitation, any alternative arrangements or structures which
may be used, in whole or in part, in substitution or replacement of the
arrangements contemplated hereunder, or the basis of any approach by ELAS, in
the case of any matter relating to the New York Insurance Department, or jointly
by ELAS and the Advisor, in the case of any matter involving the Department of
<PAGE>
Labor or any other Regulatory Authority, to any relevant Regulatory Authority in
order to alleviate the legal or regulatory basis for the proposed termination
and shall work together in good faith for a period of thirty days to determine
whether such measures are available, and (c) only following the determination by
ELAS after such period that there are no available measures which may be taken
to alleviate the legal or regulatory basis for the proposed termination, may
ELAS proceed to deliver to the Advisor a notice of termination under this
Section 7.3. For purposes of this Section 7.3, a state of law requiring this
Agreement to be terminated shall be deemed to exist only if there exists or
comes into effect any Regulatory Requirement which causes this Agreement to be
or to become invalid in any material respect or any action by any Regulatory
Authority is taken that has the foregoing consequences. The parties acknowledge
that ELAS's right to terminate on grounds of any law imposing a prudence
standard shall only be exercised in conformity with Section 7.2 and/or Section
7.4 of this Agreement. In the event that alternative arrangements are available
pursuant to which the parties can alleviate the legal or regulatory basis for
termination, and such alternative arrangements (i) permit the payment of at
least 90% of the fees payable under this Agreement, and (ii) do not materially
decrease the services to the Accounts (unless ELAS agrees to the reduction in
services) or (iii) do not materially increase the responsibilities or
obligations of the Advisor or ELAS (unless the party subject to a material
increase agrees to assume such increase in burdens), then the parties shall
enter into such arrangements and no termination shall be deemed to have
occurred.
7.4 Termination Due to Fiduciary Duties. ELAS may terminate this Agreement
at any time on not less than thirty days' prior written notice if (i) ELAS
determines that, in the exercise of its fiduciary duties under any prudence
requirement of ERISA, New York Insurance Law or other laws which impose a
prudence standard or requirement applicable to ELAS in respect of the matters
covered by this Agreement, and upon the advice of independent counsel to ELAS, a
state of facts exists relating to the Advisor's performance in the management of
the Account that requires ELAS to terminate this Agreement in order to comply
with fiduciary duties and, if either party has requested arbitration, (ii) an
arbitral judgment is issued in an arbitration proceeding commenced pursuant to
Section 10.1 determining (x) that the Advisor's performance in the management of
the Account has not met the standards set forth in Schedule 7.4(a) to this
Agreement or (y) that one or more of the events set forth on Schedule 7.4(b) of
this Agreement has occurred. Upon any determination of ELAS that it intends to
terminate this Agreement pursuant to this Section 7.4, ELAS shall provide
written notice to the Advisor of such intention and a reasonably detailed
statement as to the basis upon which it has determined that the performance of
the Advisor in the management of the Accounts requires it to exercise its rights
under this Section 7.4. The parties shall, during the thirty day period
following any such written notice, consult with each other in good faith to
agree upon a plan to be followed by the Advisor in order to remedy the problems
identified by ELAS with the performance of the Advisor in the management of the
Accounts or an event in Schedule 7.4(b) identified by ELAS and a time period
relating to the implementation thereof. Failing such agreement, party shall then
have sixty days within which to commence arbitration, to determine whether the
standards set forth in Schedule 7.4(a) have been met or an event set forth in
Schedule 7.4(b) has occurred, pursuant to the procedures in Section 10.1, and,
if no such arbitration is commenced within such sixty day period, ELAS may
proceed to provide the 30-days written notice of termination as above provided.
In determining whether the standards set forth in Schedule 7.4 have been met,
the arbitrators shall give due consideration to the fact that (i) Lend Lease
Corporation Limited is acquiring the Advisor on the date hereof and has not been
responsible for assembling the portfolios of Investments in the Accounts, (ii)
ELAS acknowledges that to the extent the business plan for the Accounts
contemplates changes to the portfolios which may impact short term performance,
that such changes to the portfolios will be executed over a period of several
years, and (iii) that in view of the foregoing, the results of the Advisor's
investment program may be difficult to measure for several years after the date
hereof.
7.5 Additional Remedies. The right to terminate this Agreement as provided
in this Article VII is not exclusive of any rights or remedies that the Advisor
or ELAS may otherwise have at law or in equity for breaches of this Agreement,
whether for indemnification or otherwise, provided that such other right or
remedy may not result in a termination of this Agreement other than as
specifically provided herein. In addition, ELAS and the Advisor agree that
fines, penalties, costs, charges and damages for breaches of any provision this
Agreement may be assessed by any mediator or arbitrator in connection with
proceedings conducted pursuant to Section 10.1.
<PAGE>
7.6 Obligations Upon Termination. Except as provided in Section 7.7, from
and after the effective date of termination of this Agreement for any reason
whatsoever, the Advisor shall not be entitled to compensation for further
services hereunder but shall be paid all compensation accrued and unpaid to the
date of termination, if any. Any compensation so accrued at the time of
termination, but payable only upon the occurrence of one or more conditions
subsequent, shall be paid only after satisfaction of all such conditions.
7.7 Further Assurances on Termination. Upon the termination of this
Agreement for any reason whatsoever, the Advisor shall cooperate fully with
ELAS, including without limitation, providing to ELAS access to and opportunity
to consult with the Advisor's officers and employees, in order to facilitate a
smooth transition of the responsibilities and records so as to avoid a
disruption of services to ELAS for the Accounts. In the case of a termination by
notice, any such transition shall begin immediately upon the giving of such
termination notice and the parties shall use their best efforts to complete such
transition by the termination date. If such transition is not completed by the
termination date or if ELAS requests that the Advisor continue to provide
services or undertake duties and responsibilities under this Agreement after
such termination date, the Advisor shall do so for a period of up to 12 months,
unless otherwise mutually agreed between the Advisor and ELAS, and this
Agreement shall be deemed to continue in effect with respect to the services so
provided or duties or responsibilities so undertaken and the Advisor shall be
entitled to receive such compensation as shall reasonably reflect the nature,
scope and extent of such services, duties or responsibilities. If the Advisor
and ELAS are unable to reach agreement on such compensation, they shall submit
the dispute for resolution pursuant to Section 10.1.
7.8 License after Termination. (a) If notice of termination is given under
this Agreement, ELAS shall have, on behalf of the Accounts, the right to receive
from the Advisor, in accordance with Section 7.8(b), a perpetual, worldwide,
non-exclusive license to reproduce, distribute, make derivative works from and
otherwise use all, or, at ELAS's sole discretion, part of, the Advisor Software
in connection with the provision of investment advisory, asset management and
other services to the Accounts of the types provided under this Agreement. Such
license shall include the right to sublicense the foregoing to any third party
in connection with such party's provision of such services to the Accounts. In
connection with the foregoing, except as provided in Section 7.7, the Advisor
shall have no obligation, following any termination of this Agreement, to
maintain, correct or otherwise support any of the Advisor Software so licensed
to ELAS on behalf of the Accounts. "Advisor Software" shall mean the source code
and object code versions of the application, operating, reporting and other
software used by the Advisor in the performance of accounting, valuation,
reporting, treasury, data processing and computing and other services for ELAS
in respect of the Accounts under this Agreement. If ELAS wishes to exercise such
right, it shall give notice thereof promptly after notice of termination is
given under this Agreement and, upon receipt of such notice, the Advisor shall
promptly deliver to ELAS copies of the Advisor Software (other than the
Third-Party Software) in a form and medium reasonably acceptable to ELAS. Any
such license would be subject to obtaining required approvals, if any, from
third parties, which the Advisor will use its reasonable efforts (which shall
not include incurring additional cost on the part of the Advisor) to obtain.
With respect to any Advisor Software hereafter purchased or licensed by the
Advisor, the Advisor will use its reasonable efforts to negotiate terms which,
without additional cost to the Advisor, would permit the granting of the
foregoing license. In the event that the Advisor has not obtained the rights to
sublicense any Advisor Software to ELAS (such software, the "Third-Party
Software"), the Advisor shall use its reasonable efforts (which shall not
include incurring additional cost on the part of the Advisor) to assist ELAS in
obtaining licenses to such software directly from the relevant third parties,
which shall include providing to ELAS a list of all Third-Party Software used by
the Advisor in connection with the Accounts and waiving any of the Advisor's
rights of exclusivity that it may have with respect to its licensing of such
software.
(b) Upon termination of this Agreement for any reason, the Advisor shall
grant ELAS the license described in Section 7.8(a) without additional charge to
ELAS and ELAS shall be responsible for all license fees to be paid to third
parties for the Third-Party Software.
7.9 Deliveries and Retention of Records . The Advisor shall forthwith upon
any termination of this Agreement:
(a) as soon as practicable after such termination, pay over to ELAS all
monies held for the account of ELAS for the Accounts pursuant to this Agreement;
(b) as soon as practicable after such termination, deliver to ELAS a report
containing, among other things, a statement of Investments and properties
covered by this Agreement as of the date of termination and such other
information regarding such Investments and properties as ELAS may reasonably
request; and
<PAGE>
(c) retain, or, to the extent ELAS does not then possess such Investment
Information, deliver to ELAS or its designee all or such part thereof and at
such time or times as ELAS so requests, all Investment Information for seven
years after termination of this Agreement, provided that the Advisor shall have
the right, subject to Regulatory Requirements, to have such Investment
Information held in the custody of a responsible third party service provider,
and provided further that the Advisor or such third party service provider shall
give ELAS access to all Investment Information in accordance with the provisions
of Section 2.3 and ELAS or the Accounts shall reimburse the Advisor for its
reasonable costs incurred in retaining such records, including its costs for the
third party service provider.
7.10 Obligations that Survive Termination. The provisions of Section 4.4,
Article VI, this Article VII and Section 10.1 and each party's respective rights
to bring claims arising in connection with the statements and obligations set
forth in this Agreement shall survive the termination of this Agreement.
Article VIII
Notices
8.1 Notices. Any notice or other communication provided hereunder shall be
in writing and shall be delivered personally or by telefacsimile with confirmed
answerback or sent by certified, registered and return receipt requested mail or
by a nationally-recognized overnight courier, postage prepaid, and shall be
deemed given when so delivered personally or by telefacsimile with confirmed
answerback or sent by overnight mail or courier and three days after the date of
mailing if sent by certified or registered mail to the following addresses:
To ELAS:
The Equitable Life Assurance Society
of the United States
1290 Avenue of the Americas
New York, NY 10104
Attention: Chief Investment Officer
Fax No.:
with a copy to:
The Equitable Life Assurance Society
of the United States
1290 Avenue of the Americas
New York, NY 10104
Attention: Law Department
Counsel, Real Estate Law Group
Fax No.:
To the Advisor:
Equitable Real Estate Investment
Management, Inc.
3424 Peachtree Road, N.E.
Suite 800
Atlanta, GA 30326
Attention: Chairman and Chief Executive Officer
Fax No.:
with copies to:
Equitable Real Estate Investment
Management, Inc.
3424 Peachtree Road, N.E.
Suite 800
Atlanta, GA 30326
Attention: General Counsel
Fax No.:
and
[Neptune, Inc.]
Swiss Bank Tower
10 East 50th Street
New York, NY 10022
Attention: Chief Financial Officer
Fax No.:
Either party hereto may from time to time by notice in writing served upon
the other as aforesaid designate a different mailing address or telefacsimile
number or a different or additional person to which all such notices or demands
to that party thereafter are to be addressed.
<PAGE>
Article IX
Definitions
The following terms shall have the following meanings:
"Account Agreements" shall mean all group annuity contracts, funding or
other agreements evidencing the investment by any Account client in an Account,
all of which have been provided to the Advisor.
"Account client" shall mean a party which has invested in an Account
pursuant to an Account Agreement.
"Accounts" shall mean the insurance company separate accounts listed on
Schedule IX(a) attached hereto.
"Equities" shall mean equity real estate, joint venture or partnership or
other entity interests in equity real estate, in-substance equities and equities
in lieu, and notes (other than mortgage notes) from real estate joint venture
partnerships (and partners thereof) in which ELAS, on behalf of the Account, is
a partner, in each case held on behalf of the Account for investors.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"guidelines" shall mean guidelines, requirements and/or procedures mutually
established by ELAS and the Advisor.
"Investment Information" shall mean such books, records, data, information,
instruments, documents, files, reports, manuals, policies, guidelines and
procedures (including without limitation, computerized materials, as relate to
the Accounts, the Investments of the Accounts and the properties which are the
subject thereof and, to the extent prepared by the Advisor for ELAS in respect
of any Account, proposed Investments and the properties which are the subject
thereof. "Investment Information" shall not include any of the foregoing
prepared by the Advisor generally for use in its business or generally for use
by its clients.
"Investments" shall mean the Equities, Mortgages and Real Estate Securities
allocated to any Account on the date hereof, together with any Equities,
Mortgages and Real Estate Securities hereafter acquired by any Account.
"Mortgages" shall mean debt investments in the form of promissory notes
secured, with or without recourse, by security interests in real property or
partnership or other entity interests therein and participation interests in
loans secured by interests in real property or partnership or other entity
interests therein, excluding any such investments classified as equity property.
"Plans of Operation" shall mean all plans of operation relating to the
Accounts as currently in effect and as filed with the New York Insurance
Department and any amendments thereto (true and correct copies of which are
attached hereto as Exhibit IX(a)), and all other instruments, documents and
information relating to such plans of operation, all of which has been delivered
to the Advisor.
"Prime Property Fund" shall mean Separate Account No. 8 listed on Schedule
IX(a).
"property" shall mean, except where the context otherwise requires, each
individual parcel of real estate which is the subject of any Investment of an
Account.
"Purchase Agreement" shall mean the Purchase Agreement dated as of April 9,
1997 between The Equitable Life Assurance Society of the United States and Lend
Lease Corporation Limited.
"Real Estate Securities" shall mean real estate investment trusts, mortgage
backed securities, commercial mortgage backed securities (CMBS), interests in
pooled investment entities sponsored by a third party and marketed to
institutional investors and other forms of securities relating to or involving
real estate and mortgages.
"Regulatory Authority" shall mean any nation or government, any state,
county, municipality or other political subdivision thereof or any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government or any rating agency or entity which
sets accounting and/or reporting standards.
"Regulatory Requirement" shall mean any statute, law, rule, ruling, code,
ordinance, decision, official pronouncement, regulation, requirement, procedure,
permit, directive, decree, judgment or order of any Regulatory Authority now or
hereafter in effect, in each case, as and to the extent available in published
or other publicly available form, and, in each case, as amended from time to
time and any interpretation thereof published by any Regulatory Authority.
<PAGE>
Article X
Miscellaneous
10.1 Dispute Resolution; Arbitration. The Advisor and ELAS shall attempt
in good faith to resolve any dispute arising out of or relating to this
Agreement promptly by negotiation between executives who have authority to
settle the dispute and who are at a higher level of management than the persons
with direct responsibility for administration of this Agreement. All reasonable
requests for information by one party to the other will be honored and all
negotiations shall be confidential and treated as compromise and settlement
negotiations. If the dispute has not been resolved by negotiation within 20 days
after either party notifies the other in writing that a dispute exists, the
parties shall endeavor to settle the dispute by mediation under the then current
CPR Model Mediation Procedure for Business Disputes. The parties have selected
Mr. Blake Eagle of Massachusetts Institute of Technology as the mediator in any
such dispute and he has agreed to serve in that capacity. In the event that Mr.
Blake Eagle is unwilling or unable to serve, the parties have selected Mr. Peter
Linnemann of the Wharton School as an alternative mediator and he has agreed to
serve in that capacity. In the event that Mr. Peter Linnemann is unwilling or
unable to serve, the mediator shall be the most senior real property consultant
at Frank Russell and Associates at that time. In the event he/she is unwilling
or unable to serve, the mediator shall be a person of similar stature selected
by the CPR Institute for Dispute Resolution. If the dispute has not been
resolved by such mediation within 30 days following the submission of such
dispute to mediation, either party may submit such dispute to binding
arbitration under the Rules for Non-Administered Arbitration of Business
Disputes of the CPR Institute for Dispute Resolution, and judgment on the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof. In any such arbitration there shall be three arbitrators, each of whom
shall have experience in the real estate investment advisory industry, and the
arbitration shall take place in New York, New York.
10.2 Agreements of ELAS. (a) ELAS agrees and acknowledges that (i) the
Advisor makes no representation or warranty to ELAS as to the investment
performance of the Investments or any particular Investment, and (ii)
immediately following the execution and delivery hereof, the Advisor will not be
in breach of any of its duties or obligations hereunder. ELAS also agrees that
the Advisor shall be named as an additional insured under the liability
insurance maintained in respect of each property to the extent ELAS is able to
do so without additional cost to ELAS or the Account.
(b) Independent Fiduciary. At the request of the Advisor, ELAS agrees that,
when appropriate and consistent with its fiduciary duties under ERISA and other
applicable law, it will serve as "independent fiduciary" for the purpose of
reviewing and, if appropriate, approving transactions (such as transactions with
Lend Lease Corporation Limited and its affiliates) otherwise limited or
prohibited under ERISA. ELAS reserves the right to charge appropriate
compensation for its services.
(c) Modification of Exemption. ELAS shall cooperate in obtaining, at the
Advisor's expense, a modification of DOL Prohibited Transaction Exemption 91-8
relating to property management of separate account properties, or any successor
exemption issued to ELAS, necessary to extend the exemption to Lend Lease
Corporation Limited and its affiliates.
(d) Except as may be required by Regulatory Requirements, ELAS shall not
amend any Account Agreement or Plan of Operation without the prior written
approval of the Advisor, which shall not be unreasonably withheld. ELAS will use
its reasonable efforts to obtain approval of the New York Insurance Department
to any amendment to a Plan of Operation proposed by the Advisor (for which it
will be entitled to reimbursement for actual costs incurred by it (including
reimbursement of the reasonable costs of counsel at standard hourly rates)),
provided that such amendment does not violate any Regulatory Requirement or the
terms of any Account Agreement and that ELAS has approved such amendment in
writing, which approval shall not be unreasonably withheld. ELAS shall not be
required to approve any change which would increase the costs or materially
increase the burdens to ELAS or expose ELAS to any material increase in risks.
(e) Compliance with Applicable Law. ELAS shall comply with all applicable
Regulatory Requirements required on its part to be complied with in respect of
the Accounts and Account Agreements.
10.3 Entire Agreement. This Agreement contains the entire agreement between
the parties hereto with respect to the management of the Accounts which are the
subject matter hereof and supersedes all prior agreements, written and oral,
with respect thereto.
<PAGE>
10.4 Amendments and Waivers. This Agreement may be amended, modified,
superseded, canceled, renewed, extended or supplemented, and the terms and
conditions hereof may be waived, only by a written instrument signed by ELAS and
the Advisor or, in the case of a waiver, by the party waiving compliance,
provided that no such amendment, modification, renewal, extension or supplement
shall authorize or permit any assets of any Account to be used or directed to
purposes other than for the exclusive benefit of such Account and any such
amendment, modification, renewal, extension or supplement shall comply with all
applicable requirements of ERISA and the New York Insurance Law. No delay on the
part of either party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any waiver on the part of either party
of, or failure on the part of either party to exercise, any right, power or
privilege hereunder, nor any single or partial exercise of any right, power or
privilege hereunder, preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder.
10.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York as at the time in effect and,
to the extent of any federal preemption, the laws of the United States of
America.
10.6 Consent to Jurisdiction, etc. (a) Each of the parties hereto
acknowledges that mediation and arbitration under the provisions of Section 10.1
is intended to be the exclusive method for resolution of disputes arising under
this Agreement, and agrees that neither party to this Agreement shall commence
any action or proceeding in any court with respect to such dispute, except (i)
to enforce Section 10.1; (ii) to obtain provisional judicial assistance in aid
of arbitration under Section 10.1; or (iii) to enforce an arbitral award made
under Section 10.1. The provisions of Section 10.6(b) through 10.6(d) below and
of Section 10.7 shall be interpreted in a manner consistent with the parties'
acknowledgment and agreement set forth in the preceding sentence.
(b) Each of the parties hereto hereby irrevocably and unconditionally
submits, for itself and its property, to the exclusive jurisdiction of any New
York State court or Federal court of the United States of America sitting in New
York City, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State court or, to the extent permitted by law,
in such Federal court. Each of the parties hereto agrees that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law.
(c) Each of the parties hereto hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby in any New York State or Federal court. Each of
the parties hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of process
in any manner permitted by law at such party's address as set forth in Section
8.1.
10.7 Waiver of Punitive and Other Damages and Jury Trial. (a) THE PARTIES
TO THIS AGREEMENT EXPRESSLY WAIVE AND FOREGO ANY RIGHT TO RECOVER PUNITIVE,
EXEMPLARY, LOST PROFITS, CONSEQUENTIAL OR SIMILAR DAMAGES IN ANY ARBITRATION,
LAWSUIT, LITIGATION OR PROCEEDING ARISING OUT OF OR RESULTING FROM ANY
CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(c) EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT
OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER
OF THE FOREGOING WAIVERS, (ii) IT UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF SUCH WAIVERS, (iii) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (iv)
IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.7.
<PAGE>
10.8 Interpretation. This Agreement has been negotiated at arm's length
and between persons sophisticated and knowledgeable in the matters dealt with in
this Agreement and each party has been represented by experienced and
knowledgeable legal counsel. Accordingly, any rule of law or legal decisions
that would require interpretation of any ambiguities in this Agreement against
the party that has drafted it shall not be applicable and are hereby waived. The
provisions of this Agreement shall be interpreted in a reasonable manner to
effectuate the purpose of the parties and this Agreement. In the event of any
material conflict between the services stated to be performed by the Advisor
under this Agreement, and those required under a relevant Account Agreement,
said Account Agreement shall control.
10.9 Cumulative Remedies. The rights and remedies herein provided are
cumulative and not exclusive of any rights or remedies which either party may
have hereunder or otherwise at law or in equity.
10.10 Binding Effect. This Agreement and the rights, covenants, conditions
and obligations of the respective parties hereto and any instrument or agreement
executed pursuant hereto shall be binding upon the parties and their respective
successors and assigns.
10.11 Further Assurances. Each of the parties hereto shall execute such
further documents and other papers and perform such further acts as may be
reasonably required or desirable to carry out the provisions hereof.
10.12 Publicity. No publicity release, public statement or announcement
concerning this Agreement or any Account or any Investment or any property or
any proposed Investment or property which is the subject thereof or any aspect
hereof or thereof or the transactions or Investments contemplated hereby shall
be issued by the Advisor or any affiliate of the Advisor without the prior
written approval of the form and substance thereof by ELAS, which approval shall
not be unreasonably withheld, nor shall any such publicity release, public
statement or announcement which names or otherwise refers to the Advisor be
issued by ELAS or any affiliate of ELAS without the prior written approval of
the form and substance thereof by the Advisor.
10.13 Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed an original, but both of which together shall
constitute one and the same instrument.
10.14 Section Headings. The section headings of this Agreement are for
convenience of reference only and shall not be deemed to alter or affect any
provision hereof.
10.15 Severability. Should one or more provisions of this Agreement be held
by any court to be invalid, void or unenforceable, the remaining provisions
shall nevertheless continue in full force.
10.16 No Third Party Rights. By execution of this Agreement ELAS and the
Advisor do not intend to create any rights of any kind in any third parties and
nothing in this Agreement shall confer any rights upon any person or entity
which is not a party or a successor or a permitted assignee of a party to this
Agreement.
10.17 Successors and Assigns. This Agreement shall inure to the benefit of
the parties hereto and their respective successors and assigns to the extent
permitted by Section 4.3.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their indicated officers thereunto duly authorized, as of the day
and year first above written.
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By
Name:
Title: Executive Vice
President and Chief
Investment Officer
EQUITABLE REAL ESTATE
INVESTMENT MANAGEMENT, INC.
By
Name:
Title: Senior Executive
Vice President
<PAGE>
LEND LEASE CORPORATION LIMITED has caused this Agreement to be executed by its
indicated officer thereunto duly authorized, as of the day and year first above
written, in order to establish and confirm its agreement to provide the
indemnification and contribution set forth in Sections 6.1 and 6.6 of this
Agreement in accordance with the terms of this Agreement, including without
limitation, Article VI and Sections 10.6 and 10.7.
LEND LEASE CORPORATION LIMITED
By
Name:
Title:
<PAGE>
Exhibit B-4 to Purchase Agreement
Equitable Life Real Estate Separate Accounts
I. Pooled Separate Accounts
Separate Account No. 8 Prime Property Fund
Separate Account No. 16-I New Properties Fund (inactive; all
properties sold)
Separate Account No. 16-II Asset Enhancement Fund
Separate Account No. 16-III Value Enhancement Fund
Separate Account No. 16-IV Hawaiian Properties Fund (inactive;
all properties sold)
Separate Account No. 16-V Select Properties Fund I
Separate Account No. 16-VI Gatehouse Apartments Fund (inactive;
all properties sold)
Separate Account No. 16-VII Select Properties Fund II
Separate Account No. 30 Association Plans Real Estate Fund
Separate Account No. 31 PREFER
Separate Account No. 35 Short-Term Fund
Separate Account No. 41 Equitable Agricultural Properties Fund
Separate Account No. 62-I Core Mortgage Fund
Separate Account No. 62-II California Community Mortgage Fund
Separate Account No. 63 Community Works Fund
II. Single Customer Separate Accounts
Separate Account No. 136 - IBM
Separate Account No. 141 - IBM
Separate Account No. 143 - IBM (inactive)
Separate Account No. 149 - IBM
Separate Account No. 174 - IBM
April 24, 1996
Mr. Stanley B. Tulin
717 Spring Mill Road
Villanova, PA 19087
Dear Stan:
This letter sets forth the terms of your employment by Equitable Life Assurance
Society ("Equitable") commencing on June 1, 1996. (If your employment commences
at an earlier date, appropriate adjustments will be made to the terms of this
letter.) Your title will be Senior Executive Vice President and your principal
responsibilities will be for financial, actuarial and corporate development
activities. You will report directly to me.
1. Sign on Bonus: $250,000 payable within ten days of when you commence.
2. Stock Options: Options to acquire 100,000 shares of The Equitable
Companies Inc. common stock under the Equitable Stock Option Plan. The grant
date will be June 1, 1996 or as soon thereafter as permitted by the Plan. The
options will vest at the rate of 20% per year with the initial vesting date
being one year from the date of the grant. The options will expire if not
exercised ten years from the date of the grant. The terms and conditions of your
participation in the Equitable Stock Option Plan are governed by that Plan. In
addition, if Equitable seeks and receives approval from the New York Insurance
Department and increases the number of authorized shares under the Stock Option
Plan, you will be granted additional options commensurate with your position as
a senior executive officer subject to the terms and conditions applicable to
options granted at that time under the Plan.
3. Base Salary: $350,000 per year payable in equal bi-weekly installments.
Your base salary, prorated for seven months in 1996, will be guaranteed for
1996, 1997 and 1998.
4. Short Term Incentive Compensation: You will participate in Equitable's
Short Term Incentive Compensation Plan. You will be allocated 500 units in the
Plan for 1997; 550 units in the Plan for 1998; and 600 units in the Plan for
1999. Your targeted payouts under the Plan for the 1997, 1998 and 1999 Plan
years will be $1,200,000, $1,400,000 and $1,600,000, respectively. Payouts under
the Plan are made early in the year following the Plan year. You will be
guaranteed for Plan years 1996, 1997 and 1998, payouts of $600,000, $1,000,000,
and $1,000,000, respectively.
5. Long Term Incentive Compensation: You will participate in Equitable's
Long Term Incentive Compensation Plan. Your targeted payouts under the Plan for
1997, 1998 and 1999 will be in the range of $400,000 - $500,000, $400,000 -
$600,000, and $400,000 - $700,000, respectively.
6. Benefts: You will be entitled to participate in all of Equitable's
welfare and retirement benefit plans and deferred compensation plans, including
the Executive Survivor Income Benefit Plan and the Variable Deferred
Compensation Plan for Executives subject to their terms and conditions. Should
your employment with Equitable terminate prior to attaining the five-year
vesting requirement in Equitable's Retirement Plan for Employees, Managers and
Agents, Equitable will provide a supplementary executive retirement plan for you
containing the equivalent of your benefits accrued under the Plan at the time of
the termination of employment.
7. Severance: You will be covered by Equitable's Severance Benefit Plan for
Job Abolishment for Senior Officers. The severance benefit provided under the
Plan has two components: a year of the executive's then base salary and the
executive's last short term incentive compensation payment (or the average of
the executive's last three short term incentive compensation payments if that
produces a higher amount). The Plan benefit will be offset by any remaining
guaranteed payments provided under paragraphs 3 and 4 of this letter.
<PAGE>
8. Employment at Will: Your employment is on an at-will basis and is not
for a definite period, provided, however, that the guaranteed payments provided
under paragraphs 3 and 4 of this letter will be paid to you in all events other
than the voluntary termination of your employment or the termination of your
employment for willful misconduct. Any disputes between you and Equitable will
be resolved in accordance with Equitable's Procedure for Resolving Work Related
Disputes.
9. Governing Law: The terms of this letter will be governed by the laws of
the State of New York.
I am pleased that you have agreed to join us in this challenging assignment. and
look forward to working with you.
Sincerely,
/s/James M. Benson
--------------------
President and CEO
Accepted by: /s/Stanley B. Tulin
-------------------
Date: April 24, 1996
March 26, 1997
Dear Jim:
This is to set forth the terms of your separation from Equitable as President
and a Director which will be effective May 1, 1997. From the date of this letter
through May 1, 1997, you agree to assist us to effect an orderly transition. You
also agree to resign as an officer or a director from all Equitable affiliates
effective May 1, 1997.
You will receive two years' separation pay in the amount of $5,200,000 which
will be payable in a lump sum no later than March 28, 1997 subject to
appropriate tax withholdings and deductions for benefit plans. The separation
pay will be taken into account in all applicable Equitable benefit plans and
programs. From May 1, 1997 to April 30, 1999, you will continue to participate
in all Equitable's benefit plans and programs in which you currently participate
except for Equitable's short and long term disability plans subject to any
future changes in those plans which are generally applicable to participants.
You will continue to vest in your options under the Equitable Companies
Incorporated Stock Option Plan through April 30, 1999. You will no longer be
eligible to participate in Equitable's Short Term or Long Term Incentive
Compensation Plans.
We agree not to make any statement or take any action which disparages you. You
agree not to make any statement or take any action which disparages Equitable or
any of its subsidiaries or affiliates. or any individual employed by, or
associated with, any of them.
You agree not to disclose any confidential or proprietary information pertaining
to the business of Equitable, or any Equitable subsidiary or affiliate, obtained
during your employment with Equitable.
You agree during the period May 1, 1997 to April 30, 1998 not to induce or
endeavor to induce any officer, manager, employee or agent of Equitable to
terminate employment or association with Equitable in order to become employed
by or associated with another entity or individual.
Please indicate your acceptance of the terms of this letter by executing the
copy enclosed and returning it to me.
Sincerely,
/s/Joseph J. Melone
--------------------
Joseph J. Melone
President and Chief
Executive Officer
Accepted and Agreed:
/s/James M. Benson
- --------------------
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 18,164,700
<DEBT-CARRYING-VALUE> 169,400
<DEBT-MARKET-VALUE> 183,600
<EQUITIES> 823,800
<MORTGAGE> 2,958,800
<REAL-ESTATE> 3,317,900
<TOTAL-INVEST> 71,393,600
<CASH> 1,091,700
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 3,228,000
<TOTAL-ASSETS> 139,601,800
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 4,476,000
<POLICY-HOLDER-FUNDS> 21,828,100
<NOTES-PAYABLE> 6,740,800
0
404,600
<COMMON> 1,900
<OTHER-SE> 3,478,600
<TOTAL-LIABILITY-AND-EQUITY> 139,601,800
382,300
<INVESTMENT-INCOME> 872,000
<INVESTMENT-GAINS> 178,000
<OTHER-INCOME> 804,300
<BENEFITS> 254,900
<UNDERWRITING-AMORTIZATION> 72,400
<UNDERWRITING-OTHER> 1,320,300
<INCOME-PRETAX> 276,100
<INCOME-TAX> 87,400
<INCOME-CONTINUING> 139,300
<DISCONTINUED> (3,300)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 136,000
<EPS-PRIMARY> 0.68
<EPS-DILUTED> 0.62
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
