Document:

exv10w2

 

Exhibit 10.2

Wachovia Capital Markets, LLC

201 South College Street

Charlotte, NC 28288

Attention: Equity Derivatives

Telephone No.: 212 214 6100

Facsimile No.: 212 214 5913

To: First Potomac Realty Investment Limited Partnership

ATTN: Barry H. Bass

7600 Wisconsin Ave, 11th Floor

Bethesda, MD 20814

Telephone: 301-986-9200

Fax: 301-986-5554

Re: Call Option Transaction

     The purpose of this letter agreement is to confirm the terms and conditions of the call option
entered into between Wachovia Bank, National Association, (“Wachovia"), acting through the agency
of Wachovia Capital Markets, LLC (the “Agent"), First Potomac Realty Investment Limited
Partnership, a Delaware limited partnership (“Counterparty") and First Potomac Realty Trust, a
Maryland real estate investment trust (“Parent") on the Trade Date specified below (the
“Transaction"). This letter agreement constitutes a “Confirmation” as referred to in the ISDA
Master Agreement specified below. This Confirmation shall replace any previous letter and serve as
the final documentation for this Transaction.

     The definitions and provisions contained in the 2002 ISDA Equity Derivatives Definitions (the
“Equity Definitions"), as published by the International Swaps and Derivatives Association, Inc.
(“ISDA”), are incorporated into this Confirmation. In the event of any inconsistency between the
Equity Definitions and this Confirmation, this Confirmation shall govern. Certain defined terms
used herein have the meanings assigned to them in the Indenture to be dated December 11, 2006
between Counterparty, Parent, as guarantor, and Wells Fargo Bank, National Association, as trustee
(the “Indenture") relating to the USD110,000,000 principal amount of 4.0% Exchangeable Senior
Notes due 2011, (the “Exchangeable Notes” and each USD 1,000 principal amount of Exchangeable
Notes, an “Exchangeable Note") issued by Counterparty pursuant to the Indenture and guaranteed by
Parent. In the event of any inconsistency between the terms defined in the Offering Memorandum
(as defined below), the Indenture and this Confirmation, this Confirmation shall govern. If any
relevant sections of the Indenture are changed, added or renumbered following execution of this
Confirmation, the parties will amend this Confirmation in good faith to preserve the economic
intent of the parties.

     Each party is hereby advised, and each such party acknowledges, that the other party has
engaged in, or refrained from engaging in, substantial financial transactions and has taken other
material actions in reliance upon the parties’ entry into the Transaction to which this
Confirmation relates on the terms and conditions set forth below.

1. This Confirmation evidences a complete and binding agreement between Wachovia, Counterparty and
Parent as to the terms of the Transaction to which this Confirmation relates. This Confirmation
shall supplement, form a part of, and be subject to an agreement in the form of the 2002 ISDA
Master Agreement (the “Agreement") as if Wachovia and Counterparty had executed an agreement in
such form (but without any Schedule except for the election of (i) the laws of the State of New
York as the governing law and (ii) United States dollars as the Termination Currency) on the Trade
Date. In the event of any inconsistency between provisions of that Agreement and this
Confirmation, this Confirmation will prevail for the purpose of the Transaction to which this
Confirmation relates. The parties hereby agree that no Transaction other than the Transaction to
which this Confirmation relates shall be governed by the Agreement.

 

 

2. The terms of the particular Transaction to which this Confirmation relates are as follows:

	 	 	 	 	 
	General Terms:	 	 
	 
	 	 	 	 
	 

	 	Trade Date:
	 	December 5, 2006
	 
	 	 	 	 
	 

	 	Option Style:
	 	“Modified American”, as set forth under “Exercise and Valuation” below
	 
	 	 	 	 
	 

	 	Option Type:
	 	Call
	 
	 	 	 	 
	 

	 	Buyer:
	 	Counterparty
	 
	 	 	 	 
	 

	 	Seller:
	 	Wachovia
	 
	 	 	 	 
	 

	 	Shares:
	 	The common stock of Parent, par value USD 0.001 per share (Exchange symbol “FPO”)
	 
	 	 	 	 
	 

	 	Number of Options:
	 	110,000. For the avoidance of doubt, the Number of Options shall be
reduced by any Options exercised by Counterparty. In no event will the Number of
Options be less than zero.
	 
	 	 	 	 
	 

	 	Option Entitlement:
	 	As of any date, a number equal to the Exchange Rate as of such date (as
defined in the Indenture, but without regard to any adjustments to the Exchange Rate
pursuant to Section 4.06(c) or Section 4.01(g) of the Indenture), for each Exchangeable
Note.
	 
	 	 	 	 
	 

	 	Strike Price:
	 	$36.12
	 
	 	 	 	 
	 

	 	Cap Price:
	 	$42.14
	 
	 	 	 	 
	 

	 	Premium:
	 	$6,747,400
	 
	 	 	 	 
	 

	 	Premium Payment Date:
	 	December 11, 2006
	 
	 	 	 	 
	 

	 	Exchange:
	 	The New York Stock Exchange
	 
	 	 	 	 
	 

	 	Related Exchange(s):
	 	The principal exchange(s) for options contracts or futures contracts,
if any, with respect to the Shares
	 
	 	 	 	 
	Exercise and Valuation:	 	 
	 
	 	 	 	 
	 

	 	Exercise Period(s):
	 	Notwithstanding the Equity Definitions, the Exercise Period shall be, in
respect of the Exercisable Options (as defined below), each period commencing from, and
including, the relevant Exchange Date (as defined below) to, and including, the Valid
Day immediately preceding the first day of the relevant Settlement Averaging Period.

2

 

	 	 	 	 	 
	 

	 	Exchange Date:
	 	With respect to any exchange of
Exchangeable Notes pursuant to the terms of the
Indenture, the date on which the Holder (as such term is
defined in the Indenture) of such Exchangeable Notes
satisfies all of the requirements for exchange thereof as
set forth in Section 4.02 of the Indenture.
	 
	 	 	 	 
	 

	 	Exercisable Options:
	 	In respect of each Exercise Period, a number of Options equal to the
number of USD 1,000 principal amount of Exchangeable Notes surrendered for exchange.
	 
	 	 	 	 
	 

	 	Expiration Time:
	 	The Valuation Time
	 
	 	 	 	 
	 

	 	Expiration Date:
	 	The earlier of (i) the maturity date of the Exchangeable Notes, (ii) the
first day on which none of such Exchangeable Notes remain outstanding, whether by
virtue of exchange, issuer repurchase or otherwise and (iii) the occurrence of an
Additional Termination Event hereunder in respect of the termination of the Transaction
in whole but not in part.
	 
	 	 	 	 
	 

	 	Multiple Exercise:
	 	Applicable, as described under Exercisable Options above.
	 
	 	 	 	 
	 

	 	Automatic Exercise:
	 	Applicable; and means that in respect of an Exercise Period, a number of
Options not previously exercised hereunder equal to the Exercisable Options shall be
deemed to be exercised on the Expiration Date for such Exercisable Options; provided
that such Options shall be deemed exercised only to the extent that Counterparty has
provided a Notice of Exercise to Wachovia.
	 
	 	 	 	 
	 

	 	Notice of Exercise:
	 	Notwithstanding anything to the contrary in the Equity Definitions, in
order to exercise any Exercisable Options, Counterparty must notify Wachovia (in
writing or orally) at least two Valid Days prior to the first day of the Settlement
Averaging Period for the Exercisable Options being exercised of (i) the number of such
Options, (ii) the relevant Exchange Date, (iii) the first day of the Settlement
Averaging Period and (iv) the Settlement Date. Counterparty will execute and deliver
to Wachovia a written confirmation confirming the substance of any oral notice within
one Scheduled Trading Day of that notice. Without limiting the obligation of
Counterparty to provide such written confirmation, failure by Counterparty to provide
it will not affect the validity of the oral notice.
	 
	 	 	 	 
	 

	 	Valuation Time:
	 	At the close of trading of the regular trading session on
the Exchange; provided that if the principal trading
session is extended, the Calculation Agent shall
determine the Valuation Time in its reasonable
discretion.
	 
	 	 	 	 
	Settlement Terms:	 	 
	 
	 	 	 	 
	 

	 	Settlement Method:
	 	Net Share Settlement
	 
	 	 	 	 
	 

	 	Net Share Settlement:
	 	Wachovia will deliver to Counterparty, on the Settlement
Date, a number of Shares equal to the Net Shares in respect of an Option exercise. In
no event will the Net Shares be less than zero.

3

 

	 	 	 	 	 
	 

	 	Net Shares:
	 	In respect of any Option exercised or deemed exercised, for each Option
a number of Shares equal to (i) the Option Entitlement multiplied by (ii) the sum of
the quotients, for each Valid Day during the Settlement Averaging Period for such
Option, of (A) (1) the amount by which the Cap Price exceeds the Strike Price, if the
Relevant Price on such Valid Day is equal to or greater than the Cap Price; (2) the
amount by which the Relevant Price exceeds the Strike Price, if the Relevant Price on
such Valid Day is equal to or greater than the Strike Price but less than the Cap Price
or (3) zero, if the Relevant Price is less than the Strike Price; divided by (B) the
Relevant Price on such Valid Day, divided by (iii) the number of Valid Days in the
Settlement Averaging Period.
	 
	 	 	 	 
	 

	 	 	 	Wachovia will deliver cash in lieu of any fractional
Shares to be delivered with respect to any Net Shares to
be delivered hereunder valued at the Relevant Price on
the last Valid Day of the Settlement Averaging Period.
	 
	 	 	 	 
	 

	 	Valid Day:
	 	A day during which trading in securities generally occurs on the Exchange
or, if the Shares are not then listed on the Exchange, on the principal other United
States national or regional securities exchange on which the Shares are then listed or,
if the Shares are not then listed on a United States national or regional securities
exchange, in the principal other market on which the Shares are then traded. A “Valid
Day” only includes those days that have a scheduled closing time of 4:00 p.m. (New York
City time) or the then standard closing time for regular trading on the relevant
exchange or trading system.
	 
	 	 	 	 
	 

	 	Relevant Price:
	 	In respect of any Option exercised or deemed exercised and for each of the
twenty (20) consecutive Valid Days during the Settlement Averaging Period for such
Option, the closing sale price per Share (or, if no closing sale price is reported, the
average of the closing bid and ask prices or, if more than one in either case, the
average of the average closing bid and the average closing ask prices) on such Valid
Day as reported on the principal U.S. national or regional securities exchange on which
the Shares are listed or, if the Shares are not listed on a U.S. national or regional
securities exchange, as reported on another established over the counter trading market
in the United States. The Relevant Price shall be determined without regard to after
hours trading or extended market making. In the absence of the foregoing, the
Calculation Agent shall determine the Relevant Price on such basis as it considers
appropriate.
	 
	 	 	 	 
	 

	 	Settlement Averaging Period:
	 	For any Exercisable Options relating to the exchange of
Exchangeable Notes, the twenty (20) consecutive Valid-Day period commencing on the
third Valid Day following the Exchange Date.
	 
	 	 	 	 
	 

	 	Settlement Date:
	 	For any Exercisable Options relating to the exchange of the Exchangeable
Notes, the settlement date for Shares to be delivered under such Exchangeable Notes,
under the terms of the Indenture.
	 
	 	 	 	 
	 

	 	Other Applicable Provisions:
	 	To the extent Wachovia is obligated to deliver Shares
hereunder,

4

 

	 	 	 	 	 
	 

	 	 	 	the provisions of Sections 9.1(c), 9.8, 9.9, 9.10, 9.11
and 9.12 of the Equity Definitions will be applicable,
except that all references in such provisions to
“Physically-Settled” shall be read as references to “Net
Share Settled”; and provided that the Representation and
Agreement contained in Section 9.11 of the Equity
Definitions shall be modified by excluding any
representations therein relating to restrictions,
obligations, limitations or requirements under applicable
securities laws as a result of the fact that Parent is
the issuer of the Shares. “Net Share Settled” in
relation to any Exercisable Options means that Wachovia
is obligated to deliver Shares as required by the terms
hereof.
	 
	 	 	 	 
	 

	 	Representation and Agreement:
	 	Notwithstanding Section 9.11 of the Equity Definitions, the
parties acknowledge that any Shares delivered to Counterparty shall be, upon delivery,
subject to restrictions and limitations arising from Counterparty’s status under
applicable securities laws and Parent’s Articles of Amendment and Restatement, as
amended from time to time (the “Charter").
	3. Additional Terms applicable to the Transaction:
	 
	 	 	 	 
	   Adjustments applicable to
the Transaction:	 	 
	 
	 	 	 	 
	 

	 	Potential Adjustment Events:
	 	Notwithstanding Section 11.2 (e) of the Equity Definitions, a
“Potential Adjustment Event” means any occurrence of any event or condition, as set
forth in Section 4.06 of the Indenture that would result in an adjustment to the
Exchange Rate of the Exchangeable Notes; provided that in no event shall there be any
adjustment hereunder as a result of an adjustment to the Exchange Rate pursuant to
Section 4.06(c) or Section 4.01(g) of the Indenture.
	 
	 	 	 	 
	 

	 	Method of Adjustment:
	 	Calculation Agent Adjustment; provided, however, (i) upon any
adjustment to the Exchange Rate of the Exchangeable Notes pursuant to the Indenture
(other than Section 4.06(c) or Section 4.01(g) of the Indenture), the Calculation Agent
shall make a corresponding adjustment to any of the Strike Price, Number of Options and
the Option Entitlement, and (ii) upon any Potential Adjustment Event, the Calculation
Agent may make any adjustment consistent with the Calculation Agent Adjustment set
forth in Section 11.2(c) of the Equity Definitions to the Cap Price or any other
variable relevant to the exercise, settlement or payment for the Transaction; provided
further that any adjustment to the Cap Price shall, in no event, result in the Cap
Price being less than the Strike Price.
	 
	 	 	 	 
	Extraordinary Events applicable to the Transaction:
	 
	 	 	 	 
	 

	 	Merger Events:
	 	Notwithstanding Section 12.1(b) of the Equity Definitions, a “Merger Event”
means the occurrence of any event or condition set forth in Section 3.01 of the
Indenture.
	 
	 	 	 	 
	 

	 	Consequence of Merger Events:
	 	Modified Calculation Agent Adjustment; provided, however, upon
the occurrence of a Merger Event:

5

 

	 	 	 	 	 
	 

	 	 	 	(i) the Calculation Agent shall make a corresponding
adjustment in respect of any adjustment under the
Indenture to any one or more of the nature of the Shares,
Strike Price, Number of Options and the Option
Entitlement. Such adjustment shall be made without
regard to any adjustment to the Exchange Rate for the
issuance of additional shares as set forth in Section
4.06(c) or Section 4.01(g) of the Indenture; and
	 
	 	 	 	 
	 

	 	 	 	(ii) the Calculation Agent may make any adjustment
consistent with the Modified Calculation Agent Adjustment
set forth in Section 12.2(e) of the Equity Definitions to
the Cap Price or any other variable relevant to the
exercise, settlement or payment for the Transaction
provided that any adjustment to the Cap Price shall, in
no event, result in the Cap Price being less than the
Strike Price.
	 
	 	 	 	 
	 

	 	Tender Offer:
	 	Applicable
	 
	 	 	 	 
	 

	 	Consequences of Tender Offers:
	 	Modified Calculation Agent Adjustment; provided, however:
	 
	 	 	 	 
	 

	 	 	 	(i) the Calculation Agent shall make a corresponding
adjustment in respect of any adjustment under the
Indenture to any one or more of the nature of the Shares,
Strike Price, Number of Options and the Option
Entitlement. Such adjustment shall be made without
regard to any adjustment to the Exchange Rate for the
issuance of additional shares as set forth in Section
4.06(c) or Section 4.01(g) of the Indenture; and
	 
	 	 	 	 
	 

	 	 	 	(ii) the Calculation Agent may make any adjustment
consistent with the Modified Calculation Agent Adjustment
set forth in Section 12.3(d) of the Equity Definitions to
the Cap Price or any other variable relevant to the
exercise, settlement or payment for the Transaction
provided that any adjustment to the Cap Price shall, in
no event, result in the Cap Price being less than the
Strike Price.
	 
	 	 	 	 
	 

	 	Nationalization, Insolvency

or Delisting:
	 	Cancellation and Payment (Calculation Agent Determination); provided
that in addition to the provisions of Section 12.6(a)(iii) of the Equity Definitions,
it will also constitute a Delisting if the Exchange is located in the United States and
the Shares are not immediately re-listed, re-traded or re-quoted on any of the New York
Stock Exchange, the American Stock Exchange or the NASDAQ National Market System (or
their respective successors); if the Shares are immediately re-listed, re-traded or
re-quoted on any such exchange or quotation system, such exchange or quotation system
shall thereafter be deemed to be the Exchange and a Delisting shall be deemed not to
have occurred.
	 
	 	 	 	 
	 

	 	Additional Disruption Events:	 	 
	 
	 	 	 	 
	 

	 	     (a) Change in Law:
	 	Applicable
	 
	 	 	 	 
	 

	 	     (b) Failure to Deliver:
	 	Applicable
	 
	 	 	 	 
	 

	 	     (c) Insolvency Filing:
	 	Applicable
	 
	 	 	 	 
	 

	 	     (d) Hedging Disruption:
	 	Applicable

6

 

	 	 	 	 	 
	 

	 	     (e) Increased Cost
of Hedging:
	 	Not Applicable
	 
	 	 	 	 
	 

	 	     (f) Loss of Stock Borrow:
	 	Not Applicable
	 
	 	 	 	 
	 

	 	     (g) Increased Cost of
Stock Borrow:  
	 	Not Applicable
	 
	 	 	 	 
	 

	 	Hedging Party:
	 	Wachovia
	 
	 	 	 	 
	 

	 	Determining Party:
	 	Wachovia
	 
	 	 	 	 
	 

	 	Non-Reliance:
	 	Applicable
	 
	 	 	 	 
	 

	 	Agreements and Acknowledgments	 	 
	 

	 	Regarding Hedging Activities:
	 	Applicable
	 
	 	 	 	 
	 

	 	Additional Acknowledgments:
	 	Applicable

4. Calculation Agent: Wachovia

5. Account Details:

	 	(a)	 	Account for payments to Counterparty:

BANK:

UNITED BANK

7250 WISCONSIN AVENUE

BETHESDA, MARYLAND 20814

BENEFICIARY:

FIRST POTOMAC REALTY INVESTMENT, LP

MONEY MARKET ACCOUNT

ACCOUNT
NUMBER: 0500006549

ABA NUMBER: 056004445

REFERENCE: Re: Capped Call

Account for delivery of Shares to Counterparty:

American Stock Transfer & Trust Company

6201 15th Avenue

Brooklyn, NY 11219

Contact: Marianella Patterson

(718) 921-8360

	 	(b)	 	Account for payments to Wachovia:

ABA: 053-000-219

Wachovia Bank, National Association

Charlotte, NC

Account: 04659360009768

Attn: Equity Derivatives

Account for delivery of Shares from Wachovia:

DTC Number: 2072

Agent ID: 52196

Institution ID: 52196

7

 

6. Offices:

The Office of Counterparty for the Transaction is: Inapplicable, Counterparty is not a Multibranch
Party.

The Office of Wachovia for the Transaction is: New York

Wachovia Bank, National Association

375 Park Avenue

New York, NY 10152

7. Notices: For purposes of this Confirmation:

	 	(a)	 	Address for notices or communications to Counterparty and Parent:

First Potomac Realty Investment Limited Partnership

ATTN: Barry H. Bass

7600 Wisconsin Ave, 11th Floor

Bethesda, MD 20814

Telephone: 301-986-9200

Fax: 301-986-5554

	 	(b)	 	Address for notices or communications to Wachovia:

Wachovia Bank, National Association

375 Park Avenue

New York, NY 10152

Attention: Head of Documentation,

Telephone No.: 212-214-6100

Facsimile No.: 212-214-5913

8. Representations and Warranties of Counterparty and
Parent

The representations and warranties of Counterparty and Parent set forth in Section 2 of the
Purchase Agreement (the “Purchase Agreement”) dated as of December 5, 2006 among Counterparty,
Parent and Wachovia Capital Markets, LLC, as representative of the Initial Purchasers named
therein, are true and correct and are hereby deemed to be repeated to Wachovia as if set forth
herein. Each of Counterparty and Parent hereby further represents and warrants to and for the
benefit of, and agrees with, Wachovia as of the date hereof that:

	 	(a)	 	Each of Parent and Counterparty has all necessary corporate power and authority
to execute, deliver and perform its obligations in respect of this Transaction; such
execution, delivery and performance have been duly authorized by all necessary
corporate action on Counterparty’s and Parent’s part; and this Confirmation has been
duly and validly executed and delivered by each of Parent and Counterparty and
constitutes its valid and binding obligation, enforceable against Counterparty or
Parent in accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’
rights and remedies generally, and subject, as to enforceability, to general principles
of equity, including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or in
equity) and except that rights to indemnification and contribution hereunder may be
limited by federal or state securities laws or public policy relating thereto.

8

 

	 	(b)	 	Neither the execution and delivery of this Confirmation nor the incurrence or
performance of obligations of Counterparty or Parent hereunder will conflict with or
result in a breach of the certificate of incorporation or by-laws (or any equivalent
documents) of Counterparty or Parent, any applicable law or regulation, or any order,
writ, injunction or decree of any court or governmental authority or agency, or any
agreement or instrument to which Counterparty, Parent or any of its subsidiaries is a
party or by which Counterparty, Parent or any of its
subsidiaries is bound or to which Counterparty, Parent or any of its subsidiaries is
subject, or constitute a default under, or result in the creation of any lien under,
any such agreement or instrument, or breach or constitute a default under any
agreements and contracts of Counterparty and the significant subsidiaries filed as
exhibits to Counterparty’s Annual Report on Form 10-K for the year ended December
31, 2005, incorporated by reference in the Offering Memorandum dated December 5,
2006 (the “Offering Memorandum”) relating to the Exchangeable Notes, except for
liens the imposition of which would not have a material adverse effect on the
ability of the Counterparty or Parent, as applicable, to perform then-respective
obligations under this Transaction.
	 
	 	(c)	 	No consent, approval, authorization, or order of, or filing with, any
governmental agency or body or any court is required in connection with the execution,
delivery or performance by Counterparty or Parent of this Confirmation, except such as
have been obtained or made and such as may be required under the Securities Act of
1933, as amended (the “Securities Act”) or state securities laws.
	 
	 	(d)	 	Counterparty is an “eligible contract participant” (as such term is defined in
Section 1a(12) of the Commodity Exchange Act, as amended (the “CEA”) because one or
more of the following is true:
	 
	 	 	 	It is a corporation, partnership, proprietorship, organization, trust or other entity and:

	 	(A)	 	Counterparty has total assets in excess of $10,000,000;
	 
	 	(B)	 	the obligations of Counterparty hereunder are guaranteed, or
otherwise supported by a letter of credit or keep well, support or other
agreement, by an entity of the type described in Section la(12)(A)(i) through
(iv), la(12)(A)(v)(I), la(12)(A)(vii) or la(12)(C) of the CEA; or
	 
	 	(C)	 	Counterparty has a net worth in excess of $1,000,000 and has
entered into this Agreement in connection with the conduct of Counterparty’s
business or to manage the risk associated with an asset or liability owned or
incurred or reasonably likely to be owned or incurred by Counterparty in the
conduct of Counterparty’s business.

	 	(e)	 	Each of it and its affiliates is not, on the date hereof, in possession of any
material non- public information with respect to Counterparty, Parent or the Shares.
	 
	 	(f)	 	Parent hereby acknowledges and agrees that ownership positions held by Wachovia
or any of its affiliates solely in its capacity as a nominee or fiduciary do not
constitute beneficial ownership (as such term is referred to in the Charter) by
Wachovia.
	 
	 	(g)	 	On the Trade Date, all reports and other documents filed by Parent with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) when considered as a whole (with the more recent such
reports and documents deemed to amend inconsistent statements contained in any earlier
such reports and documents), do not contain any untrue statement of a material fact or
any omission of a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances in which they were made, not
misleading.
	 
	 	(h)	 	On the Trade Date, the Shares or securities that are convertible into, or
exchangeable or exercisable for Shares, are not, and shall not be, subject to a
“restricted period,” as such term is defined in Regulation M under the Exchange Act
(“Regulation M”).

9

 

	 	(i)	 	On each day from the Trade Date to and including December 12, 2006, neither
Counterparty nor Parent nor any “affiliate” or “affiliated purchaser” (each as defined
in Rule 10b-18 of the Exchange Act (“Rule 10b-18”)) shall directly or indirectly
(including, without limitation, by
means of any cash-settled or other derivative instrument) purchase, offer to
purchase, place any bid or limit order that would effect a purchase of, or commence
any tender offer relating to, any Shares (or an equivalent interest, including a
unit of beneficial interest in a trust or limited partnership or a depository share)
or any security convertible into or exchangeable or exercisable for Shares, except
through Wachovia.
	 
	 	(j)	 	Without limiting the generality of Section 13.1 of the Equity Definitions,
Counterparty and Parent acknowledge that Wachovia is not making any representations or
warranties with respect to the treatment of the Transaction under FASB Statements 149
or 150, EITF Issue No. 00-19 (or any successor issue statements) or under FASB’s
Liabilities & Equity Project.
	 
	 	(k)	 	Neither Counterparty nor Parent is, and after giving effect to the transactions
contemplated hereby will be, an “investment company” as such term is defined in the
Investment Company Act of 1940, as amended.
	 
	 	(l)	 	On the Trade Date (A) the assets of Counterparty and Parent at their fair
valuation exceed the liabilities of Counterparty, including contingent liabilities, (B)
the capital of Counterparty is adequate to conduct the business of Counterparty and (C)
Counterparty has the ability to pay its debts and obligations as such debts mature and
does not intend to, or does not believe that it will, incur debt beyond its ability to
pay as such debts mature.
	 
	 	(m)	 	Each of Wachovia, Counterparty and Parent acknowledges that the offer and sale
of the Transaction to it is intended to be exempt from registration under the
Securities Act, by virtue of Section 4(2) thereof. Accordingly, Counterparty and
Wachovia represent and warrant to each other that (i) it has the financial ability to
bear the economic risk of its investment in the Transaction and is able to bear a total
loss of its investment and its investments in and liabilities in respect of the
Transaction, which it understands are not readily marketable, are not disproportionate
to its net worth, and it is able to bear any loss in connection with the Transaction,
including the loss of its entire investment in the Transaction, (ii) it is an
“accredited investor” as that term is defined in Regulation D as promulgated under the
Securities Act, (iii) it is entering into the Transaction for its own account and
without a view to the distribution or resale thereof, (iv) the assignment, transfer or
other disposition of the Transaction has not been and will not be registered under the
Securities Act and is restricted under this Confirmation, the Securities Act and state
securities laws, and (v) its financial condition is such that it has no need for
liquidity with respect to its investment in the Transaction and no need to dispose of
any portion thereof to satisfy any existing or contemplated undertaking or indebtedness
and is capable of assessing the merits of and understanding (on its own behalf or
through independent professional advice), and understands and accepts, the terms,
conditions and risks of the Transaction.

9. Other Provisions:

	 	(a)	 	Opinions. Each of Counterparty and Parent shall deliver to Wachovia an
opinion of counsel, dated as of the Trade Date, with respect to the matters set forth
in Sections 8(a) through (c) of this Confirmation.
	 
	 	(b)	 	Amendment. If the Initial Purchasers party to the Purchase Agreement
exercise their right to purchase additional Exchangeable Notes as set forth therein,
then, at the discretion of Counterparty, Wachovia, Counterparty and Parent will either
enter into a new confirmation or amend this Confirmation to provide for such increase
in Exchangeable Notes (but on pricing terms acceptable to Wachovia and Counterparty)
(such additional confirmation or amendment to this Confirmation to provide for the
payment by Counterparty to Wachovia of the additional premium related thereto).

10

 

	 	(c)	 	Repurchase Notices. Counterparty shall give Wachovia a written notice
(a “Repurchase Notice”) at least ten Exchange Business Days prior to effecting any
repurchase of Shares if, after giving effect to such repurchase, the quotient of (x)
the product of (a) the Number of Options and
(b) the Option Entitlement divided by (y) the number of Parent’s outstanding Shares
(such quotient expressed as a percentage, the “Option Equity Percentage") would be
greater than 8%. Such Repurchase Notice shall set forth the number of Shares to be
outstanding after giving effect to the relevant Share repurchase. In connection
with the delivery of any Repurchase Notice to Wachovia, (x) Parent shall,
concurrently with or prior to such delivery, publicly announce and disclose the
relevant repurchase or (y) Parent shall, concurrently with such delivery, represent
and warrant that the information set forth in such Repurchase Notice does not
constitute material non-public information with respect to Parent. Counterparty and
Parent jointly and severally agree to indemnify and hold harmless Wachovia and its
affiliates and their respective officers, directors, employees, affiliates,
advisors, agents and controlling persons (each, an “Section 9(c) Indemnified
Person”) from and against any and all losses (including losses relating to
Wachovia’s hedging activities as a consequence of becoming, or of the risk of
becoming, a Section 16 “insider”, including without limitation, any forbearance from
hedging activities or cessation of hedging activities and any losses in connection
therewith with respect to this Transaction), claims, damages, judgments, liabilities
and expenses (including reasonable attorney’s fees), joint or several, which a
Section 9(c) Indemnified Person may become subject to, as a result of Parent’s
failure to provide Wachovia with a Repurchase Notice on the day and in the manner
specified in this Section 9(c), and to reimburse, within 30 days, upon written
request, each of such Section 9(c) Indemnified Persons for any reasonable legal or
other expenses incurred in connection with investigating, preparing for, providing
testimony or other evidence in connection with or defending any of the foregoing. If
any suit, action, proceeding (including any governmental or regulatory
investigation), claim or demand shall be brought or asserted against the Section
9(c) Indemnified Person as a result of Parent’s failure to provide Wachovia with a
Repurchase Notice in accordance with this Section 9(c), such Section 9(c)
Indemnified Person shall promptly notify Counterparty and Parent, in writing, and
Counterparty or Parent, upon request of the Section 9(c) Indemnified Person, shall
retain counsel reasonably satisfactory to the Section 9(c) Indemnified Person to
represent the Section 9(c) Indemnified Person and any others Counterparty or Parent,
as applicable, may designate in such proceeding and shall pay the fees and expenses
of such counsel related to such proceeding. Neither Counterparty nor Parent shall be
liable for any settlement of any proceeding contemplated by this Section 9(c) that
is effected without such party’s written consent, but if settled with such consent
or if there be a final judgment for the plaintiff, Counterparty and Parent jointly
and severally agree to indemnify any Section 9(c) Indemnified Person from and
against any loss or liability by reason of such settlement or judgment. Neither
Counterparty nor Parent shall, without the prior written consent of the Section 9(c)
Indemnified Person, effect any settlement of any pending or threatened proceeding
contemplated by this Section 9(c) that is in respect of which any Section 9(c)
Indemnified Person is or could have been a party and indemnity could have been
sought hereunder by such Section 9(c) Indemnified Person, unless such settlement
includes an unconditional release of such Section 9(c) Indemnified Person from all
liability on claims that are the subject matter of such proceeding on terms
reasonably satisfactory to such Section 9(c) Indemnified Person. If the
indemnification provided for in this Section 9(c) is unavailable to a Section 9(c)
Indemnified Person or insufficient in respect of any losses, claims, damages or
liabilities referred to therein, then Counterparty or Parent under such paragraph,
in lieu of indemnifying such Section 9(c) Indemnified Person there under, shall
contribute to the amount paid or payable by such Section 9(c) Indemnified Person as
a result of such losses, claims, damages or liabilities. The remedies provided for
in this Section 9(c) are not exclusive and shall not limit any rights or remedies
which may otherwise be available to any Indemnified Party at law or in equity. The
indemnity and contribution agreements contained in this Section 9(c) shall remain
operative and in full force and effect regardless of the termination of this
Transaction.

11

 

	(d)	 	Exchange Rate Adjustments. Parent shall provide to Wachovia a written
notice, or shall cause Counterparty to provide to Wachovia a written notice (such
notice, an “Exchange Rate Adjustment Notice”), at least ten Exchange Business Days
prior to consummating or otherwise executing or engaging in any transaction or event
(an “Exchange Rate Adjustment Event”) that would lead to an increase in the Exchange
Rate (as such term is defined in the Indenture), which Exchange Rate Adjustment Notice
shall set forth the new, adjusted Exchange Rate after giving
effect to such Exchange Rate Adjustment Event (the “New Exchange Rate”); provided
that no such Exchange Rate Adjustment Notice needs to be provided unless, after
giving effect to such Exchange Rate Adjustment Event, the Option Equity Percentage
would be greater than 8%. In connection with the delivery of any Exchange Rate
Adjustment Notice to Wachovia, (x) Parent shall, concurrently with or prior to such
delivery, publicly announce and disclose the Exchange Rate Adjustment Event or (y)
Parent shall, concurrently with such delivery, represent and warrant that the
information set forth in such Exchange Rate Adjustment Notice does not constitute
material non-public information with respect to Parent.
	 
	(e)	 	Regulation M. Neither Counterparty nor Parent is on the date hereof
engaged in a distribution, as such term is used in Regulation M under the Exchange Act,
of any securities of Counterparty or Parent, as applicable, other than (i) a
distribution meeting the requirements of the exception set forth in Rules 101(b)(10)
and 102(b)(7) of Regulation M and (ii) the distribution of the Exchangeable Notes.
Neither Counterparty nor Parent shall, until the second Exchange Business Day
immediately following the Trade Date, engage in any such distribution.
	 
	(f)	 	No Manipulation. Neither Counterparty nor Parent is entering into this
Transaction to create actual or apparent trading activity in the Shares (or any
security convertible into or exchangeable for the Shares) or to raise or depress or
otherwise manipulate the price of the Shares (or any security convertible into or
exchangeable for the Shares) or otherwise in violation of the Exchange Act.
	 
	(g)	 	Number of Repurchased Shares. Each of Counterparty and Parent
represents that it could have purchased Shares, in an amount equal to the product of
the Number of Options and the Option Entitlement, on the Exchange or otherwise, in
compliance with applicable law, its organizational documents and any orders, decrees
and contractual agreements binding upon Counterparty or Parent, on the Trade Date.
	 
	(h)	 	Board Authorization. Each of this Transaction and the issuance of the
Exchangeable Notes was approved by its board of directors, solely for the purposes
stated in such board resolution and, prior to any exercise of Options hereunder,
Counterparty’s and Parent’s board of directors will have duly authorized any repurchase
of Shares pursuant to this Transaction. Each of Counterparty and Parent further
represents that there is no internal policy, whether written or oral, of Counterparty
or Parent that would prohibit Counterparty or Parent from entering into any aspect of
this Transaction, including, but not limited to, the purchases of Shares to be made
pursuant hereto.
	 
	(i)	 	Transfer or Assignment. Neither party may transfer any of its rights
or obligations under this Transaction without the prior written consent of the
non-transferring party; provided that if, as determined at Wachovia’s sole discretion,
(i) its “beneficial ownership” (within the meaning of Section 13 of the Exchange Act
and rules promulgated there under) exceeds 8% of Counterparty’s outstanding Shares,
(ii) the Option Equity Percentage exceeds 8% or (iii) Wachovia Corporation (“Bank”)
beneficial ownership (as such term is referred to in the Charter) of Stock (as such
term is defined in the Charter) exceeds 8%, Wachovia may transfer or assign without any
prior consent by Counterparty a number of Options sufficient to reduce (i) such
“beneficial ownership” (within the meaning of Section 13 of the Exchange Act and rules
promulgated there under) to 7.5%, (ii) the Option Equity Percentage to 7.5% or less or
(iii) the Bank’s beneficial ownership (as such term is referred to in the Charter) of
Stock (as such term is defined in the Charter) to 8% or less, as applicable, to any
third party with a rating for its long term, unsecured and unsubordinated indebtedness
of A- or better by Standard and Poor’s Rating Group, Inc. or its successor (“S&P”), or
A3 or better by Moody’s Investor Service, Inc. (“Moody’s”) or, if either S&P or Moody’s
ceases to rate such debt, at least an equivalent rating or better by a substitute
agency rating mutually agreed by Counterparty and Wachovia.

12

 

	 	 	If after Wachovia’s
commercially reasonable efforts, Wachovia is unable to effect such a transfer or
assignment, including but not limited to upon or following receipt of a Repurchase
Notice or an Exchange Rate Adjustment Notice, on pricing terms reasonably acceptable to
Wachovia and within a time period reasonably acceptable to Wachovia of a sufficient number of
Options to reduce (i) Wachovia’s “beneficial ownership” (within the meaning of
Section 13 of the Exchange Act and rules promulgated there under) to 7.5% of
Counterparty’s outstanding Shares or less, (ii) the Option Equity Percentage to 7.5%
or less or (iii) Bank’s beneficial ownership (as such term is referred to in the
Charter) of Stock (as such term is defined in the Charter) to 8% or less, Wachovia
may designate any Exchange Business Day as an Early Termination Date with respect to
a portion of this Transaction, such that (i) its “beneficial ownership” (within the
meaning of Section 13 of the Exchange Act and rules promulgated there under)
following such partial termination will be equal to or less than 7.5%, (ii) the
Option Equity Percentage following such partial termination will be equal to or less
than 7.5% or (iii) Bank’s beneficial ownership (as such term is referred to in the
Charter) of Stock (as such term is defined in the Charter) following such partial
termination will be equal to or less than 8%. Solely for purposes of this Section
9(i), following receipt of any Repurchase Notice or Exchange Rate Adjustment Notice,
(i) Wachovia’s “beneficial ownership” (within the meaning of Section 13 of the
Exchange Act and rules promulgated there under) with respect to Shares, (ii) the
Options Equity Percentage and (iii) Bank’s beneficial ownership (as such term is
referred to in the Charter) with respect to the Stock (as such term is defined in
the Charter), as the case may be, shall incorporate the deemed effect of the
relevant Share Repurchase (in the case of a Repurchase Notice) or New Exchange Rate
(in the case of an Exchange Rate Adjustment Notice). In the event that Wachovia so
designates an Early Termination Date with respect to a portion of this Transaction,
a payment shall be made pursuant to Section 6 of the Agreement as if (i) an Early
Termination Date had been designated in respect of a Transaction having terms
identical to this Transaction and a Number of Options equal to the relevant
terminated portion, (ii) Counterparty shall be the sole Affected Party with respect
to such partial termination and (iii) such Transaction shall be the only Terminated
Transaction (and, for the avoidance of doubt, the provisions of Section 9(q) shall
apply to any amount that is payable by Wachovia to Counterparty pursuant to this
sentence). Notwithstanding any other provision in this Confirmation to the contrary
requiring or allowing Wachovia to purchase, sell, receive or deliver any shares or
other securities to or from Counterparty, Wachovia may designate any of its
affiliates to purchase, sell, receive or deliver such shares or other securities and
otherwise to perform Wachovia’s obligations in respect of this Transaction and any
such designee may assume such obligations. Wachovia shall be discharged of its
obligations to Counterparty to the extent of any such performance.
	 
	(j)	 	Staggered Settlement. Wachovia may, by notice to Counterparty on or
prior to any Settlement Date (a “Nominal Settlement Date”), elect to deliver the Shares
on two or more dates (each, a “Staggered Settlement Date”) as follows:

	 	(a)	 	in such notice, Wachovia will specify to Counterparty the
related Staggered Settlement Dates (the first of which will be such Nominal
Settlement Date and the last of which will be no later than the tenth
(10th) Exchange Business Day following such Nominal Settlement Date)
and the number of Shares that it will deliver on each Staggered Settlement Date
on a payment versus delivery basis;
	 
	 	(b)	 	the aggregate number of Shares that Wachovia will deliver to
Counterparty hereunder on all such Staggered Settlement Dates will equal the
number of Shares that Wachovia would otherwise be required to deliver on such
Nominal Settlement Date; and
	 
	 	(c)	 	if the Net Share Settlement terms set forth above were to apply
on the Nominal Settlement Date, then the Net Share Settlement terms will apply
on each Staggered Settlement Date, except that the Net Shares will be allocated
among such Staggered Settlement Dates as specified by Wachovia in the notice
referred to in clause (a) above.

	(k)	 	Damages. Neither party shall be liable under Section 9.12 of the
Equity Definitions for special, indirect or consequential damages, even if informed of
the possibility thereof.

13

 

	(l)	 	Early Unwind. In the event the sale of Exchangeable Notes is not
consummated with the initial purchasers for any reason or Counterparty fails to deliver
to Wachovia opinions of counsel to Counterparty as required pursuant to Section 9(a) by
the close of business in New York on December 8, 2006 (or such later date as agreed
upon by the parties) (December 8, 2006 or such later date as agreed upon being the
“Early Unwind Date”), this Transaction shall automatically terminate (the “Early
Unwind”), on the Early Unwind Date and (i) the Transaction and all of the respective
rights and obligations of Wachovia and Counterparty under the Transaction shall be
cancelled and terminated and (ii) Wachovia shall be released and discharged by
Counterparty from and Counterparty agrees not to make any claim against Wachovia with
respect to any obligations or liabilities of Wachovia arising out of and to be
performed in connection with the Transaction either prior to or after the Early Unwind
Date; provided that Counterparty shall purchase from Wachovia on the Early Unwind Date
all Shares purchased by Wachovia or one or more of its affiliates and reimburse
Wachovia for any costs or expenses (including market losses) relating to the unwinding
of its hedging activities in connection with the Transaction (including any loss or
cost incurred as a result of its terminating, liquidating, obtaining or reestablishing
any hedge or related trading position). The amount of any such reimbursement shall be
determined by Wachovia in its sole good faith discretion. Wachovia shall notify
Counterparty of such amount and Counterparty shall pay such amount in immediately
available funds on the Early Unwind Date. Each of Wachovia and Counterparty represents
and acknowledges to the other that, subject to the proviso included in this paragraph,
upon an Early Unwind, all obligations with respect to the Transaction shall be deemed
fully and finally discharged.
	 
	(m)	 	Terms relating to the Agent:
	 
	 	 	(i) The Agent is registered as a broker-dealer with the U.S. Securities and
Exchange Commission and the National Association of Securities Dealers, is acting
hereunder for and on behalf of Wachovia solely in its capacity as agent for
Wachovia pursuant to instructions from Wachovia, and is not and will not be acting
as the Counterparty’s agent, broker, advisor or fiduciary in any respect under or
in connection with this Transaction.
	 
	 	 	(ii) In addition to acting as Wachovia’s agent in executing this Transaction, the
Agent is authorized from time to time to give written payment and/or delivery
instructions to the Counterparty directing it to make its payments and/or
deliveries under this Transaction to an account of the Agent for remittance to
Wachovia (or its designee), and for that purpose any such payment or delivery by
the Counterparty to the Agent shall be treated as a payment or delivery to
Wachovia.
	 
	 	 	(iii) Except as otherwise provided herein, any and all notices, demands, or
communications of any kind transmitted in writing by either Wachovia or the
Counterparty under or in connection with this Transaction will be transmitted
exclusively by such party to the other party through the Agent at the following
address:

Wachovia Capital Markets, LLC

201 South College Street, 6th Floor

Charlotte, NC 28288-0601

Facsimile No.: (704) 383-8425

Telephone No.: (704) 715-8086

Attention: Equity Derivatives

	 	 	(iv) The Agent shall have no responsibility or liability to Wachovia or the
Counterparty for or arising from (i) any failure by either Wachovia or the
Counterparty to perform any of their respective obligations under or in connection
with this Transaction, (ii) the collection or enforcement of any such obligations,
or (iii) the exercise of any of the rights and remedies of either Wachovia or the
Counterparty under or in connection with this Transaction. Each of Wachovia and the
Counterparty agrees to proceed solely against the other to collect or enforce
any such obligations, and the Agent shall have no liability in respect of this
Transaction except for its gross negligence or willful misconduct in performing its
duties as the agent of Wachovia.

14

 

	 	 	(v) Upon written request, the Agent will furnish to Wachovia and the Counterparty
the date and time of the execution of this Transaction and a statement as to the
source and amount of any remuneration received or to be received by the Agent in
connection with this Transaction.
	 
	(n)	 	Dividends. If at any time during the period from and including the
Trade Date to but excluding the Expiration Date, an ex-dividend date for a cash
dividend occurs with respect to the Shares (an “Ex-Dividend Date”), and that dividend
is less than the Regular Dividend on a per Share basis then the Calculation Agent will
adjust the Cap Price to preserve the fair value of the Options to Wachovia after taking
into account such dividend. “Regular Dividend” shall mean USD0.31 per Share per
quarter. “Extraordinary Dividend” shall mean any dividend that is greater than the
Regular Dividend on a per share basis.
	 
	(o)	 	Additional Provisions.
	 
	 	 	(i) Section 12.6(a)(ii) of the Equity Definitions is hereby amended by (1)
deleting from the fourth line thereof the word “or” after the word “official” and
inserting a comma therefore, and (2) deleting the words “; and” at the end of
subsection (ii) thereof and inserting the following words therefore “ or (C) at
Wachovia’s option, the occurrence of any of the events specified in Section
5(a)(vii) (1) through (9) of the ISDA Master Agreement with respect to that
Issuer.”
	 
	 	 	(ii) Notwithstanding anything to the contrary in this Confirmation, upon the
occurrence of one of the following events, with respect to this Transaction, (1)
Wachovia shall have the right to designate such event an Additional Termination
Event and designate an Early Termination Date pursuant to Section 6(b) of the
Agreement or, in the case of a Repayment Event (as defined below), designate an
Early Termination Date pursuant to Section 6(b) of the Agreement to the extent of
any such Exchangeable Notes and/or any principal amount thereof so repurchased,
delivered, repaid or exchanged, as the case may be, (2) Counterparty shall be
deemed the sole Affected Party and the Transaction shall be deemed the sole
Affected Transaction and (3) notwithstanding anything to the contrary herein, no
payments shall be required hereunder in connection with the event(s) set forth in
clauses (A), (B), (C) or (D) below:

(A) Any “person” or “group” (as such terms are used for purposes of Sections
13(d) and 14(d) of the Exchange Act, whether or not applicable), other than
Parent Counterparty, or any majority-owned subsidiary of Parent or Counterparty
or any employee benefit plan of Parent, Counterparty or such subsidiary, is or
becomes the “beneficial owner,” directly or indirectly, of more than 50% of the
total voting power in the aggregate of all classes of capital stock of Parent
then outstanding entitled to vote generally in elections of directors.

(B) There has been an event of default with respect to Counterparty or Parent
under the terms of the Exchangeable Notes as set forth in Section 7.01 of the
Indenture.

(C)(I) Any Exchangeable Notes are repurchased (whether in connection with or as
a result of a change of control, howsoever defined, or for any other reason) by
Counterparty or any of its subsidiaries, (II) any Exchangeable Notes are
delivered to Counterparty in exchange for delivery of any property or assets of
Counterparty or any of its subsidiaries (howsoever described), (III) any
principal of any of the Exchangeable Notes is repaid prior to the final
maturity date of the Exchangeable Notes (whether following acceleration of the
Exchangeable Notes or otherwise), or (IV) any Exchangeable Notes are exchanged
by or for the benefit of the holders thereof for any other securities of
Counterparty or any of its affiliates (or any other property, or any
combination thereof) pursuant to any exchange offer or similar transaction
(each of the events set forth in sub-clauses (I), (II), (III) and (IV) above,
the “Repayment Event”); provided that, in the case of sub-clause (II) and
sub-clause (IV) above, conversions of the Exchangeable Notes pursuant to the
terms of the Indenture as
in effect on the date hereof shall not constitute Repayment Events.

15

 

(D) Counterparty amends, modifies, supplements or waives any term of the
Indenture or the Exchangeable Notes governing the principal amount, coupon,
maturity, repurchase obligation of Counterparty, redemption right of
Counterparty, any term relating to exchange of the Exchangeable Notes
(including changes to the exchange price, exchange settlement dates or exchange
conditions), or any term that would require consent of the holders of not less
than 100% of the principal amount of the Exchangeable Notes to amend, in each
case without the prior consent of Wachovia, such consent not to be unreasonably
withheld. For purposes of the above provisions “person” includes any syndicate
or group that would be deemed to be a “person” under Section 13(d)(3) of the
Exchange Act.

	(p)	 	Setoff. In addition to and without limiting any rights of set-off that
a party hereto may have as a matter of law, pursuant to contract or otherwise, upon the
occurrence of an Early Termination Date, Wachovia (and only Wachovia) shall have the
right to set off any obligation that it may have to Counterparty under this
Confirmation, including without limitation any obligation to make any payment of cash
or delivery of Shares to Counterparty, against any obligation Counterparty, Parent or
any of its subsidiaries may have to Wachovia under any other agreement between Wachovia
and Counterparty, Parent or any of its subsidiaries relating to Shares (each such
contract or agreement, a “Separate Agreement”), including without limitation any
obligation to make a payment of cash or a delivery of Shares or any other property or
securities. For this purpose, Wachovia shall be entitled to convert any obligation (or
the relevant portion of such obligation) denominated in one currency into another
currency at the rate of exchange at which it would be able to purchase the relevant
amount of such currency, and to convert any obligation to deliver any non-cash property
into an obligation to deliver cash in an amount calculated by reference to the market
value of such property as of the Early Termination Date, as determined by the
Calculation Agent in its sole discretion; provided that in the case of a set-off of any
obligation to release or deliver assets against any right to receive fungible assets,
such obligation and right shall be set off in kind and; provided further that in
determining the value of any obligation to deliver Shares, the value at any time of
such obligation shall be determined by reference to the market value of the Shares at
such time, as determined in good faith by the Calculation Agent. If an obligation is
unascertained at the time of any such set-off, the Calculation Agent may in good faith
estimate the amount or value of such obligation, in which case set-off will be effected
in respect of that estimate, and the relevant party shall account to the other party at
the time such obligation or right is ascertained.

	(q)	 	Alternative Calculations and Payment on Early Termination and on Certain
Extraordinary Events. If in respect of this Transaction, an amount is payable by
Wachovia to Counterparty (i) pursuant to Section 12.7 of the Equity Definitions or (ii)
pursuant to Section 6(d)(ii) of the Agreement (a “Payment Obligation”), Counterparty
may request Wachovia to satisfy any such Payment Obligation by the Share Termination
Alternative (as defined below) (except that Counterparty shall not make such an
election in the event of a Nationalization or Insolvency or a Merger Event, in each
case, in which the consideration to be paid to holders of Shares consists solely of
cash, or an Event of Default in which Counterparty is the Defaulting Party or a
Termination Event in which Counterparty is the Affected Party, other than an Event of
Default of the type described in Section 5(a)(iii), (v), (vi), (vii) or (viii) of the
Agreement or a Termination Event of the type described in Section 5(b)(i), (ii), (iii),
(iv), (v) or (vi) of the Agreement in each case that resulted from an event or events
outside Counterparty’s control) and shall give irrevocable telephonic notice to
Wachovia, confirmed in writing within one Currency Business Day, no later than 12:00
p.m. New York local time on the Merger Date, the date of the occurrence of the
Nationalization or Insolvency or the Early Termination Date, as applicable. In
calculating any amounts under Section 6(e) of the Agreement, notwithstanding anything
to the contrary in the Agreement, (1) separate amounts shall be calculated as set forth
in Section 6(e) with respect to (i) this Transaction and (ii) all other Transactions,
and (2) such separate amounts shall be payable pursuant to Section 6(d)(ii) of the
Agreement.

16

 

	 	 	 
	Share Termination Alternative:

	 	Applicable and means that Wachovia shall deliver to
Counterparty the Share Termination Delivery Property on the date when the Payment
Obligation would otherwise be due pursuant to Section 12.7 of the Equity Definitions or
Section 6(d)(ii) and 6(e) of the Agreement, as applicable (the “Share Termination
Payment Date”), in satisfaction of the Payment Obligation in the manner reasonably
requested by Counterparty free of payment.
	 
	 	 
	Share Termination Delivery Property:

	 	A number of Share Termination Delivery Units,
as calculated by the Calculation Agent, equal to the Payment Obligation divided by the
Share Termination Unit Price. The Calculation Agent shall adjust the Share Termination
Delivery Property by replacing any fractional portion of a security therein with an
amount of cash equal to the value of such fractional security based on the values used
to calculate the Share Termination Unit Price.
	 
	 	 
	Share Termination Unit Price:

	 	The value to Wachovia of property contained in one
Share Termination Delivery Unit on the date such Share Termination Delivery Units are
to be delivered as Share Termination Delivery Property, as determined by the
Calculation Agent in its discretion by commercially reasonable means and notified by
the Calculation Agent to Wachovia at the time of notification of the Payment
Obligation.
	 
	 	 
	Share Termination Delivery Unit:

	 	One Share or, if a Merger Event has occurred and a
corresponding adjustment to this Transaction has been made, a unit consisting of the
number or amount of each type of property received by a holder of one Share (without
consideration of any requirement to pay cash or other consideration in lieu of
fractional amounts of any securities) in such Merger Event, as determined by the
Calculation Agent.
	 
	 	 
	Other applicable provisions:

	 	If this Transaction is to be Share Termination Settled,
the provisions of Sections 9.9, 9.11, 9.12 and 10.5 (as modified above) of the Equity
Definitions will be applicable, except that all references in such provisions to
“Physically-Settled” shall be read as references to “Share Termination Settled” and all
references to “Shares” shall be read as references to “Share Termination Delivery
Units”. “Share Termination Settled” in relation to this Transaction means that Share
Termination Settlement is applicable to this Transaction.

	(r)	 	Limit on Beneficial Ownership. Notwithstanding anything to the
contrary in the Agreement or this Confirmation, in no event shall Wachovia be entitled
to receive, or be deemed to receive, any Shares to the extent (but only to the extent)
that receipt of such Shares by Wachovia would result in Wachovia’s “beneficial
ownership” (within the meaning of Section 16 of the Exchange Act and the rules
promulgated thereunder) being equal to or greater than 8% or more of the outstanding
Shares. Any purported delivery hereunder shall be void and have no effect to the extent
(but only to the extent) that such delivery would result in Wachovia directly or
indirectly so beneficially owning in excess of 8% of the outstanding Shares. If any
delivery owed to Wachovia hereunder is not made, in whole or in part, as a result of
this provision, Counterparty’s obligation to make such delivery shall not be
extinguished and Counterparty shall make such delivery as promptly as practicable
after, but in no event later than one Business Day after, Wachovia gives notice to
Counterparty that such delivery would not result in Wachovia
directly or indirectly so beneficially owning in excess of 8% of the outstanding
Shares. For the avoidance of doubt, nothing in this Confirmation including without
limitation in this Section 9(r) is intended to create any obligation on the part of
Counterparty to deliver any Shares to Wachovia.

17

 

	(s)	 	Governing Law. New York law
	 
	(t)	 	Waiver of Jury Trial. Each party waives, to the fullest extent
permitted by applicable law, any right it may have to a trial by jury in respect of any
suit, action or proceeding relating to this Transaction. Each party (i) certifies that
no representative, agent or attorney of either party has represented, expressly or
otherwise, that such other party would not, in the event of such a suit, action or
proceeding, seek to enforce the foregoing waiver and (ii) acknowledges that it and the
other party have been induced to enter into this Transaction, as applicable, by, among
other things, the mutual waivers and certifications provided herein.
	 
	(u)	 	Registration. Counterparty hereby agrees that if, in the good faith
reasonable judgment of Wachovia, based upon the advice of counsel and taking into
account any internal policies of Wachovia relating to compliance with the securities
laws, the Shares (“Hedge Shares”) acquired by Wachovia for the purpose of hedging its
obligations pursuant to this Transaction cannot be sold in the public market by
Wachovia without registration under the Securities Act as a result of the provisions of
the Securities Act, the rules and regulations promulgated there under or any
interpretation of such rates or regulations by the Securities and Exchange Commission,
Counterparty shall, at its election, either (i) in order to allow Wachovia to sell the
Hedge Shares in a registered offering, make available to Wachovia an effective
registration statement under the Securities Act and enter into an agreement, in form
and substance satisfactory to Wachovia, substantially in the form of an underwriting
agreement for a registered secondary offering; provided, however, that if Wachovia, in
its sole reasonable discretion, is not satisfied with access to due diligence
materials, the results of its due diligence investigation, or the procedures and
documentation for the registered offering referred to above, then clause (ii) or clause
(iii) of this Section 9(u) shall apply at the election of Counterparty, (ii) in order
to allow Wachovia to sell the Hedge Shares in a private placement, enter into a private
placement agreement substantially similar to private placement purchase agreements
customary for private placements of equity securities, in form and substance
satisfactory to Wachovia (in which case, the Calculation Agent shall make an adjustment
to the Strike Price and/or Cap Price in order to compensate Wachovia for the discount,
if any, from the public market price of the Shares incurred on the sale of Hedge Shares
in a private placement), or (iii) purchase the Hedge Shares from Wachovia at the
Relevant Price on such Trading Days, and in the amounts, requested by Wachovia.
	 
	(v)	 	Indemnification. Counterparty and Parent jointly and severally agree
to indemnify and hold harmless Wachovia and its affiliates and their respective
officers, directors, employees, affiliates, advisors, agents and controlling persons
(each, an “Indemnified Person”) from and against any and all losses (including losses
relating to Wachovia’s hedging or trading activities and any losses in connection
therewith with respect to this Transaction), claims, damages, judgments, liabilities
and expenses (including reasonable attorney’s fees), joint or several, which an
Indemnified Person may become subject to, in connection with any hedging activities
undertaken by Wachovia or its affiliates with respect to this Transaction (any such
hedging activities for purposes of this Section 9(v), the “Wachovia Hedging”) and
arising out of any information or representation or warranty that is provided or
required to be provided in any Repurchase Notice or Exchange Rate Adjustment Notice,
and which information or representation or warranty is inaccurate or alleged by a third
party to be inaccurate or does not include the information required by Section 9(c) or
9(d), and to reimburse, within 30 days, upon written request, each of such Indemnified
Persons for any reasonable legal or other expenses incurred in connection with
investigating, preparing for, providing testimony or other evidence in connection with
or defending any of the foregoing. If any suit, action, proceeding (including any
governmental or regulatory investigation), claim or demand shall be brought or asserted
against the Indemnified Person in connection with Wachovia Hedging, such Indemnified
Person shall promptly notify Parent in
writing, and Counterparty and/or Parent, upon request of the Indemnified Person,
shall retain counsel reasonably satisfactory to the Indemnified Person to represent
the Indemnified Person and any others Counterparty and/or Parent may designate in
such proceeding and shall pay the fees and expenses of such counsel related to such
proceeding.

18

 

	 	 	Counterparty and Parent shall not be liable for any settlement of any
proceeding contemplated by this Section 9(v) that is effected without its written
consent, but if settled with such consent or if there be a final judgment for the
plaintiff, Counterparty and Parent jointly and severally agree to indemnify any
Indemnified Person from and against any loss or liability by reason of such
settlement or judgment. Counterparty and Parent shall not, without the prior written
consent of the Indemnified Person, effect any settlement of any pending or
threatened proceeding contemplated by this Section 9(v) that is in respect of which
any Indemnified Person is or could have been a party and indemnity could have been
sought hereunder by such Indemnified Person, unless such settlement includes an
unconditional release of such Indemnified Person from all liability on claims that
are the subject matter of such proceeding on terms reasonably satisfactory to such
Indemnified Person. If the indemnification provided for in this Section 9(v) is
unavailable to an Indemnified Person or insufficient in respect of any losses,
claims, damages or liabilities referred to therein, then Counterparty and Parent
hereunder, in lieu of indemnifying such Indemnified Person there under, shall
contribute to the amount paid or payable by such Indemnified Person as a result of
such losses, claims, damages or liabilities. The remedies provided for in this
Section 9(v) are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any Indemnified Party at law or in equity. The indemnity
and contribution agreements contained in this Section 9(v) shall remain operative
and in full force and effect regardless of the termination of this Transaction.

19

 

Please confirm that the foregoing correctly sets forth the terms of our agreement by executing a
copy of this Confirmation and returning it to us. by facsimile at 212-214-5913 (Attention: Equity
Division Documentation Unit by telephone 212. 214.6100)

Very truly yours,

	 	 	 	 	 	 	 	 	 	 	 
	WACHOVIA CAPITAL MARKETS, LLC,	 	WACHOVIA BANK, NATIONAL ASSOCIATION
	 
	 	 	 	 	 	 	 	 	 	 
	acting solely in its capacity as	 	By: Wachovia Capital Markets, LLC, acting solely in its
	Agent of Wachovia Bank, National Association	 	capacity as Agent
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Cathleen Burke
	 	 	 	     By:
	 	/s/ Cathleen Burke	 	 
	 

	 	 
	 	 
	 	 	 	 	 	 
	Name:

	 	Cathleen Burke
	 	 	 	     Name:
	 	Cathleen Burke	 	 
	Title:

	 	Managing Director
	 	 	 	     Title:
	 	Managing Director	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Accepted and confirmed as of the Trade Date:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	FIRST POTOMAC REALTY INVESTMENT LIMITED PARTNERSHIP	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Barry H. Bass	 	 	 	 	 	 	 	 
	Authorized Signatory	 	 	 	 	 	 	 	 
	Name:

	 	Barry H. Bass	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	FIRST POTOMAC REALTY TRUST	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Barry H. Bass	 	 	 	 	 	 	 	 
	Authorized Signatory	 	 	 	 	 	 	 	 
	Name:

	 	Barry H. Bassexv10w3

 

Exhibit 10.3

	 	 	 
	 

	 	
	 
	 	 
	 

	 	December 8, 2006
	 
	 	 
	 

	 	Wachovia Capital Markets, LLC
	 

	 	201 South College Street
	 

	 	Charlotte, NC 28288
	 

	 	Attention: Equity Derivatives
	 

	 	Telephone No.: 212 214 6100
	 

	 	Facsimile No.: 212 214 5913

First Potomac Realty Investment Limited Partnership

ATTN: Barry H. Bass

7600 Wisconsin Ave, 11th Floor

Bethesda, MD 20814

Telephone: 301-986-9200

Fax: 301-986-5554

Ladies and Gentlemen:

     Reference is made to the following transactions between First Potomac Realty Investment
Limited Partnership (“Counterparty”), First Potomac Realty Trust (“Parent”), and Wachovia Bank,
National Association (“Wachovia”):

	 	(i)	 	the issuance by Counterparty of $110,000,000 principal amount of 4.0%
Exchangeable Senior Notes due 2011 (the “Exchangeable Notes”) and an additional
issuance of up to $15,000,000 principal amount of Exchangeable Notes (the
“Over-Allotment Note Issuance”) as set forth in the related Purchase Agreement among
Counterparty, Parent and Wachovia Capital Markets, LLC., as representative of the
Initial Purchasers named therein, dated as of December 5, 2006 (the “Purchase
Agreement”); and
	 
	 	(ii)	 	a capped call option transaction among Wachovia, acting through the agency of
Wachovia Capital Markets, LLC (the “Agent”), Counterparty and Parent relating to the
Over-Allotment Note Issuance (the “Transaction”), to be entered into among Wachovia,
acting through the Agent, Counterparty and Parent pursuant to an amendment to or an
ISDA confirmation (the “Over-Allotment Call Option Confirmation”) substantially
identical to the ISDA confirmation dated as of December 5, 2006 relating to the capped
call option transaction between Wachovia, acting through the Agent, Counterparty and
Parent (the “Initial Call Option Confirmation”).

 

 

     Counterparty and Parent acknowledge that (i) Wachovia, acting through the Agent, Counterparty
and Parent propose entering into the Transaction in connection with the Over-Allotment Note
Issuance, and (ii) Wachovia, acting through the Agent, or the Agent will enter into certain hedging
activities in connection with the Transaction.

     Counterparty and Parent further acknowledge and agree that all purchases of shares of common
stock, par value $0.001 per share, of Parent (the “Shares”) pursuant to hedging activities in
connection with the Transaction made by Wachovia or the Agent shall be made in Wachovia’s or the
Agent’s sole discretion as to price, quantity and timing of executions and for Wachovia’s or the
Agent’s own account. Each of Counterparty and Parent further acknowledges and agrees that it is
entering into this letter agreement in good faith and not as part of a plan or scheme to evade the
prohibitions of Rule 10b-5 under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”) or other applicable securities laws. It is the intent of the parties that this letter
agreement complies with the requirements of Rule 10b5-1(c)(1)(i)(B) under the Exchange Act, and
this letter agreement shall be interpreted to comply with the requirements thereof.

     Each of Counterparty and Parent further acknowledges and agrees that it does not have
authority, influence or control over any purchases of Shares pursuant to the hedging activities in
connection with the Transaction effected by Wachovia or the Agent pursuant to this letter agreement
and Counterparty and Parent will not attempt to exercise any authority, influence or control over
such purchases. Each of the Agent and Wachovia agrees that it shall not seek advice from
Counterparty or Parent with respect to the manner in which the Agent or Wachovia effects any
purchases under this letter agreement. Counterparty and Parent hereby agree not to, directly or
indirectly, communicate any information relating to the Shares to any employee of Wachovia, the
Agent or of any their affiliates, other than to Mary Lou Guttmann or Michael Golden of the Wachovia
legal department or any other persons acting in their capacity.

     In connection with the execution of this letter agreement, the representations and warranties
of Counterparty and Parent contained in Sections 8(a), (b), (c), (e) and (f) and Sections 9(e) and
(f) of the Initial Call Option Confirmation are incorporated herein by reference and, to the extent
applicable, are deemed to be made by Counterparty or Parent on the date hereof, with all references
to the “Transaction” and “Confirmation” in such representations being deemed to be references to
this letter agreement.

     Each of Counterparty and Parent hereby further represents and warrants to Wachovia as of the
date hereof that neither Counterparty nor Parent is on the date hereof engaged in a distribution,
as such term is used in Regulation M under the Exchange Act, of any securities of Counterparty or
Parent, as applicable, assuming distribution of the Exchangeable Notes has been completed by the
Initial Purchasers (as defined in the Purchase Agreement), other than a distribution meeting the
requirements of the exception set forth in Rules 101(b)(10) and 102(b)(7) of Regulation M. Neither
Counterparty nor Parent shall, until Wachovia advises them that it has completed the purchases of
Shares referred to above (the “Closing Date”), engage in any such distribution.

2

 

     Each of Counterparty and Parent hereby further represents and warrants to Wachovia that
entering into this letter agreement, the Transaction and any hedging related Share purchases by
Wachovia or the Agent do not conflict with or result in a breach of any internal policies of
Counterparty or Parent, including without limitation any internal policies of Counterparty or
Parent with respect to trading in Shares during earnings blackout periods.

     In addition, Counterparty and Parent represent that, except as disclosed in writing by
Counterparty or Parent to Wachovia or as described in the offering memorandum relating to the
Exchangeable Notes, neither Parent nor any of its affiliates has purchased any Shares in purchases
of blocks (as contemplated by Rule 10b-18 under the Securities Exchange Act, of 1934, as amended
(the “Exchange Act”)) during each of the four calendar weeks preceding the date hereof.
Counterparty and Parent further covenant and agree that neither it nor any of its affiliates will
purchase any Shares prior to the Closing Date (or the Early Unwind Date if the Closing Date does
not occur prior to the Early Unwind Date); provided, however, that notwithstanding anything to the
contrary provided herein Parent may prior to the Closing Date (or the Early Unwind Date if the
Closing Date does not occur prior to the Early Unwind Date) purchase Shares in privately negotiated
transactions from officers, directors and employees of Parent in connection with the vesting of
restricted stock of Parent.

     Based on the foregoing, each of Counterparty, Parent and Wachovia, intending to be legally bound,
hereby acknowledges and agrees that in the event that the sale of the Over-Allotment Note Issuance
is not consummated by the close of business in New York on December 11, 2006 (or such later date as
agreed upon by the parties) (December 11, 2006 or such later date as agreed upon being the “Early
Unwind Date”), (i) this letter agreement shall automatically terminate (the “Early Unwind”) on such
Early Unwind Date and all of the respective rights and obligations of Wachovia, Counterparty and
Parent under this letter agreement shall be cancelled and terminated, (ii) Counterparty shall
repurchase from Wachovia or the Agent any Shares acquired by Wachovia or the Agent in connection
with the establishment of Wachovia’s hedge position with respect to the Transaction at Wachovia’s
or the Agent’s actual cost of acquiring such Shares (as determined by Wachovia in its sole
discretion) and (iii) each party shall be released and discharged by the other party from and
agrees not to make any claim against the other party with respect to any obligations or liabilities
of the other party arising out of and to be performed in connection with this letter agreement
except for Counterparty’s obligation under the provisions of (ii) above or the Transaction either
prior to or after the Early Unwind Date; provided, however, that if the Early Unwind results from
the event described above as a result of the failure by Wachovia or any affiliate thereof to
perform its obligations in respect of such event, Counterparty shall not be obligated under the
provisions of (ii) above.

3

 

     Please indicate your agreement with the terms set forth in this letter by signing below.

	 	 	 	 	 
	 	Very truly yours,

Wachovia Capital Markets, LLC.,

     as agent for Wachovia Bank, National Association

 	 
	 	By:  	/s/ Cathleen Burke
 	 
	 	Name:  	Cathleen Burke 	 	 
	 	Title:  	Managing Director 	 	 
	 

Acknowledged and Agreed:

FIRST POTOMAC REALTY INVESTMENT LIMITED PARTNERSHIP

	 	 	 	 	 
	By:

	 	/s/ Barry H. Bass
	 	 
	 

	 	 	 	 
	Authorized Signatory	 	 
	Name: Barry H. Bass

            Executive Vice President & CFO 

FIRST POTOMAC REALTY TRUST

	 	 	 	 	 
	By:

	 	/s/ Barry H. Bass
	 	 
	 

	 	 	 	 
	Authorized Signatory	 	 
	Name: Barry H. Bass

            Executive Vice President & CFO

Capped Call Confirmation Side Letter

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