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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1995
COMMISSION FILE NUMBER 1-9085
MORGAN STANLEY GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-2838811
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1251 AVENUE OF THE AMERICAS
NEW YORK, N.Y. 10020
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 703-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
Common Stock, $1 par value New York Stock Exchange
Boston Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
9.36% Cumulative Preferred Stock, $25 stated value New York Stock Exchange
Depositary Shares, each representing 1/8 of a share of 8.88% New York Stock Exchange
Cumulative Preferred Stock, $200 stated value
Depositary Shares, each representing 1/8 of a share of 8 3/4% New York Stock Exchange
Cumulative Preferred Stock, $200 stated value
Depositary Shares, each representing 1/8 of a share of 7 3/8% New York Stock Exchange
Cumulative Preferred Stock, $200 stated value
7.82% Capital Units; 7.80% Capital Units; 9.00% Capital Units* New York Stock Exchange
AMEX Hong Kong 30 Index(SM) Call Warrants Expiring November 4, 1996+ American Stock Exchange
Japanese Yen Put Warrants Expiring September 18, 1995 American Stock Exchange
Japan Index(SM) Call Warrants Expiring May 28, 1996+ American Stock Exchange
6 1/2% PERQS(SM) Due July 1, 1997; 6% PERQS(SM) Due October 1, 1997; American Stock Exchange
7% PERQS(SM) Due November 15, 1997++
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* Each Capital Unit consists of (a) a $25 principal amount Subordinated
Debenture (of the same rate) of Morgan Stanley Finance plc guaranteed by the
Registrant and (b) a related purchase contract of the Registrant requiring
the holder to purchase one Depositary Share representing 1/8 of a share of
the Registrant's Cumulative Preferred Stock (of the same rate), $200 stated
value. The Capital Units and the Depositary Shares are registered on the New
York Stock Exchange.
+ The "AMEX Hong Kong 30 Index" and the "Japan Index" are service marks of the
American Stock Exchange.
++ "PERQS" and "Performance Equity-linked Redemption Quarterly-pay Securities"
are service marks of the Registrant. The issue price and amount payable at
maturity with respect to the PERQS are based on the share price of certain
non-affiliated companies.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES /X/. NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
Aggregate market value of the voting stock held by non-affiliates of the
Registrant at April 10, 1995 was approximately $3,595,556,182. For purposes of
this information, the outstanding shares of common stock owned by certain
Managing Directors and Principals of certain wholly-owned subsidiaries of the
Registrant, and subject to certain restrictions on voting and disposition, were
deemed to be shares of common stock held by affiliates.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date:
As of April 10, 1995, there were 77,172,357 shares of Common Stock, $1 par
value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Morgan Stanley Group Inc. 1994 Annual Report to
Stockholders -- Incorporated in part in Form 10-K, Parts I, II and IV.
(2) Morgan Stanley Group Inc. Proxy Statement for its 1995 Annual Meeting
of Stockholders -- Incorporated in part in Form 10-K, Parts I and III.
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PART I
ITEM 1. BUSINESS
Morgan Stanley Group Inc. (the "Company"*) is a holding company
that, through its subsidiaries, provides a wide range of financial services on a
global basis. Its businesses include securities underwriting, distribution and
trading; merger, acquisition, restructuring, real estate, project finance and
other corporate finance advisory activities; merchant banking and other
principal investment activities; brokerage and research services; asset
management; the trading of foreign exchange and commodities as well as
derivatives on a broad range of asset categories, rates and indices; and global
custody, securities clearance services and securities lending. These services
are provided to a large and diversified group of clients and customers,
including corporations, governments, financial institutions and individual
investors. The Company, which was formed in 1935, conducts business from its
head office in New York City, international branches or representative offices
in Beijing, Bombay, Frankfurt, Geneva, Hong Kong, Johannesburg, London,
Luxembourg, Madrid, Melbourne, Milan, Montreal, Moscow, Osaka, Paris, Seoul,
Shanghai, Singapore, Sydney, Taipei, Tokyo, Toronto and Zurich, and United
States regional offices in Chicago, Los Angeles and San Francisco. At January
31, 1995, the Company employed 9,685 people.
The Company's business activities are highly integrated and
constitute a single industry segment. Financial information concerning the
Company for each of the three fiscal years ended January 31, 1995, January 31,
1994 and January 31, 1993, including the amount of total revenue contributed by
classes of similar products or services that accounted for 10% or more of the
Company's consolidated revenue in any one of those periods and information with
respect to the Company's operations by geographic area, is set forth in the
Consolidated Financial Statements and the Notes thereto in the 1994 Annual
Report to Stockholders and is incorporated herein by reference.
INVESTMENT BANKING
The Company is a leading international investment banking firm
which provides advice to, and raises capital worldwide for, a broad group of
domestic and international clients. The Company manages and participates in
public offerings and private placements of debt, equity and other securities in
the United States and international capital markets on behalf of United States
and non-United States issuers. The Company is a leading underwriter of common
stock, preferred stock, Preferred Equity Redemption Cumulative Stock
("PERCS(R)"), Performance Equity-linked Redemption Quarterly-pay Securities
("PERQS(SM)"), other equity-related securities, including American Depositary
Receipts ("ADRs"), and taxable fixed income securities in the United States
market and equity and taxable fixed income securities
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* Unless the context otherwise requires, the term "Company" means Morgan
Stanley Group Inc., and includes Morgan Stanley & Co. Incorporated
("Morgan Stanley"), Morgan Stanley & Co. International Limited and the
other consolidated subsidiaries of Morgan Stanley Group Inc. Please
note that in the 1994 Annual Report to Stockholders, which is
incorporated by reference in part in this Form 10-K, the term "Morgan
Stanley" is generally used to refer to the Company.
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denominated in United States dollars and other currencies in international
markets. The Company also underwrites tax exempt securities. In addition, the
Company underwrites mortgage-related securities, including private pass-throughs
and collateralized mortgage obligations ("CMOs"), and other asset-backed
securities. The Company is active as an underwriter and distributor of
commercial paper and other short-term and medium-term securities. The Company is
also involved in tender offers, repurchase programs, consent solicitations,
rights offerings and exchange offers on behalf of clients.
The Company provides corporate and institutional clients in the
United States and internationally with a wide range of advisory services on key
strategic matters such as mergers, acquisitions, joint ventures, privatizations,
defenses, divestitures, spin-offs, restructurings, proxy mechanisms and
leveraged buyouts as well as long-range financial planning. Other such services
provided to clients include advice with respect to recapitalizations, dividend
policy, valuations, foreign exchange exposures and financial risk management
strategies. In addition, the Company provides advice and other services relating
to project financings, lease transactions and the purchase, sale and financing
of real estate. The Company may, from time to time, also provide financing or
financing commitments in special situations to companies in connection with its
investment banking activities.
SALES, TRADING AND MARKET-MAKING ACTIVITIES
The Company provides a broad range of sales, trading and
research services to investors worldwide and is an active dealer in fixed
income, equity, foreign exchange and commodity products, including derivatives.
In the United States, the Company ranks as one of the largest dealers in equity
and fixed income securities. As a member of the major United States securities
and commodities exchanges, as well as the major foreign exchanges, including the
London and Tokyo Stock Exchanges, the Company conducts its sales and trading
activities both as principal and as agent on behalf of a wide range of domestic
and foreign institutional and, to a lesser extent, individual investors. The
Company trades for its own account in equity and fixed income securities,
foreign currencies, commodities and associated derivative products. The Company
also provides financing to clients, including margin lending and other
extensions of credit.
The Company's equity sales, trading and market-making
activities cover domestic and foreign equity and equity-related securities (both
exchange traded and over-the-counter ("OTC")), including ADRs, Optimised
Portfolios as Listed Securities (OPALS(SM)) and restricted/control stock;
convertible debt and preferred securities, including PERCS(R), PERQS(SM) and
warrants; equity index products and equity swaps; and international index
arbitrage, equity repurchases and program and block trade execution. The Company
borrows and lends equity securities. The Company also engages in the risk
arbitrage business, which involves investing for the Company's own account in
securities of companies involved in publicly announced corporate transactions in
which the Company is not at the time of investment acting as adviser or agent.
The Company distributes and trades domestic and foreign debt
securities, particularly corporate debt instruments, and preferred stock, offers
investment strategies to
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institutional accounts, develops swap strategies for customers and assists
corporations in their repurchase of debt. In addition, the Company trades a full
range of money market instruments, including certificates of deposit, domestic
and foreign bankers' acceptances, floating-rate certificates of deposit and
floating-rate notes. The Company is an active dealer and market maker in
mortgage-backed and other asset-backed securities and a broad range of long-term
and short-term tax exempt securities. The Company is also involved in
structuring debt securities with multiple risk/return factors designed to suit
investor objectives and repackaged asset vehicles (RAVs) through which investors
can restructure asset portfolios to provide liquidity or recharacterize risk
profiles.
Morgan Stanley is one of 38 primary dealers of United States
government securities currently recognized by the Federal Reserve Bank of New
York. As such, it is among the firms with which the Federal Reserve conducts its
open market operations and is required to submit bids in Treasury auctions, make
secondary markets in United States government securities, provide the Federal
Reserve Bank of New York with market information and maintain certain capital
standards. Morgan Stanley is also a member of a number of selling groups
responsible for the distribution of various issues of U.S. agency and other debt
securities. As such, it is required to make secondary markets in these
securities and to provide market information to the U.S. agency and
instrumentality issuers. Morgan Stanley is also a member of the primary
syndicate that issues German government bonds, a member of the Japanese
government bond syndicate and a primary dealer in French and Italian government
bonds. The Company also makes secondary markets in various foreign government
bonds and other foreign currency denominated bonds issued in the Eurobond market
and in the United States.
The Company's daily trading inventory positions in government,
agency and instrumentality securities are financed substantially through the use
of repurchase agreements. The Company also borrows and lends fixed income
securities. In addition, the Company acts as an intermediary between borrowers
and lenders of short-term funds utilizing repurchase and reverse repurchase
agreements. At any given point in time, the Company may hold large positions in
certain types of securities or commitments to purchase securities of a single
issuer, sovereign governments and other entities, issuers located in a
particular country or geographic area, public and private issuers involving
developing countries or issuers engaged in a particular industry. For example,
financial instruments owned by the Company include U.S. government and agency
securities and securities issued by non-U.S. governments (principally France,
Germany, Italy and Japan) which, in the aggregate, represented 19% of the
Company's total assets at January 31, 1995 (positions in Japanese government
securities amounted to approximately $7 billion, or 6% of total assets). In
addition, a vast majority of all of the collateral held by the Company for
resale agreements or bonds borrowed, which together represents 37% of the
Company's total assets at January 31, 1995, consists of securities issued by the
U.S. government, federal agencies or non-U.S. governments.
The Company makes markets and trades in Government National
Mortgage Association ("GNMA") securities, Federal Home Loan Mortgage Corp.
("FHLMC") participation certificates and Federal National Mortgage Association
("FNMA") obligations. The Company enters into significant commitments, such as
forward contracts, standby arrangements and futures and options contracts, for
GNMA, FHLMC and FNMA securities. The Company also acts as an underwriter of and
market-maker in mortgage-backed securities, CMOs and
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related instruments, and a market-maker in commercial, residential and real
estate products. In this capacity, the Company carries certain related assets
with reduced levels of liquidity; the carrying value of such assets approximated
$1,193 million at January 31, 1995.
The Company also underwrites, trades, invests and makes markets
in high-yield debt securities and emerging market loans and securitized
instruments. "High-yield" refers to companies or sovereigns whose debt is rated
as non-investment grade. High-yield debt securities, emerging market loans and
securitized instruments held for sale by the Company are carried in the
Company's Consolidated Statement of Financial Condition at their fair values.
Trading gains and losses (inclusive of unrealized gains and losses) on
high-yield debt securities and emerging market loans and securitized instruments
are included as principal transaction revenues in the Company's Consolidated
Statement of Income. At January 31, 1995, the aggregate net market value of
high-yield debt securities and emerging market loans and securitized instruments
held in inventory was $1,160 million (a substantial portion of which was
subordinated debt), with not more than 8%, 12% and 11% of all such securities,
loans and instruments attributable to any one issuer, industry or geographic
region, respectively. For a discussion of the various risks associated with the
Company's high-yield debt and emerging market loan activities and the Company's
policies and procedures with respect to the management and monitoring of these
risks, see "Risk Management."
The Company also actively trades a number of foreign currencies
on a spot and short-term forward basis with its customers, for its own account
and to hedge its securities positions or liabilities. In connection with its
market-making activities, the Company takes open positions in the foreign
exchange market for its own account. The Company, on a more limited basis,
enters into forward currency transactions as agent and principal for periods of
up to seven years. The Company is a leading participant in currency futures
trading at the International Monetary Market division of the Chicago Mercantile
Exchange and is a leading dealer in OTC and exchange traded currency options on
a worldwide basis. The Company also trades as principal in the spot, forward and
futures markets in a variety of commodities, including precious metals
(e.g., gold and silver), coffee, crude oil, oil products, natural gas
and related energy products. The Company is an active market maker in swaps and
OTC options on commodities such as metals, crude oil, oil products, natural gas
and electricity and offers a range of hedging programs relating to production,
consumption and reserve/inventory management. The Company recently also became
an electricity power marketer in the United States and received approval to be
an associate member of the London Metals Exchange.
The Company actively offers to clients and trades for its own
account a variety of financial instruments described as "derivative products" or
"derivatives." These products, some of which may be complex in structure,
generally take the form of futures, forwards, options, swaps, caps, collars,
floors, swap options and similar instruments which derive their value from
underlying interest rates, foreign exchange rates or commodity or equity
instruments and indices.* All of the Company's trading related business units
use derivative products as
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* The Company does not include in this category certain securities and
financial instruments that "derive" their values or contractually
required cash flows from the price of some other security, asset, rate
or index, such as mortgage-backed securities (although mortgage-backed
swaps, options and forward contracts are included).
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an integral part of their respective trading strategies, and such products are
used extensively to manage the market exposure that results from a variety of
proprietary trading activities. In addition, as a dealer in certain derivative
products, most notably interest rate and currency swaps, the Company enters into
derivative contracts to meet a variety of risk management and other financial
needs of its clients. Through the Company's Triple-A rated subsidiary (Morgan
Stanley Derivative Products Inc.), which commenced operations in January 1994,
the Company also enters into swap and related derivative transactions with
certain clients seeking a Triple-A rated counterparty. For a detailed discussion
of the Company's use of derivatives, see 1994 Annual Report to Stockholders,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Derivative Financial Instruments" and "Notes to Consolidated
Financial Statements, Note 5."*
Derivatives used in the Company's trading or dealing activities
are recorded in its Consolidated Statement of Financial Condition at fair value
(based on listed market prices or, if listed market prices are not available,
based on other relevant factors, including dealer price quotations, time value
and yield curve or volatility factors underlying the positions and price
quotations for similar instruments traded in different markets), representing
the cost of replacing these instruments.** Gains or losses (realized and
unrealized) on derivatives are generally included on a net basis as principal
transaction revenues in the Company's Consolidated Statement of Income. The
total notional value of derivative trading contracts outstanding as of January
31, 1995 was $835 billion, which is an indication of the Company's degree of use
of derivatives for trading purposes but is not representative of market or
credit exposure. The Company's exposure to market risk relates to changes in
interest rates, foreign currency exchange rates, or the fair value of the
underlying financial instruments or commodities which may ultimately result in
cash settlements which exceed the amounts currently recognized in the Company's
Consolidated Statement of Financial Condition. The Company's credit exposure at
any point in time is represented by the fair value of such instruments reported
as assets which at January 31, 1995 was $8.6 billion. For a discussion of the
various risks associated with the Company's derivative activities and the
Company's policies and procedures with respect to the management and monitoring
of these risks, see "Risk Management."
From time to time, the Company has organized, advised and
managed certain funds that invest and trade in particular equity or debt
securities, foreign currencies or
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* In addition, the Company also uses derivative products (primarily
interest rate and currency swaps) to assist in asset and liability
management and to reduce borrowing costs. Net revenues from
derivatives used in the Company's own asset and liability management
are recognized ratably over the term of the contract as an adjustment
to interest expense. See 1994 Annual Report to Stockholders, "Notes
to Consolidated Financial Statements, Note 3."
** Consistent with this treatment, financial instrument and commodity
related derivative contracts are carried at net replacement cost as
"financial instruments owned" and "financial instruments sold, not yet
purchased" in the Company's Consolidated Statement of Financial
Condition and are presented on a net-by-counterparty basis in cases
where there is a legal right of set-off and the Company has obtained an
enforceable netting agreement.
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commodities and may continue to do so in the future. In connection with such
activities, the Company has made and may continue to make investments for its
own account in one or more of such funds.
MERCHANT BANKING AND OTHER PRINCIPAL INVESTMENT ACTIVITIES
The Company also uses its capital and capital from funds under
its management in a variety of activities that have been broadly described as
merchant banking. Such activities include, among other things, making
commitments to purchase, and making investments in, equity and debt securities
in merger, acquisition, restructuring, private investment and leveraged capital
transactions. Such activities also include investments in real estate assets,
portfolios and operating companies. The Company is generally the general partner
of, and an investor in, the funds which it sponsors.
In the merchant banking area, Morgan Stanley Capital Partners
III, L.P. invests primarily in private equity or equity-related securities of
companies in which the fund and its affiliates will have a controlling equity
position. The Morgan Stanley Leveraged Equity Fund, L.P. and The Morgan Stanley
Leveraged Equity Fund II, L.P. have invested in and provided financing for
leveraged transactions and companies; these funds are no longer making new
investments, but are actively managing existing investment portfolios.
In the venture capital area, Morgan Stanley Venture Capital
Fund, II, L.P. invests primarily in private equity or equity-related securities
of U.S. emerging growth companies, principally in the U.S. healthcare and
information technology sectors. Morgan Stanley Research Ventures L.P. has
invested in research and development projects, and Morgan Stanley Venture
Capital Fund L.P. has made private equity investments in U.S. emerging growth
companies in the healthcare and information technology sectors; these funds are
no longer making new investments, but are actively managing existing investment
portfolios.
The Morgan Stanley Real Estate Fund, L.P. and The Morgan
Stanley Real Estate Fund II, L.P. invest primarily in real estate; the former
fund is no longer making new investments but is actively managing its existing
investment portfolio. Princes Gate Investors, L.P. assists the Company's clients
by investing globally in special situation opportunities, generally in the form
of minority equity positions which are short to medium term in duration.
From time to time the Company may sponsor additional funds and
commit to invest in such funds.
Equity securities purchased in merchant banking and principal
investment transactions ("investments") generally are held for appreciation, are
not readily marketable and do not provide dividend income. As of January 31,
1995, the aggregate carrying value of the Company's investments (directly and
indirectly through the above-referenced funds) in 83 privately held companies
was $252 million and in 13 publicly held companies was $136 million. At January
31, 1995, the Company had aggregate commitments of approximately $223 million
to make future investments in connection with its merchant banking and other
principal investment activities. The Company's future commitments extend until
January 1999.
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Investments made in connection with merchant banking and other
principal investment transactions initially are carried in the Company's
Consolidated Statement of Financial Condition at their original cost. The
carrying value of such equity securities is adjusted upward only when changes in
the underlying market values are readily ascertainable, generally as evidenced
by listed market prices or transactions which directly affect the value of such
equity securities. Any such adjustment may occur a significant time after an
investment in such equity securities has been made. Downward adjustments in such
equity securities are made in the event that the Company determines that the
eventual realizable value is less than the carrying value.
From time to time, the Company provides loans, financing
commitments or other extensions of credit, including on a subordinated and
interim basis, to companies (which may otherwise be leveraged) associated with
its merchant banking and other principal investment activities. Loans made in
connection with such activities are carried at unpaid principal balances less
any reserves for estimated losses. At January 31, 1995, there were no such loans
or other extensions of credit outstanding.
It is not possible to determine whether or when the Company
will realize the value of the investments, including any appreciation, dividends
or other distributions thereon, since, among other things, such investments are
generally subject to restrictions on such realization relating to the
circumstances of particular transactions. Moreover, estimates of the eventual
realizable value of the investments fluctuate significantly over time in light
of business, market, economic and financial conditions generally or in relation
to specific transactions or other factors, including the financial leverage
involved in the underlying transactions. Thus, these estimates may at any given
time differ from the carrying value of the investments. For a discussion of the
various risks associated with the Company's merchant banking and other principal
investment activities and the Company's policies and procedures with respect to
the management and monitoring of these risks, see "Risk Management."
For purposes of financial statement classification, merchant
banking and other principal investment advice, underwriting, origination and
commitment fees are included as investment banking revenues in the Company's
Consolidated Statement of Income. Fees for funds under management by the Company
are included in asset management and administration revenues. Investment gains
and losses relating to, and distributions from, equity investments are included
in principal transactions revenues.
The Company may also underwrite, trade, invest and make markets
in the securities of issuers in which the Company or the funds have an
investment. In addition, the Company may provide financial advisory services to,
and have securities and commodity trading relationships with, these issuers.
GLOBAL SECURITIES SERVICES
The Company provides a full range of securities services and
information, including global custody, clearance, lending and settlement
operations, foreign exchange, valuation services, cash management and margin
lending. The Company's securities services operations support mutual funds,
investment limited partnerships, insurance companies, banks,
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foundations, endowments, family trusts, government agencies, public and private
pension funds and broker-dealers. The Company acts as principal and agent in
stock borrow and stock loan transactions in support of the Company's domestic
and international trading and brokerage, asset management and clearing
activities and as an intermediary between broker-dealers. Through its global
securities services business, the Company has a network of agent banks in 60
countries. Morgan Stanley Capital International (MSCI(R)), the Company's global
equity index and company data business, provides the global investment
community with benchmark indices (including The World, EAFE(R) and Emerging
Market Indices), a 25-year historical database and price and fundamental data
covering 3,800 companies in 45 developed and emerging countries through a
variety of print, electronic and software vendor-supported products. Through
its global securities services business, the Company had approximately $90
billion in global assets under custody at January 31, 1995.
ASSET MANAGEMENT
Through Morgan Stanley Asset Management ("MSAM"), the Company
provides global portfolio management to taxable and non-taxable institutions,
domestic and foreign governments, pension funds, international organizations,
mutual funds and individuals investing in United States and international
equities and fixed income securities (including in emerging markets) and
sponsors open and closed-end mutual funds. The Company also performs a broad
range of fiduciary and named fiduciary services for pension funds and trusts.
Through MSAM, the Company had approximately $49 billion in assets under
management at January 31, 1995.
RESEARCH
The Company is engaged in a wide range of research activities.
The Company analyzes worldwide economic trends covering a broad range of
industries and companies in the U.S. and internationally and produces
publications and studies on the economy, financial markets, portfolio strategy,
technical market analyses, industry developments and individual companies. The
Company also provides analyses and forecasts relating to economic and monetary
developments affecting matters such as interest rates, Federal Reserve open
market operations, foreign currencies and securities and economic trends.
Support for the sales and trading of fixed income securities is also provided in
the form of quantitative and credit analyses and the development of research
products that are distributed to the Company's clients. In addition, the Company
provides analytical support and publishes reports on mortgage-related securities
and the markets in which they are traded and does original research on valuation
techniques.
FINANCE, ADMINISTRATION AND OPERATIONS
The Company's finance, administration and operations
departments include Information Technology, Firm Risk Management, Controllers,
Treasury, Tax, Legal and Compliance, Office of Development, Facilities, General
Services, and Security and Corporate Services. These departments support the
Company's diverse global businesses through the processing of securities,
foreign exchange and commodities transactions; receipt and delivery of funds and
securities; safeguarding of customers' securities; internal financial controls,
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including management of global expenses, capital structure and funding; and
ensuring compliance with regulatory and legal requirements. In addition, the
Company has integrated recruitment, staffing, compensation and benefits, and
career development and training initiatives to ensure that its human resources
are aligned with strategic objectives. Certain of these areas also assist in the
management and monitoring of the risks associated with the Company's business
activities (see "Risk Management").
COMPETITION AND REGULATION
The Company encounters intense competition in all aspects of
the financial services business and competes worldwide directly with other
firms, both domestic and foreign, a significant number of which have greater
capital and other resources. In addition to competition from firms traditionally
engaged in the securities business, there has been increased competition from
other sources, such as commercial banks, insurance companies and other companies
offering financial services. As a result of pending legislative and regulatory
initiatives in the United States to remove or relieve certain restrictions on
commercial banks, it is anticipated that competition in some markets currently
dominated by investment banks may increase in the near future. Such competition,
among other things, affects the Company's ability to attract and retain highly
skilled individuals.
The Company's business is, and the securities, commodities and
financial services industries generally are, subject to extensive regulation in
the United States at both the Federal and state levels. Various regulatory
bodies are charged with safeguarding the integrity of the securities and other
financial markets and with protecting the interests of customers participating
in those markets. Morgan Stanley is registered as a broker-dealer and an
investment adviser with the Securities and Exchange Commission ("SEC") and in
all 50 states, the District of Columbia and Puerto Rico and is a member of the
National Association of Securities Dealers, Inc. ("NASD") and the New York Stock
Exchange, Inc. ("NYSE"). The Company and certain other subsidiaries are
registered as investment advisers with the SEC and in certain states.
Broker-dealers are subject to regulation by state securities administrators in
those states in which they conduct business. Broker-dealers are also subject to
regulations that cover all aspects of the securities business, including sales
and trading practices, use and safekeeping of customers' funds and securities,
capital structure, record-keeping and the conduct of directors, officers and
employees. The SEC, other governmental regulatory authorities, including state
securities commissions, and self-regulatory organizations may institute
administrative proceedings, which may result in censure, fine, the issuance of
cease-and-desist orders, the suspension or expulsion of a broker-dealer or
member, its officers or employees or other similar consequences. Additional
legislation and regulations, including those relating to the activities of
affiliates of broker-dealers, changes in rules promulgated by the SEC or other
governmental regulatory authorities and self-regulatory organizations or
changes in the interpretation or enforcement of existing laws and rules may
directly affect the manner of operation and profitability of the Company.
As a futures commission merchant, Morgan Stanley is registered
with the Commodity Futures Trading Commission ("CFTC") and its activities in the
futures and options-on-futures markets are subject to regulation by the CFTC and
various domestic boards of trade and other commodity exchanges. Certain
subsidiaries of the Company are registered
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as commodity trading advisers and/or commodity pool operators with the CFTC.
The Company's futures and options-on-futures business is also regulated by the
National Futures Association ("NFA"), a not-for-profit membership corporation,
which has been designated a registered futures association by the CFTC and of
which Morgan Stanley is a member.
As a broker-dealer, Morgan Stanley is subject to the SEC's
temporary risk assessment rules which require, among other things, that a
broker-dealer maintain and preserve certain information, describe risk
management policies and procedures and report on the financial condition of
certain affiliates whose financial and securities activities are reasonably
likely to have a material impact on the financial and operational condition of
the broker-dealer. As a futures commission merchant, Morgan Stanley is also
subject to the first phase of the CFTC's risk assessment rules which have
certain requirements similar to the SEC's rules and also require the reporting
of certain "trigger events" when net capital is reduced by substantial amounts.
The Company is participating as a member of a select industry
task force to formulate a framework for the voluntary oversight of OTC
derivatives activities by the SEC and the CFTC. The task force has recently
developed voluntary standards relating to reporting, capital, management
controls and counterparty relationships.
Margin lending by certain subsidiaries of the Company is
subject to the margin rules of the Board of Governors of the Federal Reserve
System and the NYSE. The Company's subsidiary that engages in custodial
activities is subject to regulation by the New York State Banking Department.
Certain of the Company's government securities activities are
conducted through a subsidiary which is a member of the NASD and is registered
as a government securities broker-dealer with the SEC and in certain states. The
Department of the Treasury has promulgated regulations concerning, among other
things, capital adequacy, custody and use of government securities and transfers
and control of government securities subject to repurchase transactions. The
rules of the Municipal Securities Rulemaking Board, which are enforced by the
NASD, govern the municipal securities activities of the Company.
Companies in the merchant banking portfolio that are in certain
regulated industries (e.g., insurance, public utilities or broadcasting)
could subject the Company to additional regulation by virtue of the Company's
affiliation with the funds that own equity interests in such companies or
otherwise.
The Company's business is also subject to extensive regulation
by various foreign governments, securities exchanges, central banks and
regulatory bodies, especially in those jurisdictions in which the Company
maintains an office. For example, the Company's business in the United Kingdom
is regulated by the Securities and Futures Authority Limited, the Bank of
England and the Investment Management Regulatory Organisation, and a number of
exchanges, including the International Stock Exchange of the United Kingdom and
the Republic of Ireland Limited and the London International Financial Futures
and Options Exchange. The Bundesbank, the Bundesaufsichtsamt fur das Kreditwesen
(the Federal German Banking Authority), the Bundesaufsichtsamt fur das
Wertpapierhandel (the Federal German Securities
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<PAGE> 12
Agency), the Frankfurt Stock Exchange and the Deutsche Terminboerse (the German
Futures Exchange) regulate the Company's activities in the Federal Republic of
Germany. The Company's business in Japan is subject to Japanese law applicable
to foreign securities firms and related regulations of the Japanese Ministry of
Finance and to the rules of the Bank of Japan and several Japanese securities
and futures exchanges, including the Tokyo Stock Exchange, the Osaka Securities
Exchange and the Tokyo International Financial Futures Exchange. The Monetary
Authority of Singapore and the Singapore International Monetary Exchange
regulate the Company's business in Singapore; and the Company's operations in
Hong Kong are regulated by the Securities and Futures Commission of Hong Kong,
the Stock Exchange of Hong Kong Ltd. and the Hong Kong Futures Exchange.
As registered broker-dealers and member firms of the NYSE,
certain subsidiaries of the Company, including Morgan Stanley, are subject to
the SEC's net capital rule, and as a futures commission merchant Morgan Stanley
is subject to the net capital requirements of the CFTC and various commodity
exchanges. Many non-U.S. securities exchanges and regulatory authorities also
either have imposed or are considering imposing rules relating to capital
requirements that apply to subsidiaries of the Company (such as rules to be
promulgated in connection with the European Union Capital Adequacy Directive),
including certain European subsidiaries that are considered banking
organizations under local law. These rules, which specify minimum capital
requirements, are designed to measure general financial integrity and liquidity
and require that at least a minimum amount of assets be kept in relatively
liquid form. Compliance with the capital requirements may limit those operations
of the Company that require the intensive use of capital, such as underwriting,
merchant banking and trading activities, and the financing of customer account
balances, and also restricts the Company's ability to withdraw capital from its
subsidiaries, which in turn may limit the Company's ability to pay dividends,
repay debt or redeem or purchase shares of its outstanding capital stock. A
change in such rules, or the imposition of new rules, affecting the scope,
coverage, calculation or amount of capital requirements, or a significant
operating loss or any unusually large charge against capital would adversely
affect the ability of the Company to pay dividends or to expand or even maintain
present levels of business.
RISK MANAGEMENT*
Risk is an inherent part of the Company's businesses and
activities. The financial services business and its profitability are affected
by many factors of a national and international nature, including economic and
market conditions, broad trends in business and finance, legislation and
regulation affecting the national and international financial communities,
inflation, the availability of capital, the availability of credit and the level
and volatility of interest rates and currency values. The extent to which the
Company properly and effectively identifies, assesses, monitors and manages each
of the various types of risks involved in its activities is critical to its
success and profitability. The Company seeks to maintain a broad-based portfolio
- -----------------------
* For a further discussion of the Company's risk management policies and
procedures, see 1994 Annual Report to Stockholders,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Risk Management" and "Notes to Consolidated
Financial Statements, Note 5."
11
<PAGE> 13
of business activities to minimize the impact that volatility in any area or
related areas may have on its net revenues as a whole. From an operational
perspective, the Company seeks to actively manage the principal risks involved
in each area of business activity: market risk, credit risk, operational risk
and legal risk.
Risk management at the Company is an integrated process with
independent oversight which requires constant communication, judgment and
knowledge of specialized products and markets. The Company's senior management
takes an active role in the risk management process and has developed policies
and procedures that require specific administrative and business functions to
assist in the identification, assessment and control of various risks. The
Company has developed a control infrastructure to monitor and manage each type
of risk on a global basis throughout the Company. In addition, the Company has
developed particular risk management policies and procedures for certain
business activities including merchant banking and other principal investment
activities, high-yield securities and derivative products. The Company's risk
management policies and procedures are continually evolving to address the
increasingly global nature of the financial services business as well as the
continual development of sophisticated financial products with more varied and
complex risk profiles.
The Company has developed a multi-tiered approach for
monitoring and managing its risks. With respect to the Company's major trading
businesses, senior division risk managers monitor positions and set the overall
division risk profile within established limits, verify that position hedges are
appropriate and well maintained, and report unusual market and position events.
The base level of control is at the trading desks where desk risk managers and
traders perform similar functions with respect to a product area or particular
product. The Firm Risk Management Group has operational responsibility for
reporting to senior management on the Company's exposure to risk. The Firm Risk
Management Group consists of three departments that are all independent of the
Company's business areas: the Market Risk and Exposure Management Department
monitors certain divisional, geographic and product-line market risks; the
Credit Department establishes and monitors counterparty exposure limits and
collateral requirements to support counterparty contractual commitments; and the
Internal Audit Department, which also reports to the Audit Committee of the
Board of Directors, assesses the Company's operations and control environment
through periodic examinations of business and operational areas. Other
departments within the Company, which are independent of the Company's business
areas, that are also actively involved in monitoring the Company's risk profile
include the Controllers Department, the Operations Department and the Legal and
Compliance Department.
In addition, the Company has certain standing committees,
composed of a cross-section of the Company's senior officers from various
disciplines, that are involved in managing and monitoring the risks associated
with the Company's diverse businesses. The High-Yield Commitment Committee and
Equity Commitment Committee determine whether the Company should participate in
a transaction involving the underwriting or placement of high-yield or equity
securities, respectively, where the Company's capital and reputation may be at
risk and evaluate the potential revenues and risks involved with respect to a
particular transaction. The Company's Finance and Risk Committee among other
things establishes the overall funding, capital and credit policies of the
Company, reviews the Company's performance relative to these
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<PAGE> 14
policies, allocates capital among business activities of the Company, monitors
the availability of sources of financing, and oversees liquidity and interest
rate sensitivity of the Company's asset and liability position.
Market risk refers to the risk that a change in the level of
one or more market prices, rates, indices, volatilities, correlations or other
market factors, such as liquidity, will result in losses for a specified
position or portfolio. The Company manages the market risk associated with its
trading activities on an individual product basis, on a divisional level and
Company-wide. Specific risk limits are assigned to each trading area of the
Company and trading desks within trading areas. These limits are reviewed
periodically and are adjusted as required. The Company uses analytic and
quantitative tools, such as option pricing and hedge models, to quantify market
risk for comparison, by product, to specific internal risk limits and to assess
the sensitivity of positions at risk to changes in market conditions. The
Company also regularly uses a variety of measures to reduce and control the
market risk associated with trading proprietary positions and making markets.
Market-making positions are generally hedged (that is, covered by similar,
offsetting positions). Hedges may be designed to remove all or part of a
position's exposure to price or yield movements and are chosen using analytic
tools similar to those used to determine the risk of the positions being hedged.
The Company attempts to match the risk profiles of each portfolio of securities
and any related hedges as closely as possible, and to accomplish this often uses
futures, options or other derivative products. Exposures in proprietary
positions are managed by customizing trades to respond to specific market
movements, establishing limits and monitoring procedures and regularly marking
positions to market.
The Company's exposure to credit risk arises from the
possibility that a counterparty to a transaction might fail to perform under its
contractual commitment, resulting in the Company incurring losses in liquidating
or covering the position in the open market. All counterparties are reviewed on
a regular basis to establish appropriate exposure limits for a variety of
transactions. In certain cases, specific transactions are analyzed by the Credit
Department to determine the amount of potential exposure that could arise, and
the counterparty's credit is reviewed to determine whether it supports such
exposure. In addition to the counterparty's credit status, the Credit
Department analyzes market movements that could affect exposure levels. The
Credit Department considers four main factors that may affect trades in
determining trading limits: the settlement method; the time it will take for a
trade to settle (i.e., the maturity of the trade); the volatility that could
affect the value of the securities involved in the trade; and the size of the
trade. In addition to determining trading limits, the Company actively manages
the credit exposure relating to its trading activities by entering into master
netting agreements when feasible; monitoring the creditworthiness of
counterparties and the related trading limits on an ongoing basis and
requesting additional collateral when deemed necessary; diversifying and
limiting exposure to individual counterparties and geographic locations; and
limiting the duration of exposure. In certain cases, the Company may also close
out transactions or assign them to other counterparties when deemed necessary
or appropriate to mitigate credit risk.
Operational risk refers to the risk of human error and
malfeasance or deficiencies in the Company's operating system. There is
considerable fluctuation within each year and from year to year in the volume of
business that the Company must process, clear and settle with the
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<PAGE> 15
trend toward increased transaction volume. The Company is exposed to
operational risk from processing and settlement problems which may be
especially acute in some non-U.S. markets, particularly emerging markets, and
during periods of heavy trading volume in certain U.S. markets. The Company's
advanced technology reduces transaction errors and costs by facilitating the
Company's ability to communicate relevant information worldwide among business
units within the Company, between the Company and its clients, and between the
Company and the markets in which it participates. Through various management
information systems, senior management has access to information to monitor
principal positions and related funding activity. The Company's Controllers and
Operations Departments monitor position, profit/loss and balance sheet
information on a daily basis through rigorous reconciliation procedures, and
business unit profitability, position market prices and aged positions are also
analyzed. The Company's Information Technology Department is regularly involved
in automation efforts to improve operational monitoring and control procedures
while the Internal Audit Department is responsible for the periodic review of
the effectiveness of these procedures.
Legal risk is risk of non-compliance with applicable legal and
regulatory requirements and the risk that a counterparty's performance
obligations will be unenforceable. The Company is generally subject to extensive
regulation in the different jurisdictions in which it conducts its business
(see "Competition and Regulation"). The Company has established legal
standards and procedures on a world-wide basis that are designed to ensure
compliance with all applicable statutory and regulatory requirements. The
Company, principally through the Legal and Compliance Department, has also
established procedures, such as the Company's Code of Conduct, to ensure that
senior management's policies relating to conduct, ethics and business practices
are followed. The Company also conducts education and training programs which
emphasize protection of client interests and maintenance of the Company's
reputation and global business franchise. The Company has established certain
procedures to mitigate the risk that a counterparty's performance obligations
will be unenforceable. The Company has also adopted certain procedures, which
are generally product-specific and vary in accordance with risk profile and
market practice, to determine counterparty authority and legal capacity,
adequacy of legal documentation, the permissibility of the transaction under
local law and whether applicable bankruptcy or insolvency laws limit or alter
contractual remedies.
Positions and commitments taken by the Company in connection
with its merchant banking and other principal investment activities often may
involve substantial amounts of capital and subject the Company to risk due to
significant exposure to one issuer or business, and to market and credit risk.
Additionally, the equity securities owned by the Company and the funds sponsored
by the Company in connection with the Company's principal investment activities
are generally not highly liquid. All proposed equity investments made by a fund
sponsored by the Company are reviewed and approved by senior professionals in
the department of the Company responsible for identifying and making such
investments on behalf of such fund, and any proposed equity investments, loans,
financing commitments or other extensions of credit by the Company to portfolio
companies are reviewed and approved by senior management.* The Company analyzes
projected operating cash flows of the prospective portfolio company's
- ---------------------------
* As previously indicated, there were no such loans, financing
commitments or other extensions of credit outstanding at January
31, 1995.
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<PAGE> 16
business and projected returns on equity for the investment and their
sensitivities to changes in economic assumptions, and reviews the prospective
portfolio company's industry and its prospects as well as the portfolio
company's relative position in the industry. With respect to any loans,
financing commitments or other extensions of credit, the Company reviews the
creditworthiness of the portfolio company, the availability to the company of
financing generally, the likely overall financial return and the Company's
available capital and funding sources. After any investment or loan, financing
commitment or other extension of credit is made, the Company continually
monitors the portfolio company's business plan and financial performance as
well as overall trends in the portfolio company's industry.
The Company's trading and underwriting of high-yield debt
securities and emerging market loans and securitized instruments also subjects
the Company to market and credit risks. For example, securities held by the
Company in connection with its high-yield trading activities typically rank
subordinate to bank debt of the issuer and may rank subordinate to other debt of
the issuer. The market for these securities has been, and may in the future
continue to be, characterized by periods of illiquidity. The liquidity of any
particular issue may be significantly better or worse than the overall liquidity
of the high-yield market at any time, depending on the quality of the issuer,
and during certain periods market quotations may not represent firm bids of
dealers or prices of actual sales. In addition, the Company through its
market-making and trading activities may be the sole or principal source of
liquidity in certain issues and, as a result, may substantially affect the
prices at which such issues trade. To mitigate the potential impact on the
Company's operating results of the greater risk inherent in high-yield debt
securities and emerging market loans and securitized instruments, the Company
has in place policies to control total inventory positions in these securities
and instruments. Additionally, the Company has in place specific credit policies
to control exposures to individual emerging market counterparties.
Derivatives facilitate risk transfer and enhance liquidity in
the marketplace, and the origination and trading of derivatives have expanded
significantly over the past decade. Derivative instruments have been utilized as
efficient and cost effective tools that enable users to adjust risk profiles,
such as interest rate, currency, or other market risks, or to take proprietary
trading positions. Widespread acceptance of derivatives has contributed to the
development of more complex OTC products structured for particular clients to
address specific financing and risk management needs.* Derivative transactions
may have both on- and off-balance sheet implications, depending on the nature of
the contract, and the Company's use of derivative products may subject the
Company to market and credit risks.** In times of market stress, sharp price or
volatility movements may also reduce liquidity in certain derivatives positions,
as well as in underlying non-derivative (cash) instruments. Credit risk in
- ----------------------------
* As previously indicated, the Company also uses derivative products
(primarily interest rate and currency swaps) to assist in asset and
liability management and to reduce borrowing costs. The risks
associated with derivatives activities in this context are managed in a
manner consistent with the Company's overall risk management policies.
** It should be noted, however, that in many cases derivatives serve to
reduce, rather than increase, the Company's exposure to losses from
market, credit and other risks.
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<PAGE> 17
the context of OTC derivative transactions relates to the potential for a
counterparty to default on its contract and is represented by the replacement
cost of all contracts in a gain position (after considering the effects of
master netting agreements where applicable) rather than by the gross notional
or contractual values. The risks associated with derivative products, including
credit and market risks, are managed in a manner consistent with the Company's
overall risk management policies. The Company's exposure to changes in interest
rates, foreign currencies and other factors is managed on an individual product
basis, generally by entering into offsetting or other positions in a variety of
financial instruments and derivative products. The Company manages its credit
exposure to derivative products by entering into master netting agreements when
feasible, monitoring the creditworthiness of counterparties on an ongoing basis
and requesting initial and/or additional collateral when deemed necessary,
diversifying and limiting exposure to individual counterparties, and limiting
the duration of exposure. In addition, with respect to certain exchange-listed
derivatives, the Company has in place agreements with customers that permit the
Company to close out positions or require additional collateral (and in many
cases require excess collateral) if certain events occur. In certain instances,
the Company may also limit the types of derivative products that may be traded
in a particular account.
ITEM 2. PROPERTIES
The Company's executive offices are located at 1251 Avenue of
the Americas, New York, New York, and occupy 612,255 square feet under a lease
expiring in 1998. The Company also leases space at various other locations in
Manhattan under leases expiring between 1996 and 2002 and aggregating
approximately 504,447 square feet. In addition, the Company leases space in
Brooklyn, New York, aggregating approximately 383,112 square feet under a lease
expiring in 2013.
During 1995, the Company will relocate approximately 4,100 of
its New York City employees from existing leased space at 1221 and 1251 Avenue
of the Americas to space in its buildings at 1585 Broadway and 750 Seventh
Avenue, which were purchased in fiscal 1993 and fiscal 1994, respectively. The
Company plans to occupy approximately 980,500 square feet at 1585 Broadway,
which will become the Company's New York headquarters, and approximately
342,000 square feet of space at 750 Seventh Avenue. The total investment in
these two buildings will aggregate approximately $700 million and will be
capitalized and depreciated over the useful lives of the individual assets
comprising the investment.
During fiscal 1994, the Company recognized a pre-tax charge of
$59 million ($39 million after tax). The charge was in connection with the
Company's pending move to the purchased New York City facilities and to new
office space in Tokyo. The charge specifically covers the Company's termination
of certain leased office space and the write-off of remaining leasehold
improvements in both cities.
The Company's London headquarters are located at 25 Cabot
Square, Canary Wharf (approximately three miles east of the City of London), and
occupy approximately 475,000 square feet of a 500,000 square foot building (the
"Building") constructed by the Company. The Company owns the ground lease
obligation and has a 999-year lease plus an option to acquire the freehold
interest in the land and the Building. The Company recently
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<PAGE> 18
leased approximately 350,000 square feet at 20 Cabot Square, Canary Wharf,
under a lease arrangement expiring in 2020.
Most of the Company's other offices are located in leased
premises, the leases for which expire at various dates through 2011. Facilities
owned or occupied by the Company and its subsidiaries are believed to be
adequate for the purposes for which they are currently used and are well
maintained.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in the following litigation matters.
I. State of West Virginia v. Morgan Stanley & Co. Incorporated. On
October 24, 1989, the State of West Virginia (the "State") commenced an action
in the Circuit Court of Kanawha County, West Virginia against Morgan Stanley,
County NatWest Government Securities, Inc., County NatWest, Inc., Salomon
Brothers Inc, Greenwich Capital Markets, Inc. and Goldman, Sachs & Co., alleging
that the defendants had induced the State, through its Board of Investments and
the office of the State Treasurer, to engage in unsuitable and speculative
investment activity in the State's Consolidated Fund. The complaint alleged
that, as a result of this activity, the Consolidated Fund suffered significant
losses. As against Morgan Stanley, the complaint alleged damages in excess of
$79 million. All of the other defendants settled with the State.
On March 15, 1992, the court orally granted partial summary
judgment for the State on certain of its claims. The trial began on March 30,
1992 and concluded on May 8, 1992. On May 6, 1992, the court directed a verdict
of approximately $32.6 million against Morgan Stanley on the State's
ultra vires claim. On May 8, 1992, the jury awarded approximately $4.9 million
in damages against Morgan Stanley on the State's constructive fraud claim,
but found that Morgan Stanley had not engaged in actual fraud. On October 13,
1993, the court entered a judgment in the action awarding the State the total
amount of $56.8 million, inclusive of pre-judgment interest, and ordering that
post-judgment interest accrue on that sum at the statutory rate of 10% per
annum until the judgment is paid. On January 12, 1994, the court denied Morgan
Stanley's motion for judgment notwithstanding the verdict or, alternatively,
for a new trial. The court granted Morgan Stanley's motion for a stay pending
appeal. On May 9, 1994, Morgan Stanley filed a petition for appeal, which was
granted by the Supreme Court of Appeals of West Virginia on June 29, 1994.
Following oral argument on January 18, 1995, the Supreme Court of Appeals
entered an order on January 20, 1995 directing the Circuit Court to prepare
written findings of fact and conclusions of law clarifying the basis of its
ruling. That decision was issued on March 3, 1995. Reargument of the appeal
before the Supreme Court of Appeals is currently scheduled for May 10, 1995.
II. Taxable Municipal Bond Litigation. Between April and October
1990, 16 purported class action complaints were filed in various federal and
state courts alleging claims relating to eight offerings of taxable municipal
bonds by eight different issuers in 1986. On November 27, 1990, the federal
Judicial Panel on Multi-district Litigation transferred all of the actions to
the United States District Court for the Eastern District of Louisiana for
consolidated pretrial proceedings.
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<PAGE> 19
On May 3, 1991, eight amended and consolidated complaints (the
"Amended and Consolidated Complaints") were filed in connection with the
proceedings arising out of eight different bond offerings (the "Eight
Offerings"). In addition, a single Racketeer Influenced and Corrupt
Organizations Act ("RICO") complaint was filed on May 3, 1991, which addressed
all of the Eight Offerings. The Amended and Consolidated Complaints and the RICO
complaint, like the previously filed complaints, alleged that the defendants
fraudulently informed investors that the proceeds of the Eight Offerings would
be used to fund low cost, public interest loans. According to the Amended and
Consolidated Complaints, the money was instead invested in guaranteed investment
contracts ("GICs") issued by Executive Life Insurance Company ("Executive Life")
as part of a purported scheme on the part of Drexel Burnham Lambert Incorporated
("Drexel") and Executive Life to use the underwriting of municipal bonds to
permit Executive Life to invest in high risk junk bonds through Drexel. (Due to
its bankruptcy filing, Drexel was not named as a defendant in any of the Amended
and Consolidated Complaints.) Following the deterioration of the high yield bond
market, the ratings of Executive Life and the GIC-backed bonds were downgraded,
and the resulting decline in the value of the bonds is alleged to have caused
losses to the members of the purported plaintiff classes. The plaintiff class in
each of the actions purportedly consists of all persons who purchased the bonds
at issue prior to and including April 9, 1990. The Amended and Consolidated
Complaints generally alleged violations of section 10(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and rule 10b-5
promulgated thereunder, section 80a of the Investment Company Act of 1940 (the
"Investment Company Act"), section 80b-3 of the Investment Advisers Act of 1940
(the "Advisers Act") and common law and/or statutory fraud, and sought actual
and punitive damages in unspecified amounts, rescission, declaratory relief,
interest, costs and attorneys' fees. The RICO complaint alleged violations of
section 1962(c) and (d) of Title 18 and sought compensatory and treble damages
in unspecified amounts, injunctive relief, disgorgement, interest, costs, and
attorneys' fees. Morgan Stanley was named as a defendant in seven of the eight
Amended and Consolidated Complaints and in the RICO complaint. The master
caption of the multi-district proceeding is In re Taxable Municipal Bond
Securities Litigation. The seven actions naming Morgan Stanley as a
defendant are: Farm Bureau Federation, et al. v. The Board of County
Commissioners of Adams County, Colorado, et al.; Washington National Life
Insurance Company of New York, et al. v. Morgan Stanley & Co. Incorporated, et
al.; First National Bank, et al. v. Louisiana Housing Finance Agency, et al.;
Associated Kellogg Bank, et al. v. Louisiana Agricultural Finance Authority, et
al.; Bloomfield State Bank, et al. v. Louisiana Agricultural Finance Authority,
et al.; Virgin, et al. v. Health, Educational and Housing Facility Board of the
City of Memphis, Tennessee, et al.; and Farm Bureau Town & Country Insurance
Company of Missouri, et al. v. El Paso Housing Finance Corporation, et al.
On June 3, 1992, the court dismissed plaintiffs' claims under
the Investment Company Act and the Advisers Act. On November 1, 1993, certain of
the defendants in the various actions filed cross-claims to preserve their
various claims for contribution, credit or offset. In connection with the RICO
action, all of the plaintiffs except Washington National Life Insurance Company
and Washington National Life Insurance Company of New York withdrew their RICO
claims without prejudice. Thereafter, on December 13, 1993, the court granted
defendants' motion for summary judgment on the Washington National plaintiffs'
RICO claims, and denied the Washington National plaintiffs' motion for leave to
file an amended RICO
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complaint. On February 2, 1994, the court entered an order imposing sanctions
on counsel for the Washington National plaintiffs.
The parties reached an agreement to settle the various actions in which
Morgan Stanley was named as a defendant, and the settlement was approved by the
court on February 1, 1995. A fairness hearing on the proposed settlement is
scheduled for July 31, 1995.
III. Lundy, et al. v. Morgan Stanley & Co. Inc. On September 28, 1990, a
purported class action complaint was filed in the United States District Court
for the Northern District of California, purportedly on behalf of all persons
who purchased 12.40% Debentures due 1997 (the "Debentures") of Imperial
Corporation of America ("ICA") between January 9, 1987 and July 1, 1990. Morgan
Stanley and Drexel Burnham Lambert Incorporated ("Drexel") were the underwriters
for the initial offering of $100 million of the Debentures. On February 28,
1990, ICA filed for protection under Chapter 11 of the Federal Bankruptcy Code,
and on July 1, 1990 defaulted on the payment of interest on the Debentures. The
complaint alleged that the Debentures were issued in order to facilitate ICA's
continuing investment in high yield junk bonds through Drexel, and that, with
Morgan Stanley's knowledge, the prospectus issued in connection with the
Debentures was materially false and omitted to state material information. The
complaint asserted claims under section 10(b) of the Exchange Act and rule 10b-5
promulgated thereunder, and for fraud, negligence, negligent misrepresentation
and false advertising, and sought rescission, compensatory and punitive damages
in unspecified amounts, disgorgement of profits and compensation, costs and
attorneys' fees. On February 25, 1991, the court certified the plaintiff class.
On January 25, 1993, Morgan Stanley filed a motion for summary judgment. On
October 21, 1993, the court entered a preliminary order approving an agreement,
subject to certain contingencies, to settle the action.
IV. Katell, et al. v. Morgan Stanley Group, Inc., et al. On November 6,
1991, a complaint was filed in the Court of Chancery of the State of Delaware
for New Castle County against the Company, Morgan Stanley, two Morgan Stanley
employees, Morgan Stanley Leveraged Capital Fund, Inc., Morgan Stanley Leveraged
Equity Fund, L.P. ("MSLEF"), CIGNA Corp., CIGNA Capital Advisors, Inc., CIGNA
Leveraged Capital Fund, Inc., SIBV/MS Holdings, Inc., Jefferson Smurfit Corp.,
Container Corporation of America ("CCA"), Silgan Holdings Inc. and Silgan
Corporation ("Silgan"). The complaint, filed on behalf of two limited partners
in MSLEF, alleged breaches of fiduciary duties, willful misconduct, gross
negligence and breach of contract in connection with the purchase and sale of
MSLEF's interests in CCA and Silgan. The complaint alleged damages in excess of
$32.9 million and sought compensatory damages in an unspecified amount,
together with interest. On February 17, 1992, plaintiffs filed an amended
complaint, adding derivative claims and seeking an accounting. On January 14,
1993, the court dismissed plaintiffs' individual claims, co-investor claims,
right of first refusal claims and aiding and abetting claims, but did not
dismiss plaintiffs' derivative claims regarding the CCA and Silgan sale prices.
On September 27, 1993, the court granted defendants' motion to stay the action
pending a report by a special litigation committee. On April 15, 1994, the
special litigation committee filed its report together with a motion to dismiss
the action. On March 28, 1995, the court heard oral argument on the motion to
dismiss. A decision is pending.
A related action, captioned Desert Equities, Inc. v. Morgan
Stanley Leveraged Equity Fund II, L.P., et al., was commenced on February
18, 1992 in the Court of Chancery
19
<PAGE> 21
of the State of Delaware for New Castle County against Morgan Stanley Leveraged
Equity Fund II, L.P. ("MSLEF II"), Morgan Stanley Leveraged Equity Fund II,
Inc. and the Company. The complaint alleged that plaintiff, a limited partner
in MSLEF II, was improperly excluded from MSLEF II investment opportunities in
retaliation for its participation in the Katell litigation described above. The
complaint asserted claims for breach of fiduciary duty, breach of the MSLEF II
Partnership Agreement and breach of an implied covenant of good faith and fair
dealing. The complaint sought damages in an unspecified amount, interest,
injunctive relief, specific performance of the Partnership Agreement and an
accounting. On July 28, 1992, the court granted defendants' motion for judgment
on the pleadings. On June 1, 1993, the Delaware Supreme Court reversed and
remanded the action for further proceedings. Discovery is proceeding.
V. Atwood, et al. v. Burlington Industries Equity, Inc., et al.
On June 3, 1992, a purported class action complaint was filed against Burlington
Industries Equity, Inc. ("Burlington"), the Company, and seven officers and/or
directors of Burlington, two of whom are Morgan Stanley employees. NationsBank
Trust Company was subsequently added as a defendant. The plaintiff class
purportedly consists of all participants in and beneficiaries of Burlington's
Employee Stock Ownership Plan ("ESOP"). The complaint alleged that defendants
violated the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and breached various fiduciary duties purportedly owed to plaintiffs
in connection with the ESOP's August 1989 purchase of certain Burlington voting
stock at $37.80 per share. The complaint alleged that defendants thereafter
caused Burlington to engage in a series of transactions which decreased
significantly the value of the ESOP's investment in Burlington stock. The
complaint sought compensatory and punitive damages in unspecified amounts,
rescission of the ESOP's August 1989 purchase of Burlington stock, removal of
all defendants as ESOP fiduciaries under the ERISA statute, pre- and
post-judgment interest, costs and attorneys' fees. The action is pending in the
United States District Court for the Middle District of North Carolina.
On August 3, 1994, the court granted in part and denied in part
defendants' motion to dismiss the action. On February 13, 1995, the court
granted plaintiffs' motion for class certification. Discovery is proceeding.
VI. Hedged-Investments Litigation. On August 6, 1993, a purported class
action complaint captioned Bruce W. Higley, D.D.S., M.S., P.A. Defined Benefit
Annuity Plan v. Donahue, et al. was filed in the District Court for the City and
County of Denver, Colorado purportedly on behalf of all persons and entities who
invested, directly or indirectly, in certain investment partnerships or entities
organized and/or managed by James D. Donahue ("Donahue"). Donahue was the
founder and president of Hedged-Investments Associates, Inc. ("HIA"), through
which Donahue conducted the options trading at issue in the action. HIA, in
turn, was allegedly the general partner of several limited partnerships. The
trading at issue occurred through accounts held at Morgan Stanley, Kidder,
Peabody & Co. Incorporated ("Kidder"), and Prudential Securities Incorporated
("Prudential"). The action was brought against Donahue, Morgan Stanley, Kidder,
Prudential, and individual employees at each of those firms. The complaint
alleged that despite representations made to investors that the trading would be
based on a "scientific" approach, would be fully hedged, and would yield a
predictable return, Donahue, in conspiracy with and aided and abetted by the
other defendants, in reality engaged in risky trading strategies while operating
a "Ponzi scheme," which caused investors
20
<PAGE> 22
to suffer substantial losses. As against the brokerage firms, the complaint
asserted state law causes of action for violating and aiding and abetting
violations of state securities laws, fraud and aiding and abetting fraud,
aiding and abetting Donahue's breach of fiduciary duty, theft by deception,
civil conspiracy, and aiding and abetting conversion. The complaint also
asserted causes of action under the Colorado Organized Crime Control Act. The
complaint sought rescissory and compensatory damages in unspecified amounts,
treble damages, costs and attorneys' fees.
Related litigation against Morgan Stanley and the other defendants is
pending in the same court. That litigation includes an action by HIA's
bankruptcy trustee and a competing class action brought on behalf of essentially
the same class of investors alleged to be represented in Higley. On
March 10, 1994, the court certified a plaintiff class in Higley and the
competing class action. The court denied various motions to dismiss.
An agreement has been reached to settle Higley and the competing class
action. On March 3, 1995, the proposed settlement was filed for court approval.
A fairness hearing is scheduled for April 28, 1995.
The settlement described above, upon final approval by the court, will
result in the dismissal of all related litigation against Morgan Stanley except
for the action filed by the bankruptcy trustee for HIA and certain related
partnerships, captioned Sender v. Kidder, Peabody & Co. Incorporated, et
al. On November 17, 1994, the court in Sender vacated an earlier
order that had dismissed the only claim asserted by the trustee against Morgan
Stanley. Discovery in the Sender action is proceeding, and the trial is
scheduled to begin on January 29, 1996.
VII. First Tokyo Index Trust Limited v. Morgan Stanley Trust Company and
Morgan Stanley International. On September 30, 1993, First Tokyo Index Trust
Limited ("First Tokyo") commenced an action in the High Court of Justice,
Chancery Division, London, against Morgan Stanley Trust Company ("MSTC") and
Morgan Stanley International ("MSI"). MSTC was the custodian for First Tokyo's
assets, and MSI engaged in certain transactions concerning those assets. First
Tokyo asserted claims for breach of contract, negligence, breach of trust,
breach of fiduciary duty, conversion and constructive trust, and sought the
return of certain assets remaining in the First Tokyo custodial account with
MSTC, compensatory damages in an unspecified amount, interest, costs and an
accounting. On December 31, 1993, MSTC and MSI filed their defenses, as well as
claims for contribution and/or indemnity against various individuals and
entities. The parties subsequently amended their respective pleadings. On May
12, 1994, the court granted in part and denied in part plaintiff s motion to
strike certain of the defenses asserted by the defendants. The defenses were
subsequently amended and re-served. On November 10, 1994, the court granted
MSTC and MSI's application to add Coopers & Lybrand as a third-party defendant,
and to assert claims for contribution and/or indemnity against Coopers &
Lybrand. Discovery is proceeding.
VIII. The National Commercial Bank v. Morgan Stanley Asset Management,
Inc., et al. On May 2, 1994, a complaint was filed in the United States District
Court for the Southern District of New York by The National Commercial Bank
("NCB") against Morgan Stanley Asset Management Inc. ("MSAM") and certain MSAM
employees. The complaint alleges that NCB
21
<PAGE> 23
established a managed account at MSAM in or about February 1993 to trade United
States Treasury securities and that in August 1993 that account suffered
substantial losses. The complaint alleges violations of sections 10(b) and
20(a) of the Exchange Act and rule 10b-5 promulgated thereunder, common law
fraud, common law constructive fraud, breach of fiduciary duty, breach of
contract, negligence and negligent misrepresentation, and seeks compensatory
damages in excess of $39 million, punitive damages in an unspecified amount,
costs, attorneys' fees and interest. On June 28, 1994, defendants filed answers
to the complaint. On July 13, 1994, defendants filed third-party complaints
against two employees of NCB, asserting claims over and for contribution and
indemnity in the event defendants are determined to be liable to NCB. Discovery
is proceeding.
IX. NASDAQ Antitrust Litigation. On December 16, 1994, a consolidated
amended complaint was filed in the United States District Court for the Southern
District of New York against a total of 33 defendants, including Morgan Stanley.
The consolidated amended complaint alleges that Morgan Stanley and other
participants and market makers on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") engaged in a conspiracy to fix the
"spread" between bid and asked prices for securities traded on the NASDAQ in
violation of Section 1 of the Sherman Act. The plaintiff class is alleged to
include persons throughout the United States who are customers of the defendants
or their affiliates and who purchased or sold securities on the NASDAQ during
the period from May 1, 1989 through May 27, 1994. Plaintiffs are alleged to have
been damaged in that they paid more for securities purchased on the NASDAQ, or
received less for securities sold, than they would have but for the alleged
conspiracy. The consolidated amended complaint seeks compensatory damages,
treble damages, declaratory and injunctive relief, attorneys' fees and costs.
Judgment against each of the defendants is sought on a joint and several basis.
On February 2, 1995, Morgan Stanley and the other named defendants filed a
motion to dismiss.
In addition to the federal court litigation, on May 27, 1994, a
purported class action complaint captioned Abel, et al. v. Merrill
Lynch & Co., et al. was filed in California Superior Court, San Diego
County, against Morgan Stanley and 12 other participants and market makers on
the NASDAQ. The complaint raised substantially the same allegations as the
federal court litigation, on behalf of a purported class of persons in
California who purchased or sold securities on the NASDAQ. On April 5, 1995, by
agreement of the parties and by order of the Court, this matter was dismissed
without prejudice, and the relevant statutes of limitation tolled pending
termination of the federal actions.
X. Other. In addition to the matters described above, the Company,
including Morgan Stanley, has been named from time to time as a defendant in
various legal actions, including arbitrations, arising in connection with its
activities as a global diversified financial services institution, certain of
which include large claims for punitive damages. The Company, including Morgan
Stanley, is also involved, from time to time, in investigations and proceedings
by governmental and self-regulatory agencies.
In view of the inherent difficulty of predicting the outcome of
such matters, particularly in cases such as some of those described above in
which substantial damages are sought, the Company cannot state what the eventual
outcome of pending matters will be. The Company is contesting the allegations
made in each pending matter and believes, based on
22
<PAGE> 24
current knowledge and after consultation with counsel, that the outcome of such
matters will not have a material adverse effect on the Company's Consolidated
Financial Statements incorporated by reference herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders
during the quarter ended January 31, 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides certain information about each of the
Registrant's executive officers on January 31, 1995:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Richard B. Fisher 58 Chairman of the Board of Directors, Managing Director and
Director of the Registrant and Morgan Stanley
John J. Mack 50 President, Managing Director and Director of the Registrant
and Morgan Stanley
Barton M. Biggs 62 Managing Director and Director of the Registrant and Morgan
Stanley
Peter F. Karches 43 Managing Director and Director of the Registrant and Morgan
Stanley
Robert W. Matschullat* 47 Managing Director and Director of the Registrant and Morgan Stanley
Sir David A. Walker 55 Director of the Registrant and Morgan Stanley and Managing Director
of Morgan Stanley
Jonathan M. Clark 57 General Counsel and Secretary of the Registrant and Morgan Stanley
and Managing Director and Director of Morgan Stanley
</TABLE>
- --------------------------
* Mr. Matschullat will not stand for re-election as a Director of the
Registrant at the 1995 Annual Meeting of and will resign from the
Company effective July 1995.
23
<PAGE> 25
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Philip N. Duff 38 Chief Financial Officer of the Registrant and Morgan Stanley and
Managing Director of Morgan Stanley
Charles B. Hintz 45 Treasurer of the Registrant and Morgan Stanley and Managing Director
of Morgan Stanley
</TABLE>
All directors hold office until the next annual meeting of
stockholders and until their respective successors have been duly elected and
qualified. Officers serve at the discretion of the Board of Directors. There are
no family relationships among any directors or executive officers.
Mr. Fisher has served as Chairman of the Board of Directors of the
Registrant and Morgan Stanley since January 1991. From January 1984 through
December 1990, he served as President of the Registrant and Morgan Stanley. He
has been a director and a Managing Director of the Registrant since July 1975
and a director and a Managing Director of Morgan Stanley since July 1970. He has
also been a member of the Registrant's Executive Committee since March 1986 and
its chairman since May 1991. He was a partner of Morgan Stanley & Co. from July
1970 through June 1975.
Mr. Mack has been President of the Registrant and Morgan Stanley
since June 1993. He has been a director and a Managing Director of the
Registrant since December 1987 and was a director and a Managing Director of the
Registrant from January 1979 until March 1986. Mr. Mack has been a director and
a Managing Director of Morgan Stanley since January 1979. He has also been a
member of the Registrant's Executive Committee since December 1987.
Mr. Biggs has been a director and a Managing Director of the
Registrant since May 1991 and a director and Managing Director of Morgan Stanley
since July 1973. He was a director and a Managing Director of the Registrant
from July 1975 to March 1986. He has also been a member of the Registrant's
Executive Committee since May 1991. He was a partner of Morgan Stanley & Co.
from June 1973 through June 1975.
Mr. Karches has been a director and a Managing Director of the
Registrant since February 1994 and a director and a Managing Director of Morgan
Stanley since January 1985. He has also been a member of the Registrant's
Executive Committee since February 1994.
Mr. Matschullat has been a director and a Managing Director of the
Registrant since July 1992 and a Managing Director of Morgan Stanley since
February 1986. He has been a director of Morgan Stanley from February 1986 to
September 1991 and since January 1992. He has also been a member of the
Registrant's Executive Committee since July 1992.
Sir David Walker has been a director of the Registrant since
November 1994, a director of Morgan Stanley since February 1995 and a Managing
Director of Morgan Stanley since November 1994. He has also been a member of the
Registrant's Executive Committee
24
<PAGE> 26
since November 1994. Before joining the Company, Sir David was a Deputy
Chairman of Lloyds Bank in England. From 1988 to 1992 he was Chairman of the
Securities and Investments Board, the British authority that regulates the
securities markets.
Mr. Clark has been the General Counsel and Secretary of the
Registrant and Morgan Stanley since February 1993. Since February 1993 he has
been a director and a Managing Director of Morgan Stanley. Before joining the
Company, Mr. Clark was a partner of Davis Polk & Wardwell, a New York law firm.
Mr. Duff has been the Chief Financial Officer of the Registrant and
Morgan Stanley since February 1994. He has been a Managing Director of Morgan
Stanley since February 1993 and a Principal of Morgan Stanley from January 1991
to February 1993. From January 1989 to January 1991 he was a Vice President of
Morgan Stanley.
Mr. Hintz has been the Treasurer of the Registrant and Morgan
Stanley since January 1992. He has been a Managing Director of Morgan Stanley
since February 1993. From January 1989 to February 1993 he was a Principal of
Morgan Stanley.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information relating to the principal market in which the
Registrant's Common Stock is traded, the high and low sales prices per share for
each full quarterly period within the two most recent fiscal years, the
approximate number of holders of record of Common Stock and the frequency and
amount of any cash dividends declared for the two most recent fiscal years is
set forth under the caption "Quarterly Results" on page 77 of the Registrant's
1994 Annual Report to Stockholders and such information is hereby incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data for the Registrant and its subsidiaries for
each of the last five fiscal years is set forth under the same caption on page 2
of the 1994 Annual Report to Stockholders. Such information is hereby
incorporated herein by reference and should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto contained on pages 46 to
77 of such Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and
Results of Operations is set forth under the same caption on pages 33 to 44 of
the 1994 Annual Report to Stockholders. Such information is hereby incorporated
herein by reference and should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto contained on pages 46 to 77 of such
Annual Report.
25
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Registrant and its
subsidiaries, together with the Notes thereto and the Report of Independent
Auditors thereon, are contained in the 1994 Annual Report to Stockholders on
pages 45 to 77 and such information is hereby incorporated herein by reference,
including the information appearing under the caption "Quarterly Results" on
page 77 of such Annual Report.
The Statement of Financial Condition at December 31, 1994 and 1993
for the Morgan Stanley U.K. Group Profit Sharing Scheme (the "Plan"), the
Statement of Changes in Plan Equity for the Years Ended December 31, 1994, 1993
and 1992 together with the Notes thereon and the Report of Independent Chartered
Accountants appear as Exhibit 99.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NOT APPLICABLE.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to Directors and Nominees of the Registrant is
set forth under the caption "Election of Directors" on pages 3 and 4 of the
Proxy Statement of the Registrant for its 1995 Annual Meeting of Stockholders
and such information is hereby incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is set forth under
the captions "Board of Directors Meetings, Committees and Fees" on page 5,
"Compensation of Executive Officers" on pages 10 to 14 and "Compensation
Committee Interlocks and Insider Participation" on page 19 of the Proxy
Statement of the Registrant for its 1995 Annual Meeting of Stockholders and such
information is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to security ownership of management and
certain beneficial owners is set forth under the captions "Stock Ownership of
Management" and "Principal Stockholders" on pages 6 and 7, respectively, of the
Proxy Statement of the Registrant for its 1995 Annual Meeting of Stockholders
and such information is hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related
transactions is set forth under the caption "Interest of Management in Certain
Transactions" on page 9 of the Proxy Statement
26
<PAGE> 28
of the Registrant for its 1995 Annual Meeting of Stockholders and such
information is hereby incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report:
1 Financial Statements
The financial statements required to be filed hereunder are listed
on page F-1 hereof.
2 Financial Statement Schedules
The financial statement schedules required to be filed hereunder
are listed on page F-1 hereof.
3 Exhibits
Certain of the following exhibits, as indicated parenthetically,
were previously filed as exhibits to registration statements filed
by the Registrant under the Securities Act of 1933 or to reports or
registration statements filed by the Registrant under the Exchange
Act, respectively, and are hereby incorporated by reference to such
statements or reports.
3.1 Restated Certificate of Incorporation of the
Company, as amended to date (Registration
Statement on Form S-3 (No. 33-57833)).
3.2* By-Laws of the Company, as amended to date.
4.1 Restated Certificate of Incorporation of the
Company, as amended to date (see Exhibit 3.1).
4.2 Stockholders' Agreement dated February 14,
1986, as amended to date (Annual Report on Form
10-K for the fiscal year ended January 31,
1993).
4.3 Subordinated Indenture dated as of April 15,
1989 between the Company and The First National
Bank of Chicago, as trustee (Annual Report on
Form 10-K for the fiscal year ended January 31,
1993).
- -----------------------------
* Filed herewith.
27
<PAGE> 29
4.4 First Supplemental Subordinated Indenture dated
as of May 15, 1991 between the Company and The
First National Bank of Chicago, as trustee
(Annual Report on Form 10-K for the fiscal year
ended January 31, 1993).
4.5 Senior Indenture dated as of April 15, 1989
between the Company and Chemical Bank, as
trustee (Annual Report on Form 10-K for the
fiscal year ended January 31, 1993).
4.6 First Supplemental Senior Indenture dated as of
May 15, 1991 between the Company and Chemical
Bank, as trustee (Annual Report on Form 10-K
for the fiscal year ended January 31, 1993).
4.7 Subordinated Indenture dated as of November 15,
1993 among Morgan Stanley Finance plc, the
Company, as guarantor, and Chemical Bank, as
trustee (Current Report on Form 8-K dated
December 1, 1993).
4.8 Voting Agreement dated March 5, 1991 among the
Company, State Street Bank and Trust Company
and Other Persons Signing Similar Voting
Agreements (Annual Report on Form 10-K for the
fiscal year ended January 31, 1993).
4.9 Instruments defining the Rights of Security
Holders, Including Indentures - In addition to
Exhibits 4.1 through 4.8 herein, pursuant to
paragraph (b)(4)(iii)(A) of Item 601 of
Regulation S-K, the Registrant hereby
undertakes to furnish to the Securities and
Exchange Commission upon request copies of the
instruments defining the rights of holders of
long-term debt securities of the Registrant and
its subsidiaries, none of which instruments
authorizes the issuance of an amount of
securities that exceeds 10% of the total assets
of the Registrant and its subsidiaries on a
consolidated basis.
10.1+ Form of Agreement under the Morgan Stanley &
Co. Incorporated Owners' and Select Earners'
Plan (Annual Report on Form 10-K for the fiscal
year ended January 31, 1993).
10.2+ Form of Agreement under the Morgan Stanley
Group Inc. Officers' and Select Earners' Plan
(Annual Report on Form 10-K for the fiscal year
ended January 31, 1993).
- ------------------------------
+ Management Contract or compensatory plan or arrangement required to
be filed as an exhibit to this Form 10-K pursuant to Item 14(c).
28
<PAGE> 30
10.3+ Morgan Stanley & Co. Incorporated Excess
Benefit Plan, as amended and restated to date
(Annual Report on Form 10-K for the fiscal year
ended January 31, 1993).
10.4+ Morgan Stanley & Co. Incorporated Supplemental
Executive Retirement Plan, as amended to date
(Annual Report on Form 10-K for the fiscal year
ended January 31, 1993).
10.5+ Morgan Stanley Group Inc. 1986 Stock Option
Plan, as amended and restated to date (Annual
Report on Form 10-K for the fiscal year ended
January 31, 1993).
10.6+ Morgan Stanley Group Inc. Performance Unit
Plan, as amended and restated to date (Annual
Report on Form 10-K for the fiscal year ended
January 31, 1993).
10.7+ Morgan Stanley Group Inc. Deferred Compensation
Plan for Outside Directors, as amended to date
(Annual Report on Form 10-K for the fiscal year
ended January 31, 1993).
10.8+ Morgan Stanley Group Inc. 1988 Equity Incentive
Compensation Plan, as amended to date (Annual
Report on Form 10-K for the fiscal year ended
January 31, 1993).
10.9+ Morgan Stanley Group Inc. 1988 Capital
Accumulation Plan, as amended to date (Annual
Report on Form 10-K for the fiscal year ended
January 31, 1993).
10.10+ Form of Deferred Compensation Agreement under
the Pre-Tax Incentive Program (Annual Report on
Form 10-K for the fiscal year ended January 31,
1994).
10.11 Trust Agreement dated March 5, 1991 between the
Company and State Street Bank and Trust Company
(Annual Report on Form 10-K for the fiscal year
ended January 31, 1993).
10.12 Lease Agreement dated as of July 5, 1972
between Morgan Stanley & Co. Incorporated and
Standard Oil Company, as amended (Annual Report
on Form 10-K for the fiscal year ended January
31, 1993).
10.13 Agreement of Lease dated May 13, 1986 between
Morgan Stanley & Co. Incorporated and Forest
City Pierrepont Associates, as
- ------------------------------
+ Management Contract or compensatory plan or arrangement required to
be filed as an exhibit to this Form 10-K pursuant to Item 14(c).
29
<PAGE> 31
amended (Annual Report on Form 10-K for the
fiscal year ended January 31, 1993).
10.14 Agreement of Sublease between McGraw Hill, Inc.
and Morgan Stanley & Co. Incorporated, as
amended to date (Annual Report on Form 10-K for
the fiscal year ended January 31, 1993).
10.15 Lease dated January 22, 1993 between
Rock-McGraw, Inc., Landlord, to Morgan Stanley
& Co. Incorporated, Tenant (Annual Report on
Form 10-K for the fiscal year ended January 31,
1993).
10.16 999 Year Lease dated November 5, 1993 among
Canary Wharf Investments Limited, Canary Wharf
Management Limited, Canary Wharf Limited,
Morgan Stanley UK Holdings PLC and the Company
(Annual Report on Form 10-K for the fiscal year
ended January 31, 1994; confidential treatment
has been granted for a portion of this
exhibit).
10.17 Option Agreement dated November 5, 1993 among
Canary Wharf Investments Limited, 25 Cabot
Square Limited and the Company (Annual Report
on Form 10-K for the fiscal year ended January
31, 1994).
10.18* Agreement of Lease dated February 10, 1995
among Canary Wharf Limited, Morgan Stanley UK
Group and the Company.
10.19 Sale-Purchase Agreement dated as of August 11,
1993 between 1585 Broadway Associates and the
Company (Quarterly Report on Form 10-Q for the
fiscal quarter ended July 31, 1993).
10.20 Sale-Purchase Agreement dated as of April 28,
1994 between 750 Seventh Avenue Associates,
L.P. and Morgan Stanley 750 Building Corp.
(Quarterly Report on Form 10-Q for the fiscal
quarter ended April 30, 1994).
11* Statement Re: Computation of Earnings Per
Share.
12* Statement Re: Computation of Ratio of Earnings
to Fixed Charges and Computation of Ratio of
Earnings to Fixed Charges and Preferred Stock
Dividends.
- --------------------------
* Filed herewith.
30
<PAGE> 32
13* The following portions of the Company's 1994
Annual Report to Stockholders, which are
incorporated by reference in this Annual Report
on Form 10-K, are filed as an Exhibit:
13.1 "Quarterly Results" (page 77).
13.2 "Selected Financial Data" (page 2).
13.3 "Management's Discussion and Analysis of
Financial Condition and Results of
Operations" (pages 33 to 44).
13.4 Consolidated Financial Statements of the
Company and its subsidiaries, together
with the Notes thereto and the Report of
Independent Auditors thereon (pages 45
to 77).
21* Subsidiaries of the Company.
23.1* Consent of Ernst & Young.
23.2* Consent of Ernst & Young with respect to the
Financial Statements for the fiscal year ended
December 31, 1994 for the Morgan Stanley U.K.
Group Profit Sharing Scheme.
24 Powers of Attorney (included on signature
page).
27* Financial Data Schedule.
99* Financial Statements for the fiscal year ended
December 31, 1994 for the Morgan Stanley U.K.
Group Profit Sharing Scheme.
- -----------------------
* Filed herewith.
(b) A Current Report on Form 8-K, dated November 16, 1994, was filed
with the Securities and Exchange Commission in connection with the
announcement of the Company's third quarter financial results and
declaration of a quarterly cash dividend.
A Current Report on Form 8-K, dated December 8, 1994, was filed
with the Securities and Exchange Commission in connection with the
discussions by the Company and S.G. Warburg Group plc of the
possibility of combining their businesses.
A Current Report on Form 8-K, dated December 15, 1994, was filed
with the Securities and Exchange Commission in connection with the
termination of merger discussions between the Company and S.G.
Warburg Group plc.
A Current Report on Form 8-K, dated January 19, 1995, was filed
with the Securities and Exchange Commission in connection with
expected earnings for the fiscal quarter ending January 31, 1995.
31
<PAGE> 33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on April 26, 1995.
MORGAN STANLEY GROUP INC.
By /s/ Richard B. Fisher
-------------------------------
Richard B. Fisher
Chairman of the Board
of Directors
POWER OF ATTORNEY
We, the undersigned directors and executive officers of Morgan Stanley Group
Inc., hereby severally constitute Jonathan M. Clark, Philip N. Duff and Ralph L.
Pellecchio, and each of them singly, our true and lawful attorneys with full
power to them and each of them to sign for us, and in our names in the
capacities indicated below, any and all amendments to the Annual Report on Form
10-K filed with the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorneys to any and
all amendments to said Annual Report on Form 10-K.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED ON THE 26TH OF APRIL, 1995.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Richard B. Fisher Chairman, Managing Director
- -------------------------- and Director
(Richard B. Fisher)
/s/ John J. Mack President, Managing Director
- -------------------------- and Director
(John J. Mack)
/s/ Barton M. Biggs Managing Director and Director
- --------------------------
(Barton M. Biggs)
/s/ Peter F. Karches Managing Director and Director
- --------------------------
(Peter F. Karches)
/s/ Robert W. Matschullat Managing Director and Director
- --------------------------
(Robert W. Matschullat)
/s/ Sir David A. Walker Director
- --------------------------
(Sir David A. Walker)
/s/ Philip N. Duff Chief Financial Officer
- --------------------------
(Philip N. Duff)
</TABLE>
<PAGE> 34
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Eileen K. Murray Chief Accounting Officer and
- ------------------------- Controller
(Eileen K. Murray)
/s/ Daniel B. Burke Director
- -------------------------
(Daniel B. Burke)
/s/ Richard B. Cheney Director
- -------------------------
(Richard B. Cheney)
/s/ S. Parker Gilbert Director
- -------------------------
(S. Parker Gilbert)
/s/ Allen E. Murray Director
- -------------------------
(Allen E. Murray)
/s/ Paul F. Oreffice Director
- -------------------------
(Paul F. Oreffice)
/s/ Paul J. Rizzo Director
- -------------------------
(Paul J. Rizzo)
</TABLE>
<PAGE> 35
MORGAN STANLEY GROUP INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
ITEMS (14)(a)(l) AND (14)(a)(2)
<TABLE>
<CAPTION>
PAGE
----
FINANCIAL STATEMENTS FORM 10-K ANNUAL REPORT
- -------------------- --------- -------------
<S> <C> <C>
Report of Independent Auditors 45
Consolidated Statement of Financial 46
Condition at January 31, 1995
and January 31, 1994
Consolidated Statement of Income for 48
the Fiscal Years Ended January 31,
1995, January 31, 1994 and January 31, 1993
Consolidated Statement of Cash Flows 49
for the Fiscal Years Ended January 31,
1995, January 31, 1994 and January 31, 1993
Consolidated Statement of Changes 50
in Stockholders' Equity for the
Fiscal Years Ended January 31, 1995,
January 31, 1994 and January 31, 1993
Notes to Consolidated Financial 52
Statements
FINANCIAL STATEMENT SCHEDULES
- -----------------------------
Schedule III - Condensed Financial F-2 - F-5
Information of Registrant Morgan
Stanley Group Inc. (Parent Company
Only) - Condensed Financial Statements
for the Fiscal Years Ended January 31,
1995, January 31, 1994, and January 31, 1993
</TABLE>
F-1
<PAGE> 36
SCHEDULE III
MORGAN STANLEY GROUP INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENT OF FINANCIAL CONDITION
JANUARY 31, 1995 AND JANUARY 31, 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
January 31, January 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS:
Cash and interest-bearing equivalents $ 78,304 $ 127,617
Financial instruments owned 587,906 636,861
Advances to subsidiaries 19,090,690 13,646,712
Investment in subsidiaries, at equity 4,310,812 4,134,198
Other assets 232,372 125,266
------------ ------------
Total assets $ 24,300,084 $ 18,670,654
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Short-term borrowings $ 7,298,237 $ 6,475,804
Securities sold to subsidiary under agreements to repurchase 1,054,489 368,970
Payables to subsidiaries 3,463,393 263,121
Other liabilities and accrued expenses 316,281 433,818
Long-term borrowings 7,612,838 6,660,036
------------ ------------
19,745,238 14,201,749
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock 818,667 819,539
Common stock, $1.00 par value; authorized 300,000,000 shares;
issued 79,774,278 shares in fiscal 1994 and 78,277,538 shares in fiscal 1993 79,774 78,276
Paid-in capital 706,486 816,852
Retained earnings 3,338,028 3,094,451
Cumulative translation adjustments (10,099) (2,628)
------------ ------------
Subtotal 4,932,856 4,806,490
Less:
Note receivable related to sale of preferred stock to ESOP 99,624 109,138
Common stock held in treasury, at cost (4,477,495 shares in fiscal 1994
and 3,801,687 shares in fiscal 1993) 278,386 228,447
------------ ------------
Total stockholders' equity 4,554,846 4,468,905
------------ ------------
Total liabilities and stockholders' equity $ 24,300,084 $ 18,670,654
============ ============
</TABLE>
See Notes to Condensed Financial Statements.
F-2
<PAGE> 37
SCHEDULE III
MORGAN STANLEY GROUP INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENT OF INCOME
FOR THE YEARS ENDED JANUARY 31, 1995, JANUARY 31, 1994,
AND JANUARY 31, 1993
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
January 31, January 31, January 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Interest and dividends $ 1,312,628 $ 773,222 $ 683,667
Principal transactions 11,875 (47,274) (51,544)
Fiduciary fees 12,683 15,105 12,751
Other (93) 242 (113)
------------ ------------ ------------
Total revenues 1,337,093 741,295 644,761
Interest expense 1,263,495 761,543 688,133
Expenses excluding interest 10,312 17,064 5,888
------------ ------------ ------------
Income (loss) before income tax provision (benefit)
and equity in earnings of subsidiaries 63,286 (37,312) (49,260)
Income tax provision (benefit) 29,296 (14,056) (22,062)
------------ ------------ ------------
Income (loss) before equity in earnings of subsidiaries 33,990 (23,256) (27,198)
Equity in earnings of subsidiaries, net of tax 360,884 809,308 537,658
------------ ------------ ------------
Net income $ 394,874 $ 786,052 $ 510,460
============ ============ ============
Preferred stock dividend requirements $ 64,723 $ 55,489 $ 49,423
============ ============ ============
Earnings applicable to common shares (1) $ 330,151 $ 730,563 $ 461,037
============ ============ ============
Average common and common equivalent
shares outstanding (1) 78,896,608 76,208,288 78,123,800
============ ============ ============
Primary earnings per share $ 4.18 $ 9.59 $ 5.90
============ ============ ============
Fully diluted earnings per share $ 4.03 $ 9.16 $ 5.71
============ ============ ============
</TABLE>
- ---------------
(1) Amounts shown are used to calculate primary earnings per share.
See Notes to Condensed Financial Statements.
F-3
<PAGE> 38
SCHEDULE III
MORGAN STANLEY GROUP INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1995, JANUARY 31, 1994,
AND JANUARY 31, 1993
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
January 31, January 31, January 31,
1995 1994 1993
------------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 394,874 $ 786,052 $ 510,460
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Non-cash charges (credits) included in net income:
Deferred income taxes 19,747 (7,902) (45,032)
Compensation payable in common or preferred stock 116,481 407,573 189,829
Equity in subsidiaries' earnings, net of dividends 79,878 (514,019) (776,558)
(Increase) decrease in assets:
Financial instruments owned 48,955 244,359 (7,581)
Investment in and advances to subsidiaries, at equity (5,700,470) (5,755,573) 979,387
Other assets (110,979) (59,855) 23,909
Increase (decrease) in liabilities:
Payables to subsidiaries 3,200,272 131,888 131,233
Other liabilities and accrued expenses, net of deferred taxes (139,983) 42,551 116,336
----------- ----------- -----------
Net cash (used for) provided by operating activities (2,091,225) (4,724,926) 1,121,983
Cash flows from financing activities:
Net proceeds from short-term borrowings 822,433 2,143,962 (1,640,765)
Securities sold to subsidiary under agreements to repurchase 685,519 5,286 9,944
Proceeds from:
Issuance of preferred stock -- 194,436 145,439
Issuance of common stock 20,477 27,196 28,463
Issuance of long-term borrowings 2,153,858 3,444,793 647,790
Payments for:
Repurchase of common stock (287,123) (245,444) (99,267)
Repayments of long-term borrowings (1,201,955) (636,160) (41,582)
Redemption of preferred stock -- -- (250,000)
Cash dividends (151,297) (133,974) (102,923)
----------- ----------- -----------
Net cash provided by (used for) financing activities 2,041,912 4,800,095 (1,302,901)
----------- ----------- -----------
Net (decrease) increase in cash and interest-bearing equivalents (49,313) 75,169 (180,918)
Cash and interest-bearing equivalents, at beginning of year 127,617 52,448 233,366
----------- ----------- -----------
Cash and interest-bearing equivalents, at end of year $ 78,304 $ 127,617 $ 52,448
=========== =========== ===========
</TABLE>
See Notes to Condensed Financial Statements.
F-4
<PAGE> 39
SCHEDULE III
MORGAN STANLEY GROUP INC.
(PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. General
The condensed financial statements of Morgan Stanley Group Inc. (the
"Company") should be read in conjunction with the consolidated financial
statements of Morgan Stanley Group Inc. and Subsidiaries and the notes
thereto.
2. Transactions with subsidiaries
The Company has transactions with its subsidiaries determined on an
agreed-upon basis and has guaranteed certain unsecured lines of credit and
contractual obligations of its subsidiaries.
F-5
<PAGE> 40
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT
----------- -------
3.1 Restated Certificate of Incorporation of the
Company, as amended to date (Registration
Statement on Form S-3 (No. 33-57833)).
3.2* By-Laws of the Company, as amended to date.
4.1 Restated Certificate of Incorporation of the
Company, as amended to date (see Exhibit 3.1).
4.2 Stockholders' Agreement dated February 14,
1986, as amended to date (Annual Report on Form
10-K for the fiscal year ended January 31,
1993).
4.3 Subordinated Indenture dated as of April 15,
1989 between the Company and The First National
Bank of Chicago, as trustee (Annual Report on
Form 10-K for the fiscal year ended January 31,
1993).
4.4 First Supplemental Subordinated Indenture dated
as of May 15, 1991 between the Company and The
First National Bank of Chicago, as trustee
(Annual Report on Form 10-K for the fiscal year
ended January 31, 1993).
4.5 Senior Indenture dated as of April 15, 1989
between the Company and Chemical Bank, as
trustee (Annual Report on Form 10-K for the
fiscal year ended January 31, 1993).
4.6 First Supplemental Senior Indenture dated as of
May 15, 1991 between the Company and Chemical
Bank, as trustee (Annual Report on Form 10-K
for the fiscal year ended January 31, 1993).
4.7 Subordinated Indenture dated as of November 15,
1993 among Morgan Stanley Finance plc, the
Company, as guarantor, and Chemical Bank, as
trustee (Current Report on Form 8-K dated
December 1, 1993).
4.8 Voting Agreement dated March 5, 1991 among the
Company, State Street Bank and Trust Company
and Other Persons Signing Similar Voting
Agreements (Annual Report on Form 10-K for the
fiscal year ended January 31, 1993).
- ---------------
* Filed herewith.
<PAGE> 41
EXHIBIT NO. EXHIBIT
----------- -------
4.9 Instruments defining the Rights of Security
Holders, Including Indentures - In addition to
Exhibits 4.1 through 4.8 herein, pursuant to
paragraph (b)(4)(iii)(A) of Item 601 of
Regulation S-K, the Registrant hereby
undertakes to furnish to the Securities and
Exchange Commission upon request copies of the
instruments defining the rights of holders of
long-term debt securities of the Registrant and
its subsidiaries, none of which instruments
authorizes the issuance of an amount of
securities that exceeds 10% of the total assets
of the Registrant and its subsidiaries on a
consolidated basis.
10.1+ Form of Agreement under the Morgan Stanley &
Co. Incorporated Owners' and Select Earners'
Plan (Annual Report on Form 10-K for the fiscal
year ended January 31, 1993).
10.2+ Form of Agreement under the Morgan Stanley
Group Inc. Officers' and Select Earners' Plan
(Annual Report on Form 10-K for the fiscal year
ended January 31, 1993).
10.3+ Morgan Stanley & Co. Incorporated Excess
Benefit Plan, as amended and restated to date
(Annual Report on Form 10-K for the fiscal year
ended January 31, 1993).
10.4+ Morgan Stanley & Co. Incorporated Supplemental
Executive Retirement Plan, as amended to date
(Annual Report on Form 10-K for the fiscal year
ended January 31, 1993).
10.5+ Morgan Stanley Group Inc. 1986 Stock Option
Plan, as amended and restated to date (Annual
Report on Form 10-K for the fiscal year ended
January 31, 1993).
10.6+ Morgan Stanley Group Inc. Performance Unit
Plan, as amended and restated to date (Annual
Report on Form 10-K for the fiscal year ended
January 31, 1993).
- ---------------
+ Management Contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c).
<PAGE> 42
EXHIBIT NO. EXHIBIT
----------- -------
10.7+ Morgan Stanley Group Inc. Deferred Compensation
Plan for Outside Directors, as amended to date
(Annual Report on Form 10-K for the fiscal
year ended January 31, 1993).
10.8+ Morgan Stanley Group Inc. 1988 Equity Incentive
Compensation Plan, as amended to date (Annual
Report on Form 10-K for the fiscal year ended
January 31, 1993).
10.9+ Morgan Stanley Group Inc. 1988 Capital
Accumulation Plan, as amended to date (Annual
Report on Form 10-K for the fiscal year ended
January 31, 1993).
10.10+ Form of Deferred Compensation Agreement under
the Pre-Tax Incentive Program (Annual Report
on Form 10-K for the fiscal year ended
January 31, 1994).
10.11 Trust Agreement dated March 5, 1991 between the
Company and State Street Bank and Trust Company
(Annual Report on Form 10-K for the fiscal year
ended January 31, 1993).
10.12 Lease Agreement dated as of July 5, 1972
between Morgan Stanley & Co. Incorporated and
Standard Oil Company, as amended (Annual Report
on Form 10-K for the fiscal year ended January
31, 1993).
10.13 Agreement of Lease dated May 13, 1986 between
Morgan Stanley & Co. Incorporated and Forest
City Pierrepont Associates, as amended (Annual
Report on Form 10-K for the fiscal year ended
January 31, 1993).
10.14 Agreement of Sublease between McGraw Hill, Inc.
and Morgan Stanley & Co. Incorporated, as
amended to date (Annual Report on Form 10-K for
the fiscal year ended January 31, 1993).
10.15 Lease dated January 22, 1993 between
Rock-McGraw, Inc., Landlord, to Morgan Stanley
& Co. Incorporated, Tenant (Annual Report on
Form 10-K for the fiscal year ended January 31,
1993).
- ---------------
+ Management Contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c).
<PAGE> 43
EXHIBIT NO. EXHIBIT
----------- -------
10.16 999 Year Lease dated November 5, 1993 among
Canary Wharf Investments Limited, Canary Wharf
Management Limited, Canary Wharf Limited,
Morgan Stanley UK Holdings PLC and the Company
(Annual Report on Form 10-K for the fiscal year
ended January 31, 1994; confidential treatment
has been granted for a portion of this
exhibit).
10.17 Option Agreement dated November 5, 1993 among
Canary Wharf Investments Limited, 25 Cabot
Square Limited and the Company (Annual Report
on Form 10-K for the fiscal year ended January
31, 1994).
10.18* Agreement of Lease dated February 10, 1995
among Canary Wharf Limited, Morgan Stanley UK
Group and the Company.
10.19 Sale-Purchase Agreement dated as of August 11,
1993 between 1585 Broadway Associates and the
Company (Quarterly Report on Form 10-Q for the
fiscal quarter ended July 31, 1993).
10.20 Sale-Purchase Agreement dated as of April 28,
1994 between 750 Seventh Avenue Associates,
L.P. and Morgan Stanley 750 Building Corp.
(Quarterly Report on Form 10-Q for the fiscal
quarter ended April 30, 1994).
11* Statement Re: Computation of Earnings Per
Share.
12* Statement Re: Computation of Ratio of Earnings
to Fixed Charges and Computation of Ratio of
Earnings to Fixed Charges and Preferred Stock
Dividends.
- ---------------
* Filed herewith.
<PAGE> 44
EXHIBIT NO. EXHIBIT
----------- -------
13* The following portions of the Company's 1994
Annual Report to Stockholders, which are
incorporated by reference in this Annual Report
on Form 10-K, are filed as an Exhibit:
13.1 "Quarterly Results" (page 77).
13.2 "Selected Financial Data" (page 2).
13.3 "Management's Discussion and Analysis of
Financial Condition and Results of
Operations" (pages 33 to 44).
13.4 Consolidated Financial Statements of the
Company and its subsidiaries, together
with the Notes thereto and the Report of
Independent Auditors thereon (pages 45
to 77).
21* Subsidiaries of the Company.
23.1* Consent of Ernst & Young.
23.2* Consent of Ernst & Young with respect to the
Financial Statements for the fiscal year ended
December 31, 1994 for the Morgan Stanley U.K.
Group Profit Sharing Scheme.
24 Powers of Attorney (included on signature
page).
27* Financial Data Schedule.
99* Financial Statements for the fiscal year ended
December 31, 1994 for the Morgan Stanley U.K.
Group Profit Sharing Scheme.
- ---------------
* Filed herewith.
<PAGE> 1
Exhibit 3.2
BY-LAWS
OF
MORGAN STANLEY GROUP INC.
(A DELAWARE CORPORATION)
(AS AMENDED ON FEBRUARY 28, 1995)
------------------
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE IN DELAWARE. The registered office of
Morgan Stanley Group Inc. (the "Corporation") in the State of Delaware shall be
in the City of Dover, County of Kent, and the registered agent in charge thereof
shall be United States Corporation Company, 32 Loockerman Sq., Ste L-100, Dover,
Delaware.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of stockholders shall be
held at such place or places, within or without the State of Delaware, as may
from time to time be fixed by the Board of Directors, or as shall be specified
in the respective notices, or waivers of notice, thereof.
SECTION 2. ANNUAL MEETINGS. Commencing in 1996, the annual meeting
of stockholders for the election of directors and the transaction of other
business shall be held on the first Thursday in April in each year if not a
legal holiday, and, if a legal holiday, then on the next business day following,
or at such other date and time as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting. At each annual
meeting the stockholders entitled to vote shall elect directors and may transact
such other business as may be proper.
SECTION 3. SPECIAL MEETINGS. A special meeting of the stockholders
may be called at any time and for any purpose or purposes by the President or
the Chairman of the Board or by order of the Board of Directors, and shall be
called by the Secretary upon the written request of the holders of record of at
least 80% of the voting power of the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors (the
"Voting Stock"). Every such request shall state the purpose or purposes of each
meeting.
<PAGE> 2
SECTION 4. NOTICE OF MEETINGS. Except as otherwise expressly
required by law, written notice of each meeting of stockholders, whether annual
or special, stating the place, date and hour of the meeting shall be given not
less than ten days nor more than fifty days before the date on which the meeting
is to be held, to each stockholder of record entitled to vote thereat by
delivering a notice thereof to him personally or by mailing such notice in a
postage prepaid envelope directed to him at his address as it appears on the
stock ledger of the Corporation, unless he shall have filed with the Secretary
of the Corporation a written request that notices intended for him be directed
to another address, in which case such notice shall be directed to him at the
address designated in such request. If any stockholder shall, in person or by
attorney thereunto authorized, in writing or by telegraph, cable or telex, waive
notice of any meeting of the stockholders, whether prior to or after such
meeting, notice thereof need not be given to him. Every notice of a special
meeting of the stockholders, besides stating the time and place of the meeting,
shall state briefly the purpose or purposes thereof.
SECTION 5. LIST OF STOCKHOLDERS. It shall be the duty of the
Secretary or other officer of the Corporation who shall have charge of the stock
ledger to prepare and make, at least ten days before every meeting of the
stockholders, a complete list of the stockholders entitled to vote thereat,
arranged in alphabetical order, and showing the address of each stockholder and
the number of shares registered in his name. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall be kept and produced at
the time and place of the meeting during the whole time thereof and subject to
the inspection of any stockholder who may be present. The original or duplicate
stock ledger shall be the only evidence as to who are the stockholders entitled
to examine the stock ledger, such list or the books of the Corporation or to
vote in person or by proxy at such meeting.
SECTION 6. QUORUM. At each meeting of the stockholders, the holders
of record of a majority of the issued and outstanding stock of the Corporation
entitled to vote at such meeting, present in person or by proxy, shall
constitute a quorum for the transaction of business, except where otherwise
provided by law, the Restated Certificate of Incorporation or these By-Laws. In
the absence of a quorum, any officer entitled to preside at, or act as Secretary
of, such meeting shall have the power to adjourn the meeting from time to time
until a quorum shall be constituted.
SECTION 7. VOTING. At all meetings of the stockholders, a quorum
being present, all matters shall be decided by majority vote of the shares of
stock entitled to vote held by the stockholders present in person or by proxy,
except as otherwise required by the Restated Certificate of Incorporation or the
laws of the State of Delaware. Unless otherwise provided in the Restated
Certificate of Incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock having voting power held by such stockholder, but no proxy shall
be voted after three years from its date, unless the proxy provides for a longer
period.
- 2 -
<PAGE> 3
SECTION 8. ACTION WITHOUT MEETING. Unless otherwise provided in the
Restated Certificate of Incorporation, any action required to be taken at any
annual or special meeting of stockholders of the Corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE III
BOARD OF DIRECTORS, COMMITTEES AND SPECIAL COMMITTEES
SECTION 1. NUMBER, ELECTION AND TERMS OF DIRECTORS. The business and
affairs of the Corporation shall be managed by a Board of Directors consisting
of not fewer than four nor more than fifteen persons. The exact number of
directors within the minimum and maximum limitations specified in the preceding
sentence shall be fixed from time to time by the Board of Directors pursuant to
a resolution adopted by a majority of the entire Board of Directors. Subject to
the rights of the holders of any class or series of stock having preference over
the Common Stock as to dividends upon liquidation, dissolution or winding up of
the Corporation, to elect directors under specified circumstances if any,
directors shall be elected each year at the annual meeting of stockholders and
shall hold office until their successors shall have been duly elected and
qualified, or until their earlier resignation or removal. The term of office of
any director of the Corporation shall cease, and he shall be deemed to have
resigned, on the annual meeting of stockholders next succeeding the seventieth
anniversary of his birth and such director shall not stand for re-election.
SECTION 2. DESIGNATION AND POWERS OF COMMITTEES. The Board of
Directors may, by resolution passed by a majority of the whole Board, designate
one or more committees, each committee to consist of one or more of the
directors of the Corporation, and, to the extent provided in the resolution of
the Board of Directors, shall have and may exercise all the powers and authority
of the Board of Directors to the extent provided by Section 141(c) of the
General Corporation Law of the State of Delaware as it now exists or may
hereafter be amended. The Board of Directors may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee.
SECTION 3. DESIGNATION AND POWERS OF SPECIAL COMMITTEES. Any
committee or committees (the "Special Committee") established under the proviso
of the first sentence of Section 1 of Article V of the Restated Certificate of
Incorporation shall consist of such member or members as shall be designated by
the Board of Directors in accordance with such proviso and shall have and may
exercise such powers and authority in accordance with the proviso of
- 3 -
<PAGE> 4
such sentence. The Board of Directors may designate one or more persons as
alternate members of any Special Committee, who may replace any absent or
disqualified member at any meeting of such Special Committee.
SECTION 4. QUORUM AND MANNER OF ACTING. At all meetings of the Board
of Directors, any committee or Special Committee, a majority of the total
directors or members, as the case may be, shall constitute a quorum for the
transaction of business, and the act of a majority of the directors or members,
as the case may be, present at any meeting at which there is a quorum shall be
the act of the Board of Directors, committee or Special Committee, as the case
may be, except as may be otherwise specifically provided by the laws of the
State of Delaware, the Restated Certificate of Incorporation or the By-Laws. If
a quorum shall not be present at any meeting of the Board of Directors,
committee or Special Committee, the directors or members, as the case may be,
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
SECTION 5. ANNUAL MEETING. Immediately after each annual meeting of
stockholders for the election of directors the Board of Directors shall meet at
the place of the annual meeting of stockholders for the purpose of organization,
the election of officers and the transaction of other business. Notice of such
meeting need not be given. If such meeting is held at any other time or place,
notice thereof must be given or waived as hereinafter provided for special
meetings of the Board of Directors.
SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of
Directors, any committee or Special Committee may be held at such time and
place, within or without the State of Delaware, as shall from time to time be
determined by the Board of Directors, the committee or Special Committee, as the
case may be. After there has been such determination, and notice thereof has
been once given to each member of the Board of Directors, committee or Special
Committee, as the case may be, regular meetings may be held without further
notice being given.
SECTION 7. SPECIAL MEETINGS; NOTICE. Special meetings of the Board
of Directors shall be held whenever called by the Chairman of the Board or the
President. Special meetings of a committee shall be held whenever called by the
Chairman of the Board, the President or the Chairman or other member of such
committee. Special meetings of a Special Committee shall be held whenever called
by the Chairman or other member of such Special Committee. Notice of each such
meeting shall be mailed to each director of the Corporation or member of a
committee or Special Committee, as the case may be, addressed to him at his
residence or usual place of business, at least two days before the date on which
the meeting is to be held, or shall be sent to him at such place by telegraph,
facsimile or other electronic transmission, cable or telex, or be delivered
personally or by telephone, not later than the day before the day on which such
meeting is to be held. Each such notice shall state the time and place of the
meeting, but need not state the purposes. If any director of the Corporation or
member of a committee or Special Committee, as the case may be, shall, in person
or by an authorized attorney, in writing or by telegraph, facsimile or other
electronic transmission, cable
- 4 -
<PAGE> 5
or telex, waive notice of any meeting of the Board of Directors, any committee
or Special Committee whether prior to or after such meeting, notice need not be
given to him. No notice to or waiver by any director of the Corporation or
member of a committee or Special Committee with respect to any special meeting
shall be required if such director or member shall be present at said meeting.
SECTION 8. RESIGNATION. Any director of the Corporation or member of
any committee or Special Committee may resign from the Board of Directors, any
committee or Special Committee at any time by giving written notice to the
Chairman of the Board, if any, the President or the Secretary of the
Corporation. The resignation of any director of the Corporation or any member of
a committee or Special Committee shall take effect upon receipt of notice
thereof or at such later time as shall be specified in such notice; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 9. NEWLY-CREATED DIRECTORSHIPS AND VACANCIES ON THE BOARD OF
DIRECTORS. Subject to the rights of the holders of any class or series of stock
having preference over the Common Stock as to dividends or upon liquidation,
dissolution or winding up of the Corporation to elect directors under specified
circumstances, if any, newly-created directorships resulting from any increase
in the authorized number of directors or any vacancies on the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause shall be filled by a majority vote of the directors then
in office, although less than a quorum; and any director so chosen shall hold
office for the remaining term of his predecessor or, if there shall have been no
predecessor, until the next annual election of directors or until his successor
shall have been duly elected and qualified. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
SECTION 10. VACANCIES ON COMMITTEES OR SPECIAL COMMITTEES. In the
absence or disqualification of a member of a committee or Special Committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors, in the case of a committee, or another
person, in the case of a Special Committee, to act at the meeting in the place
of any such absent or disqualified members.
SECTION 11. REMOVAL OF DIRECTORS. Subject to the rights of the
holders of any class or series of stock having preference over the Common Stock
as to dividends or upon liquidation, dissolution or winding up of the
Corporation to elect directors under specified circumstances, if any, any
director, or the entire Board of Directors, may be removed from office at any
time, with or without cause, only by the affirmative vote of the holders of at
least 80% of the voting power of the Voting Stock, voting together as a single
class.
SECTION 12. COMPENSATION OF DIRECTORS. The Board of Directors shall
have the authority to fix the compensation of directors of the Corporation and
of members of committees or Special Committees.
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<PAGE> 6
SECTION 13. ACTION WITHOUT MEETING. Any action required or permitted
to be taken at any meeting of the Board of Directors, any committee or Special
Committee thereof may be taken without a meeting if a written consent thereto is
signed by all members of the Board or of such committee or Special Committee, as
the case may be, and such written consent is filed with the records of the
proceedings of the Board, any committee or Special Committee.
SECTION 14. MEETING BY CONFERENCE TELEPHONE. Directors of the
Corporation and members of any committee or Special Committee may participate in
a meeting of the Board of Directors, such committee or Special Committee, as the
case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section shall
constitute presence in person at such meeting.
SECTION 15. MINUTES OF COMMITTEES AND SPECIAL COMMITTEES. Each
Committee and Special Committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
ARTICLE IV
OFFICERS
SECTION 1. PRINCIPAL OFFICERS. The Board of Directors shall elect a
President, a Secretary and a Treasurer, and may in addition elect a Chairman of
the Board, a Vice Chairman of the Board, one or more Managing Directors, a Chief
Financial Officer, a General Counsel, one or more Assistant Secretaries and one
or more Assistant Treasurers. One person may hold, and perform the duties of,
any two or more of said offices.
SECTION 2. ELECTION, TERM OF OFFICE AND ELIGIBILITY. The officers of
the Corporation referred to in Section 1 of this Article IV shall be elected
annually by the Board of Directors at the annual meeting thereof. Each such
officer shall hold office until his successor shall have been duly elected and
shall qualify, or until his death or until he shall resign or shall have been
removed.
SECTION 3. OTHER OFFICERS. The Board of Directors may appoint such
other officers as it may from time to time determine, each of whom shall hold
office for such period, and perform such duties as the President or the Board of
Directors may from time to time determine. The Board of Directors may delegate
to any officer referred to in Section 1 of this Article IV the power to appoint
and to remove any such officers.
SECTION 4. REMOVAL. Any officer may be removed, either with or
without cause, at any time, by resolution adopted by the Board of Directors at
any regular meeting of the Board or at any special meeting of the Board called
for that purpose at which a quorum is present.
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<PAGE> 7
SECTION 5. RESIGNATIONS. Any officer may resign at any time by
giving written notice to the Board of Directors, to the Chairman of the Board,
if any, the President or the Secretary of the Corporation. The resignation of
any officer shall take effect upon receipt of notice or at such later time as
shall be specified in such notice; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if any,
shall preside at all meetings of stockholders and at all meetings of the Board
of Directors. Subject to the control and the direction of the Board of
Directors, the Chairman of the Board may enter into any contract and execute and
deliver any instrument in the name and on behalf of the Corporation. The
Chairman of the Board shall perform such other duties and have such other powers
as the Board of Directors prescribes.
SECTION 7. PRESIDENT. In the absence of the Chairman of the Board,
the President shall preside at all meetings of the stockholders and at all
meetings of the Board of Directors. Subject to the control and the direction of
the Board of Directors, the President may enter into any contract and execute
and deliver any instrument in the name and on behalf of the Corporation. The
President shall perform such other duties and have such other powers as the
Board of Directors prescribes.
SECTION 8. VICE CHAIRMAN OF THE BOARD. In the absence of the
President, the Vice Chairman of the Board shall preside at all meetings of the
stockholders and at all meetings of the Board of Directors. Subject to the
control and the direction of the Board of Directors, the Vice Chairman of the
Board may enter into any contract and execute and deliver any instrument in the
name and on behalf of the Corporation. The Vice Chairman of the Board shall
perform such other duties and have such other powers as the Board of Directors
prescribes.
SECTION 9. MANAGING DIRECTORS. In the absence of the Chairman of the
Board, the President and the Vice Chairman, the Managing Directors, in the order
of the number of shares of voting common stock of the Corporation owned by each
of them beginning with the Managing Director who shall own the greatest number
of such shares (and, in the case of Managing Directors owning the same number of
shares of voting common stock, in the order of their seniority), shall preside
at all meetings of the stockholders and at all meetings of the Board of
Directors. Subject to the control and direction of the Board of Directors, each
Managing Director may enter into any contract and execute and deliver any
instrument in the name and on behalf of the Corporation. Each Managing Director
shall perform such other duties and have such other powers as the Board of
Directors prescribes.
SECTION 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall be responsible for the financial affairs of the Corporation, including
overseeing the duties performed by the Treasurer of the Corporation. Subject to
the control and direction of the Board of Directors, the Chief Financial Officer
may enter into any contract and execute and deliver any instrument in the name
of and on behalf of the Corporation. The Chief Financial Officer shall perform
such other duties and have such other powers as the Board of Directors
prescribes.
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<PAGE> 8
SECTION 11. GENERAL COUNSEL. The General Counsel shall be the chief
legal officer of the Corporation and be responsible for its legal and regulatory
affairs. He shall see that all reports, statements and other documents required
by law are properly kept and filed. Subject to the control and direction of the
Board of Directors, the General Counsel may enter into any contract and execute
and deliver any instrument in the name of and on behalf of the Corporation. The
General Counsel shall perform such other duties and have such other powers as
the Board of Directors prescribes.
SECTION 12. SECRETARY. The Secretary, if present, shall act as
Secretary at all meetings of the Board of Directors and of the stockholders and
keep the minutes thereof in a book or books to be provided for that purpose; he
shall see that all notices required to be given by the Corporation are duly
given and served; he shall have charge of the stock records of the Corporation;
and, in general, he shall perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board of Directors, the Chairman of the Board or the President.
SECTION 13. ASSISTANT SECRETARY. The Assistant Secretary, if any,
or, if there be more than one, the Assistant Secretaries, in the order
determined by the Board of Directors, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as the Board of Directors,
the Chairman of the Board or the President may from time to time prescribe.
SECTION 14. TREASURER. The Treasurer shall have charge and custody
of, and be responsible for, all funds and securities of the Corporation and
shall deposit all such funds in the name of the Corporation in such banks or
other depositories as shall be selected by the Board of Directors. He shall
exhibit at all reasonable times his books of account and records to any of the
directors of the Corporation upon application during business hours at the
office of the Corporation where such books and records shall be kept; when
requested by the Board of Directors, he shall render a statement of the
condition of the finances of the Corporation at any meeting of the Board or at
the annual meeting of stockholders; he shall receive, and give receipt for,
moneys due and payable to the Corporation from any source whatsoever; and, in
general, he shall perform all the duties incident to the office of Treasurer.
Subject to the control and direction of the Board of Directors, the Treasurer
may enter into any contract and execute and deliver any instrument in the name
of and on behalf of the Corporation and shall perform such other duties and have
such other powers as the Chairman of the Board or the President prescribes. The
Treasurer shall give such bond, if any, for the faithful discharge of his duties
as the Board of Directors may require.
SECTION 15. ASSISTANT TREASURER. The Assistant Treasurer, if any,
or, if there shall be more than one, the Assistant Treasurers, in the order
determined by the Board of Directors, shall, in the absence or disability of the
Treasurer, perform the duties and exercise the powers of the Treasurer and shall
perform such other duties and have such other powers as the Board of Directors,
the Chairman of the Board or the President may from time to time prescribe.
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<PAGE> 9
ARTICLE V
SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR STOCK. The interest of each stockholder
in the Corporation shall be evidenced by a certificate or certificates for
shares of stock of the Corporation certifying the number of shares owned by him,
in such form as the Board of Directors may from time to time prescribe. The
certificates for shares of stock of the Corporation shall be signed by the
Chairman of the Board, the President or a Managing Director and by the Secretary
or the Treasurer or an Assistant Secretary or an Assistant Treasurer, and shall
be countersigned and registered in such manner, if any, as the Board of
Directors may by resolution prescribe; provided, however, that in case such
certificates are signed by a transfer agent other than the Corporation or its
employee or by a registrar other than the Corporation or its employee the
signatures of the Chairman of the Board, President, Managing Director,
Treasurer, Assistant Treasurer, Secretary or Assistant Secretary may be
facsimile; and further provided that in case any officer or officers who shall
have signed, or whose facsimile signature or signatures shall have been used on
any such certificate or certificates shall cease to be such officer or officers
of the Corporation, whether because of death, resignation or otherwise, before
such certificate or certificates shall have been delivered by the Corporation,
such certificate or certificates may nevertheless be adopted by the Corporation
and be issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures shall
have been used thereon had not ceased to be such officer or officers of the
Corporation.
SECTION 2. STOCK LEDGER. A record shall be kept by the Secretary,
transfer agent or by any other officer, employee or agent designated by the
Board of Directors of the name of each person, firm or corporation holding
capital stock of the Corporation, the number of shares represented by, and the
respective dates of, each certificate for such capital stock, and in case of
cancellation of any such certificate, the respective dates of cancellation.
SECTION 3. CANCELLATION. Every certificate surrendered to the
Corporation for exchange or registration of transfer shall be canceled, and no
new certificate or certificates shall be issued in exchange for any existing
certificate until such existing certificate shall have been so canceled, except
as provided in Section 5 of this Article V and in cases provided by the
applicable law.
SECTION 4. TRANSFERS. Shares of stock shall be transferable on the
books of the Corporation by the holder of record thereof in person or by his
attorney upon surrender of such certificate with an assignment endorsed thereon
or attached thereto duly executed and with such proof of authenticity of
signatures as the Corporation may reasonably require. The Board of Directors may
make such rules and regulations as it may deem expedient, not inconsistent with
the Restated Certificate of Incorporation or these By-Laws, concerning the
issue, transfer and registration of certificates for shares of the stock of the
Corporation. The Board of
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<PAGE> 10
Directors may appoint, or authorize any principal officer or officers to
appoint, one or more transfer clerks or one or more transfer agents and one or
more registrars, and may require all certificates of stock to bear the signature
or signatures of any of them.
SECTION 5. LOST, STOLEN, DESTROYED OR MUTILATED CERTIFICATES. Before
any certificates for stock of the Corporation shall be issued in exchange for
certificates which shall become mutilated or shall be lost, stolen or destroyed,
proper evidence of such loss, theft, mutilation or destruction shall be procured
for the Board of Directors, if it so requires. When authorizing such issue of a
new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or his legal
representative, to give the Corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
SECTION 6. RECORD DATES. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a date as a record date for any such determination of stockholders. Such record
date shall not be more than sixty nor less than ten days before the date of such
meeting, nor more than sixty days prior to any other action.
ARTICLE VI
INDEMNIFICATION
The Corporation shall indemnify, to the fullest extent permitted by
applicable law, any person who was or is a party or is threatened to be made a
party to, or is involved in any manner in, any threatened, pending or completed
action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person (1) is or was a director
or officer of the Corporation or a Subsidiary or (2) is or was serving at the
request of the Corporation or a Subsidiary as a director, officer, partner,
member, employee or agent of another corporation, partnership, joint venture,
trust, committee or other enterprise.
To the extent deemed advisable by the Board of Directors, the
Corporation may indemnify, to the fullest extent permitted by applicable law,
any person who was or is a party or is threatened to be made a party to, or is
involved in any manner in, any threatened, pending or completed action, suit or
proceeding (whether civil, criminal, administrative or investigative) by reason
of the fact that the person is or was an employee or agent (other than a
director or officer) of the Corporation or a Subsidiary.
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<PAGE> 11
The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation or a Subsidiary, or is or was serving at the request of
the Corporation or a Subsidiary as a director, officer, partner, member,
employee or agent of another corporation, partnership, joint venture, trust,
committee or other enterprise, against any expense, liability or loss asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation or a Subsidiary would have the
power to indemnify him against such expense, liability or loss under the
provisions of applicable law.
No repeal, modification or amendment of, or adoption of any
provision inconsistent with, this Article VI, nor to the fullest extent
permitted by applicable law, any modification of law shall adversely affect any
right or protection of any person granted pursuant hereto existing at, or with
respect to events that occurred prior to, the time of such repeal, amendment,
adoption or modification.
For purposes of this Article VI the term "Subsidiary" or
"Subsidiaries" shall mean a corporation(s), all of the capital stock of which is
owned directly or indirectly by the Corporation, other than directors'
qualifying shares.
The right to indemnification conferred in this Article VI also
includes, to the fullest extent permitted by applicable law, the right to be
paid the expenses (including attorney's fees) incurred in connection with any
such proceeding in advance of its final disposition. The payment of any amounts
to any director, officer, partner, member, employee or agent pursuant to this
Article VI shall subrogate the Corporation to any right such director, officer,
partner, member, employee or agent may have against any other person or entity.
The rights conferred in this Article VI shall be contract rights.
ARTICLE VII
LIABILITY OF DIRECTORS
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach by the director of
his duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware or (iv) for any transaction from which the director derived an
improper personal benefit.
No repeal, modification or amendment of, or adoption of any
provision inconsistent with, this Article VII nor, to the fullest extent
permitted by law, any modification of law shall adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal,
amendment, adoption or modification or affect the liability of any
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<PAGE> 12
director of the Corporation for any action taken or any omission that occurred
prior to the time of such repeal, amendment, adoption or modification.
If the General Corporation Law of the State of Delaware shall be
amended, after these By-Laws are amended to include this Article VII, to
authorize corporate action further eliminating or limiting the liability of
directors, then a director of the Corporation, in addition to the circumstances
in which he is not liable immediately prior to such amendment, shall be free of
liability to the fullest extent permitted by the General Corporation Law of the
State of Delaware, as so amended.
ARTICLE VIII
OPT OUT OF BUSINESS COMBINATIONS
WITH INTERESTED STOCKHOLDERS STATUTE
The Corporation has elected not to be governed by Section 203 of the
General Corporation Law of the State of Delaware relating to "Business
Combinations With Interested Stockholders."
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 1. CORPORATE SEAL. The Board of Directors shall provide a
corporate seal, which shall be in the form of a circle and shall bear the name
of the Corporation and words and figures showing that it was incorporated in the
State of Delaware in the year 1975. The Secretary shall be the custodian of the
seal.
SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall be
as specified by the Board of Directors.
SECTION 3. VOTING OF STOCKS OWNED BY THE CORPORATION. The Board of
Directors may authorize any person on behalf of the Corporation to attend, vote
and grant proxies to be used at any meeting of stockholders of any corporation
(except this Corporation) in which the Corporation may hold stock.
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<PAGE> 13
ARTICLE X
AMENDMENT OF BY-LAWS
In furtherance of and not in limitation of the powers conferred by
statute, the Board of Directors of the Corporation from time to time may make,
amend or repeal the By- Laws of the Corporation; provided that Article VIII of
these By-Laws may not be amended by the Board of Directors; and provided,
further, that any By-Laws made, amended or repealed may be amended or repealed,
and that any By-Laws may be made, by the stockholders of the Corporation.
Notwithstanding any other provisions of the Restated Certificate of
Incorporation of the Corporation or these By-Laws (and not withstanding the fact
that a lesser percentage may be specified by law, the Restated Certificate of
Incorporation or these By-Laws), the affirmative vote of the holders of at least
80% of the voting power of the Voting Stock, voting together as a single class,
shall be required for the stockholders of the Corporation to amend, repeal or
adopt any By-Laws of the Corporation.
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<PAGE> 1
EXHIBIT 10.18
DATED 10TH FEBRUARY, 1995
(1) CANARY WHARF LIMITED
(2) MORGAN STANLEY UK GROUP
(3) MORGAN STANLEY GROUP INC
_____________________________
AGREEMENT
relating to the development and leasing of
Part Ground and First to Sixth Floors of
20 Cabot Square Canary Wharf
London E14
_____________________________
<PAGE> 2
THIS AGREEMENT is made the tenth day of February One thousand nine hundred and
ninety-five
BETWEEN:-
(1) CANARY WHARF LIMITED (Co. Regn. No. 1971312) whose registered office
is at One Canada Square Canary Wharf London E14 5AB ("the Developer")
and
(2) MORGAN STANLEY UK GROUP (Co. Regn. No. 14281415) whose registered
office is at 25 Cabot Square Canary Wharf London E14 8QA ("the
Tenant")
(3) MORGAN STANLEY GROUP INC a corporation incorporated under the laws of
Delaware having an office at 1251 Avenue of the Americas New York New
York 10020 ("the Surety")
WHEREBY IT IS AGREED as follows:-
1. DEFINITIONS AND INTERPRETATION
1.1 In this Agreement unless the context requires otherwise the following
words and expressions shall have the meanings respectively ascribed to
them:-
"Access Date" means the date seven days following the date of this
Agreement
"1927 Act Notice" means a notice of intention to make an improvement
such notice being served by the Tenant pursuant to Section 3 of the
Landlord and Tenant Act 1927 and as specified in Clause 9 PROVIDED
THAT any communication which would otherwise constitute or be deemed
to constitute a 1927 Act Notice shall be deemed not to constitute a
1927 Act Notice if the Tenant acknowledges in writing (whether in or
contemporaneously with or prior to such communication) that such
communication is not intended to constitute a 1927 Act Notice
"Approvals" means:-
(a) all consents licences permissions authorisations and approvals
(including agreements under Section 52 of the Town
<PAGE> 3
2
and Country Planning Act and Section 106 of the Town and Country
Planning Act 1990) of any local or other competent authority
(including LDDC acting in its capacity as statutory authority)
and
(b) in relation to the Developer's Works and the Developer's Building
Works (if applicable) all consents licences permissions
authorisations and approvals of LDDC required pursuant to the MBA
(including without limitation the Design Guidelines (as therein
defined))
which may from time to time be necessary to enable the Developer or
the Tenant lawfully to commence and carry out the Developer's Works
the Developer's Building Works or the Tenant's Works (as appropriate)
and each and every stage or phase of the Developer's Works the
Developer's Building Works or the Tenant's Works (as appropriate)
including if the same are destroyed or damaged the reinstatement of
the Developer's Works the Developer's Building Works or the Tenant's
Works (as appropriate) and thereafter to use the Demised Premises for
the purposes contemplated by the Lease and the term "Approval" shall
be construed accordingly
"Base Building" means the building described in the Base Building
Definition
"Base Building Definition" means the aggregate of:-
(a) the specification dated 9th November 1994 entitled "Shell & Core
Outline Specification 20 Cabot Square" annexed hereto as Annexure
1 and
(b) the Current Building Plans
which specification and a schedule of the Current Building Plans are
annexed hereto as Annexures 1 and 2 respectively
"Base Building Works" means the construction of the Base Building as
the same may be altered from time to time
"Base Rate" means the base lending rate of Barclays Bank Plc in force
from time to time or (if such base lending rate shall be
<PAGE> 4
3
incapable of determination or for any reasons shall cease to be used
or published) then such other comparable commercial rates as the
parties may agree or in default of agreement as may be determined by
an independent person to be nominated in the absence of agreement by
and on behalf of the President for the time being of The Royal
Institution of Chartered Surveyors on the application of the Developer
or the Tenant
"Building" means the building known as 20 Cabot Square and situate
within the boundaries of the land designated as Parcel FC4 on the
Development Site Plan TOGETHER WITH the curtilage and appurtenances of
the said building (the boundaries of the said curtilage being shown by
red edging on the Development Site Plan)
"Building Systems" means the systems so defined in Clause 3.3.3
"CAR Policy" means the Contractors' All Risks Policy numbered
WCR941042661 (a cover note for which (or summary of) is annexed hereto
as Annexure 4) and any subsequent revisions or substituted
arrangements therefor which may be made from time to time
"Certificate of Practical Completion" means a certificate of Practical
Completion confirming Practical Completion served pursuant to this
Agreement
"Code of Measuring Practice" means the Code of Measuring Practice
prepared by the Royal Institution of Chartered Surveyors and the
Incorporated Society of Valuers and Auctioneers (Fourth Edition dated
November 1993)
"Completion of the Tenant's Works" means the practical completion of
the Tenant's Works as determined pursuant to the provisions of Clause
5
"Consultants" means all those persons providing Consultancy Services
in connection with the Base Building Works
"Consultancy Services" means the services contracted to be provided in
relation to the carrying out of the Base Building Works by architects
quantity surveyors structural engineers
<PAGE> 5
4
other engineers mechanical and electrical consultants drainage
consultants project managers and any other consultants (other than
solicitors and selling agents and letting agents) employed or
consulted by or on behalf of the Developer in connection with the Base
Building Works
"Current Building Plans" means the building plans listed in the
drawings schedule annexed hereto as Annexure 2
"Demised Premises" means the premises to be demised by the Lease as
the same are more particularly described therein and shown for
identification purposes edged red and in part hatched green on the
plans annexed hereto as Annexure 5 and marked "Demised Premises Plans"
"Developer's Building Architects" means Kohn Pederson Fox or such
other architect or firm of architects as may be appointed by the
Developer in connection with the Developer's Works and/or the
Developer's Building Works and notified in writing to the Tenant as
having been so appointed
"Developer's Building Contract" means such contract or contracts
entered into by the Developer providing for the execution of the Base
Building Works or any part thereof as the same may be amended or
modified from time to time
"Developer's Building Contractors" means the management contractors of
(if applicable) the main building contractors from time to time under
the Developer's Building Contract
"Developer's Contracting Team" means the Developer's Building
Contractors and the subcontractors appointed by the Developer's
Building Contractors to carry out the Base Building Works (or part
thereof)
"Developer's Building Works" means the Shell and Core Works and the
Reconstruction Works (as those terms are hereinafter defined)
"Developer's Works" means the Development Site Infrastructure Works
and the Base Building Works
"Development Site" means:-
<PAGE> 6
5
(a) the land and water areas shown edged green on the Development
Site Plan and any additions alterations or improvements thereto
and any additional land and water areas in which the Developer
has acquired a freehold or leasehold interest and which the
Developer reasonably designates as part of the Development site
and
(b) all buildings and appurtenances thereon and all additions
alterations and improvements thereto
"Development Site Infrastructure Works" means the design and
construction from time to time of infrastructure work (other than the
Phase I Infrastructure Works) within the Development Site
"Development Site Plan" means the plan entitled "Development Site
Plan" annexed to this Agreement as Annexure 3
"Event of Default" shall have the meaning set out in Clause 19
"Expert" means the Independent Person acting as an expert pursuant to
Clause 21
"Facilities" means the facilities labour and all other services
provided to the Tenant by the Developer or Canary Wharf Management
Limited in the course of or in connection with the Tenant's Works
and/or as proposed by the Tenant pursuant to Clause 4.4 hereof and
approved by the Developer such approval not to be unreasonably
withheld or delayed
"Independent Person" means the independent person appointed to act as
specified in Clause 20.2 or Clause 20.3 (as applicable)
"Infrastructure Contracts" means the management or other contracts
entered into by the Developer (and as the same may be amended from
time to time) providing for the execution of the Development Site
Infrastructure Works
"Initial Rent" shall have the meaning ascribed thereto in the Lease
and shall be the amount specified in Clause 12.2.3
"Interest Rate" means the rate of interest specified in Clause
<PAGE> 7
6
25.1
"LDDC" means the London Docklands Development Corporation (which
definition shall include its successors in title and assigns as
permitted under the MBA)
"Lease" means the Lease of the Demised Premises in the form of the
draft exhibited hereto (with such additions or amendments as are
provided for herein) to be granted to the Tenant on the terms
prescribed by Clause 12
"Licences" means the licences regulating and approving the manner of
execution of the Tenant's Works in the form of the draft set out in
the First Schedule to be entered into as provided in Clause 6.3
"Littlejohn Agreement" means the agreement a copy of the form of which
is exhibited hereto as Exhibit 3
"MBA" means the agreement dated 17th July 1987 entitled "Master
Building Agreement" between among others LDDC (1) the Developer (2)
and O&Y Canary Wharf Investments Limited (3) as varied by the Modified
Scheme Consent Documents and as the same may subsequently be amended
from time to time
"Method Statement" means the method statement to be provided by the
Tenant in accordance with the provisions of Clause 4.4
"Minimum Standard Developer's Finish" means the Minimum Standard
Developer's Finish for Tenant's Works a copy of which is annexed
hereto as Annexure 6
"Modified Scheme Consent Documents" means the deed dated 29th January
1988 and made between LDDC (1) O&Y Canary Wharf Investments Limited
(2) the Developer (3) and Olympia & York Developments Limited (4) as
varied by a Revised Modified Consent Deed dated 2nd December 1991 and
made between the same parties as further varied by an Agreement dated
28th October 1993 and made between LDDC (1) O&Y Canary Wharf
Investments Limited (In Administration) (2) Olympia & York Canary
Wharf Limited (In Administration) (3) and Messrs Adamson, Hamilton and
Bloom (4)
<PAGE> 8
7
"Net Internal Area" means the net internal area of the relevant part
of the Demised Premises as defined and measured in accordance with the
Code of Measuring Practice and for the avoidance of doubt in
considering for the purposes of such measurement whether an area or
part is used in common with other tenants or occupiers of the Building
or for the purposes of essential access or is a corridor of a
permanent essential nature it is agreed and declared that only those
areas shown coloured yellow on the "Demised Premises Plans" shall be
so classified
"Phase" means a phase of the Tenant's Works the nature extent and
number of which are at the entire discretion of the Tenant
"Phase I Infrastructure" shall have the meaning ascribed thereto in
the MBA
"Practical Completion" means the practical completion of the Tenant's
Works or the Developer's Building Works (as appropriate each) in
accordance with this Agreement and the expression "practically
complete" shall be construed accordingly
"Prohibited Materials" means any of the following:-
(a) High alumina cement concrete
(b) Woodwool slabs in permanent shuttering form
(c) Calcium Chloride used as a setting agent in cement
(d) Calcium silicate brick or tiles
(e) Asbestos or asbestos based products (save where trace natural
elements thereof are used in products which comply with relevant
British Standard Specifications)
(f) Aggregates for use in reinforced concrete which do not comply
with British Standard Specification 882:1983 and aggregates for
use in concrete which do not comply with British Standard
Specification 8100:1985
(g) Urea Formaldehyde and
<PAGE> 9
8
(h) Crocidolite
(i) Any other material generally known at the date of its use to be
deleterious to health and safety or the durability of the works
in which it is used
"Quarterly Day" means each of the 1st day of January 1st day of April
1st day of July and 1st day of October
"Reconstruction Works" means works of demolition reconstruction and
reconfiguration of the west side entrance lobby area and plaza shop
fronts and the blocking of certain lifts (floors 1-6 east core and
7-10 west core) and the opening up of dedicated lifts (floor 1 west
core) as described in the Specification
"Rent Commencement Date" means the date specified in Clause 12.2.4
subject to Clauses 13.3 13.4 and 13.5
"Riverside Car Park" means the car park shown edged brown on Plan
annexed hereto as Annexure 8
"Shell and Core Works" means the works required to be carried out by
the Developer in order to restore the Building to its shell and core
in accordance with the Shell and Core Outline Specification a copy of
which is annexed hereto as Annexure 1
"Specification" means the specification for the Reconstruction Works a
copy of which is annexed hereto as Annexure 7
"Tenant's Allowance" means the agreed Developer's contribution in
respect of the Tenant's Works (calculated at the rate of L.34
(inclusive of Value Added Tax) per square foot of the Net Internal
Area of the first second third fourth fifth and sixth floors of the
Demised Premises) such amount to be paid in accordance with Clause 8
"Tenant's Building Contractor" means the main building contractor or
management contractor if any selected by the Tenant
"Tenant's Plans" shall have the meaning ascribed to them in Clause
3.1.3(a)
<PAGE> 10
9
"Tenant's Professional Firms" mean the Tenant's architects quantity
surveyors engineers and other professionals or sub- contractors other
than its solicitors providing services or advice to the Tenant in
relation to the development of the Demised Premises or the project
contemplated by this Agreement as the Tenant may from time to time
appoint or nominate
"Tenant's Works" means the works to be undertaken by the Tenant in
completing the initial installation connection and commissioning of
services to and the initial fitting out of the Demised Premises and
which shall be of no lesser standard than the Minimum Standard
Developer's Finish or such other works in addition thereto or in
substitution thereof which are undertaken by the Tenant for the
purposes of the initial fitting out of the Demised Premises and all of
which are approved in accordance with the provisions of this Agreement
and for the avoidance of doubt the Tenant shall not be obliged to fit
out any part of the ground floor of the Demised Premises to the
standard required by Minimum Standard Developer's Finish
"Tenant's Works Certificate" means the certificate to be issued by the
Tenant in accordance with Clause 5 signifying that (in the opinion of
the Tenant) Completion of the Tenant's Works has occurred
"Term Commencement Date" means 1st February 1995
"Working Day" means any day (other than a Saturday or a Sunday) upon
which clearing banks in the United Kingdom are open to the public for
the transaction of business
1.2 In this Agreement unless the context otherwise requires:-
1.2.1
words importing the masculine gender only shall include
the feminine gender and neuter meaning and vice versa and
words importing the singular number shall include the
plural number and vice versa and all references to a
Clause or Schedule shall mean a Clause or Schedule of this
Agreement
1.2.2
<PAGE> 11
10
references to any statute or section of a statute shall be
deemed to refer to any statutory amendment or modification
or re-enactment thereof for the time being in force and
the provisions of Section 61 of the Law of Property Act
1925 shall be deemed to be incorporated in and form part
of this Agreement
1.2.3
references to drawings and documents annexed hereto shall
include the drawings and documents initialled for
identification on behalf of the parties hereto for the
purposes of this Agreement (whether individually or as
part of an agreed bundle or bound volume)
1.2.4
titles and headings to clauses are for convenience only
and shall not be construed in or affect the interpretation
of this Agreement
2. COPYRIGHT
2.1 Insofar as the copyright to any drawings or other intellectual
property relevant to the Base Building Works is owned by the Developer
or the Developer has power to grant licence to use or reproduce the
same the Developer hereby irrevocably grants to the Tenant
non-exclusive licence to use and reproduce the same for the purposes
set forth in Clause 2.2 below
2.2 The Tenant undertakes that it shall observe all restrictions on
copyright and other intellectual property rights applicable to and
treat as supplied in confidence all drawings plans specifications cost
information trade contract documents and calculations supplied by the
Developer the Developer's Contracting Team or its Consultants or
agents in connection with or related to the Base Building Works and
will not use or permit to be used any of the same otherwise than:-
2.2.1
exclusively in connection with the planning and execution
of the Tenant's Works or any subsequent alterations to the
Demised Premises or
2.2.2
<PAGE> 12
11
for any other purposes authorised or required under this
Agreement and that the Tenant will procure compliance with
this sub-clause 2.2 by the Tenant's agents and the
Tenant's Professional Firms or any third party engaged
instructed or retained by the Tenant in connection with
the Base Building Works and/or the Tenant's Works and
matters provided for in this Agreement
3. TENANT'S WORKS
3.1.1
The Landlord accepts that the Tenant will be carrying out
the Tenant's Works in Phases the timing of each Phase
being at the entire discretion of the Tenant
3.1.2
Prior to commencing each phase of the Tenant's Works and
at the Tenant's sole reasonable cost and expense the
Tenant shall submit to the Developer details of such of
the Tenant's Works as relate to the relevant Phase for
approval pursuant to Clause 3.5 including (but without
limitation):-
(a) architectural design drawings and specifications and
(b) engineering design drawings and specifications
in respect of the facilities materials and work for the
various elements of the Tenant's Works which the Tenant
wishes to carry out and such design drawings and
specifications shall be fully co-ordinated with the Base
Building
3.1.3
(a) If (and to the extent only) the same are approved
by the Developer pursuant to Clause 3.5 the design
drawings and specifications submitted by the Tenant
pursuant to the provisions of this Clause 3.1 and
any changes therein permitted under this Clause 3
are herein collectively called "Tenant's
<PAGE> 13
12
Plans"
(b) In relation to those portions of the Tenant's Works
which comprise the connection to or interface with
the structure of Building and the electronic
elements of the fire protection system the building
management system the risers and other systems
serving the Building the Tenant may retain the same
Consultants who prepared (as applicable) such
structural mechanical or electrical engineering
aspects of the Base Building Works but if other
Consultants are used all reasonable information
shall be supplied to the Developer to enable it to
review the proposals (at the Tenant's cost) and the
Tenant agrees not to use Consultants in respect of
whom the Developer reasonably objects
3.2 The Tenant's Plans shall be co-ordinated by the Tenant with each other
and with the Current Building Plans and shall incorporate all
information which may be reasonably required to let all contracts
required for the performance of the Tenant's Works including without
limitation the details of all such Tenant's Works and the dimensioned
locations thereof with reference to the building column centre line or
the face of finished column enclosures. The Tenant's Plans shall
consist of:-
3.2.1
scaled and dimensioned architectural and engineering
design drawings and specifications showing the Tenant's
Works including (without limitation) partition locations
and type door locations size and type hardware schedule
reflected ceiling electrical and telephone outlets
plumbing locations and mechanical electrical plumbing and
fire protection drawings which architectural and
engineering design drawings and specifications shall
contain reasonably sufficient detail to enable the
Developer acting reasonably to determine whether or not
the Tenant's Plans satisfy the requirements of Clauses 3.1
and 3.3 and
3.2.2
to the extent necessary to satisfy the preamble to this
<PAGE> 14
13
clause and to enable the Developer to be satisfied as to
the same scaled and dimensioned drawings and
specifications showing nonstructural architectural details
including floor and wall coverings painted surfaces
finishes cabinet work and any other special finish
requirements of the Tenant
3.3 The Tenant's Plans (including any changes thereto) shall not:-
3.3.1
materially adversely affect the exterior (including the
appearance) of the Building (but for the avoidance of
doubt may include suitable antiblast plastic film applied
to the interior surfaces of windows) or
3.3.2
adversely affect the Building or
3.3.3
adversely affect the usage or the functioning of the
mechanical electrical sanitary heating ventilating life
safety air conditioning or other service systems of the
Building (the "Building Systems") or
3.3.4
violate any laws or the requirements of any Approvals or
the requirements from time to time of any insurers
notified in writing to the Tenant (or its representatives
or advisors) or be such that any Approval or any insurance
to be effected by the Developer pursuant to Clause 11 is
reasonably likely to be unobtainable
3.4 One set of transparencies and two prints of each plan in relation to
architectural drawings and one set of transparencies and three prints
of all others shall be submitted to the Developer on each occasion
that the Tenant supplies details of its proposals for each Phase of
the Tenant's Works to the Developer for approval
3.5 The Tenant's Plans and any material changes thereto which the Tenant
may request shall be subject to the Developer's prior approval such
approval (subject to compliance with Clauses 3.2
<PAGE> 15
14
and 3.3) not to be unreasonably withheld or delayed. If the Developer
shall disapprove of any aspects of the applicable drawings and
specifications then the Developer shall within ten (10) Working Days
give notice in writing specifying the grounds for such disapproval
failing which it shall be deemed to have given its approval to the
drawings and specifications and the Tenant shall either (i) return to
the Developer appropriate corrections thereto within ten (10) Working
Days after receipt of such notice and if the Developer shall still
decline to approve the Tenant's Plans as amended, then (subject to
Clause 3.3) either party may refer the matter or matters in dispute to
the Expert for a decision in accordance with the provisions of Clause
20 or (ii) notify the Developer in writing that it does not intend to
proceed with such drawings and specifications
3.6 The Developer shall deliver to the Tenant a statement or statements
specifying any reasonable and proper engineering architectural or
other costs incurred by the Developer in reviewing Tenant's Plans and
any changes thereto together with any documentary evidence which the
Tenant shall reasonably require that such costs have been incurred and
the Tenant shall pay to the Developer within ten (10) Working Days
after the receipt thereof the amount specified in such statement
3.7 The Tenant shall use reasonable endeavours to obtain all necessary
Approvals required for the Tenant's Works following approval of the
Tenant's Plans
3.8 The Tenant's Plans shall include a set of DXF files on computer disk
showing the same
4. ENTRY BY THE TENANT FOR THE TENANT'S WORKS AND SUBSEQUENT OCCUPATION
4.1 Prior to Completion of the Lease and thereafter subject to Clause 13.3
and if the Tenant requires access to carry out the Tenant's Works
subject to the provisions of sub-clauses 4.2 4.4 and 4.5 below and
Clauses 3 and 6.4 the Developer shall grant the Tenant the Tenant's
Professional Firms its contractors agents advisers workmen and others
engaged in the execution of the Tenant's Works access to the Demised
Premises and to the Building by way of licence only in common with the
Developer at all times (subject as hereinafter mentioned) with effect
from
<PAGE> 16
15
the Access Date and where necessary through the lobby and using the
lifts in the eastern end and core of the Building (including after the
grant of the Lease until completion of the Developer's Building Works)
for the purposes only of inspection of the Building and to carry out
the Tenant's Works and for any other reasonable purpose in connection
with the Tenant's Works including (but without limitation) the
inspection of the Demised Premises the preparation of the Tenant's
Plans and other drawings and specifications as referred to in Clause
3.1.3(a) and the preparation of the method statement referred to in
Clause 4.4 and any occupation by the Tenant prior to completion of the
Lease shall be on the same terms as if the Lease had been granted but
subject always to the provisions of this Agreement
4.2 The Tenant's Works shall be carried out and completed:-
4.2.1
in a good and workmanlike manner and
4.2.2
using good quality materials of their several kinds and
(where specified) as set out in any specifications
relating to the Tenant's Works and in either case being
fit for the purposes for which they are intended and
4.3 The Tenant shall itself and shall procure that the Tenant's
Professional Firms and the Tenant's Building Contractor and all other
parties instructed by the Tenant comply with all reasonable rules
restrictions and regulations in relation to access to the Demised
Premises and any other parts of the Building to which the Tenant is
allowed access pursuant to the provisions of this Agreement and which
may reasonably be imposed by the Developer and have been notified in
writing to the Tenant
4.4 As soon as reasonably practicable and in any event not less than 10
Working Days prior to commencement of any Phase of the Tenant's Works
the Tenant shall submit to the Developer for and obtain the
Developer's approval to a method statement relating to that Phase (a
"Method Statement") in writing which Method Statement shall contain
the following information in so far as it is reasonably practicable
for the same to be included:-
4.4.1
<PAGE> 17
16
details of the Tenant's Professional Firms and the
Tenant's Building Contractor for the design and carrying
out of each part of the Tenant's Works
4.4.2
an organisational chart relating to that Phase showing the
structuring of responsibilities of its professional team
and contractors and sub-contractors engaged in connection
with the carrying out of the Tenant's Works
4.4.3
details of the proposed construction schedule for the Phase
4.4.4
proposals for the liaison co-ordination and co-operation
between the Developer and the Tenant's Professional Firms
and the Tenant's Building Contractor and the Tenant's
Senior Managers (as defined in Clause 22)
4.4.5
proposals for the means and times of access to the parts
of the Building to which the Tenant is to be allowed
access pursuant to the provisions of this Agreement
4.4.6
insofar as the same may then be known but otherwise in
accordance with paragraph (b) below proposals for the
dates and times of delivery to the Development Site and
the Building of materials and equipment intended for
incorporation or use in the Tenant's Works
4.4.7
proposals for the storage on-site of the materials and
equipment intended for incorporation in the Tenant's Works
and
4.4.8
proposals for the method by which on a daily basis surplus
materials and refuse and rubbish of the Tenant
<PAGE> 18
17
its contractors servants and agents are to be removed from
the areas of the Development Site and the Building to
which such persons shall have access to the areas
desipated by the Developer as collection points or to
areas outside the Development Site
Provided That: -
(a) notwithstanding the Developer's approval to the
Method Statement if in the carrying out of the
Tenant's Works in accordance with the Method
Statement it transpires that the method of carrying
out of the Tenant's Works is having a materially
adverse effect on the progress or completion of the
Developer's Works or the conduct of the business of
tenants within the Building or any other works or
the ability of Canary Wharf Management Limited (or
any substitute therefor) to provide any of the
Estate Services or Car Park Services or Building
Services (all as defined in the Lease) the
Developer may require such reasonable amendments or
variations to the Method Statement as are
reasonably necessary to mitigate the effect on the
progress or completion of the Developer's Works or
the ability of Canary Wharf Management Limited to
provide the aforementioned services
(b) insofar as it shall not be reasonably practicable
to provide the information detailed in this Clause
4.4 within the time specified the Developer shall
approve its omission from the Method Statement but
such information shall nonetheless be submitted to
the Developer as soon as reasonably possible
thereafter
4.5 Upon entering the Demised Premises and any other parts of the Building
to which access is permitted to enable the Tenant to carry out the
Tenant's Works (the Developer acknowledging that it is necessary that
access to other parts of the Building must be afforded to the Tenant
to allow the Tenant to carry out the Tenant's Works and any survey
inspection tests and other procedures relating thereto) the Tenant
will itself and will
<PAGE> 19
18
procure that its contractors agents advisers and workmen will at all
times:-
4.5.1
comply in all material respects with the provisions of the
Method Statement approved pursuant to the provisions of
sub-clause 4.4 as the same may be added to amended or
varied from time to time as permitted by this Agreement
and comply in all respects with the Regulations (as
defined in the Lease) as updated from time to time and
produced and notified to the Tenant in writing by Canary
Wharf Management Limited (as an addition or substitute
therefor)
4.5.2
keep free and unobstructed all escape routes in relation
to the Building and procure that all vehicles visiting the
Building in connection with the Tenant's Works go directly
to the unloading points reasonably designated in writing
to the Tenant for such purpose from time to time by the
Developer and leave the Building and the Development Site
promptly upon unloading being completed
4.5.3
comply in all respects with the reasonable requirements
and procedures of the Developer notified in writing to the
Tenant in respect of the delivery of materials for use in
connection with the Tenant's Works including the days and
hours on and within which deliveries may be made the
Developer having due regard to the reasonable requests of
the Tenant in relation thereto and acting in the interests
of good estate management
4.5.4
comply in all respects with the reasonable and proper
safety and floor loading requirements of the Developer
notified in writing to the Tenant in respect of the
storage of materials in connection with the Tenant's Works
4.5.5
<PAGE> 20
19
comply in all respects with the reasonable and proper
requirements of the Developer notified in writing to the
Tenant in respect of the security and protection of the
Building
4.5.6
(save to the extent and degree expressly authorised under
this Agreement by reason of the approval of the Tenant's
Works) not damage or cause or permit its servants agents
or contractors or any other persons to damage the
Developer's Works and in particular not to interfere or
permit such persons to interfere with or do or permit to
be done by any such persons any act or thing which may
materially adversely affect any installation forming part
of the Developer's Works or the carrying out or completion
thereof and not to make or instruct to be made by any such
persons any connections with or to such installation
(other than any which form part of the Tenant's Works)
without the prior approval of the Developer to such
connections (which approval shall not be unreasonably
withheld or delayed)
4.5.7
comply in all respects with legislation in respect of
Safety Health and Welfare and the reasonable safety
requirements of the Developer
4.5.8
not obstruct or cause or permit to be obstructed (save
during the proper carrying out of any part of the Tenant's
Works to the same) the means of access to:-
(a) the vertical surfaces of the Developer's Works
(b) plant machinery and equipment installed as part of
the Developer's Works
(c) any service ducts and risers and
(d) any part of the Building other than the Demised
Premises
<PAGE> 21
20
4.5.9
The Developer hereby acknowledges that the Tenant is in
the process of formulating its proposals for the Tenant's
Works and is not presently in a position to determine
those Facilities which it will want in connection with the
carrying out of the Tenant's Works. The Developer agrees
that it will negotiate with the Tenant in good faith in
response to proposals from the Tenant for a suitable
schedule of Facilities (including appropriate charges for
the Facilities involved) and for its part the Tenant
acknowledges the right of the Developer to control the
timing supply and use of any such Facilities having regard
to the execution of the Base Building Works and the
competing interests of other potential occupants who are
fitting out other parts of the Building
4.6 The Tenant shall at reasonable intervals throughout the period of the
carrying out of the Tenant's Works permit the Developer to inspect the
progress and manner of execution of the Tenant's Works (and to ensure
compliance with the rules restrictions and regulations referred to in
Clause 4.3) at all reasonable times on prior appointment and subject
to the proper safety and security requirements imposed by the Tenant
and/or the Tenant's Building Contractor without such inspection
causing any undue delay to the Tenant's programme for the carrying out
of the Tenant's Works and without causing any other interference to
the Tenant's Works and making any comments in relation to the Tenant's
Works their progress and manner of execution to the Tenant itself and
not to the Tenant's Building Contractor or any of the other Tenant's
Professional Firms
4.7 The Tenant's Works shall at all times be at the Tenant's risk and save
as expressly provided in this Agreement the Developer shall have no
responsibility or liability in respect thereof or (subject to the
provisions of Clause 11) be under any obligations to insure the same
5. COMPLETION OF THE TENANT'S WORKS
The Tenant shall procure that the Developer shall be given not less
than five (5) Working Days' notice of the intention of the Tenant to inspect a
relevant Phase of the Tenant's Works with a view to the
<PAGE> 22
21
issue of the certificate of practical completion of the Tenant's Works in
relation to that Phase (a "Tenant's Works Certificate") and that the Developer
and such of its consultants as it may wish will be given the opportunity to
accompany the Tenant on the final inspection prior to the issue of the Tenant's
Works Certificate relating to that Phase in order that the Developer may (but
shall not be bound to) make whatever representations to the Tenant which the
Developer reasonably thinks fit as to whether or not the Phase shall have been
practically completed and the Tenant will have regard to (but shall not be
bound by) any such representations made before issuing the Tenant's Works
Certificate and the Tenant shall as soon as reasonably practicable after its
issue supply to the Developer a copy of the Tenant's Works Certificate when
issued and the date specified in the Tenant's Works Certificate shall be the
date of Completion of the relevant Phase of the Tenant's Works in relation to
the relevant Phase for the purposes of this Agreement
6. ANCILLARY PROVISIONS AS TO WORKS
6.1.1
The Developer and the Tenant shall as soon as reasonably
practicable and in any event not earlier than Completion
of the Shell and Core Works (together but each at its own
cost) commission and test in accordance with the
specifications relating thereto all plant and machinery
the supply or fixing of which is included in the Base
Building Works or the Tenant's Works respectively both
separately and together with all plant and machinery the
supply or fixing of which is included in the Tenant's
Works or the Base Building Works respectively
6.1.2
The Developer and the Tenant shall each procure that they
notify and regularly consult with each other as to the
proposed commencement of any procedures for testing and/or
commissioning any of the said plant and machinery and to
that end the Developer and the Tenant shall co-operate so
as to procure the efficient testing and commissioning of
the said plant and machinery in cases where the
functioning of plant and machinery installed as part of
the Base Building Works is dependent upon plant and
machinery installed as part of
<PAGE> 23
22
the Tenant's Works and vice versa
6.1.3
In relation to those portions of the Tenant's Works which
comprise the fire protection system or the connection or
interface with the electronic elements of the building
management system serving the Building the Tenant shall be
obliged to use a contractor reasonably designated by the
Developer
6.2.1
As soon as reasonably practicable after Practical
Completion of each Phase of the Tenant's Works the Tenant
shall supply to the Developer a set of as-built drawings
showing the works relating to that Phase actually carried
out together in so far as possible with a set of DXF files
on computer disk showing the same
6.2.2
As soon as reasonably possible after the Practical
Completion of all the Tenant's Works the Developer and the
Tenant shall each sign and exchange a memorandum amending
the relevant marked up or as-built plans for the purpose
of recording the works carried out by the Tenant
6.3 Within thirty (30) Working Days of Completion of each Phase of the
Tenant's Works (or on completion of the Lease if later) the Developer
shall execute and deliver to the Tenant an executed Licence and
subject to being provided with an engrossment thereof the Tenant shall
execute and deliver counterparts thereof to the Developer and for such
purposes the Tenant shall supply to the Developer as soon as
practicable after Completion of each Phase of the Tenant's Works a
specification prepared by or on behalf of the Tenant which shall
identify the relevant works insofar as the extent of the same is not
apparent from the as-built drawings
7. ENTRY BY THE DEVELOPER TO THE DEMISED PREMISES AFTER THE ACCESS DATE
From the Access Date the until Developer's Building Works are
<PAGE> 24
23
entirely completed the Tenant shall upon receipt of reasonable prior
notice (save in the case of emergency) permit the Developer the
Consultants and the Developer's Contracting Team to enter upon the
Demised Premises in order to enable the Developer to complete the
Developer's Building Works the persons so entering causing no damage
to the Demised Premises and the Tenant's Works and as little
interference interruption to or restriction of the Tenant's Works as
practicable and making good to the reasonable satisfaction of the
Tenant any damage caused thereby to the Demised Premises or to the
Tenant's Works
8. ALLOWANCE FOR TENANT'S WORKS
8.1 In this Clause 9 (unless the context requires otherwise) the following
words and expressions shall have the meanings respectively ascribed to
them:-
"Costs"
means all costs and expenses which are
properly referable to the Tenant's Works and
the expression "Relevant Costs" shall be
construed accordingly;
"Disbursement"
shall have the meaning ascribed to it in
Clause 8.2;
8.2 The Developer shall pay to the Tenant the Tenant's Allowance in
accordance with the following provisions:-
8.2.1
the Developer shall pay sums on account of the Tenant's
Allowance (a "Disbursement") to the Tenant from time to
time within ten (10) Working Days after receipt of a
written request for a Disbursement from the Tenant (such
request setting forth in reasonable detail the amount of
the Costs incurred by the Tenant which have not been the
subject of a previous Disbursement by the Developer and
the relevant Tenant's Works which have been incorporated
into the Demised Premises) and such request being
accompanied by a certificate from the Tenant's architect
(or other appropriate and duly authorised professional
advisor) confirming that the
<PAGE> 25
24
amounts so specified in the request have been incurred and
where relevant the relevant Tenant's Works have been so
incorporated;
8.2.2
any such Disbursement by the Developer shall not be
required to be made more frequently than monthly and (save
as provided in paragraph 8.2.3 below) shall not exceed the
sums incurred by the Tenant towards the relevant Costs;
8.2.3
within ten (10) Working Days following the date of
Completion of the Tenant's Works any necessary final
adjusting payment shall be made by the Developer to the
Tenant or vice versa (as the case may be) in respect of
any underpayment or overpayment of the Tenant's Allowance
so that the Tenant shall in any event receive an amount
equal in full to the Tenant's Allowance whether or not
Costs have been incurred by the Tenant to the full amount
of the Tenant's Allowance
9. AGREEMENT AS TO OPERATION OF LANDLORD AND TENANT ACT
9.1 The Tenant hereby agrees with the Developer that if the Tenant serves
a 1927 Act Notice upon the Developer in relation to the Tenant's Works
or any part or parts thereof the Tenant shall within twenty-eight days
following the service of the 1927 Act Notice or within seven days
after determination of the cost (hereinafter called "the Cost") to the
Tenant of the carrying out of the works and alterations the subject of
the 1927 Act Notice (time being of the essence) pay to the Developer a
sum equal to One hundred and five per cent. of the Cost
9.2 The Developer and the Tenant shall use all reasonable endeavours to
agree the Cost but in default of written agreement between them as to
the amount of the Cost then either party may at any time following the
expiration of a period of fourteen days following the service of the
1927 Act Notice refer the matter for settlement to an Independent
Person pursuant to the provisions of Clause 20
<PAGE> 26
25
10. REBATES FROM STATUTORY
10.1 As contemplated in Clause 11(14) of the MBA the Tenant hereby agrees
to pay to the Developer or as it may direct the full amount of any
rebates received by or on behalf of the Tenant comprising all or any
part of the Corporation's Proportionate Share
10.2 The Tenant hereby assigns to the Developer all of its rights and
claims in respect of the Corporation's Proportionate Share
10.3 For the purposes of this Clause 10 "Corporation's Proportionate Share"
shall have the meaning ascribed thereto in the MBA
11. INSURANCE
11.1 From the date hereof until the date that the Lease is actually granted
pursuant to Clause 12.1 the Developer shall insure or cause to be
insured the Base Building Works and the Building and the
Reconstruction Works (insofar as the same are from time to time built)
either (and as appropriate):-
11.1.1
against all risks covered by the CAR Policy; or
11.1.2
insofar as reasonably practicable on the same terms
(mutatis mutandis)
as would have applied had the Lease been granted on the date hereof
subject nevertheless to all exclusions and limitations imposed by the
insurers
11.2 Within 7 days of written demand the Tenant shall pay a proportionate
part (referable to the respective proportion which the Tenant would
have paid had the Lease been granted) of the amount expended by or on
behalf of the Developer in effecting insurance pursuant to Clause 11.1
11.3 If the Base Building Works or the Building or the Reconstruction Works
are damaged or destroyed by any of the risks referred to in Clause
11.1 then unless payment of the insurance monies shall be refused in
whole or in part by reason of any act or default
<PAGE> 27
26
of the Tenant or any person under its control the Developer shall lay
out the net proceeds of such insurance (making good any insufficiency
in such proceeds out of its own funds) in rebuilding and reinstating
the Building Works the Building or the Reconstruction Works as the
case may be in accordance with this Agreement
12. GRANT OF LEASE AND RENT AND OTHER TERMS
12.1 On a date five days after the date of the determination of the Net
Internal Area pursuant to Clause 12.2.2 the Developer shall duly
execute and shall procure that Canary Wharf Management Limited shall
execute and cause to be delivered to the Tenant the executed Lease and
the Tenant (meaning Morgan Stanley UK Group only) and the Surety
(meaning Morgan Stanley Group Inc only) shall execute and deliver the
counterpart thereof to the Developer and the Lease shall be completed
12.2 The following provisions shall apply to the computation and the
commencement date for payment of the rents payable under and the
calculation of the commencement and length of the term of the Lease:-
12.2.1
the term of the Lease shall be the period of twenty-five
years from the Term Commencement Date
12.2.2
(a) the Developer shall subject to Clause 13.8 as soon
as reasonably possible serve notice on the Tenant
when the Developer reasonably considers that such
part of the Demised Premises as is to be situate on
the ground floor of the Building is capable of
measurement and within fifteen (15) Working Days
following the date of such notice the Developer and
the Tenant (for itself and the Surety) shall procure
that their respective chartered surveyors shall
jointly measure and endeavour to agree the Net
Internal Area of such part of the Demised Premises
including and separately shown the Ground Floor Area
(as defined in the Lease) and the area edged red
on Plan 2
<PAGE> 28
27
(b) if such surveyors shall not be able to agree in
writing within the said period the Net Internal Area
of the Demised Premises either of them may require
the Demised Premises to be measured by an
Independent Person
(c) notwithstanding the foregoing the Net Internal Area
of floors 1 2 3 4 5 and 6 of the Demised Premises is
agreed to be three hundred and twenty five thousand
seven hundred and four (325,704) square feet and a
memorandum of the same shall be endorsed on the
Lease and the Counterpart thereof
12.2.3
the amount of the Initial Rent shall for the first three
years of the Term be 37,500 pounds sterling and thereafter
shall be 5,167,338 pounds sterling
12.2.4
the Initial Rent in respect of the Demised Premises shall
be reserved under the Lease with effect from and including
1st February 1995 subject to Clause 13.4 and 13.5
12.2.5
the insurance rent and service charges as reserved in
Clause 3(e) of the Lease shall be reserved under the Lease
with effect from and including 1st February 1995
12.2.6
the parties shall insert any appropriate figures and
details in the Lease following the calculations referred
to herein
12.3 Save in relation to the car parking areas within the Building the
Tenant hereby waives its right to and shall not (and shall not permit
any other person to) occupy the Demised Premises or any part thereof
for the purposes of its business until practical completion of the
relevant Phase of the Tenant's Works in respect of such part and until
practical completion as aforesaid the provisions for occupation of the
Demised Premises contained herein shall continue to apply
<PAGE> 29
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12.4 Notwithstanding any provision in this Agreement (including any
provision of this Clause 12.4) to the contrary but subject to the
proviso hereto no sums in respect of rents insurance and service
charges for the period prior to the grant of the Lease up to (but not
including) the Quarterly Day after the grant of the Lease shall become
payable until the date of completion of the Lease and on the date of
completion of the Lease there shall become due and payable by the
Tenant in respect of rents insurance rents and service charges for the
period aforesaid an amount equal to all sums which would have become
due and payable prior to the date of completion of the Lease in
respect of rents insurance rents and service charges for the said
period but for the provisions of this Clause 12.4 together with an
amount equal to the interest from the date on which payments would
have become due if the Lease had been granted on the earliest date
from and including which such sums were reserved ("the Reservation
Date") until the date of grant at the rate equal to the Base Rate
compounded quarterly (or in respect of the period up to the date of
completion at the end of that period) in arrears PROVIDED ALWAYS that
the Developer may elect at any time prior to the Reservation Date that
any sums due in respect of rents insurance rents and service charge
prior to completion of the Lease which would have been payable under
the Lease had the same been granted on the Reservation Date shall be
payable as sums due under this Agreement until the Lease is completed
on the dates on which the same would have fallen due had the Lease
been granted on the Reservation Date
12.5 Where in consequence of the calculations made under sub-clause 12.2 or
12.4 of this Clause sums and amounts become due and payable by the
Tenant to the Developer as rent in respect of any period or periods
prior to the completion of the Lease such sums and amounts shall
instead be due and shall commence to be paid by the Tenant as licence
fees under the terms of this Agreement until the Lease has been
completed
12.6 The parties shall complete any blanks in the form of Lease at the
appropriate time and shall act reasonably in relation thereto
13. DEVELOPER'S BUILDING WORKS
13.1 The Developer hereby agrees to carry out and to complete the
<PAGE> 30
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Shell and Core Works and the Reconstruction Works in the manner set
out in this Clause 13 at its sole cost (save in relation to that part
of the Reconstruction Works to comprise the South and West Vestibules
and any works therein as detailed in Sections 6 and 8 of the
Specification in respect of which the Tenant shall reimburse the
Landlord the sum of 80,000 pounds sterling including VAT within
fourteen (14) days of receipt by the Tenant of a written demand
following completion of the Reconstruction Works or if the Tenant
shall so require in writing the Landlord shall deduct such sum from
payments of the Tenant's Allowance)
13.2 The Developer will procure that the Certificate of Practical
Completion of the Shell and Core Works is issued by the date falling
three months after the date hereof and will procure that the
Certificate of Practical Completion of the Reconstruction Works is
issued by the date falling twelve months after the date hereof
13.3 The communications mechanical and electrical space shown edged and
hatched green on Plan 2 shall be made available to the Tenant to
enable the Tenant to commence to carry out the Tenant's Works no later
than the date falling four months after the date hereof and on that
date the aforementioned space shall be in such condition as to enable
the Tenant properly to carry out the Tenant's 36 Works in so far as
they relate to that space and for each day after the date falling four
months after the date hereof that the Landlord fails (without fault on
the part of the Tenant) to make the communications mechanical and
electrical space available to the Tenant in such a condition as to
enable the Tenant to carry out the Tenant's Works the Rent
Commencement Date shall be delayed (subject to Clause 13.5 below) on a
day for day basis
13.4 The Rent Commencement Date and the date on which the rent of
5,167,338 pounds sterling shall become payable shall each be delayed
for each day that:-
13.4.1
the issue of a Certificate of Practical Completion in
respect of the Reconstruction Works is delayed (without
fault on the part of the Tenant) beyond the date falling
twelve months after the date hereof (subject to Clause
13.5 below) on a day for day basis and
<PAGE> 31
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13.4.2
for each day that the issue of a Certificate of Practical
Completion in relation to the Shell and Core Works is
delayed (without fault on the part of the Tenant) beyond
the date falling three months after the date hereof
(subject to Clause 13.5 below) on a day for day basis
13.5 The total number of days by which the Rent Commencement Date shall be
delayed shall be equal to whichever of the delays referred to in
Clauses 13.3 13.4.1 and 13.4.2 is the longest to the intent that there
shall be no double counting in calculating the number of days by which
the Rent Commencement Date shall be delayed
13.6 The Tenant may by service of written notice at any time after the date
hereof and during the period of the carrying out of the Shell and Core
Works but only at such time or times as would not be likely to lead to
a delay on the part of the Developer in achieving the date referred to
in Clause 13.4.2 require any of the plant equipment fit out enhanced
building systems fixtures fittings or furnishings ("Equipment") which
are at the date of that notice still in the Building and which would
be removed as part of the Shell and Core Works to be retained or if
the Tenant requires to take physical possession of them and if such a
notice is served the relevant Equipment shall:-
13.6.1
be retained and its retention shall thereafter be excluded
from the Shell and Core Works
13.6.2
be given into the physical possession of the Tenant if so
required as soon as reasonably possible after the service
of the Tenant's Notice
13.7 The Developer's Building Works shall be carried out and completed:-
13.7.1
in a good and workmanlike manner
13.7.2
<PAGE> 32
31
using good quality materials of their several kinds which
are fit for the purpose for which they are intended
13.7.3
in all respects in accordance with the Specification in
the case of the Reconstruction Works and in accordance
with the Shell and Core Outline Specification in the case
of the Shell and Core Works set out in Annexure 1
13.7.4
without using any Prohibited Materials
13.7.5
in accordance with the Standards applied and reasonably
expected of fully skilled persons in the execution of such
works
13.7.6
in accordance with all necessary Approvals
13.8 The Developer shall use reasonable endeavours to procure that that
part of the Building presently occupied by Rymans Limited can be
reconstructed in whatever way shall be necessary in order to enable
the Developer to demise the plaza level of the Demised Premises as
shown edged red and hatched green on plan [Z] and will on or before
28th February 1995 inform the Tenant whether it has been successful in
its negotiations with Rymans Limited and if it has been successful
plan [Z] shall be substituted for plan 2 for the purposes of this
Agreement
13.9 The Developer shall at reasonable intervals throughout the period of
the carrying out of the Developer's Works permit the Tenant to inspect
the progress and manner of execution of the Developer's Building Works
(and to ensure compliance with the rules restrictions and regulations
referred to in this Agreement) at all reasonable times on prior
appointment and subject to the proper safety and security requirements
imposed by the Developer and/or the Developer's Building Contractor
without such inspection causing any undue delay to the Developer's
programme for the carrying out of the Developer's Works
<PAGE> 33
32
13.10 The Developer's Works shall at all times prior to 1st February 1995 be
at the Developer's risk and save as expressly provided in this
Agreement the Tenant shall have no responsibility or liability in
respect thereof
13.11.1
Until such time as the Littlejohn Agreement is completed
(and the Developer hereby agrees to complete its works to
the car park which is the subject of the Littlejohn
Agreement at its own expense and make the same available
to the Tenant within 6 months of the date hereof) the
Tenant shall be entitled to use the same number of parking
spaces (to be designated by the Developer) at the
Riverside Car Park as are the subject of the Littlejohn
Agreement upon the like terms mutatis mutandis (including
as to licence fee) as are contained in the Littlejohn
Agreement
13.11.2
Within 5 Working Days of the later of completion of the
works which the Developer intends to carry out to the car
park which is the subject of the Littlejohn Agreement or
the date six months from the date hereof the Developer
shall grant and the Tenant will accept the grant of the
Littlejohn Agreement
14. COMPLETION OF DEVELOPERS BUILDING WORKS
14.1 The Developer shall procure that the Tenant shall be given not less
than five (5) Working Days' notice of the intention of the Developer's
Architect to inspect the Reconstruction Works or the Shell and Core
Works (as the case may be) with a view to the issue of a Certificate
of Practical Completion of the Shell and Core Works or the
Reconstruction Works and the Tenant and its architect will be given
the opportunity to accompany the Developer on the final inspection
prior to the issue of the relevant Certificate of Practical Completion
in order that the Tenant may make whatever representations to the
Developer it shall reasonably think fit as to whether or not the Shell
and Core Works or the Reconstruction Works have been practically
completed and the Developer will have regard to (but not be bound by)
any such representations made before issuing the Certificate of
Practical Completion and the Developer shall as
<PAGE> 34
33
soon as reasonably possible after its issue supply to the Tenant a
copy of the Certificate of Practical Completion and the date specified
in the Certificate of Practical Completion shall be the date of
completion of the Reconstruction Works or the Shell and Core Works as
the case may be
15. VALUE ADDED TAX
15.1 Where by virtue of any of the provisions of this Agreement, one party
("the Payer") is required to pay another party to this Agreement ("the
Payee") any costs fees charges expenses or other amounts, then the
Payer shall also:-
(i) pay to the Payee any Value Added Tax at the rate for the time
being in force chargeable in respect of any payments made by the
Payer to the Payee in connection with or under the provisions of
this Agreement or in respect of any supplies made by the Payee to
the Payer in connection with or under the provisions of this
Agreement provided that if the Payee makes an election to waive
exemption in relation to all or part of the Demised Premises in
accordance with paragraph 2 of Schedule 10 of the Value Added Tax
Act 1994 as it may from time to time be amended modified or re-
enacted and as a result of such election (and for the avoidance
of doubt solely as a result of such election) Value Added Tax is
payable by the Payer in accordance with this sub-clause then the
Payee shall indemnify the Payer against such Value Added Tax as
is payable by the Payer under this sub-clause and is not
recoverable by the Payer pursuant to Sections 25 and 26 of the
Value Added Tax Act 1994
(ii) pay to the Payee an amount equal to all Value Added Tax input tax
incurred by the Payee in respect of supplies made to the Payee
(including by reason of such supplies being deemed to be made for
the purposes of Value Added Tax by the Payee to itself) the cost
of which the Payer is obliged to reimburse to the Payee under or
by virtue of the terms of this Agreement save to the extent that
such Value Added Tax input tax is recoverable by the Payee or is
recoverable under any other provision of this Agreement
<PAGE> 35
34
15.2 Where Clause 15.1 above applies the Payee shall not later than fifteen
(15) Working Days after receipt of the relevant sum or amount or
rendering of the consideration render to the Payee a proper Value
Added Tax invoice therefor
16. TITLE
16.1 The Developer's title to grant the Lease having been deduced to the
Tenant prior to the date hereof the Tenant shall raise no objection or
requisition in respect thereof other than those arising out of the
usual pre-completion searches
16.2 The Developer shall place its Charge Certificate in respect of Title
Number EGL 202850 on deposit at H.M. Land Registry and shall notify
the Tenant or its Solicitors of the deposit number allocated thereto
for the purposes of enabling the Tenant to register a notice of the
Tenant's interest arising out of this Agreement relating to the
Demised Premises
16.3 The Developer shall procure evidence of the consent of Lloyds Bank plc
and if necessary London Underground Limited to the grant of the Lease
and the Littlejohn Agreement
17. CONDITIONS AFFECTING THE GRANT OF THE LEASE
17.1 The Lease will be granted subject to:-
17.1.1
all charges notices orders directions regulations
restrictions and other matters whatsoever arising under
the Town and Country Planning Act 1990 the Planning
(Listed Buildings and Conservation Areas) Act 1990 the
Planning (Hazardous Substances) Act 1990 the Planning
(Consequential Provisions) Act 1990 the Planning and
Compensation Act 1991 and any subsequent legislation of a
similar nature and the Tenant shall be deemed to accept
the Lease with full knowledge thereof and of the
authorised use of the Building for the purpose of such
Acts and shall not raise any requisition enquiry or
objection with regard thereto save for any which shall be
incurred registered issued made or created after the date
hereof
<PAGE> 36
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17.1.2
the matters contained or referred to in the deeds or
documents referred to in the Fifth Schedule to the Lease
17.1.3
a lease or leases in favour of the London Electricity
Board in such form and with such appurtenant rights and
powers of entry and otherwise as the London Electricity
Board shall require relating to the transformer chambers
in the Building (but for the avoidance of doubt outside
the Demised Premises)
17.1.4
a lease or leases in favour of British Telecom Mercury
Communications or such other public telecommunications
operator as the Developer may determine (a "PTO") in such
form and with such appurtenant rights and powers of entry
and otherwise as the PTO shall require relating to the
telecommunications room in the Building (but for the
avoidance of doubt outside the Demised Premises)
17.2 The Tenant hereby admits that no representation whether oral or
written (save in any written reply given by the Developer's Solicitors
to any written enquiry) has been made to the Tenant prior to the
execution hereof by or on behalf of the Developer concerning the
Development Site or the Building or the Developer's Works or any part
thereof which has influenced induced or persuaded the Tenant to enter
into or which forms part of this Agreement or of any agreement
collateral herewith
18. EVENT OF DEFAULT
18.1 An Event of Default shall occur in any of the following
circumstances:-
18.1.1
if the Tenant (being a body corporate) passes a winding-up
resolution (other than a resolution for the purposes of an
amalgamation or reconstruction resulting in a solvent
corporation) or resolves to present its own winding-up
petition or is wound up or the directors
<PAGE> 37
36
of the Tenant resolve to present a petition for an
administration order in respect of the Tenant or an
Administrative Receiver or a Receiver or a Receiver and
Manager is appointed in respect of the property or any
part thereof of the Tenant or the Surety or
18.1.2
if the Tenant (being a body corporate) calls or a nominee
calls on its behalf a meeting of its creditors or any of
them or makes an application to the Court under Section
425 of the Companies Act 1985 other than an application
for the purposes of an amalgamation or reconstruction
resulting in a solvent corporation or submits to its
creditors or any of them a proposal pursuant to Part I of
the Insolvency Act 1986 or enters into any arrangement
scheme compromise moratorium or composition with its
creditors or any of them (whether pursuant to Part I of
the Insolvency Act 1986 or otherwise) or
18.1.3
the Tenant ceases for any reason to maintain its corporate
existence or
18.1.4
the Tenant shall cease for any other reason to be or to
remain liable under this Agreement
18.2 Upon the happening of an Event of Default the Developer may at any
time thereafter (whilst the Event of Default subsists to any extent)
by notice in writing to the Tenant forthwith determine this Agreement
(but without prejudice to any right of action by any party in respect
of any antecedent breach of any of the obligations on the part of any
other party herein contained)
19. CONFIDENTIALITY PROVISIONS
19.1 None of the parties to this Agreement shall without the prior written
consent of all the other parties to this Agreement disclose or publish
("Disclosure") or permit or cause Disclosure of any financial or other
details whatsoever naming the parties hereto or otherwise relating to
the transaction hereby effected save only for:-
<PAGE> 38
37
19.1.1
any particular extracts or details which must be the
subject of Disclosure in order to comply with any Stock
Exchange or statutory requirements or the lawful
requirements of any regulatory bodies or with the
requirements of the Inland Revenue or Customs and Excise
or in order to obtain clearance and clarification from the
Customs and Excise or Inland Revenue
19.1.2
any details given to auditors bankers professional
advisers and key employees of each of the parties who need
to know such details (and who shall only be provided with
the same upon first having undertaken to be bound by the
provisions of this Clause 19 (mutatis mutandis))
19.1.3
any particular extracts or details which have come into
the public domain through no fault of the relevant party
(but no disclosure to Customs & Excise or the Inland
Revenue)
19.2 In the case of a party wishing to make Disclosure as permitted
pursuant to the provisions of Clause 19.1 that party shall first
submit details of the proposed text of the Disclosure to the other
parties to this Agreement and shall act reasonably in taking full
account of all representations and comments made by such other parties
upon the text
19.3 This Clause 19 shall remain in effect until the expiry of a period of
5 years from the date hereof
19.4 This Clause 19 shall not apply to Disclosure by or on behalf of any
party to this Agreement to any third parties and/or their professional
advisers in pursuance of bona fide negotiations relating to the
Development Site
20. DISPUTES
20.1 If any dispute or difference shall arise between the parties
<PAGE> 39
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hereto as to the construction or meaning of this Agreement or their
respective rights duties and obligations hereunder or as to any matter
arising out of or in connection with the subject matter of this
Agreement such dispute or difference shall (unless this Agreement
otherwise expressly provides) if any party hereto so requires at any
time by notice served on the others ("the Determination Notice") be
referred to and determined by an independent person ("the Independent
Person") who shall have been qualified in respect of the general
subject matter of the dispute or difference for not less than ten
years and who shall be a specialist in relation to such subject matter
20.2 The Independent Person shall be appointed by agreement between the
parties hereto or (if within ten (10) Working Days after service of
the Determination Notice the parties have been unable to agree) on the
application of any of the parties by such one of the following persons
as the parties shall agree to be appropriate having regard to the
nature of the dispute or difference in question
20.2.1
the Chairman for the time being of the Bar Council
20.2.2
the President for the time being of the Royal Institute of
British Architects
20.2.3
the President for the time being of the Royal Institution
of Chartered Surveyors
20.2.4
the President for the time being of the Institute of
Chartered Arbitrators
20.2.5
the President for the time being of the Institute of
Chartered Accountants in England and Wales
20.2.6
the President for the time being of the Law Society or (in
each such case) the duly appointed deputy of such
President or any other person authorised by him to make
<PAGE> 40
39
appointments on his behalf
20.3 If within fifteen (15) Working Days after service of the Determination
Notice the parties have been unable to agree which of the persons
referred to in Clause 20.3 is appropriate to appoint the Independent
Person then the Independent Person shall be appointed on the
application of any of the parties by the President for the time being
of the Law Society or his duly appointed deputy or any other person
authorised by him to make appointments on his behalf
20.4 Except as mentioned in Clause 20.5 any person appointed under this
Clause shall act as an arbitrator in accordance with the provisions of
the Arbitration Acts 1950 to 1979
20.5 Whenever this Agreement expressly so provides that the Independent
Person shall act as an expert then the following provisions shall have
effect:-
20.5.1
the Independent Person shall act as an expert and not as
an arbitrator and his decision shall be final and binding
upon the bodies thereto
20.5.2
the Independent Person shall consider (inter alia) any
written representations made on behalf of any party (if
made reasonably promptly) but shall not be bound thereby
20.5.3
the parties hereto shall use all reasonable endeavours to
procure that the Independent Person shall give his
decision as speedily as possible
20.5.4
the costs of appointing the Independent Person and his
costs and disbursements in connection with his duties
under this Agreement shall be shared between the parties
to the dispute in such proportions as the Independent
Person shall determine or in the absence of such
determination then equally between the parties and
<PAGE> 41
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20.5.5
if the Independent Person shall be or become unable or
unwilling to act then the procedure herein before
contained for the appointment of an expert may be repeated
as often as necessary until a decision is obtained
20.5.6
Where the dispute or difference between the parties which
was the subject of the Determination Notice shall have
resulted in delay to the carrying out of the Tenant's
Works or the Developer's Works or the Developer's Building
Works the Independent Person shall be entitled (inter
alia) to award such extension of time for the fulfilment
of the obligation in question in respect of such delay as
shall in all circumstances be fair and reasonable
21. NOTICES
21.1 "Address" means the address of the party in question shown on the
first page of this Agreement or such other address as the party in
question may from time to time notify in writing to the other parties
to this Agreement as being its address for service for the purposes of
this Agreement
21.2 Any notice approval election or other communication given or made in
accordance with this Agreement shall be in writing and shall be:
21.2.1
sent by registered or recorded delivery post to the
relevant party at such party's Address and if so sent
shall be deemed to have been delivered given or made on
the date occurring 72 hours after the date it was sent or
21.2.2
shall be personally delivered to the relevant party at
such party's Address as defined in this Clause and if so
delivered shall be deemed to have been delivered given or
made on the date of delivery
<PAGE> 42
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21.2.3
Notices to the Developer shall be marked for the attention
of Patrick Gamer Esq. at Canary Wharf Limited One Canada
Square Canary Wharf London E14 5AB with a further copy
sent to MA Ashley-Brown Esq. at Canary Wharf Limited One
Canada Square Canary Wharf London E14 5AB
21.2.4
Notices to the Tenant shall be marked for the attention of
F. Bartolotta Esq or such other person as shall be
notified to the Landlord at 25 Cabot Square Canary Wharf
London E14 with a further copy sent to Messrs Slaughter
and May at 35 Basinghall Street London EC2V 5DB
22. SENIOR MANAGERS
22.1 The Developer and the Tenant each shall by notice in writing given to
the other party designate not more than three (3) senior managers
(each being herein referred to as a "Senior Manager" which expression
shall include any persons appointed in place of the initial persons so
designated) each of whom shall have authority to approve all matters
requiring the approval of the Developer or the Tenant (as the case may
be) pursuant to this Agreement
22.2 It is hereby acknowledged that the Developer has designated George
Iacobescu and Anthony Jordan and that the Tenant has designated Frank
Bartolatta and Philip Henry as their respective Senior Managers and
that no further designation of a Senior Manager is required to be made
by either the Developer or the Tenant
22.3 The Tenant acknowledges and represents that the Developer may rely
upon the directions of any one or more of the Tenant's Senior Managers
and that each such person has authority to act on behalf of the Tenant
and to bind the Tenant in connection with this Agreement Directions
and other communications given to or received from any one or more of
the Senior Managers shall be deemed given to and received from all of
the Senior Managers
22.4 Either the Developer or the Tenant may by written notice to the
<PAGE> 43
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other at any time hereafter change its designation of any of the
Senior Managers appointed by it with effect from the date of such
notice
23. CONTINUANCE AND NON-MERGER
This Agreement shall remain in full force and effect in respect of any
of the provisions hereof which remain to be completed satisfied or fulfilled on
the grant of the Lease
24. NO ASSIGNMENT OF THIS AGREEMENT
The benefit of this Agreement shall be personal to the Tenant and to
the Surety respectively and neither shall assign underlet mortgage charge share
or otherwise part or deal in any way whatsoever with the benefit of this
Agreement or any part thereof provided always that the benefit of this
Agreement after completion of the Lease shall be fully and freely assignable to
any Leasehold Mortgagee (as that term is defined in the Lease) and to any
person who is from time to time the Tenant under the Lease and upon any
assignment of the Lease prior to Practical Completion of the whole of the
Tenant's Works or any underletting of any part of the Demised Premises prior to
Practical Completion of the Tenant's Works in relation to such sublet premises
the Tenant will procure that unless the Tenant is to carry out the Tenant's
Works for such assignee or sublessee such assignee or sublessee shall enter
into direct covenants with the Landlord to observe and perform the obligations
on the part of the Tenant herein contained in relation to the Tenant's Works
25. GENERAL PROVISIONS
Interest on late Payments
25.1 If and so often as any of the sums payable hereunder by the Tenant to
the Developer or by the Developer to the Tenant shall be unpaid after
becoming due and payable the party from whom such payment shall be due
shall pay on demand interest on such unpaid sums from the due date
until payment in cleared funds at the rate of three per centum per
annum above the Base Rate
Invality of Certain Provisions
25.2 If any term of this Agreement or the application thereof to any
<PAGE> 44
43
person or circumstances shall to any extent be invalid or
unenforceable the same shall be severable from the remainder of this
Agreement and the remainder of this Agreement or the application of
such term or provision to persons or circumstances other than those as
to which it is held invalid or unenforceable shall not be affected
thereby and each term and provision of this Agreement shall be valid
and be enforced to the fullest extent permitted by the Law
Proper Law and Jurisdiction
25.3 This Agreement shall be governed by and construed in accordance in all
respects with English law and the parties hereto hereby submit to the
non-exclusive jurisdiction of the High Court of Justice of England in
relation to any claim dispute or difference which may arise hereunder
and in relation to the enforcement of any judgement rendered pursuant
to any such claim dispute or difference and for the purpose of Order
10 Rule 3 of the Rules of the Supreme Court of England (or any
modification or re-enactment thereof) the Tenant hereby irrevocably
agree that any process may be served on either of them by leaving a
copy thereof at the relevant party's Address (as determined pursuant
to Clause 22.1)
MBA - Social Contract Provisions
25.4 Pursuant to the social provisions of the MBA the Tenant acknowledges
that the Developer has drawn the attention of the Tenant to the
desirability of:-
25.4.1
Employment of Docklands' residents advertising of job
vacancies in the local press and the notification of
vacancies to Skilnet
25.4.2
Patronage of Docklands' tradesmen suppliers retailers and
businesses and
25.4.3
Fostering of training facilities for Docklands' residents
to secure as many people as may be practicable to be
suitably qualified for the range of
<PAGE> 45
44
job opportunities being created at the Development Site
26. GUARANTEE OF PERFORMANCE OF TENANT'S OBLIGATIONS
The Surety in consideration of the Developer entering into this
Agreement at the request of the Surety unconditionally and irrevocably agrees
with and in favour of the Developer as follows:-
26.1 if the Tenant shall fail in any respect to observe and perform the
terms and provisions in this Agreement or any of them the Surety will
fully observe perform and discharge the same AND without prejudice to
the generality of the foregoing the Surety hereby further covenants by
way of primary obligation and not merely liability as a guarantor or
merely collateral to that of the Tenant and specifically so that this
obligation shall not be affected by any circumstances of any kind that
would otherwise relieve the Surety from paying and making good to the
Developer as soon as possible after receipt of written demand any
losses costs damages and expenses occasioned to the Developer arising
out of or by reason of any default of the Tenant in respect of any of
its obligations under the terms and provisions of this Agreement (the
Surety expressly acknowledging and undertaking for all purposes of
this Agreement that in case of such failure or default on the part of
the Tenant then the Surety shall forthwith thereupon be liable and
required to remedy such failure or default and pay and make good the
payment of all sums and amounts expressed to be payable under this
Agreement) AND PROVIDED that any neglect or forbearance on the part of
the Developer in enforcing or giving time for or other indulgence in
respect of the observance or performance of any of the said agreements
provisions and conditions other than a release given under seal shall
not release the Surety from its liability under the agreement or
guarantee on its part contained in this Clause 26 AND PROVIDED FURTHER
THAT it is agreed that such obligations of the Surety shall survive
any determination of this Agreement
26.2 if an Event of Default occurs then the Developer may within three
calendar months following any such event by notice in writing require
the Surety to enter into an Agreement in the like form to this
Agreement (in accordance (if appropriate) with the proviso hereto) but
with the Surety substituted for the Tenant PROVIDED THAT where
pursuant to the foregoing the Developer shall become entitled to
enforce all or any of its
<PAGE> 46
45
respective rights or remedies against the Surety requiring the Surety
to enter into an Agreement in pursuance of this sub- clause then the
Surety shall assume all the obligations and have all the rights of the
Tenant as if the Surety had been an original contracting party at the
date hereof to this Agreement in place of the Tenant (in addition to
the Surety's actual capacity hereunder)
26.3 (i) the Developer shall not be obliged before enforcing any of its
rights or remedies against the Surety to take any proceedings or
obtain any judgment against the Tenant in any Court or to make or
file any claim in any bankruptcy or liquidation of the Tenant and
the liabilities of the Surety under this Clause 27 may be
enforced irrespective of whether any demand steps or proceedings
are being or have been taken against the Tenant and the terms of
this Clause 27 shall be a continuing guarantee and shall remain
in full force and effect until each and every part of the
obligations and covenants on the part of the Tenant shall have
been discharged and performed in full
(ii) notwithstanding the provisions of sub-clause (i) above the
Landlord shall not take any steps to proceed against the Surety
in respect of sums due under this Agreement unless such sums are
not paid within 28 days of becoming due or in respect of any
other breach unless the Tenant has not remedied that breach
within a reasonable time of being required to do so
26.4 the Surety shall rank after the Developer in respect of any sums paid
under this Clause 26 and in respect of any other rights which accrued
howsoever to the Surety in respect of any sums so paid or liabilities
incurred hereunder or in the observance performance or discharge of
the obligations and covenants on the part of the Tenant and be
entitled to enforce the same only after all the said obligations and
covenants shall have been observed performed and discharged in full
and until such observance performance and discharge the Surety shall
not:-
26.4.1
during any period in which the Tenant is in breach of the
terms of this Agreement seek to recover whether directly
or by way of set-off lien counterclaim or
<PAGE> 47
46
otherwise or accept any money or other property or
security or exercise any rights in respect of any sum
which may be or become due to the Surety on account of
failure by the Tenant to observe perform or discharge the
said obligations or covenants or the obligations of the
Surety hereunder from the Tenant or any third party
26.4.2
during any period in which the Tenant is in breach of the
terms of this Agreement claim prove for or accept any
payment in any composition by or winding up or liquidation
of the Tenant in competition with the Developer for any
amount whatsoever owing to the Surety by the Tenant on any
account whatsoever
26.4.3
during any period in which the Tenant is in breach of the
terms of this Agreement exercise any right or remedy in
respect of any amount paid by the Surety hereunder or any
liability incurred by the Surety in observing performing
or discharging the said obligations and covenants on the
part of the Tenant and the Surety warrants that it has not
taken and will not without the prior consent of the
Developer take any security from the Tenant in connection
with this guarantee and any security so taken shall be
held in trust for the Developer as security for the
respective liabilities of the Surety and the Tenant
hereunder and the Surety shall not be entitled to any
right of proof in the bankruptcy or liquidation of the
Tenant or any other right of the guarantor discharging its
liability in respect of the said obligations and covenants
unless and until all of the same shall first have been
paid observed performed and discharged in whole
26.5 the liability of the Surety under this Clause 26 shall not be released
impaired diminished or affected by any variation of this Agreement
(other than a variation to which the Surety is not a party) and the
obligations on the part of the Surety contained in this Clause 26
shall subsist in relation and by reference to the obligations and
covenants on the part of the Tenant as from time to time varied
<PAGE> 48
47
26.6 the Surety shall not during any period in which there is a breach of
the Terms of this Agreement exercise any remedy as a contingent
creditor of the Tenant in respect of the Surety hereunder
27. INCORPORATION OF OTHER AGREEMENTS
27.1 This Agreement incorporates the agreement of even date herewith
annexed hereto and headed Option Agreement and Agreement for First
Refusal
27.2 Notwithstanding the foregoing it is hereby agreed that save as may be
expressly agreed any failure by any party to perform its obligations
under this Agreement or the agreement incorporated herein pursuant to
Clause 27.1 shall not in any circumstances relieve any party from its
obligations to perform and observe the provisions of the other
Agreement
IN WITNESS whereof the parties have executed this Agreement as a deed and
intend the same to be delivered on the day and year first before written
FIRST SCHEDULE
(Form of Licence re Tenant's Works)
THIS LICENCE is made the [ ] day of [ ] One thousand nine hundred
and ninety
BETWEEN (1) the Developer [and] (2) the Tenant [and (3) the Surety]
WITNESSETH as follows:-
1. In this Licence save where the context otherwise requires the
following words and expressions have the meanings hereunder assigned to them:-
1.1 "Developer" "Tenant" and "Surety" respectively mean the parties whose
names and registered offices are set forth in the First Schedule and
their successors in title
1.2 "Premises" means the premises described in the Second Schedule
1.3 "Lease" means the lease of the Premises made between the parties
<PAGE> 49
48
hereto and dated [ ] for a term of [ ] years
from [ ]
1.4 "Drawings" means the drawings specified in Part 1 of the Third
Schedule copies of which are annexed to this Licence
1.5 "Specifications" means the specifications specified in Part 2 of the
Third Schedule copies of which are annexed to this Licence
1.6 "Works" means the alterations to the Premises carried out in
conformity with the Drawings and Specifications
2. The Developer has granted to the Tenant licence and consent for the
carrying out of the Works
3. The Tenant covenants with the Developer:-
3.1 to pay any increased insurance premiums that may be occasioned by
reason of the Works
3.2 on the expiration or sooner determination of the Lease howsoever
determined if and only if so required by the Developer at the cost of
the Tenant to reinstate and make good the Premises in accordance with
the covenant to that effect contained in the Lease and for this
purpose to obtain all consents and orders of any Local Authority
Planning Authority Fire Control Authority or any other body from whom
such consents or orders are required to be obtained and to make all
payments therefor in the same manner
4. It is agreed and declared that:-
4.1 The covenants on the part of the Tenant and the conditions contained
in the Lease shall take effect subject to and with the benefit of this
Licence
4.2 The proviso for re-entry in the Lease shall be exercisable on breach
of any of the covenants in this Licence on the part of the Tenant as
well as on the happening of any of the events mentioned in the said
proviso
4.3 Save as varied by this Licence the covenants and conditions in the
Lease shall remain in full force and effect
<PAGE> 50
49
IN WITNESS whereof the parties hereto have executed this Licence the day and
year first above written
THE FIRST SCHEDULE
(The Parties)
<TABLE>
<S> <C> <C>
(a) "the Developer"
whose registered office is at
(b) "the Tenant"
whose registered office is at
(c) "the Surety"
whose registered office is at
</TABLE>
THE SECOND SCHEDULE
(The Premises)
<PAGE> 51
50
THE THIRD SCHEDULE
PART 1
(The Drawings)
Number Title Prepared by
PART 2
(The Specifications)
THE COMMON SEAL of )
[DEVELOPER] was hereunto affixed )
in the presence of:- )
Director
Secretary
THE COMMON SEAL of [TENANT] )
was hereunto affixed in the )
presence of:- )
Director
Secretary
<PAGE> 52
51
THE COMMON SEAL of [SURETY] )
was hereunto affixed in the )
presence of:- )
Director
Secretary
THE COMMON SEAL of CANARY WHARF )
LIMITED was hereunto affixed )
in the presence of:- )
Director
Secretary
<PAGE> 53
52
INDEX OF ANNEXURES AND EXHIBITS
<TABLE>
<CAPTION>
Annexure Clause Reference
- -------- ----------------
<S> <C> <C>
1. Shell & Core Outline Specification "Base Building Definition"
20 Cabot Square dated 9 November 1994
2. Schedule of Current Building Plans "Base Building Definition"
3. Development Site Plan "Building" and "Development
Site Plan"
4. CAR Policy Summary "CAR Policy"
5. Demised Premises Plans "Demised Premises" and
"Net Internal Area"
6. Minimum Standard Developer's Finish "Minimum Standard
for Tenant Work Specification Developer's Finish"
7. Specification "Reconstruction Works"
8. Plan of Riverside Car Park "Riverside Car Park"
Exhibit
- -------
1. Draft Lease "Lease"
2. Option Agreement
3. Littlejohn Agreement
</TABLE>
<PAGE> 54
53
INDEX
<TABLE>
<CAPTION>
Contents Page
- -------- ----
<S> <C>
1. DEFINITIONS AND INTERPRETATION
2. COPYRIGHT
3. TENANT'S WORKS
4. ENTRY BY THE TENANT FOR THE TENANT'S WORKS AND
SUBSEQUENT OCCUPATION
5. COMPLETION OF THE TENANT'S WORKS
6. ANCILLARY PROVISIONS AS TO WORKS
7. ENTRY BY THE DEVELOPER TO THE DEMISED PREMISES
AFTER THE ACCESS DATE
8. ALLOWANCE FOR TENANT'S WORKS
9. AGREEMENT AS TO OPERATION OF LANDLORD AND TENANT
ACT
10. REBATES FROM STATUTORY UNDERTAKERS
11. INSURANCE
12. GRANT OF LEASE AND RENT AND OTHER TERMS
13. DEVELOPER'S BUILDING WORKS
14. COMPLETION OF DEVELOPER'S BUILDING WORKS
15. VALUE ADDED TAX
16. TITLE
17. CONDITIONS AFFECTING THE GRANT OF THE LEASE
18. EVENT OF DEFAULT
19. CONFIDENTIALITY PROVISIONS
20. DISPUTES
21. NOTICES
22. SENIOR MANAGERS
23. CONTINUANCE AND NON-MERGER
24. NO ASSIGNMENT OF THIS AGREEMENT
25. GENERAL PROVISIONS
26. GUARANTEE OF PERFORMANCE OF TENANT'S OBLIGATIONS
27. INCORPORATION OF OTHER AGREEMENTS
</TABLE>
FIRST SCHEDULE
(Form of Licence re Tenant's Works)
PART 2
<PAGE> 55
54
(The Specifications)
<PAGE> 56
DATED 199
- ---------------------------------------
(1) Landlord:
CANARY WHARF LIMITED
(2) Management Company:
CANARY WHARF
MANAGEMENT LIMITED
(3) Tenant:
MORGAN STANLEY UK GROUP
(4) Surety:
MORGAN STANLEY GROUP INC
___________________________
UNDERLEASE
- of -
Part Ground and First to Sixth Floors
20 Cabot Square Canary Wharf
London E14
___________________________
TERM
COMMENCES: 1st February 1995
YEARS: 25
TERM
EXPIRES: 31st January 2020
RENT: 5,167,338 pounds sterling
p.a. exclusive (subject to review)
___________________________
<PAGE> 57
T H I S L E A S E made on the Date and BETWEEN the Parties specified in the
Particulars
W I T N E S S E T H as follows:-
1. DEFINITIONS
IN this Lease the following expressions shall have the following
meanings:-
1.1 "Acceptable Assignee" means an Entity in relation to which on the date
of the transfer to it of this Lease either (i) its long term unsecured
unsubordinated and unguaranteed debt obligations are rated not less
than A- by Standard & Poor's or A3 by Moody's rating agencies and
which rating has not been placed on credit watch or the equivalent or
(but only if such Entity is not capable of having a credit rating from
Standard & Poor's or Moody's) (ii) the Entity has according to its
last annual audited accounts Consolidated Shareholders' Funds of not
less than 500 million pounds sterling and whose consolidated profit
before taxation (after extraordinary items if applicable) as
determined from its audited consolidated profit and loss accounts for
each of the last three years has exceeded an amount equal to five
times the Rent (which shall be no lesser sum than Five million one
hundred and sixty seven thousand three hundred and thirty eight pounds
sterling (5,167,338 pounds sterling)) payable at such time provided
that such figures shall be derived from accounts audited by a firm of
internationally recognised accountants and prepared in accordance with
generally accepted accounting practices in the United Kingdom ("UK
GAAP") or generally accepted accounting practices in the United States
of America or generally accepted accounting practices in any other
jurisdiction which are equivalent to UK GAAP and if such audited
accounts are stated in a currency other than sterling then for the
purpose of this definition all relevant amounts shall be converted to
sterling at such exchange rate as the Landlord shall reasonably
determine
1.2 "Accountant" means a Chartered Accountant or firm of Chartered
Accountants appointed or employed by the Management Company or a Group
Company of the Management Company to perform the functions of the
Accountant under this Lease and whose identity shall be notified in
writing to the Tenant
<PAGE> 58
2
1.3 "Adjoining Property" means all parts of the Estate (other than the
Demised Premises) and any land and/or buildings from time to time
adjoining or neighbouring the Estate
1.4 "Atrium" means the atrium within the Building between the third and
the ninth floors
1.5 "Base Building Systems" means the mechanical electrical sanitary
heating ventilating life safety air conditioning and other service
systems of the Building
1.6 "Base Rate" means the Base Rate for the time being of Barclays Bank
PLC in force from time to time or (if such base lending rate shall be
incapable of determination or for any reason shall cease to be used or
published) then such other comparable commercial rate as the parties
may agree or in default of agreement as may be determined by an
independent person to be nominated in the absence of agreement by and
on behalf of the President for the time being of the Institute of
Chartered Accountants on the application of the Landlord or the Tenant
1.7 "Building" means the Building (of which the Demised Premises form
part) briefly described in the Particulars and each and every part
thereof and all the appurtenances belonging thereto including:-
(a) all landlord's fixtures and fittings in or upon the same
(b) all additions alterations and improvements thereto (excluding all
tenant's and trade fixtures and fittings)
1.8 "Building Services" means the services set out in Part A of the
Seventh Schedule
1.9 "Business Hours" means 7.00 am to 8.00 pm on Mondays to Fridays
(inclusive) and 8.00 am to 2.00 pm on Saturdays (excluding all usual
bank or public holidays) or such other extended hours as may from time
to time be reasonably designated by the Landlord
1.10 "Car Park" means the car parks within the Estate (other than the car
parking area (if any) within the Building) reasonably designated as
such from time to time in writing by the Landlord
<PAGE> 59
3
1.11 "Car Park Services" means the services set out in Part A of the Sixth
Schedule insofar as the same are attributable to the Car Park
1.12 "Common Parts of the Building" means those parts and amenities of the
Building which are from time to time provided and/or properly
designated by the Landlord for common use by tenants and occupiers of
the Building with or without others and all persons authorised by them
including (but only after the Tenant shall have surrendered part of
the Demised Premises pursuant to Clause 10.2) the Dedicated Lobby and
the Dedicated Lifts but excluding the Estate Common Parts and the
Lettable Areas
1.13 "Consolidated Shareholders' Funds" means the aggregate of the paid up
issued share capital and share premium account of the Entity and its
consolidated reserves (excluding for the avoidance of doubt any
subordinated or convertible debt) but deducting any amount
attributable to goodwill and other intangible assets of the Entity and
its subsidiaries or such other reasonable equivalents
1.14 "Dedicated Lifts" means the passengers' lifts in the west core of the
Building and includes all lift shafts and plant apparatus and
equipment relating thereto
1.15 "Dedicated Lobby" means the area shown hatched [ ] on Plan [2]
1.16 "Demised Premises" means the Demised Premises as briefly described in
the Particulars including:-
(a) the internal plaster surfaces and finishes of all structural or
load bearing walls and columns within the Demised Premises and of
all walls which enclose the same
(b) the entirety of all non-structural or non-load bearing walls and
columns within the Demised Premises
(c) the inner half severed medially of the internal non-structural or
non-load bearing walls (if any) that divide the same from other
parts of the Building
(d) the screed and floor finishes thereof and all carpets
<PAGE> 60
4
(e) the ceiling finishes thereof including all suspended ceilings and
light fittings incorporated within the Suspended Ceiling
(f) all glass window frames and window furniture in the windows and
all doors door furniture and door frames
(g) all sanitary and hot and cold water apparatus and equipment and
the radiators (if any) therein
(h) all Pipes in on under or over and exclusively serving the Demised
Premises but excluding those belonging to a statutory undertaker
or public utility
(i) all landlord's fixtures fittings plant machinery ducting
sprinklers apparatus and equipment now or hereafter in or upon
the same
(j) all additions alterations and improvements thereto but
nevertheless excluding (i) all structural or load bearing walls
and columns and the structural slabs of any roofs ceilings and
floors (ii) all glass window frames and window furniture in the
windows in the external skin of the Building and (iii) all
tenant's fixtures and fittings
1.17 "Development" means development as defined in Section 55 of the Town
and Country Planning Act 1990
1.18 "DLR Limited" means Docklands Light Railway Limited and wherever the
context so admits its successors in title as owners or operators of
the Docklands Light Railway or as owners of any leasehold interest in
the Docklands Light Railway insofar as it falls within the Estate
1.19 "Entity" means a body corporate or other business organisation or
partnership approved by the Landlord such approval not to be
unreasonably withheld but excluding any state owned or controlled body
corporate any public local or other authority or statutory body or
government department (whether of the United Kingdom Government or any
foreign government)
1.20 "Estate" means the land and water areas known as Canary Wharf
<PAGE> 61
5
London E14 shown edged green on Plan 1 with any additional land and
water areas in which the Landlord or a Group Company of the Landlord
shall acquire a freehold or leasehold interest and which the Landlord
from time to time reasonably designates (acting in accordance with
principles of good estate management having regard to the nature and
quality of the Estate) as part of the Estate and all buildings and
appurtenances thereon and all additions alterations and improvements
thereto
1.21 "Estate Common Parts" means those parts of the Estate (such parts not
being publicly adopted) which are from time to time intended for the
common use and enjoyment of the owners and tenants of the Estate and
persons claiming through or under them and/or properly designated as
such by the Landlord (whether or not other parties are also entitled
to use and enjoy the same) (but excluding all car parks within the
Estate) and for the avoidance of doubt including:-
(a) roads to the point of connection with a highway maintainable at
public expense
(b) bridges kerbs pavements footpaths parks and esplanades landscaped
areas open areas quay side areas dock water areas and river piers
(c) plaza malls retail malls walkways pedestrian ways concourses and
circulation areas staircases travelators escalators elevators
ramps and lifts loading bays forecourts service roads service
areas service decks and service bays
(d) the Pipes therein and not intended to be the responsibility of a
particular owner or tenant or group of owners or tenants and
(e) the foundations pilings sub-structures floors walls roofs ramps
access ways entrances exits and other matters or things which
make up those parts of the Estate which are not and are not
intended to be the responsibility of a particular owner or tenant
or group of owners or tenants
1.22 "Estate Services" means the services set out in Part A of the Sixth
Schedule insofar as the same are attributable to the Estate excluding
the Car Park
<PAGE> 62
6
1.23 "Ground Floor Area" means the area hatched green on Plan 2
1.24 "Force Majeure" means any failure or interruption or delay by reason
of emergency or damage to or destruction of any installations or
apparatus or by reason of mechanical or other defect or break down or
frost or other inclement conditions or shortage of energy supplies
fuel and materials water or labour or strikes or other industrial
action lock outs enemy action war or civil commotion government
restrictions or acts of god or any other cause beyond the reasonable
control of the Landlord or the Management Company excluding however
the negligence of the Landlord or the Management Company or any other
respective employees
1.25 "Group Company" in relation to any company ("the Relevant Company")
means a company within the same group of companies (as that term is
defined in Section 42 of the Landlord and Tenant Act 1954) as the
Relevant Company
1.26 "Insured Risks" means (to the extent that the same are insurable) fire
storm tempest flood earthquake lightning explosion impact aircraft
(other than hostile aircraft) and other aerial devices and articles
dropped therefrom riot civil commotion and malicious damage bursting
or overflowing of water tanks apparatus or Pipes and such other risks
as the Landlord may from time to time reasonably insure against
subject to such exclusions excesses and limitations as may be imposed
by the insurers
1.27 "Interest Rate" means three percentage points (3%) per annum above
Base Rate
1.28 "Landlord" means the party named as "Landlord" in the Particulars and
includes the person for the time being entitled to the reversion
immediately expectant on the determination of the Term
1.29 "this Lease" means this Underlease and any document which is made
supplemental hereto or which is entered into pursuant to or in
accordance with the terms hereof and which in either case is executed
by both the Landlord and the Tenant
1.30 "Leasehold Mortgagee" means the holder of a mortgage or charge
<PAGE> 63
7
on this Lease or the trustee under a deed of trust of this Lease such
deed of trust securing bonds or notes issued or assumed by the Tenant
and the term "Leasehold Mortgage" shall mean any such mortgage charge
or deed of trust
1.31 "Lettable Areas" means those parts of any building (including the
Building) leased or intended to be leased to occupational tenants but
excluding any parts of such building leased or intended to be leased
to public utilities for the purposes of the carrying out of their
statutory obligations and the corresponding parts of any building the
freehold of which has been sold including parts of such building
occupied by the freehold owner of the building or any Group Company of
that owner
1.32 "Management Company" means the party named as "Management Company" in
the Particulars or such other company as may be substituted therefor
by the Landlord by notice in writing to the Tenant pursuant to Clause
8.6
1.33 "Mechanical Space Area" means the areas on floor M1 and floor
Promenade of the Building shown for the purpose of identification only
edged blue and hatched blue on Plans M1 and P1
1.34 "Net Internal Area" shall have the meaning given to it by the Code of
Measuring Practice published on behalf of the Royal Institution of
Chartered Surveyors and the Incorporated Society of Valuers and
Auctioneers (Fourth Edition November 1993) and shall be properly
determined from time to time by the Estate Surveyor (as defined in
Clause 9.1(o)) (ignoring works carried out by tenants or occupiers
during the subsistence of the lease or underlease in existence at the
time of such determination)
1.35 "Particulars" means the descriptions and terms appearing on the
preceding pages headed "Lease Particulars" which comprise part of this
Lease
1.36 "Permitted Part" means the separate unit of accommodation as defined
in Clause 4.20(c)(ii)
1.37 "Pipes" means all pipes sewers drains ducts conduits gutters
watercourses wires cables channels flues service corridors
<PAGE> 64
8
trunking and all other conducting media and any ancillary apparatus
1.38 "Plan 1" "Plan 2" "Plan 3" "Plan 4" "Plan 5" "Plan 6" "Plan 7" "Plan
8" "Plan 9" means the plans annexed hereto and respectively so marked
1.39 "Planning Acts" means the Town and Country Planning Act 1990 the
Planning (Listed Buildings and Conservation Areas) Act 1990 the
Planning (Hazardous Substances) Act 1990 the Planning (Consequential
Provisions) Act 1990 the Planning and Compensation Act 1991 and any
subsequent legislation of a similar nature
1.40 "Quarterly Day" means each of the 1st day of January 1st day of April
1st day of July and 1st day of October
1.41 "Regulations" means the regulations set out in a manual which has been
made available to the Tenant and which may be updated from time to
time and such substituted or additional reasonable Regulations as the
Landlord may from time to time notify in writing to the Tenant for the
general management oversight and security of the Building the Car Park
or the Estate and which are made in the interests of good estate
management but having regard to the nature and quality of the Estate
1.42 "Rent" means the Initial Rent and the rent payable pursuant to the
provisions of the Third Schedule
1.43 "Retained Parts" means the Common Parts of the Building the Dedicated
Lobby and the Dedicated Lifts and all parts of the Building which do
not comprise Lettable Areas or Estate Common Parts and/or which are
reasonably and properly designated as such from time to time by the
Landlord
1.44 "Service Charge Deed" means a deed in the form set out in the Eighth
Schedule hereto
1.45 "Specification" means the specification annexed hereto as annexure [1]
1.46 "Staircase" means the staircase which the Tenant shall be entitled to
construct between the third and the sixth floors of
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the Building in accordance with paragraph 11 of the First Schedule
1.47 "Superior Landlord" means the person or persons for the time being
entitled to any estate or estates which are reversionary (whether
immediate or mediate) upon the Landlord's estate
1.48 "Superior Lease" means the Lease dated 17th July 1987 and made between
O&Y Canary Wharf Investments Limited (1) and the Landlord (2) as
amended from time to time and any other lease or leases which are
reversionary (whether immediate or mediate) upon this Lease
1.49 "Surety" means the party (if any) named as "Surety" in the Particulars
and any other party who during the Term acts as surety
1.50 "Tanks" means the three diesel storage tanks situated beneath the area
shown hatched orange on Plan P1
1.51 "Tenant" means the party named as "Tenant" in the Particulars and
includes the Tenant's successors in title and assigns
1.52 "Tenant's Works" shall have the meaning ascribed to it in the
Agreement for Lease made between the parties hereto and dated [ ]
1.53 "Term" means the term of years stated in the Particulars and includes
the period of any holding over or any extension or continuation
whether by statute or common law
1.54 "Value Added Tax" means Value Added Tax as provided for in the Value
Added Tax Act 1994
1.55 "Working Days" means a day (other than a Saturday or a Sunday) on
which banks are open for business in London
2. INTERPRETATION
UNLESS the context otherwise requires:-
2.1 where two or more persons are included in the expression "the Tenant"
and/or "the Landlord" the covenants which are expressed
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to be made by the Tenant and/or the Landlord shall be deemed to be
made by such persons jointly and severally
2.2 words importing persons shall include firms companies and corporations
and vice versa
2.3 any covenant or regulation to be observed by any party hereto not to
do any act or thing shall include an obligation not to cause permit or
suffer such act or thing to be done
2.4 references either to any rights or powers of the Landlord or the
Management Company or the rights of the Tenant in relation to the
Adjoining Property shall be construed as extending respectively to the
Superior Landlord and all persons reasonably authorised by the
Landlord and/or the Management Company and the Superior Landlord and
as the case may be by the Tenant
2.5 reference to the requirement of any consent and/or approval from
and/or registration with the Landlord and/or the Management Company
shall be construed as also including a requirement for the consent
and/or approval of and/or registration with a Superior Landlord where
the Superior Landlord's consent and/or approval would be required
under the terms of a Superior Lease except that nothing herein shall
be construed as imposing on a Superior Landlord any right unreasonably
to refuse any such consent and/or approval save in circumstances where
the Landlord can so refuse
2.6 any reference to a statute (whether specifically named or not) shall
include any amendment or re-enactment of such statute for the time
being in force and all instruments orders notices regulations
directions bye-laws permissions and plans for the time being made
issued or given thereunder or deriving validity therefrom
2.7 the titles and headings appearing in this Lease are for reference only
and shall not affect its construction
2.8 reference to Value Added Tax shall include any tax of a similar nature
substituted for or levied in addition to Value Added Tax
2.9 any notice document or other matter in this Lease required to be in
writing can be served transmitted or delivered by facsimile
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transmission
3. DEMISE AND RENTS
THE Landlord HEREBY DEMISES unto the Tenant the Demised Premises
TOGETHER WITH the rights and easements specified in the First Schedule EXCEPT
AND RESERVING the rights and easements specified in the Second Schedule SUBJECT
TO the matters contained or referred to in the Deeds mentioned in the Fifth
Schedule TO HOLD the Demised Premises unto the Tenant from and including the
Term Commencement Date for the Term YIELDING AND PAYING unto the Landlord and
(where expressly provided hereunder) the Management Company during the Term by
way of rent:-
(a) as from the Rent Commencement Date yearly and proportionately for any
fraction of a year the Initial Rent and from and including 1st
February 2000 until 31st January 2005 the rent calculated pursuant to
Paragraph 2 of the Third Schedule and from and including each Review
Date (as that Term is defined in the Third Schedule) such Rent as
shall become payable under and in accordance with the provisions of
the Third Schedule in each case to be paid to the Landlord by equal
quarterly payments in advance on each Quarterly Day in every year the
first payment being a proportionate sum in respect of the period from
and including the Rent Commencement Date to the Quarterly Day next
after the Rent Commencement Date to be made on the Quarterly Day
immediately preceding the Rent Commencement Date
(b) a reasonable proportion to be fairly and properly determined by the
Landlord of all sums (including the cost of periodic valuations (but
carried out not more than once in any consecutive period of 12 months)
for insurance purposes) which the Landlord shall from time to time pay
for insuring the Building against the Insured Risks pursuant to Clause
7.1(a) and the other matters referred to in Clauses 7.1(c) and 7.1(d)
and the whole of the sums which the Landlord shall from time to time
pay for insuring against loss of rents pursuant to Clause 7.1(b) such
sums to be paid to the Landlord within fourteen days of receipt by the
Tenant of written demand
(c) the payments to be made to the Management Company (subject to Clause
8.6) in accordance with Clause 9.2
(d) the moneys referred to in Clause 4.31 to be paid to the Landlord
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or the Management Company as therein provided
4. TENANT'S COVENANTS
THE Tenant HEREBY COVENANTS with the Landlord and as a separate
covenant with the Management Company as follows:-
4.1 RENTS
To pay the rents reserved by this Lease at the times and in the manner
aforesaid without any abatement set-off counterclaim or deduction
whatsoever (save those that the Tenant is required by law to make)
4.2 INTEREST ON ARREARS
Without prejudice to any other right remedy or power herein contained
or otherwise available to the Landlord or the Management Company if
any of the rents reserved by this Lease (in the case of the Initial
Rent (as reviewed from time to time) only whether formally demanded or
not) or any other sum of money payable to the Landlord or the
Management Company by the Tenant under this Lease shall not be paid on
or before the date when payment has become due to pay interest thereon
at the Interest Rate from the date on which payment was due to the
date of payment to the Landlord or the Management Company (as the case
may be) (both before and after any judgment)
4.3 OUTGOINGS
(a) To pay and discharge all existing and future rates taxes duties
charges assessments impositions and outgoings whatsoever or
(where such outgoings relate to the Demised Premises and other
premises) a fair proportion thereof to be reasonably and properly
determined by the Landlord which now are or may at any time
during the Term be payable in respect of the Demised Premises and
in respect of the Staircase (if any) and (until such time as
there has been a surrender and determination of this Lease in
relation to part of the Demised Premises pursuant to Clause 10.2)
the Dedicated Lobby and the Dedicated Lifts whether by the owner
or the occupier of them (excluding any tax payable by the
Landlord occasioned by the grant of and any disposition of or
dealing
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13
with the reversion to this Lease)
(b) To raise no objection to the Landlord or the Management Company
contesting any outgoings relating to the Demised Premises and
appealing any assessments related thereto or withdrawing any such
contest or appeal or agreeing with the relevant authorities on
any settlement compromise or conclusion in respect thereof and to
supply to the Landlord as soon as reasonably possible after
receipt copies of any such assessments and to execute as soon as
reasonably possible after request all consents authorisations or
other documents as the Landlord or the Management Company shall
reasonably and properly request to give full effect to the
foregoing
(c) Not to agree or appeal or contest any assessment for Uniform
Business Rate or any other similar or replacement tax without the
prior approval in writing of the Landlord (such approval not to
be unreasonably withheld or delayed)
(d) To pay all charges for electricity telephone water gas (if any)
and other services and all sewage and environmental charges
consumed in the Demised Premises and the Staircase (if any) and
(until such time as there has been a surrender and determination
of this Lease in relation to part of the Demised Premises
pursuant to Clause 10.2) the Dedicated Lobby and the Dedicated
Lifts including any connection charge and meter installation
costs and rents and if reasonably so required by the Landlord at
the Tenant's own cost to install a water meter to measure the
water consumed in the Demised Premises and (where any such
services are provided by the Landlord or the Management Company)
to pay for any such service consumed and a standing charge at a
reasonable rate (not exceeding 10% of the reasonable and proper
cost of the same to the Landlord or the Management Company)
specified from time to time by the Landlord or the Management
Company and to permit the Landlord or the Management Company on
prior appointment with the Tenant to install maintain and read
any meter in the Demised Premises relating to any such service
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4.4 UTILITY AUTHORITIES
To pay to the Landlord or as it may direct an amount equal to any
rebate or rebates which the Tenant or any undertenant may receive from
public utilities in respect of the capital costs incurred by the
Landlord or any Group Company of the Landlord or the London Docklands
Development Corporation of providing water foul and surface water
drainage gas electricity and telecommunications to the Demised
Premises or the Building
4.5 Repairs
(a) To keep in good and substantial repair and condition the Demised
Premises (other than any parts which the Landlord or the
Management Company has covenanted to repair) and the Staircase
(if any) (damage to any Pipes exclusively serving the Demised
Premises which comprise part of the Base Building Systems caused
by a latent or inherent defect not apparent at the date hereof
and occurring within ten (10) years of 22nd July 1991 and damage
by the Insured Risks excepted save to the extent that payment of
the insurance moneys shall be withheld by reason of any act
neglect or default of the Tenant or any undertenant or any person
under its or their control)
(b) To replace from time to time any of the Landlord's fixtures and
fittings which become in need of replacement with new ones which
are similar in type and quality (excluding any such fixtures and
fittings which the Landlord or the Management Company is liable
to replace pursuant to their respective covenants herein
contained)
4.6 PLANT AND MACHINERY
To keep all plant machinery and other equipment (not being moveable
property of the Tenant or any undertenant) in the Demised Premises and
on the Staircase (if any) and in or serving the Mechanical Space Area
properly maintained and in good working order and condition and
regularly inspected maintained and serviced and:-
(a) if the Landlord shall so reasonably require in respect of the air
conditioning sprinkler alarm and other centrally
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15
controlled systems to permit the Landlord or the Management
Company to carry out on the Tenant's behalf inspections servicing
and any repairs which may be required to such plant machinery and
equipment and to pay to the Landlord or the Management Company
its reasonable and proper cost of so doing plus a management
charge equivalent to 10% of such reasonable and proper cost for
so doing
(b) from time to time at the request of the Landlord to advise the
Landlord of the contractors employed by the Tenant for that
purpose
4.7 DECORATIONS
As and when necessary and in any case in the last three months of the
Term howsoever determined in a good and workmanlike manner to prepare
and decorate (with two coats at least of good quality paint) or
otherwise treat as appropriate all parts of the Demised Premises and
the Staircase (if any) and the Dedicated Lobby (until such time as
there has been a surrender and determination of this Lease in relation
to part of the Demised Premises pursuant to Clause 10.2) required to
be so treated and as often as may be reasonably necessary to wash down
all washable surfaces such decorations and treatment in the last three
months of the Term to be executed in such colours and materials as the
Landlord may reasonably require
4.8 CLEANING
To keep the Demised Premises and the Staircase (if any) and the
Dedicated Lobby (until such time as there has been a surrender and
determination of this Lease in relation to part of the Demised
Premises pursuant to Clause 10.2) in a clean and tidy condition and at
least once in every month properly to clean the inside of all exterior
windows window frames and other exterior glass enclosing the Demised
Premises and the staircase (if any)
4.9 YIELD UP
(a) Immediately prior to the expiration or sooner determination of
the Term at the cost of the Tenant:-
(i) to replace any of the Landlord's fixtures and fittings
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16
which shall be missing or damaged with new ones of similar
kind and quality or (at the option of the Landlord) to pay
to the Landlord the reasonable and proper cost of
replacing any of the same
(ii) to remove from the Demised Premises and the Dedicated
Lobby any moulding or sign of the name or business of the
Tenant or occupiers and all tenant's fixtures fittings
furniture and effects and to make good all damage caused
by such removal
(iii) if only required by the Landlord to remove all video data
and sound communications conducting material installed in
the Building by or at the request of the Tenant or any
undertenant
(iv) if and to the extent required by the Landlord (which
requirement shall be notified to the Tenant not less than
three months prior to the expiration of the Term unless
sooner determined) to put or reinstate the Demised
Premises (excluding the ground floor of the Demised
Premises and the Mechanical Space Area) in or to a
condition commensurate with that described in the
specification annexed hereto entitled "Minimum Standard
Developer's Finish for Tenant Work" and to leave the
ground floor of the Demised Premises and the Mechanical
Space Area in the condition in which they are at the date
of expiration or determination of the Term or if
reasonably required by the Landlord (which requirement
shall be notified to the Tenant not less than three months
prior to the expiration of the Term unless sooner
determined) to restore the ground floor of the Demised
Premises and/or the Mechanical Space Area in accordance
with the Specification
(v) to remove the Staircase (if any)
(b) At the expiration or sooner determination of the Term quietly to
yield up the Demised Premises and if appropriate the Dedicated
Lobby to the Landlord in good and substantial repair and
condition in accordance with the covenants and other obligations
on the part of the Tenant contained in
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this Lease
(c) If the Tenant by notice surrenders and determines the Term as to
part of the Demised Premises in accordance with Clause 10.2 the
provisions of this Clause 4.9 shall on such determination extend
only to the part of the Demised Premises which is the subject of
such notice
4.10 RIGHTS OF ENTRY BY LANDLORD AND THE MANAGEMENT COMPANY
To permit the Landlord and the Management Company with all necessary
materials and appliances at all reasonable times upon reasonable prior
notice (except in cases of emergency) to enter and to remain (but only
for so long as is reasonably necessary) upon the Demised Premises the
Staircase (if any) and the Dedicated Lobby:-
(a) to view and examine the state and condition of the Demised
Premises and to take schedules of the landlord's fixtures
(b) to exercise any of the rights excepted and reserved by this Lease
(c) for any other purpose connected with the management of the
Demised Premises or the Building in accordance with the terms of
this Lease
4.11 TO COMPLY WITH NOTICES
(a) Whenever the Landlord shall give written notice to the Tenant of
any breach of covenant to remedy such breach (if indeed a breach
exists) as soon as reasonably possible thereafter
(b) If the Tenant shall fail to comply with its covenant in Clause
4.11(a) the Landlord may without further notice enter the Demised
Premises and carry out or cause to be carried out all or any of
the works referred to in such notice and all proper costs and
expenses thereby incurred shall be paid by the Tenant to the
Landlord as soon as reasonably practicable after service on the
Tenant of written demand
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18
4.12 OVERLOADING FLOORS AND SERVICES AND INSTALLATION OF WIRING ETC.
(a) Not to do anything which may subject the Demised Premises the
Staircase (if any) the Dedicated Lobby or the Building to any
strain beyond that which it is designed to bear with due margin
for safety and to pay to the Landlord within fourteen (14) days
of receipt by the Tenant of written demand all costs reasonably
and properly incurred by the Landlord in reasonably obtaining the
opinion of a qualified structural engineer as to whether the
structure of the Demised Premises or the Staircase (if any) the
Dedicated Lobby or the Building is being or is about to be
overloaded and in deciding whether or not the Landlord has been
reasonable in obtaining such an opinion regard shall be had to
whether the Tenant has produced to the Landlord a copy of any
report or opinion which it has obtained in relation to the
overloading of the structure of the Demised Premises or the
Staircase or the Dedicated Lobby or the Building as the case may
be and if so the contents of that report or opinion
(b) To observe the weight limits properly prescribed for all lifts in
the Building
(c) Not to install or use any electrical equipment unless it has been
fitted with an efficient suppressor so as to prevent any
interference with radio or television reception
telecommunications transmission or the operation of any equipment
in the Building or in any Adjoining Property
(d) As soon as reasonably possible after receipt of a written request
to provide or to consent to the disclosure by the relevant public
utility of details to the Management Company of the installation
in or upon any part of the Building or the Estate of all video
data and sound communications conducting material and associated
equipment installed by or at the request of the Tenant or any
undertenant
4.13 PIPES
Not to overload or obstruct any Pipes or discharge into any Pipes any
oil or grease or any noxious or deleterious substance which may cause
an obstruction or become a source of danger or
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injure the Pipes or the drainage system of the Building or the
Adjoining Property
4.14 COOKING
Not to prepare or cook any food in the Demised Premises otherwise than
on the ground floor kitchen area of the Demised Premises or in such
other kitchen area approved in writing by the Landlord such approval
not to be unreasonably withheld or delayed and to take all necessary
steps to ensure that all smells and fumes caused by permitted cooking
refuse or food shall be removed from the Demised Premises in a manner
and by means approved by the Landlord such approval not to be
unreasonably withheld or delayed and in any event so as to ensure that
no nuisance or annoyance shall be caused to the Landlord or any of the
tenants or occupiers of the Building or the Adjoining Property
4.15 DANGEROUS MATERIALS AND USE OF MACHINERY
Not to bring in any part of the Building anything which is or is
likely to become dangerous especially inflammable or combustible
radioactive or explosive or which might materially increase the risk
of fire or explosion or which would cause or be likely to cause
nuisance annoyance disturbance or damage to the Landlord or any tenant
owner or occupier of any part of the Building or the Estate PROVIDED
THAT this clause shall not prevent the use of goods and machinery
utilised in connection with a modern office building and the
activities carried on thereat
4.16 HEATING COOLING AND VENTILATION AND OTHER SYSTEMS
(a) Not to do anything which adversely affects the heating cooling or
ventilation of the Building or any other centrally controlled
systems or which imposes an additional load on the heating
cooling or ventilation plant and equipment or any such system
beyond that which it is designed to bear
(b) To take all steps reasonably necessary to prevent any mechanical
ventilation of the Demised Premises drawing air from or
exhausting air into the Common Parts of the Building
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(c) To the extent that such costs incurred by the Management Company
in providing air conditioning ventilation and air handling to the
Building do not form part of the Building Services as provided in
paragraph 5 of Part A of the Seventh Schedule to pay to the
Management Company within fourteen (14) days of receipt by the
Tenant of written demand from time to time a fair proportion to
be calculated by a method designed to reflect usage (such fair
proportion to be determined from time to time by the Building
Surveyor (as defined in Clause 9.1(e)) of the costs and expenses
of the provision of condenser water and the cost of power for the
air conditioning ventilation and air handling systems in the
Building plus a management charge equivalent to 10% of such costs
and expenses
4.17 USER
(a) Not to use or occupy the Demised Premises for any purpose except
for the Permitted User
(b) Not to use the Demised Premises or any part thereof for any
auction or public meeting public exhibition or public
entertainment or for gambling or as a club or for the business of
a turf accountancy estate agency travel agency staff or
employment agency or Government Department where services are
provided principally to visiting members of the public
(c) Not to use the Demised Premises or any part thereof for any
dangerous noisy noxious or offensive trade business or occupation
whatsoever nor for any illegal purpose nor for residential or
sleeping purposes
(d) Not to leave the Demised Premises continuously unoccupied for
more than 14 days without providing such security arrangements as
are necessary and which shall be notified to the Landlord in
order to protect the Demised Premises and its contents and to
deal with any emergency
(e) Except during such times as the Tenant is providing its own
security staff at all times of the day or night to ensure that at
all times the Landlord and the Management Company have written
notice of the name home address and home
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telephone number of at least two keyholders of the Demised
Premises
(f) Except during such times as the Tenant is providing its own
security staff at all times of the day or night to provide the
Landlord or the Management Company with a set of keys to the
Demised Premises to enable the Landlord and the Management
Company or their agents and others authorised by the Landlord or
the Management Company to enter the Demised Premises for security
purposes or in cases of emergency
4.18 ALTERATIONS SIGNS AND VISUAL AMENITY
(a) Not to erect any new structure in the Demised Premises or any
part thereof (unless otherwise permitted under the provisions of
this Clause 4.18) nor to alter add to or change the exterior of
the Demised Premises or the height elevation or external
architectural or the external decorative design or appearance of
the Demised Premises
(b) Provided the structural integrity of the Building is not thereby
affected and subject to submitting adequate plans and
specifications for the approval of the Landlord and save with the
consent of the Landlord not to alter divide cut maim or remove
any of the principal or load-bearing walls floors beams or
columns within or enclosing the Demised Premises nor save as
aforesaid to make any other alterations or additions which
adversely affect the structure of the Building
(c) Not to make any alterations or additions to any centrally
controlled systems or Base Building Systems in the Demised
Premises or the Building or the Pipes within or serving the
Demised Premises or the Building without obtaining the prior
written consent of the Landlord such consent not to be
unreasonably withheld or delayed and to use such contractors as
the Landlord may reasonably specify for works at the point of
connection with the Base Building Systems and in relation to the
fire alarm detection and emergency public address system the
supplier of any hardware and software and the Contractor for
commissioning shall be Cerebus Ltd or such other person as the
Landlord shall reasonably specify
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(d) As soon as reasonably practicable after carrying out any material
alterations or additions to the non-structural parts of the
Demised Premises to provide plans showing the nature and extent
of those alterations to the Landlord
(e) Not to erect or display on the physical exterior of the Demised
Premises or in the windows thereof so as to be visible from the
exterior any pole aerial advertisement or thing whatsoever save
that the Tenant may display on the entrance door to the Demised
Premises a sign stating the Tenant's name and business or
profession on obtaining the prior written consent of the Landlord
to the size style and the position thereof and the materials to
be used such consent not to be unreasonably withheld or delayed
(f) Promptly to make good all damage caused to any parts of the
Building or any Adjoining Property in the carrying out of any
alterations or additions
(g) To provide to the Landlord DXF files on computer disk reflecting
any changes to the Tenant's Works but only in so far as such
disks are reasonably available
4.19 WORKS CARRIED OUT TO THE DEMISED PREMISES
Without prejudice to the provisions of Clause 4.18 or to any covenants
and conditions which the Landlord shall require or impose in giving
consent for alterations or additions to the Demised Premises to carry
out any alterations additions repairs replacements or other works to
or in respect of the Demised Premises in a good and workmanlike manner
and where the Landlord's consent is required for such alterations in
accordance with the reasonable requirements of the Landlord notified
in writing to the Tenant and in particular without prejudice to the
generality thereof any works the carrying out of which may constitute
a nuisance or disrupt the businesses or activities of other tenants or
occupiers of the Building or the Estate or the public shall be
performed outside the hours of 9.00 am to 6.00 pm on Monday to Friday
(inclusive)
4.20 ALIENATION
(a) Not to assign or charge any part or parts (as distinct from
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the whole) of the Demised Premises and not to agree so to do
(b) Not to part with possession of or share the occupation of the
whole or any part or parts of the Demised Premises or agree so to
do or permit any person to occupy the same save by way of an
assignment or underlease of the whole of the Demised Premises or
an underlease of a Permitted Part thereof (as hereinafter
defined) in accordance with the provisions of this Clause
PROVIDED THAT nothing contained in this Clause shall prevent the
Tenant from (i) sharing occupation of the whole or any part or
parts of the Demised Premises with one or more companies which
are and remain Group Companies of the Tenant provided that such
occupation shall not create the relationship of landlord and
tenant between the Tenant and the Group Company or (ii) assigning
this Lease or subletting the whole or a Permitted Part to a Group
Company of the Tenant (here meaning Morgan Stanley UK Group only)
without the Landlord's consent but otherwise in accordance with
the terms and conditions as set out in this Clause 4.20 or (iii)
subletting a part but not the whole of the Demised Premises to a
Group Company of the Tenant (here meaning Morgan Stanley UK Group
only) upon terms which make such underletting inalienable other
than by way of an assignment or subletting of the whole of the
sublet premises to another Group Company of the Tenant (here
meaning Morgan Stanley UK Group) and upon having obtained an
Order of the Court under Section 38(4) of the Landlord and Tenant
Act 1954 authorising the exclusion of sections 24 to 28 of the
said Act in relation to such underlease and the Tenant shall
notify the Landlord as soon as reasonably possible after each
such subletting
(c) Not to underlet any part or parts of the Demised Premises (as
distinct from the whole) other than on the following conditions:-
(i) from 1st February 1997 until 31st January 2000 not to
underlet more than fifty (50) per cent of the Net Internal
Area the First Second Third Fourth Fifth and Sixth floors
of the Demised Premises
(ii) each separate unit of accommodation to be underlet shall
comprise either one or more contiguous whole
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floors or a part or parts of a floor or one or more parts
of contiguous floors of the Demised Premises (but in such
case the number of sublettings per whole floor in
existence at any one time is not to exceed four) and such
units shall be capable of being occupied and used as a
separate and self-contained unit with all necessary and
proper services ("a Permitted Part") and
(iii) prior to the grant of any underlease of a part of the
Demised Premises comprising less than one whole floor or
an underlease which does not comply with sub-clause
4.20(i)(i) below an order of the Court shall be obtained
under the provisions of Section 38(4) of the Landlord and
Tenant Act 1954 authorising the exclusion of Sections 24
to 28 of the said Act in relation to such intended
underlease
(d) Not to underlet the whole of the Demised Premises or a Permitted
Part at a rent less than the open market rental value of the
Demised Premises or (as the case may be) of a Permitted Part in
each case at the time of the agreement to grant such underlease
(e) Without prejudice to the foregoing provisions not to assign or
underlet the whole of the Demised Premises nor to underlet a
Permitted Part thereof without the prior written consent of the
Landlord such consent not to be unreasonably withheld or delayed
(f) Prior to any permitted assignment to procure that the assignee
enters into a direct covenant with the Landlord to pay the rents
hereby reserved and perform and observe the covenants by the
Tenant contained in this Lease throughout the residue of the Term
(including any extension) and a covenant with the Management
Company to pay the sums due under Clause 9
(g) If the Landlord shall reasonably so require to obtain an
acceptable guarantor for any person to whom this Lease is to be
assigned who shall execute and deliver to the Landlord a Deed
containing a covenant with the Landlord and the
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25
Management Company as a primary obligation in the case of the
Landlord to pay the rents reserved and to observe the Tenant's
covenants in the Lease and in the case of the covenant with the
Management Company to pay the sums due under Clause 9
(h) Prior to any permitted underlease to procure that the undertenant
enters into direct covenants as follows:-
(i) an unqualified covenant with the Landlord that the
undertenant shall not assign or charge (or agree so to do)
any part or parts (as distinct from the whole) of the
premises to be thereby demised and shall not part with
possession of or share the occupation of the whole or any
part of the premises to be thereby demised or agree so to
do or permit any person to occupy the same save by way of
(i) an assignment or underlease of the whole of the
premises thereby underlet or (ii) (if the undertenant is
the undertenant of the whole of the Demised Premises) an
underlease of a Permitted Part or (iii) (if the
undertenant is an undertenant of less than the whole of
the Demised Premises but of one or more whole floors an
underlease of one or more whole floors or parts of a floor
provided that an underlease of part of a floor shall be of
premises comprising not less than 10,000 square feet in
area and provided that no more than four underleases of
parts of the same floor shall be in existence at any time)
(ii) a covenant that the undertenant shall not assign charge
(save by way of floating charge) or underlet (or agree so
to do) the whole of the premises to be thereby demised or
underlet (or agree so to do) a Permitted Part or a whole
floor (as the case may be) without (in each case)
obtaining the prior written consent of the Landlord such
consent not to be unreasonably withheld or delayed
(iii) a covenant to perform and observe all the tenant's
covenants and the other provisions contained in this Lease
(other than the payment of the rents) so far as the same
are applicable to the premises to be thereby demised and
including in particular
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(but without limitation) the conditions set out in Clause 4.20(c)
(i) Every permitted underlease shall contain:-
(i) provisions for the review of the rent thereby reserved
(which the Tenant hereby covenants to operate and enforce)
on an upwards only basis every five years on the dates for
review specified in the Particulars to this Lease in
accordance with the provisions set out in the Third
Schedule hereto but excluding the provisions of
sub-paragraph 1.2 of the Third Schedule and the definition
of "Assumed Premises" and the definitions of and
references to "Rent" and "Interim Rent" and also excluding
paragraphs 1.10 1.11 1.12 1.13 1.14 and 2 and the proviso
to paragraph 4 of the Third Schedule and with references
to "Assumed Premises" being deemed to be references to
"Demised Premises"
(ii) condition for re-entry on breach of any covenant by the
undertenant
(iii) (subject to the provisions of Clause 4.20(h)) the same
provisions (mutatis mutandis) as are set out in this
Clause 4.20 in so far as they are applicable to the
underlet premises
(j) To procure that the principal rent is reviewed under any
permitted underlease in accordance with the terms thereof
(k) Not, to vary the terms of any permitted underlease (or agree so
to do) without the prior written consent of the Landlord such
consent not to be unreasonably withheld or delayed
(l) To procure that the rents reserved by any permitted underlease
shall not be commuted or payable more than one quarter in advance
and not to permit the reduction of any rents reserved by any such
underlease
(m) Notwithstanding the foregoing provisions of Clause 4.20(i)(i) but
subject to (n) below and in respect of not more than two whole
floors in aggregate the Tenant may grant an underlease or
underleases for a term not exceeding ten
<PAGE> 83
27
years which do not include provisions for the review of rent
thereby reserved on the dates specified in the Particulars to
this Lease and in accordance with the provisions of the Third
Schedule excluding the provisions of sub- paragraph 1.2 of the
Third Schedule and without reference to the definitions and
references referred to in Clause 4.20(i)(i) provided that:-
(i) if any provisions are contained in such underlease for the
review or alteration of the amount of rent payable under
such underlease they shall not permit the amount of rent
payable to be decreased and
(ii) the Tenant here meaning Morgan Stanley UK Group or any
Group Company of Morgan Stanley UK Group in which this
Lease shall at the relevant time be vested and the Surety
here meaning Morgan Stanley Group Inc shall prior to the
grant of such underlease if required by the Landlord enter
into a deed in such form as the Landlord may reasonably
require undertaking by way of surety and principal
obligation with effect from the fifteenth anniversary of
the Term Commencement Date to be responsible for that
proportion of the rent service charge and other payments
due under this Lease which is equal to the proportion
which the Net Internal Area of the premises so underlet
bears to the Net Internal Area of the First Second Third
Fourth Fifth and Sixth Floors of the Demised Premises (or
such smaller area as shall on the fifteenth anniversary of
the Term Commencement Date be comprised within the Demised
Premises following a surrender and determination by the
Tenant pursuant to Clause 10.2) but so that such deed
shall only be effective in circumstances where the Tenant
here meaning Morgan Stanley UK Group or any Group Company
of Morgan Stanley UK Group in which this Lease shall at
the relevant time be vested has assigned this Lease
otherwise than to an Acceptable Assignee prior to the
fifteenth anniversary of the Term Commencement Date and
the term of such underlease is expressed to expire after
the fifteenth anniversary of the date of this Lease and
such undertaking shall cease upon the expiry or sooner
determination of such underlease
<PAGE> 84
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(n) Notwithstanding the foregoing provisions of this Clause 4.20 and
other than to a Group Company of the Tenant not to assign
underlet part with possession or share (or part with) occupation
of or hold on trust the whole or any part of the Demised Premises
before 1st February 1997 and not to market or otherwise offer to
underlet the whole or a Permitted Part of the Demised Premises
before 1st October 1996 (or 1st July 1996 if by such date all
Lettable Areas in the Building have been let or are the subject
of unconditional Agreements for Lease or other agreements
permitting third parties to occupy)
4.21 REGISTRATION OF DISPOSITIONS
Within twenty-one (21) days of every assignment transfer assent
underlease assignment of underlease mortgage charge or any other
disposition whether mediate or immediate of or relating to the whole
or any part or parts of the Demised Premises to supply to the Landlord
a copy certified by the Tenant's solicitors of the document evidencing
or effecting such disposition and on each occasion to pay to the
Landlord or its solicitors a reasonable registration fee
4.22 DISCLOSURE OF INFORMATION
Whenever the Landlord shall reasonably request (but not more than once
in any period of 12 months) to supply full particulars of all
occupations and derivative interests in the Demised Premises but the
Tenant shall not be required to produce to the Landlord any financial
details or other details which are properly considered by the Tenant
to be confidential in relation to such assignment transfer underlease
charge or other devolution
4.23 LANDLORD'S COSTS
To pay and indemnify the Landlord and the Management Company against
all reasonable costs fees charges disbursements and expenses properly
incurred by the Landlord or the Management Company:-
(a) where a notice under Section 146 of the Law of Property Act 1925
is properly served in relation to or in contemplation
<PAGE> 85
29
of the preparation and service of that notice and of any
proceedings under Section 146 or 147 of that Act (notwithstanding
forfeiture is avoided otherwise than by relief granted by the
Court)
(b) where such notices or schedules are properly served in relation
to or in contemplation of the preparation and service of all such
notices and schedules relating to wants of repair whenever served
(but relating only to such wants of repair that accrued during
the Term)
(c) in connection with the recovery or attempted recovery of arrears
of rent or other sums due from the Tenant or in procuring the
remedying of the breach of any covenant by the Tenant
(d) in relation to any application for consent required or made
necessary by this Lease (such costs to include reasonable
management and monitoring fees and expenses) whether or not the
same is granted (except in cases where the Landlord is obliged
not to unreasonably withhold its consent and the withholding of
its consent is unreasonable or the Landlord has offered consent
but subject to unreasonable conditions) or whether the
application be withdrawn
4.24 STATUTORY REQUIREMENTS
(a) At the Tenant's own expense to comply in all respects with the
provisions of every statute and regulation from time to time in
force and (made by any public utility or other competent
authority (including duly authorised officer or court of
competent jurisdiction acting under or in pursuance of any
statute)) now in force or which may hereafter be in force and any
other obligations imposed by law relating to the Demised Premises
the Staircase (if any) or the user thereof
(b) To indemnify and keep indemnified the Landlord against all proper
costs charges fees and expenses of or incidental to the execution
of any works or the provision or maintenance of any arrangements
directed or required pursuant to Clause 4.25(a)
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(c) Not to do or omit to be done in or near the Demised Premises any
act or thing by reason of which the Landlord or any other
occupier may under any statute or non-statutory regulations be or
become liable to pay any penalty damages compensation costs
charges or expenses
4.25 PLANNING ACTS
(a) To comply with the provisions and requirements of the Planning
Acts in so far as they relate to the Demised Premises and the
Staircase and to indemnify and keep the Landlord indemnified
against all actions proceedings demands proper costs expenses and
liability in respect of any contravention
(b) Not to apply for any planning permission for any change of use of
the Demised Premises without the prior written consent of the
Landlord such consent not to be unreasonably withheld or delayed
(c) To pay and satisfy any charge or levy that may hereafter be
imposed under the Planning Acts in respect of the carrying out of
any such operations or the commencement or continuation of any
such user
(d) Notwithstanding any consent which may be granted by the Landlord
under this Lease not to carry out or make any alteration or
addition to the Demised Premises or any change of use until any
necessary notices and permissions under the Planning Acts and any
other necessary approvals or consents have been obtained and
produced to the Landlord and the Landlord has acknowledged (such
acknowledgement not to be unreasonably withheld or delayed) that
the planning permission and the said approvals or consents are
acceptable to it
(e) Unless the Landlord shall otherwise direct to carry out and
complete before the expiration or sooner determination of the
Term:-
(i) any works stipulated to be carried out to the Demised
Premises as a condition of any planning permission granted
during the Term and implemented by the Tenant
<PAGE> 87
31
or any undertenant and
(ii) any Development begun upon the Demised Premises in respect
of which the Landlord shall or may be or become liable for
any charge or levy under the Planning Acts
(f) If and when called upon so to do (but not more than once in any
successive period of twelve (12) months) to produce to the
Landlord as soon as reasonably possible after receipt by the
Tenant of written demand all plans documents and other evidence
as the Landlord may reasonably require in order to satisfy itself
that the provisions of this Clause 4.25 have been complied with
in all respects
4.26 STATUTORY NOTICES
Within fourteen (14) days after receipt of the same (or sooner if
requisite having regard to the time limits stated therein) to produce
to the Landlord a copy and any further particulars reasonably required
by the Landlord of any notice or order or proposal for the same given
to the Tenant and relevant to the Demised Premises or the occupiers
thereof or of the Building or of the Estate and without delay to take
all necessary steps to comply with the notice or order so far as the
same is the responsibility of the Tenant and at the reasonable request
of the Landlord to make or join with the Landlord in making such
objection or representation against or in respect of any such notice
order or proposal as shall be reasonably necessary
4.27 DEFECTIVE PREMISES
To give written notice to the Landlord of any defect in the Demised
Premises which might give rise to an obligation on the Landlord to do
or refrain from doing any act or thing so as to comply with the duty
of care imposed on the Landlord pursuant to the Defective Premises Act
1972 and at all times to display and maintain all reasonable notices
of reasonable size which the Landlord may from time to time reasonably
require to be displayed in relation thereto
4.28 FIRE PRECAUTIONS AND EQUIPMENT ETC.
To comply with the requirements of the fire authority the
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32
insurers of the Demised Premises and the Landlord in relation to fire
precautions affecting the Demised Premises
4.29 ENCROACHMENTS AND EASEMENTS
(a) Not to stop up or obstruct any of the windows save for (and
subject to the manner and design of such stopping up and
obstructing being first approved in writing by the Landlord such
approval not to be unreasonably withheld or delayed) those
windows which are in areas containing plant or equipment or
communications facilities shown between points A and B on Plan 2
or lights belonging to the Demised Premises nor to permit any new
window opening doorway passage Pipes or other encroachment or
easement to be made or acquired into upon or over the Demised
Premises or any part thereof and in case any person shall attempt
to make or acquire any encroachment or easement to give written
notice thereof to the Landlord immediately the same shall come to
the notice of the Tenant and at the request of the Landlord to
adopt such means as may be reasonably necessary for preventing
any such encroachment or the acquisition of any such easement
(b) Not to give to any person any acknowledgement that the Tenant
enjoys the access of light to any of the windows or openings of
the Demised Premises by the consent of such person nor to pay any
sum of money or enter into any agreement with any person for the
purpose of inducing or binding such person to abstain from
obstructing the access of light to any of the windows or openings
and in the event of any person doing or threatening to do
anything which obstructs the access of light to any of the
windows or openings as soon as reasonably possible to notify the
Landlord of the same
4.30 RELETTING AND SALE NOTICES
To permit the Landlord at all reasonable times by prior written
appointment with the Tenant to enter upon the Demised Premises and
affix and retain without interference upon any suitable parts of the
Building (but not so as to affect the use and enjoyment thereof or the
access of light and air to the Demised Premises) during the six (6)
months preceding the expiration or
<PAGE> 89
33
sooner determination of the Term notices for reletting the same and
not to remove or obscure the said notices and to permit all persons
with the written authority of the Landlord to view the Demised
Premises at all reasonable hours in the daytime upon prior appointment
having been made
4.31 VALUE ADDED TAX
Where by virtue of any provisions of this Lease the Tenant is required
to pay the Landlord or the Management Company any payment the Tenant
shall also:-
4.31.1
pay to the Landlord or the Management Company (as the case
may be) any Value Added Tax at the rate for the time being
in force chargeable in respect of any payments made by the
Tenant to the Landlord or the Management Company in
connection with or under the provisions of this Lease or
in respect of any supplies made by the Landlord or the
Management Company to the Tenant in connection with or
under the provisions of this Lease provided that if the
Landlord makes an election to waive exemption in relation
to all or part of the Demised Premises or in accordance
with paragraph 2 of Schedule 10 of the Value Added Tax Act
1994 as it may from time to time be amended modified or
re-enacted and as a result of such election (and for the
avoidance of doubt solely as a result of such election)
Value Added Tax is payable by the Tenant in accordance
with this sub- clause then the Landlord shall indemnify
the Tenant against such Value Added Tax as is payable by
the Tenant under this sub-clause and is not recoverable by
the Tenant pursuant to Sections 25 and 26 of the Value
Added Tax Act 1994
4.31.2
pay to the Landlord or the Management Company (as the case
may be) an amount equal to all Value Added Tax input tax
incurred by the Landlord or the Management Company in
respect of supplies made to the Landlord or the Management
Company (including by reason of such supplies being deemed
to be made for the purposes of Value Added Tax by the
Landlord or the Management
<PAGE> 90
34
Company to itself) the cost of which the Tenant is obliged
to reimburse to the Landlord or the Management Company
under or by virtue of the terms of this Lease save to the
extent that such Value Added Tax input tax is recoverable
by the Landlord or the Management Company or is
recoverable under any other provision of this Lease
4.32 REGULATIONS
Insofar as the same relate to the Demised Premises or the activities
acts or omissions of the Tenant or any undertenant or any persons
under its or their control to comply or procure compliance with the
Regulations
4.33 COVENANTS AFFECTING REVERSION
To perform and observe the provisions of the deeds and documents
referred to in the Fifth Schedule hereto so far as the same are still
subsisting and capable of taking effect and relate to or affect the
Demised Premises
4.34 NOTIFICATION OF LOCAL EMPLOYEES
To enable the Landlord to establish compliance with its undertaking to
the London Borough of Tower Hamlets to procure the employment of at
least 2,000 Local People within the Estate and until such time as the
Landlord shall notify the Tenant in writing that such undertaking has
been complied with but so that any information provided to the
Landlord under this Clause 4.34 shall be used solely for establishing
such compliance the Tenant will from time to time when reasonably so
requested by the Landlord supply the Landlord with a certificate of
the name(s) and address(es) of any Employee or Employees who are Local
People which Certificate shall be in such form as is reasonably
required by the Landlord and for the purposes of this Clause 4.35:-
(a) "Employee" means any bona fide employee of the Tenant (or any
associate company) (including without limitation apprentices
articled clerks persons engaged on a Government work scheme
directors self employed persons and partners) who has his or her
principal place of business or work at or
<PAGE> 91
35
spends at least 50% of his or her time working within the Estate
(as the same exists at the date hereof as shown edged in green on
Plan 2) or any part thereof and (save where the said person has
resigned ceased to practise or attend or has been dismissed
without a finding of unfair dismissal being made within the
period of six months hereinafter referred to) is or was so
employed for a period of at least six months
(b) "Local People" means persons having their place of residence at
the date of commencement of their employment in the London
Borough of Tower Hamlets
4.35 DOCKLANDS LIGHT RAILWAY
(a) Not to use or carry out any works on any part of the Demised
Premises or on any part of the Estate in the immediate vicinity
of the Docklands Light Railway for any purpose which would
materially adversely affect the construction or operation of the
Docklands Light Railway or the use thereof as a railway station
or the safe operation of the Docklands Light Railway or the use
thereof as a railway station but without prejudice to the rights
granted to the Tenant in paragraph 3 of the First Schedule
(subject as therein provided)
(b) Not to cause interference with electrical or electronic apparatus
or equipment used in connection with the operation of the
Docklands Light Railway
(c) In the exercise of any rights of entry granted in the First
Schedule over any part of the Docklands Light Railway (in
addition to complying with the provisions of paragraph 3 of the
First Schedule):
(i) not (save in the case of an emergency) to disrupt the
operation of the Docklands Light Railway or the use
thereof
(ii) to comply with any reasonable and proper regulations
directions or requirements of DLR Limited necessary to
ensure the safe operation of the Docklands Light Railway
<PAGE> 92
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5. LANDLORD AND MANAGEMENT COMPANY'S COVENANTS RELATING TO SERVICES
5.1 The Management Company covenants (and the Landlord covenants in the
event of default of the Management Company) with the Tenant and the
Management Company covenants as a separate covenant with the Landlord
(and subject as provided in Clauses 8.4 and 8.5) to provide perform
and observe or procure to be provided performed and observed the
Building Services the Car Park Services and the Estate Services as
shall be necessary for the reasonable beneficial enjoyment and use of
the Demised Premises PROVIDED THAT neither the Landlord nor the
Management Company shall be liable to the Tenant in respect of any
failure or interruption or delay in the provision of any of such
services caused by Force Majeure
5.2 The Management Company further covenants with the Tenant not to
exercise its judgment in any instance providing for the exercise of
its judgment in this Lease otherwise than in good faith and in
accordance with principles of good estate management
5.3 The Landlord and the Management Company further covenant with the
Tenant to provide perform and observe or procure to be provided
performed and observed the Building Services the Car Park Services and
the Estate Services in accordance with the provisions of this Lease
and to manage the Estate in such manner as shall be in accordance with
principles of good estate management
6. LANDLORD'S COVENANTS
THE Landlord COVENANTS with the Tenant:-
6.1 QUIET ENJOYMENT
That the Tenant paying the rents reserved by this Lease and performing
and observing the covenants on the part of the Tenant herein contained
may peaceably hold and enjoy the Demised Premises during the Term
without any interruption by the Landlord or any person lawfully
claiming through under or in trust for it
<PAGE> 93
37
6.2 GUARANTEE OF MANAGEMENT COMPANY'S OBLIGATIONS
That the Management Company or the Landlord will perform the covenants
on the part of the Management Company contained in this Lease
6.3 SUPERIOR TITLE
To pay the rent reserved by and (save insofar as the same are the
responsibility of the Tenant under this Lease) to observe and perform
the conditions and covenants imposed on the lessee in the Superior
Lease and to use best endeavours to procure that the Superior Landlord
observes and performs the conditions and covenants imposed on the
lessor in the Superior Lease
6.4 ATRIUM DEDICATED LOBBY AND DEDICATED LIFTS
Until such time as the Tenant shall have surrendered and determined
this Lease in relation to the third floor pursuant to Clause 10.2 the
Landlord will not permit nor grant to any other tenant in occupation
of premises in the Building any right to use or right of access over
the Atrium nor (until such time as there has been a determination and
surrender of part of the Demised Premises pursuant to Clause 10) the
Dedicated Lobby or the Dedicated Lifts
6.5 FACILITIES
To designate from time to time sufficient passenger lifts for the
Tenant's use in accordance with paragraph 3(b) of the First Schedule
and reasonable and sufficient lavatory facilities in the Building in
accordance with paragraph 3(c) of the First Schedule so that at all
times reasonably sufficient lifts and lavatory facilities are in
existence and have been designated for use by the Tenant and further
at all times to ensure that 51 car parking spaces in the building are
designated for the Tenant's use in accordance with paragraph 6.1 of
the First Schedule provided always that it is hereby agreed and
declared that the Tenant acknowledges that the lifts in the west core
and the lavatories situated on each floor of the Premises are
reasonable and sufficient
<PAGE> 94
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6.6 NOTIFICATION OF NUMBERS OF LOCAL EMPLOYEES
To notify the Tenant forthwith in writing that the undertaking
referred to in Clause 4.34 has been complied with and is of no further
effect
6.7 VALUE ADDED TAX
That it has not and will not make during the Term an election pursuant
to paragraph 2 of Schedule 10 to the Value Added Tax Act 1994 in
relation to all or any part of the Demised Premises nor any part (but
only for so long as Morgan Stanley UK Group has a registrable interest
(at H.M. Land Registry) in the same) of the Seventh Eighth Ninth and
Tenth floors of the Building
6.8 NAMING RIGHTS
That it will not name nor grant to any person naming rights in respect
of either the premises known as 10 South Colonnade or the premises
known as 20 Cabot Square
7. INSURANCE
7.1 LANDLORD TO INSURE
THE Landlord shall insure and keep insured with some insurance company
of repute or with Lloyd's Underwriters through such agency (if any) as
the Landlord may from time to time determine (whether or not a Group
Company of the Landlord) (subject to such exclusions excesses and
limitations as may from time to time customarily be imposed by the
insurers but otherwise upon normal reasonable commercial terms):-
(a) the Building (but for the avoidance of doubt excluding the
Tenant's Works) against loss or damage by the Insured Risks in
such sum as shall be the full reinstatement cost of the Building
excluding the Tenant's Works or such greater sum as the Tenant
may in writing reasonably request including Value Added Tax
architects' surveyors' and other professional fees and expenses
incidental thereto the cost of shoring up demolition and site
clearance and similar expenses
(b) loss of the Rent Estate Service Charge Building Service
<PAGE> 95
39
Charge and Car Park Service Charge payable under this Lease
(making due allowance for increases provided for in the Third
Schedule) for five (5) years or such other period as the Tenant
may in writing reasonably request if greater
(c) any engineering and electrical plant and machinery being part of
the Base Building Services against sudden and unforeseen damage
breakdown and inspection to the extent that the same is not
covered by paragraph (a) of this Clause
(d) property owner's liability and such other insurances as the
Landlord may from time to time reasonably deem necessary to
effect
7.2 COMMISSIONS AND RESTRICTION ON TENANT INSURING
(a) The Landlord shall be entitled to retain and utilise as it sees
fit any commission attributable to the placing of such insurance
and the payment of any insurance sums and the Landlord shall use
all reasonable endeavours to obtain in any property insurance
policy effected pursuant to the Landlord's insurance obligations
set out in Clause 7.1(a)-(d) (inclusive) and at the sole cost and
expense of the Tenant a waiver of subrogation against the Tenant
and the right to have the Tenant's interest noted on the
insurance policy
(b) The Tenant shall not take out any insurance in respect of the
Demised Premises or in respect of any other matters which the
Landlord is required to insure under Clause 7.1
7.3 TENANT'S WORKS
7.3.1
The Tenant shall insure and keep insured with some
insurance company of repute or with Lloyd's Underwriters
through such agency (if any) as the Tenant may from time
to time determine (whether or not a Group Company of the
Tenant) (subject to such exclusions excesses and
limitations as may from time to time customarily be
imposed by the insurers but otherwise upon normal
reasonable commercial terms) the Tenant's
<PAGE> 96
40
Works which definition shall for the purposes of this
Clause 7 include (a) installations fittings and equipment
resulting from the carrying out of the Tenant's Works (not
being works to the structure of the Building) (b) any
other works (but excluding works to the structure of the
Building) hereafter carried out by the Tenant or any
undertenant in accordance with the terms hereof and
whether or not the same shall become Landlord's fixtures
and fittings against loss or damage by the Insured Risks
in such sum as shall be the full reinstatement cost
thereof including Value Added Tax architects' surveyors'
and other professional fees and expenses incidental
thereto and the cost of demolition site clearance and
similar expenses
7.3.2
The Tenant shall use all reasonable endeavours to obtain
in any insurance policy effected pursuant to the Tenant's
insurance obligations contained in this Clause 7.3 and at
the sole cost and expense of the Tenant a waiver of
subrogation against the Landlord and the right to have the
Landlord's interest noted on the insurance policy
7.4 LANDLORD'S FIXTURES
If the Landlord so requests but not more frequently than once in any
consecutive period of twelve months the Tenant shall notify the
Landlord in writing of the full reinstatement cost of any fixtures and
fittings installed at any time by the Tenant and which may become
landlord's fixtures and fittings
7.5 LANDLORD TO PRODUCE EVIDENCE OF INSURANCE
At the request of the Tenant the Landlord shall produce to the Tenant
and at the request of the Landlord the Tenant shall produce to the
Landlord reasonable evidence of the terms of the insurance policy and
the fact that the policy is subsisting and in effect as the Tenant or
the Landlord (as the case may be) is required to effect pursuant to
the terms hereof
<PAGE> 97
41
7.6 CESSER OF RENT
Save where and to the extent that the insurance thereof is required to
be effected by the Tenant pursuant to Clause 7.3 if the Estate Common
Parts the Building or the Demised Premises or in any case any part
thereof shall be destroyed or damaged by any of the Insured Risks or
by bomb or other terrorist action when damage caused by bomb or
terrorist action is not normally insurable in the commercial insurance
market so as to render the Demised Premises or any part thereof unfit
for use and occupation or inaccessible and in so far as the insurance
shall not have been vitiated or payment of the policy moneys refused
in whole or in part as a result of some act or default of the Tenant
or any undertenant or any person under its or their control then the
Rent and the Estate Service Charge Building Service Charge and Car
Park Service Charge or a fair proportion thereof according to the
nature and extent of the damage sustained shall be suspended until the
Building or the Demised Premises or the part destroyed or damaged (as
the case may be) shall be rebuilt or reinstated in accordance with the
Specification and the Estate Common Parts or the part destroyed or
damaged (as the case may be) shall be rebuilt or reinstated so as to
render the Demised Premises accessible and any dispute regarding the
cesser of rent shall be referred to a single arbitrator to be
appointed in default of agreement upon the application of either
party, by or on behalf of the President for the time being of the
Royal Institution of Chartered Surveyors in accordance with the
provisions of the Arbitration Acts 1950 to 1979
7.7 DESTRUCTION OF THE BUILDING
7.7.1
Save where and to the extent that the insurance thereof is
required to be effected by the Tenant pursuant to Clause
7.3 and subject to Clause 7.7.2 if the Building or the
Demised Premises or any part thereof or any necessary
access thereto is destroyed or damaged by any of the
Insured Risks then:-
(a) unless payment of the insurance moneys shall be
refused in whole or in part by reason of any act or
default of the Tenant or any undertenant of the
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Tenant or any person under its or their control and
(b) subject to the Landlord being able to obtain any
necessary planning permission and all other
necessary licences approvals and consents (which
the Landlord shall use its reasonable endeavours to
obtain) and
(c) subject to the necessary labour and materials being
and remaining available
the Landlord shall (subject to Clause 7.8) lay out the net
proceeds of such insurance other than any in respect of
loss of rents in the rebuilding and reinstatement of the
premises so destroyed or damaged (excluding Tenant's
Works) substantially as the same were prior to any such
destruction or damage (but not so as necessarily to
provide accommodation identical in layout where it is
impossible to do so) and shall proceed with such
rebuilding or reinstating within the period of time that
it shall be reasonable so to do
7.7.2
If the Tenant's Works or any part thereof are damaged by
the Insured Risks then:-
(a) unless payment of the insurance moneys shall be
refused in whole or in part by reason of any act or
default of the Landlord or any person under its
control and
(b) subject to the Tenant being able to obtain any
necessary planning permission and all other
necessary licences approvals and consents (which
the Tenant shall use its reasonable endeavours to
obtain) and
(c) subject to the necessary labour and materials being
and remaining available
the Tenant shall (subject to Clause 7.8) lay out the
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net proceeds of such insurance in the rebuilding and
reinstatement of the Tenant's Works to no lesser standard
than that described in the "Minimum Standard Developer's
Finish for Tenant's Works" a copy of which is annexed
hereto as Annexure [ ] or such other works in substitution
thereof as shall be approved by the Landlord such approval
not to be unreasonably withheld or delayed
7.8 OPTION TO DETERMINE
7.8.1.1
If the Estate or any part thereof or the Building or any
part thereof or the Demised Premises or any part thereof
shall be so destroyed or damaged by any of the Insured
Risks or by terrorist action when terrorist action is
uninsurable in normal commercial insurance markets so as
to render the entirety of the Demised Premises unfit for
or incapable of use and occupation then (i) if the
Landlord has not rebuilt or reinstated the Estate (or
relevant part thereof) the Building (or relevant part
thereof) or the Demised Premises (as the case may be) so
that the Demised Premises are available and fit for
Tenant's fitting out works within three years and six
months of such damage or destruction and there is no
reasonable prospect of rebuilding or reinstatement being
completed within four years of such damage or destruction
then the Tenant may determine this Lease by giving to the
Landlord and the Management Company not less than six (6)
nor more than twelve (12) months' written notice to expire
four years after the date of such destruction or damage;
and (ii) the Landlord may determine this Lease by giving
to the Tenant and the Management Company not less than six
(6) months' written notice at any time after the date of
damage or destruction and prior to commencing to rebuild
or reinstate and (iii) any determination pursuant to this
clause 7.8.1.1 and any determination pursuant to Clause
7.8.2 below shall be without prejudice to any claim by
either party against the other in respect of any
antecedent breach of covenant Provided That if this Lease
shall be determined then the Landlord shall not be
required to lay out the net
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proceeds of such insurance and the net proceeds of such
insurance shall belong to the Landlord absolutely
7.8.1.2
If there shall be any determination pursuant to Clause
7.8.1.1 or Clause 7.8.2 then the Tenant shall not be
required to lay out the net proceeds of the insurance
effected pursuant to the provisions of Clause 7.7.2 and
the net proceeds of such insurance up to the amount
representing the full reinstatement value of the Tenant's
Works to a standard commensurate with the "Minimum
Standard Developer's Finish for Tenant's Works" ("the MDF
Works") and on the basis that the whole of the Demised
Premises at the date of damage or destruction (other than
the ground floor) had been so fitted out shall belong to
the Landlord absolutely and the Tenant shall pay such
amount to the Landlord as soon as reasonably possible
after receiving the same and shall take all such
reasonable steps to obtain such sum with all due speed and
to the extent that the cost of reinstating the whole of
the Demised Premises at the date of damage or destruction
(other than the ground floor) to a standard commensurate
with the MDF Works shall exceed the amount (if any)
received by the Tenant from its insurers (for whatever
reason including if the Tenant shall not at the time of
such damage or destruction have carried out or completed
the Tenant's Works but other than by reason of the act or
default of the Landlord or any person under its control)
then the Tenant will within fourteen (14) days of receipt
of a written demand pay the difference to the Landlord
7.8.2
Without prejudice to the provisions of Clause 7.8.1
above the Landlord shall within six (6) months of the date
of destruction of the Building or the Demised Premises
give written notice to the Tenant stating whether or not
it intends to rebuild and reinstate the same and if such
notice indicates that the Landlord does not intend to
rebuild and reinstate the Tenant may determine this Lease
by giving written notice to the Landlord to that effect at
any time after the date of service of the Landlord's
notice but if such notice
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indicates that the Landlord does intend to rebuild and
reinstate the Landlord will proceed diligently in
endeavouring to obtain all necessary planning permissions
approvals and consents and to rebuild and reinstate the
Demised Premises or the Building (as the case may be) and
if the Landlord fails to give the Tenant notice in
accordance with this Clause 7.8.2 the Tenant shall be
entitled to assume that the Landlord does not intend to
rebuild and reinstate whereupon the Tenant may determine
this Lease by giving written notice as aforesaid
7.9 PAYMENT OF INSURANCE MONEYS REFUSED
If the payment of any insurance moneys is refused as a result of some
act or default of the Tenant or any undertenant or any person under its
or their control so as to cause a breach of any term or provision of
the insurance policy the contents of which have been notified in
writing to the Tenant the Tenant shall pay to the Landlord as soon as
possible after receipt by the Tenant of written demand the amount so
refused except to the extent that it relates to Tenant's insured
fittings
7.10 INSURANCE BECOMING VOID
The Tenant shall not do or omit to do anything that could cause any
policy of insurance in respect of or covering the Demised Premises or
the Building or any Adjoining Property to become void or voidable
wholly or in part nor (unless the Tenant has previously notified the
Landlord and agreed to pay the increased premium) anything whereby any
increased or loaded premium may become payable and the Tenant shall as
soon as possible after receipt of written demand pay to the Landlord
all increased expenses incurred by the Landlord in renewing any such
policy
7.11 REQUIREMENTS OF INSURERS
The Tenant shall at all times comply with all the requirements of the
Landlord's insurers so far as such requirements are made known in
writing by the Landlord or the Management Company to the Tenant and
relate to the Demised Premises or the conduct of persons using the
Building or the Estate
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46
7.12 NOTICE BY TENANT
The Tenant shall give notice to the Landlord as soon as reasonably
possible after becoming aware of the happening of any event or thing
which might reasonably affect or give rise to a claim under any
insurance policy relating to the Demised Premises or the Building or
any Adjoining Property
8. PROVISOS
PROVIDED ALWAYS AND IT IS HEREBY AGREED AND DECLARED as follows:-
8.1 FORFEITURE
(a) Subject to the provisions of sub-clause 8.1(b) without prejudice
to any other right remedy or power herein contained or otherwise
available to the Landlord:-
(i) if the rents reserved by this Lease or any part thereof
shall be unpaid for twenty eight (28) days after becoming
payable or
(ii) if any of the covenants by the Tenant contained in this
Lease shall not be performed and observed in all material
respects or
(iii) if the Tenant and/or the Surety (if any) (being a body
corporate) has a winding-up petition or petition for an
administration order presented against it or passes a
winding-up resolution (other than a resolution for the
purposes of an amalgamation or reconstruction resulting in
a solvent corporation) or resolves to present its own
winding-up petition or is wound up (whether in England or
elsewhere) or the directors of the Tenant or the Surety
resolve to present a petition for an administration order
in respect of the Tenant or the Surety (as the case may
be) or an Administrative Receiver or a Receiver or a
Receiver and Manager is appointed in respect of the
property (or any part thereof) of the Tenant
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47
or the Surety or
(iv) if the Tenant and/or the Surety (if any) (being a body
corporate) calls or a nominee calls on its behalf a
meeting of its creditors or any of them or makes an
application to the Court under Section 425 of the
Companies Act 1985 or submits to its creditors or any of
them a proposal pursuant to Part I of the Insolvency Act
1986 or enters into any arrangement scheme compromise
moratorium or composition with its creditors or any of
them (whether pursuant to Part I of the Insolvency Act
1986 or otherwise) or
(v) if the Tenant and/or the Surety (if any) (being an
individual or if more than one individual then any one of
them) notifies the Official Receiver or makes an
application to the Court for an interim order under Part
VIII of the Insolvency Act 1986 or convenes a meeting of
his creditors or any of them or enters into any
arrangement scheme compromise moratorium or composition
with his creditors or any of them (whether pursuant to
Part VIII of the Insolvency Act 1986 or otherwise) or is
adjudged bankrupt
THEN and in any such case the Landlord may at any time thereafter
until such time as the circumstances referred to in this clause
8.1 and giving rise to the Landlord's right of forfeiture have
ceased to exist re-enter the Demised Premises or any part thereof
in the name of the whole and thereupon the Term shall absolutely
cease and determine but without prejudice to any rights or
remedies which may then have accrued to any party to this Lease
in respect of any antecedent breach of any of the covenants
contained in this Lease
(b) (i) The Landlord shall give to every Leasehold Mortgagee
who has previously given and not withdrawn written
notification to the Landlord of a subsisting Leasehold
Mortgage a copy of each notice of default by the Tenant
which the Landlord may be required to serve on the Tenant
at the same time as and whenever any such notice of
default is given by the Landlord to the Tenant addressed
to such Leasehold Mortgagee at the address
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48
last furnished to the Landlord and no such notice by the
Landlord shall be deemed to have been given unless and
until a copy thereof shall have been so given to such
Leasehold Mortgagee
(ii) The Landlord's right of re-entry shall not be enforceable
save pursuant to an order of the Court and before
enforcing such order of the Court the Landlord shall serve
on the Surety and also every Leasehold Mortgagee who has
previously given and not withdrawn written notification to
the Landlord of a subsisting Leasehold Mortgage in his
favour a notice enclosing a copy of the order of the Court
and:-
(1) stating that the Landlord's right to re-enter has
arisen; and
(2) offering a reasonable period (which shall not be
less than twenty-one (21) days from the date of
such notice) to the Leasehold Mortgagee to remedy
the Tenant's default and agreeing not to exercise
its right to re-enter the Demised Premises before
the expiry of such reasonable period
(iii) The Landlord shall accept performance by the
Leasehold Mortgagee of any covenant condition or
agreement on the Tenant's part as though that
covenant condition or agreement had been performed
by the Tenant
(iv) In the event of any forfeiture of this Lease the Landlord
shall give written notice thereof to the Leasehold
Mortgagee and shall on written request of the Leasehold
Mortgagee given at the time within sixty (60) days after
the giving of such notice execute and deliver a new lease
of the Demised Premises to the Leasehold Mortgagee or its
nominee for the remainder of the Term of the Lease at the
rent and subject to the covenants conditions limitations
and agreements herein contained provided that the
Leasehold Mortgagee or its nominee shall be an Acceptable
Assignee and provided that the Leasehold Mortgagee shall
have remedied or covenanted to remedy any breach on
account of which the
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49
forfeiture has occurred and shall have paid to the
Landlord all rent and other charges due under this Lease
at the date of forfeiture and which thereafter would have
been due under this Lease if the same had not been
forfeited up to and including the date of commencement of
the term of such new lease together with costs and
expenses on an indemnity basis incurred by the Landlord in
connection with or arising out of forfeiture of this Lease
and obtaining and enforcing an order of the Court for that
purpose and all expenses including reasonable legal fees
incidental to the execution and delivery of such new lease
less all amounts (after deducting costs incurred in
connection therewith) received by the Landlord from
sub-tenants up to the said date of commencement of such
new lease and provided that the Leasehold Mortgagee and
Morgan Stanley Group Inc as Surety shall have first
executed and delivered to the Landlord a Counterpart Lease
and time shall be of the essence of the contract in
respect of the service of the notice referred to in this
paragraph
(v) Except as otherwise specifically agreed by the relevant
Leasehold Mortgagee and subject to paragraph (iv) no
Leasehold Mortgagee shall become liable under the
provisions of this Lease unless and until such time as it
becomes and (subject to complying with clause 8.17 on any
assignment or transfer of the Tenant's interest under this
Lease) then only for so long as it remains the owner of
the Tenant's interest under this Lease and only to the
extent that the Tenant would have been liable hereunder
had the Tenant remained the owner of that interest
Provided always that the provisions of this Clause 8.l(b) shall
only apply for so long as this Lease remains vested in Morgan
Stanley UK Group or any Group Company of Morgan Stanley UK Group
8.2 NO IMPLIED EASEMENTS
Nothing herein contained shall impliedly confer upon or grant to the
Tenant any easement right or privilege other than those
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50
expressly granted by this Lease
8.3 EXCLUSION OF WARRANTY AS TO USER
Nothing contained in this Lease or in any agreement leading to its
grant or in any consent granted by the Landlord under this Lease shall
imply or warrant that the Demised Premises may be used under the
Planning Acts for the use herein authorised or any use subsequently
authorised
8.4 LANDLORD'S AND MANAGEMENT COMPANY'S OBLIGATIONS
Neither the Landlord nor the Management Company shall be liable to the
Tenant in respect of any failure of the Landlord or the Management
Company to provide perform and observe any of the Building Services
unless the Tenant has given notice to the Landlord or the Management
Company (as the case may be) of such failure and the Landlord or the
Management Company (as the case may be) has failed within a reasonable
time to remedy the same and then in such case the Landlord and/or the
Management Company (as the case may be) shall be liable to compensate
the Tenant only for loss or damage sustained by the Tenant after such
reasonable time has elapsed
8.5 EXCLUSION OF LANDLORD'S AND MANAGEMENT COMPANY'S LIABILITY
Neither the Landlord nor the Management Company shall be liable to the
Tenant nor shall the Tenant have any claim against the Landlord or the
Management Company in respect of:-
(a) any failure or interruption or delay in the provision of Estate
Services or Car Park Services or Building Services caused in any
case by Force Majeure but the Management Company shall use
reasonable endeavours having regard to the nature of the Tenant's
business to cause the service in question to be reinstated with
the minimum of delay
(b) any loss or damage (other than damage to the Demised Premises) or
interference or annoyance suffered by the Tenant during the
carrying out by the Landlord or the Management Company of works
to the Estate Common Parts which the Landlord or the Management
Company reasonably considers to be necessary or desirable save
where such works are
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51
carried out in a reckless or negligent manner by the Landlord or
the Management Company
(c) any loss or inconvenience occasioned by the closing or breakdown
of any mechanical equipment or by the failure of power supply to
any mechanical equipment or whilst any repairs are carried out
thereto except where such loss or inconvenience is caused by the
recklessness or negligence of the Landlord or Management Company
(d) any loss of or damage to or theft from any car using the Car Park
or any loss or damage or injury suffered by any driver of or
passenger in such car except where any loss, damage or theft or
injury is caused by the recklessness or negligence of the
Landlord or Management Company
8.6 RIGHT FOR LANDLORD TO PERFORM OR TO NOMINATE ANOTHER COMPANY TO PERFORM
MANAGEMENT COMPANY'S OBLIGATIONS
At any time or times during the Term the Landlord may on giving written
notice to the Tenant and the Management Company nominate another
company or companies to undertake or exercise or itself undertake or
exercise all or any of the obligations rights and discretions of the
Management Company contained in this Lease in which event:-
(a) the Landlord shall require the Management Company to transfer to
it or to the nominated company (or if more than one company is
nominated the relevant nominated company) any moneys held in the
Estate Reserve Fund and the Car Park Reserve Fund and the
Building Reserve Fund or any other similar fund established
(b) any reference in this Lease to the Management Company shall be
construed as reference to the Landlord or the nominated company
or companies
(c) in particular but without limitation any payment due from the
Tenant to the Management Company in respect of the relevant
obligations shall be made to the Landlord or such nominated
company or companies and the benefit of the Tenant's covenants to
the Management Company shall be
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52
enforceable by the Landlord or such nominated company or
companies
(d) the Landlord shall procure that the nominated company or
companies shall provide a covenant to the Tenant in the terms of
the covenant by the Management Company with the Tenant contained
in this Lease and shall execute a declaration of trust in favour
of the Tenant in the same terms mutatis mutandis as are set out
in clause 9.7
(e) the Tenant shall at the Landlord's cost covenant with the
nominated company or companies in the terms of the covenants by
the Tenant with the Landlord and the Management Company contained
in this Lease
(f) the Management Company shall be released from all obligations of
any kind arising under or in respect of the covenants by the
Management Company contained in this Lease and from all actions
proceedings costs claims and demands in connection with those
obligations but without prejudice to any claim actions and
proceedings in respect of breaches of covenant by the Management
Company which have already occurred or arisen and
(g) the Tenant shall be released from all obligations of any kind to
the Management Company arising under or in respect of the
covenants by the Tenant to the Management Company contained in
this Lease and from all actions proceedings costs claims and
demands in connection with those obligations but without
prejudice to any claims actions and proceedings in respect of
breaches of covenant by the Tenant which have already occurred or
arisen
8.7 DEVELOPMENT OF ADJOINING PROPERTY
(a) The Tenant shall make no objection or representation nor
institute any proceedings whether by way of injunction or for
damages and shall not permit or suffer any undertenant or other
occupier of or any person with any interest in any part of the
Demised Premises to do any such things by reason or in
consequence of any actionable noise disturbance annoyance or
inconvenience occasioned by any works by or on behalf of the
Landlord or the Management Company or any
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53
owner or tenant on any Adjoining Property
(b) The Tenant agrees with the Landlord and the Management Company
that notwithstanding any other provision of this Lease the Tenant
will have no claim against the Landlord or the Management Company
in connection with or arising from any works carried out on
beneath or in the vicinity of the Estate by or on behalf of
London Underground Limited or London Regional Transport for the
purpose of or in connection with the construction of the Jubilee
Line Extension to the London Underground system
8.8 EXCLUSION OF STATUTORY COMPENSATION
Except where any statutory provision prohibits or modifies the right of
the Tenant to compensation being reduced or excluded by agreement
neither the Tenant nor any undertenant (whether immediate or not) shall
be entitled on quitting the Demised Premises or any part thereof to
claim any compensation from the Landlord under the Landlord and Tenant
Act 1954
8.9 USE OF PREMISES OUTSIDE BUSINESS HOURS
If the Tenant shall desire to use and occupy the Demised Premises
outside the Business Hours then subject as hereinafter provided the
Tenant shall be entitled to use and occupy the Demised Premises and
have access thereto outside Business Hours on the following terms and
conditions (which the Tenant hereby covenants with the Landlord and as
a separate covenant with the Management Company to observe and comply
with):-
(a) following any underletting or surrender and determination of this
Lease in relation to Part of the Demised Premises Pursuant to
Clause 10.2 the Tenant shall comply with all reasonable
requirements of the Landlord or the Management Company as to use
and occupation and access
(b) the Tenant shall pay to the Management Company within 14 days of
receipt by the Tenant of written demand the whole (or where the
services are shared with other tenants a fair proportion as
determined by the Management Company) of the reasonable and
proper costs and expenses attributable to such use or the
provision of any staff services and security
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54
to the extent that such are provided at a level or to a degree
which would not have been provided but for such use outside
Business Hours
(c) neither the Landlord nor the Management Company shall be obliged
to provide any services to the Demised Premises or to the
Building if the Landlord or the Management Company shall be
unable so to do by reason of Force Majeure
8.10 NOTICES
(a) Any demand or notice required to be made given to or served on
the Tenant or the Surety under this Lease shall be in writing and
shall be validly made given or served if addressed to the Tenant
or the Surety respectively (and if there shall be more than one
of them then any one of them) and delivered personally or sent by
pre-paid registered mail addressed (in the case of a company) to
its registered office or (whether a company or individual) its
last known address or (in the case of a notice to the Tenant) the
Demised Premises
(b) Any notice required to be served on the Landlord or the
Management Company shall be in writing and shall be validly given
or served if addressed to the Landlord or the Management Company
respectively and delivered personally or sent by pre-paid
registered mail to its registered office
8.11 INVALIDITY OF CERTAIN PROVISIONS
If any term of this Lease or the application thereof to any person or
circumstances shall to any extent be invalid or unenforceable the same
shall be severable and the remainder of this Lease or the application
of such term to persons or circumstances other than those as to which
it is held invalid or unenforceable shall not be affected thereby and
each term and provision of this Lease shall be valid and be enforced to
the fullest extent permitted by law
8.12 PLANS DRAWINGS ETC
The Landlord and the Management Company shall have an
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irrevocable and assignable licence free from any copyright claim as
from the expiry or sooner determination of this Lease to use and
reproduce all plans drawings specifications models and other
information required to be furnished by the Tenant to the Landlord
under this Lease or any agreement preceding this Lease but so that the
Landlord and the Management Company shall use the same only in
connection with the use ownership operation maintenance and alteration
of the Demised Premises and the Tenant shall deliver all such documents
to the Landlord promptly upon the expiry or sooner determination of
this Lease
8.13 CONFIDENTIALITY PROVISION
(a) None of the parties to this Lease shall without the prior written
consent of the other parties to this Lease disclose or publish
("Disclosure") or permit or cause Disclosure of any financial or
other details whatsoever naming the parties hereto or otherwise
relating to the transaction hereby effected save only for:-
(i) any particular extracts or details which must be the
subject of Disclosure in order to comply with any Stock
Exchange or statutory requirements or the lawful
requirements of any regulatory bodies or with the
requirements of the Inland Revenue or Customs & Excise or
in order to obtain clearance and clarification from the
Customs & Excise of Inland Revenue
(ii) any details given to auditors bankers professional
advisers and key employees of each of the parties who need
to know such details (and who shall only be provided with
the same upon first having undertaken to be bound by the
provisions of this Clause 8.13)
(iii) any particular extracts or details which have come
into the public domain through no fault of the
relevant party (but no disclosure to Customs &
Excise or the Inland Revenue)
(b) In the case of a party wishing to make Disclosure as permitted by
Clause 8.13(a)(i) that party shall first submit details of the
proposed text of the Disclosure to the other
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parties to this Lease and shall act reasonably in taking full
account of all representations and comments made by such other
parties upon the text
(c) Notwithstanding the provisions of sub-clause (a) the Tenant or
any other group company of the Tenant shall be at liberty to
disclose the contents of this Lease for the purposes of enforcing
the terms of this Lease if required to do so by the Court or in
the annual report and accounts of any of the Tenant or such group
company
(d) This Clause 8.13 shall remain in effect for a period of five
years from the date hereof
(e) This Clause 8.13 shall not apply to Disclosure by or on behalf of
any party to this Lease to any third parties and/or their
professional advisers in pursuance of bona fide negotiations
relating to any dealing by the relevant party with its interest
in the Estate
8.14 WAIVER ETC. OF REGULATIONS
(a) The Landlord reserves the right to rescind alter or waive any of
the Regulations at any time where in its reasonable judgment it
deems it necessary desirable or proper to do so and no alteration
or waiver in favour of one tenant of the Estate shall operate as
an alteration or waiver in favour of any other tenant of the
Estate
(b) Neither the Landlord nor the Management Company shall be
responsible to the Tenant for the non-observance by any tenant of
the Estate or any other person of any of the Regulations
8.15 APPLICABLE LAW AND JURISDICTION
This Lease shall be governed by and construed in all respects in
accordance with the Laws of England and proceedings in connection
therewith shall be subject (and the parties hereby submit) to the
non-exclusive jurisdiction of the English Courts and for the purposes
of Order 10 Rule 3 of the Rules of the Supreme Court of England and any
other relevant Rules thereof
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the Tenant hereby irrevocably agrees that any process may be served
upon it by leaving a copy addressed to it at its address as stated
above or at such other address for service within England and Wales as
may be notified in writing from time to time to the Landlord and the
Management Company
8.16 REPRESENTATIONS
The Tenant acknowledges that this Lease has not been entered into in
reliance wholly or partly on any statement or representation made by or
on behalf of the Landlord except any such statement or representation
that is expressly set out in this Lease or in written reply to
enquiries raised by the Tenant's solicitors of the Landlord's
solicitors
8.17 CESSER OF LIABILITY
(a) The rights and obligations of Morgan Stanley UK Group as Tenant
(or any Group Company of Morgan Stanley UK Group as Tenant) and
Morgan Stanley Group Inc as surety of such Tenant to the Landlord
and the Management Company under this Lease shall cease on the
completion of an assignment or transfer of this Lease (i) to an
Acceptable Assignee; or (ii) to a person who is not an Acceptable
Assignee but whose obligations under this Lease are guaranteed by
a person who had it taken an assignment or transfer of this Lease
would have been an Acceptable Assignee and who shall have entered
into a Deed of Surety and Guarantee containing the same terms as
are set out in the Fourth Schedule but without prejudice to any
rights and remedies of any party against any other in respect of
any antecedent breach of any of the covenants or conditions in
this Lease
(b) Where under the terms of this clause the Tenant ceases to be
liable for its liabilities and obligations under this Lease the
Landlord shall if the Tenant so reasonably requests execute and
deliver to the Tenant a deed releasing the Tenant from all
obligations of any kind arising under or in respect of the
covenants by the Tenant contained in this Lease which deed shall
be in the form of the deed attached hereto as Annexure [2]
(c) The obligations of any Landlord under this Lease shall cease
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58
upon:
(i) an assignment of the Landlord's interest in or grant of an
overriding lease of the Estate Common Parts (but in the
case of an overriding lease only whilst such lease
continues to subsist) or
(ii) in the case of obligations relating to the Building
(including without limitation the provision of the
Building Services or other items referred to in Part B of
the Seventh Schedule) on assignment of the Landlord's
interest in or grant of an overriding lease of the
Building (but in the case of an overriding lease only
whilst such lease continues to subsist)
but without prejudice to any rights and remedies of any party
against any other in respect of any antecedent breach of any of
the covenants or conditions in this Lease and provided that where
an assignment or a grant of an overriding lease referred to in
(i) above occurs after an assignment or a grant of an overriding
lease referred to in (ii) above the Landlord will procure that
the assignee or overriding lessee referred to in (i) above shall
prior to the assignment or grant of the overriding lease enter
into a Deed of Covenant with the Tenant and the Surety (if any)
to observe and perform such of the obligations of the Landlord
herein contained as are not the responsibility of the assignee or
overriding lessee referred to in (ii) above such Deed to be in
such form as the Landlord shall reasonably require and the Tenant
and the Surety (if any) hereby undertake to enter into such deed
within 20 Working Days of a written request so to do from the
Landlord
(d) Where under the terms of this clause the Landlord ceases to be
liable for all or any of its liabilities and obligations under
this Lease the Tenant and the Surety (if any) shall if the
Landlord so reasonably requests execute and deliver to the
Landlord a deed releasing the Landlord from all (or as the case
may be the relevant) obligations arising under or in respect of
the covenants by the Landlord contained in this Lease
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59
(e) If the Tenant shall assign or transfer this Lease prior to the
fifteenth anniversary of the Term Commencement Date
(notwithstanding that such assignment was not to an Acceptable
Assignee) then all rights obligations and liabilities of Morgan
Stanley UK Group (or any Group Company of Morgan Stanley UK Group
in which this Lease shall be vested) as Tenant and Morgan Stanley
Group Inc as Surety under this Lease shall forthwith cease and
determine upon the date which is the fifteenth anniversary of the
Term Commencement Date but without prejudice to the rights
obligations and liabilities of any party to this Lease against
any other party in respect of any prior breach of the terms of
this Lease
9. SERVICE CHARGE
9.1 FOR the purpose of this Lease the following expressions shall have the
following meanings:-
(a) "Building Computing Date" means the first day of July in each
year and the anniversary of that date in each succeeding year or
such other date as the Management Company may from time to time
nominate
(b) "Building Expenditure" means the aggregate of (avoiding double
counting):-
(i) all reasonable costs fees expenses and outgoings
whatsoever (whether or not of a recurring nature)
reasonably and properly incurred in respect of or
incidental to the provision of all or any of:-
(A) the Building Services and
(B) the costs and expenses set out in Part B of the
Seventh Schedule
(whether or not the Landlord or the Management Company is
obliged by this Lease to incur the same) and (when any
expenditure is incurred in relation to the Building and
other premises) the proportion of such expenditure which
is reasonably attributable to the Building as properly
determined from time to time by the Building
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60
Surveyor
(ii) such reasonable sums as the Landlord or the Management
Company shall reasonably and properly consider desirable
to set aside from time to time (which setting aside shall
be deemed to be an item of expenditure actually incurred)
for the purpose of providing for periodically recurring
items of expenditure, whether or not of a capital nature
and whether recurring at regular or irregular intervals
and for anticipated expenditure in respect of any of the
Building Services to be provided or other items within
Part B of the Seventh Schedule ("the Building Reserve
Fund")
(iii) the cost of replacement of any item where such replacement
is reasonably necessary whether or not the replacement
item is of a superior quality design or utility to the
item being replaced but where the replacement item is of
superior quality it shall be as near as practicable to the
quality of the item being replaced
(iv) interest payments credited to the Tenant under Clause
9.5(b) and credited or paid to any tenants of premises
within the Building under the provisions of clauses
similar to the said clause
(v) any Value Added Tax or other tax payable on or in connection with
any such items in paragraphs (i) (ii) (iii) and (iv) above (so
far as not recoverable by the Landlord or the Management Company
(as the case may require) as an input credit)
but shall exclude:-
(aa) any capital expenditure incurred in the initial
construction of the Building or for the construction or
carrying out of any of the Works which the Landlord has
agreed to carry out in the Agreement pursuant to which
this Lease has been granted and capital expenditure
incurred for the purpose of the initial establishment of
the services described in the Seventh Schedule
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61
(bb) any expenditure referable to operating charges and
expenses and maintenance of any Car Park
(cc) any costs incurred by the Landlord in remedying any latent
or inherent defects or shrinkages or other latent or
inherent faults not apparent at the date hereof and which
manifest themselves (a) in the Building during a period of
10 years or (b) in relation to the rebuilding or
replacement of the structure of the Building during a
period of 15 years from practical completion of the
Building which periods commenced on 22nd July 1991
and there shall be deducted from the foregoing for the purposes
of calculating the Building Expenditure the following:-
(aaa) any contributions in respect of Building Services
or the costs set out in Part B of the Seventh
Schedule recoverable in the relevant Building
Financial Year under leases or agreements for
leases or other documents imposing obligations in
relation to Building Services relating to premises
which for that Building Financial Year are not
included within the definition of Y for the
purposes of the definition of Building Service
Charge Percentage
(bbb) any revenue received from a third party (other
than a tenant in its capacity as such whether
under any Lease Agreement for Lease or some other
deed relating to Building Services or the Building
Service Charge Percentage or the Building
Expenditure) derived from the rendering of
Building Services or any activity the cost of
which is included in Part B of the Seventh
Schedule including any insurance proceeds received
by the Landlord or the Management Company in
respect of the insurance of the Building to the
extent that such insurance proceeds relate to an
item the cost of which is included in the Building
Expenditure and
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62
(ccc) any contribution in respect of the rendering of
any of the Building Services or any activity the
cost of which is included in Part B of the Seventh
Schedule recoverable in the Relevant Financial
Year where any such Building Services or other
activity was provided at the request of or for the
benefit of any tenants or occupiers of the
Building and which would not have been provided
but for such request whether or not such service
or activity is of direct or indirect benefit to
the Tenant
(ddd) interest payments received from the Tenant under
Clause 9.5(a) and from other tenants within the
Building under the provisions of clauses similar
to the said clause in relation to Building
Expenditure
(eee) interest (if any) earned on the deposit by the
Management Company of on account payments made by
tenants in respect of Estimated Building
Expenditure
(c) "Building Financial Year" means the period from a Building
Computing Date to but not including the next succeeding Building
Computing Date
(d) "Building Service Charge Percentage" means the figure calculated
as follows:-
X
- x 100
Y
where:-
X = the Net Internal Area of the Demised
Premises and
Y = the aggregate Net Internal Areas of
Lettable Areas within the Building used or
intended to be used for office purposes or
uses ancillary thereto
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63
(e) "Building Surveyor" means a chartered surveyor or firm of
chartered surveyors appointed or employed by the Landlord or
Management Company to perform the functions of the Building
Surveyor hereunder
(f) "Car Park Computing Date" means the first day of July in each
year and the anniversary of that date in each succeeding year or
such other date as the Landlord or the Management Company may
from time to time nominate
(g) "Car Park Expenditure" means the aggregate of:-
(i) all reasonable costs fees expenses and outgoings
whatsoever (whether or not of a recurring nature)
reasonably and properly incurred in respect of or
incidental to the provision of all or any of:-
(A) the Car Park Services and
(B) the costs and expenses set out in Part B of the
Sixth Schedule
and (when any expenditure is incurred in relation to the
Car Park and other premises) the proportion of such
expenditure which is reasonably attributable to the Car
Park as properly determined from time to time by the Car
Park Surveyor
(ii) such reasonable sums as the Landlord or the Management
Company shall reasonably and properly consider desirable
to set aside from time to time (which setting aside shall
be deemed to be an item of expenditure actually incurred)
for the purpose of providing for periodically recurring
items of expenditure whether or not of a capital nature
and whether recurring at regular or irregular intervals
and for anticipated expenditure in respect of any of the
Car Park Services to be provided or other items within
Part B of the Sixth Schedule ("the Car Park Reserve Fund")
(iii) the cost of replacement of any item where such
replacement is reasonably necessary whether or not
the replacement item is of a superior quality
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64
design or utility to the item being replaced but
where the replacement item is of superior quality
it shall be as near as practicable to the quality
of the item being replaced
(iv) interest payments credited to the Tenant under Clause
9.5(b) and credited or paid to any tenants of premises
within the Estate under the provisions of clauses similar
to the said clause
(v) any Value Added Tax or other tax payable on or in
connection with any such items in paragraphs (i) (ii)
(iii) and (iv) above (so far as not recoverable by the
Landlord or Management Company as an input credit)
but shall exclude any capital expenditure incurred in the initial
construction of the Car Park or for the purpose of the initial
establishment of the services described in the Sixth Schedule and
there shall be deducted from the foregoing for the purposes of
calculating the Car Park Expenditure the following:-
(aa) any revenue (other than revenue derived from public
parking) received from a third party (other than a tenant
in its capacity as such) in connection with the rendering
of Car Park Services or any activity the cost of which is
included in Part B of the Sixth Schedule including any
insurance proceeds received by the Landlord or the
Management Company in respect of the insurance of the Car
Park to the extent that such insurance proceeds relate to
an item the cost of which is included in the Car Park
Expenditure
(bb) any contribution in respect of the rendering of any of the
Car Park Service or activity the cost of which is included
in Part B of the Sixth Schedule recoverable in the
Relevant Financial Year where any such Car Park Services
or other activity was provided at the request or for the
benefit of any tenants or occupiers of the Estate and
which would not have been provided but for such request
(cc) interest payments received from the Tenant under Clause
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65
9.5(a) and from other tenants within the Estate under the
provisions of clauses similar to the said clause in
relation to Car Park Expenditure
(dd) interest (if any) earned on the deposit by the Management
Company of on account payments made by Tenants in respect
of Estimated Car Park Expenditure
(h) "Car Park Financial Year" means the period from a Car Park
Computing Date to but not including the next succeeding Car Park
Computing Date
(i) "Car Park Service Charge Percentage" means the figure calculated
as follows:-
X
- x 100
Y
where:-
X = the number of cars which the Tenant has the
right to park in the Car Park and
Y = the total number of car parking spaces from
time to time in the Car Park the number
being 2014 at the date hereof
(j) "Car Park Surveyor" means a chartered surveyor or firm of
chartered surveyors appointed or employed by the Management
Company or a Group Company of the Management Company to perform
the functions of the Car Park Surveyor hereunder
(k) "Estate Computing Date" means the first day of July in each year
and the anniversary of that date in each succeeding year or such
other date as the Management Company may from time to time
nominate
(l) "Estate Expenditure" means the aggregate (avoiding double
counting) of:-
(i) all reasonable costs fees expenses and outgoings (whether
or not of a recurring nature) reasonably and properly
incurred by the Landlord or the Management
<PAGE> 122
66
Company in respect of or incidental to the provision of
all or any of the Estate Services and the costs and
expenses set out in Part B of the Sixth Schedule (whether
or not the Landlord or the Management Company is obliged
by this Lease to incur them) and (when any expenditure is
incurred in relation to the Estate and other premises) the
proportion of such expenditure which is reasonably
attributable to the Estate as reasonably determined from
time to time by the Estate Surveyor
(ii) such reasonable sums as the Management Company shall
reasonably and properly consider desirable to set aside
from time to time (and the amount set aside shall be
treated as an item of expenditure actually incurred) for
the purpose of providing for periodically recurring items
of expenditure whether or not of a capital nature and
whether recurring at regular or irregular intervals and
for anticipated expenditure in respect of any of the
Estate Services to be provided or other items within Part
B of the Sixth Schedule (the "Estate Reserve Fund")
(iii) the cost of replacement of any items with an item
of equivalent quality pursuant to the Sixth
Schedule where such replacement is reasonably
necessary (but where such an item is of superior
quality it shall be as near as practicable to the
quality of the item being replaced
(iv) interest payments credited to the Tenant under clause
9.5(b) and credited or paid to any owners or tenants of
premises within the Estate under the provisions of clauses
similar to the said clause and
(v) any Value Added Tax payable on or in connection with any
such items in Paragraphs (i) (ii) (iii) and (iv) above so
far as not recoverable by the Landlord or the Management
Company (as the case may require) as an input credit
but shall exclude:
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67
(aa) any capital expenditure for the initial construction of
the Demised Premises and any building or erection within
the Estate (including for the avoidance of doubt those
parts of the Estate not yet built or erected) or for the
initial creation of the Common Parts and capital
expenditure incurred for the purpose of the initial
establishment of the services described in the Sixth
Schedule
(bb) any expenditure referable to operating charges and
expenses and maintenance of any car parks in the Estate
provided however there shall be included in the Estate
Expenditure a fair and reasonable proportion of
expenditure referable to the maintenance of common
elements shared between any car parks and the Common Parts
(cc) any capital expenditure incurred in the demolition of any
buildings or erections on the Estate or the Common Parts
and any capital expenditure incurred in any replacement or
reconstruction of such buildings or erections save where
(in accordance with the principles of good estate
management) such demolition replacement or reconstruction
is necessary in connection with the provision of the
Estate Services and
(dd) any costs incurred by the Landlord in remedying any latent
or inherent defects or shrinkages or other latent or
inherent faults in the Common Parts of the Estate not
apparent at the date hereof and which manifest themselves
before 30th June 2001
and further there shall be deducted from the foregoing aggregate
for the purposes of calculating the Estate Expenditure the
following:-
(aaa) any contributions in respect of Estate
Services or the costs set out in Part B of
the Sixth Schedule recoverable in the
relevant Estate Financial Year under
transfers leases agreements for lease or
other documents imposing obligations in
relation to the Estate Services relating to
<PAGE> 124
68
premises which for the Financial Year are
not included within the definition of Y for
the purposes of the definition of Estate
Service Charge Percentage
(bbb) any revenue received from a third party
(other than an owner or a tenant in its
capacity as such) (whether under a lease
agreement for lease or some other deed
relating to the Estate Services the Estate
Service Charge Percentage or the Estate
Expenditure) derived from or in connection
with the rendering of Estate Services or
any activity the cost of which is included
in Part B of the Sixth Schedule including
any insurance proceeds received by the
Management Company or the Landlord in
respect of the insurance of the Common
Parts to the extent that such insurance
proceeds relate to an item the cost of
which is included in Estate Expenditure
(ccc) any contribution in respect of the
rendering of any Estate Service or any
activity the cost of which is included in
Part B of the Sixth Schedule recoverable in
the relevant Financial Year where any such
Estate Service or other activity was
provided at the express request of and to
or for the benefit of one or more owners
tenants or occupiers of the Estate at a
time or in circumstances when or in which
such service or activity would not have
been provided but for such request
regardless of whether such service or
activity is of direct or in direct benefit
to the Tenant and
(ddd) interest payments received from the Tenant
under clause 9.5(a) and from other owners
and tenants within the Estate under the
provisions of clauses similar to the said
clause in relation to Estate Expenditure
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69
(eee) interest (if any) earned on the deposit by
the Management Company of on account
payments made by tenants in respect of
Estimated Estate Expenditure
(a) "Estate Financial Year" means the period from an Estate Computing
Date to but not including the next succeeding Estate Computing
Date
(b) "Estate Service Charge Percentage" means the figure calculated as
follows:-
X
- x 100
Y
where:-
X = the Net Internal Area of the Demised Premises and
Y = the aggregate Net Internal Areas of the Lettable
Areas of the buildings built and used or intended
to be used for Retail Use Hotel Use or Office Use
(as hereinafter defined) on those parts of the
Estate known as parcels B-1 DS-7 RT-1 FC-1 FC-2
FC-3 FC-4 FC-5 and FC-6
PROVIDED THAT as from each Estate Computing Date during the Term
Y shall (in addition to the buildings referred to in the above
definition) include the Net Internal Area of the Lettable Areas
within each additional building on the Estate used or intended to
be used for Office Use Retail Use or Hotel Use where in respect
of that building at that Estate Computing Date either:-
(i) at least two (2) years shall have elapsed since the issue
of a practical completion certificate for that entire
building under the building contract relating thereto or
(ii) at least 50% of the Net Internal Area of the Lettable
Areas therein has become occupied
and PROVIDED FURTHER that the parcels known as B-1 DS-7 RT-1 FC-1
FC-2 FC-3 FC-4 FC-5 and FC-6 shall not be removed from
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70
the denominator
(c) "Estate Surveyor" has the like meaning as "Building Surveyor"
save that the word "Building" in the latter definition shall be
deleted and the word "Estate" substituted therefor
(d) "Estimated Building Expenditure" means for any Building Financial
Year such sum as the Management Company shall notify in writing
to the Tenant as a fair and reasonable estimate of the Building
Expenditure for such Building Financial Year after deducting any
anticipated Building Appropriation (as defined in Clause 9.3(a))
provided that the Management Company may from time to time during
any such Building Financial Year notify the Tenant and other
tenants and occupiers of the Building in writing of a revised
figure for the Estimated Building Expenditure
(e) "Estimated Car Park Expenditure" shall have the like meaning as
"Estimated Building Expenditure" save that the word "Building"
where it appears in the latter definition shall be deleted and
the words "Car Park" substituted therefor
(f) "Estimated Estate Expenditure" shall have the like meaning as
"Estimated Building Expenditure" save that the word "Building"
where it appears in the latter definition shall be deleted and
the word "Estate" substituted therefor
(g) "Hotel Use" means use as a hotel including uses within hotels of
banqueting rooms conference facilities and areas used for Retail
Use within hotels
(h) "Office Use" means use as an office and includes banking halls
and trading floors
(i) "Relevant Advance Payment" shall mean (as the case may require)
the aggregate of all Estate Payments on Account made in any
Estate Financial Year or the aggregate of all Car Park Payments
on Account made in any Car Park Financial Year or the aggregate
of all Building Payments on Account made in any Building
Financial Year
(j) "Relevant Estimated Expenditure" means all or any of the
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71
Estimated Estate Expenditure the Estimated Car Park Expenditure
and the Estimated Building Expenditure as the case may require
(k) "Relevant Expenditure" means the Estate Expenditure the Car Park
Expenditure or the Building Expenditure as the case may require
(l) "Relevant Financial Year" means the Estate Financial Year the Car
Park Financial Year or the Building Financial Year as the case
may require
(m) "Relevant Service Charge Accounts" means the accounts the
certificate and the statements referred to in Clause 9.3 for any
Relevant Financial Year
(n) "Relevant Service Charge Percentage" means:-
(A) in the case of the Building Expenditure (and the Estimated
Building Expenditure) the Building Service Charge
Percentage
(B) in the case of the Car Park Expenditure (and the Estimated
Car Park Expenditure) the Car Park Service Charge
Percentage and
(C) in the case of the Estate Expenditure (and the Estimated
Estate Expenditure) the Estate Service Charge Percentage
(o) "Relevant Surveyor" means the Estate Surveyor the Car Park
Surveyor or the Building Surveyor as the case may require
(bb) "Retail Use" means use for:-
(A) all types of retailing including hairdressers snackbars
travel agents funeral directors and showrooms
(B) banks building societies estate agents betting offices and
similar uses where the services are provided principally
to visiting members of the public
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72
(C) restaurants cafes public houses winebars and food take
aways
9.2 (a) The Tenant covenants with the Management Company to pay to the
Management Company:-
(A) the Relevant Service Charge Percentage (as indicated in
the last available Certificate by the Relevant Surveyor
issued pursuant to Clause 9.3 but subject to the
provisions of Clause 9.3(d) and Clause 9.4) of each of the
Relevant Estimated Expenditure in advance by equal
quarterly instalments on the Quarterly Days during each
Relevant Financial Year the first payment of each being a
proportionate sum in respect of the period from and
including 1st February 1995 to the next Quarterly Day to
be made on the date hereof and
(B) (if any of the Relevant Estimated Expenditure is revised
as contemplated above) within 14 days after receipt of
written demand the Relevant Service Charge Percentage of
the amount by which any such revised figure for the
Relevant Estimated Expenditure exceeds the figure
previously notified to the Tenant
(b) Each such payment made by the Tenant under Clause 9.2(a) is
referred to in this Lease as (in the case of the Estimated Estate
Expenditure) an "Estate Payment on Account" (in the case of the
Estimated Car Park Expenditure) a Car Park Payment on Account and
(in the case of the Estimated Building Expenditure) a Building
Payment on Account
9.3 The Management Company shall as soon as reasonably practicable after
the end of each Relevant Financial Year prepare and send to the
Tenant:-
(a) an account or accounts, each duly certified by the Accountant
showing the Estate Expenditure the Car Park Expenditure and the
Building Expenditure for each Relevant Financial Year and the
amount (if any) which the Management Company has chosen to
utilise from the Estate Reserve Fund the Car Park Reserve Fund or
the Building Reserve Fund as the case may be in defraying
respectively Estate Expenditure Car Park Expenditure or Building
Expenditure pursuant to
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73
Clause 9.7 (respectively "the Estate Appropriation", "the Car
Park Appropriation" and "the Building Appropriation") and
containing a fair summary of the various items comprising the
Relevant Expenditure
(b) a certificate or certificates by the Relevant Surveyor showing
the Relevant Surveyor's calculation of each Relevant Service
Charge Percentage for each Relevant Financial Year containing a
fair summary of how such percentage was calculated
(c) a statement or statements of each Relevant Service Charge
Percentage of each Relevant Expenditure for each Relevant
Financial Year after taking into account as the case may require
the Estate Appropriation the Car Park Appropriation or the
Building Appropriation and the same shall (save for obvious error
and subject to the provisions of sub-clause 9.3(d)) be conclusive
evidence for the purposes of this Lease of all matters of fact
referred to in each said account certificate and statement
(d) (i) Subject to the Tenant paying the reasonable and proper
costs of the Landlord and the Management Company
(including but not limited to the costs of security
supervision and assistance) the Tenant may in relation to
an account certificate or statement in respect of Estate
Expenditure or Building Expenditure or Car Park
Expenditure (as referred to in Clause 9.3(a)) within two
months of receiving such account certificate or statement
(time to be of the essence) by giving written notice to
the Landlord and the Management Company have access to and
to inspect the service charge books of account for (or the
electronic equivalent thereof) and all vouchers receipts
invoices and other documentation relevant to the
calculation of the relevant expenditure for that Relevant
Financial Year and the two immediately preceding Financial
Years for the purpose of inspection and verification
provided always that such right may not be exercised more
frequently than once in any period of three years
(ii) At any time within ninety (90) days after the Tenant has
access to inspect the books of account pursuant to
<PAGE> 130
74
paragraph (i) the Tenant may by notice to the Management
Company dispute that Relevant Service Charge Account on
the basis that any item of expenditure or part thereof has
been improperly included in such account and the Tenant
shall set out the reasons for the dispute in such notice
and the items in dispute provided that if the Tenant does
not give any such notice within the said period (as to
which time shall be of the essence) it shall be deemed to
have agreed the relevant Relevant Service Charge Account
(iii) In the event that the Tenant and the Management
Company are unable to agree upon the items
disputed by the Tenant in this notice under
Sub-clause (ii) then either of them may require
the dispute to be referred to an independent
expert (acting as such) who shall be a chartered
surveyor with not less than ten (10) years'
experience of managing substantial multi-tenanted
properties and who shall be appointed in default
of agreement on the application of either party by
the President for the time being of the Royal
Institution of Chartered Surveyors or his duly
appointed deputy and if such independent expert
shall be or become unable or unwilling to act the
referral procedure referred to in this clause may
be repeated as many times as may be necessary
provided that for the avoidance of doubt it is
agreed that the Management Company may require to
have included in the Relevant Service Charge
Account during the reference to the independent
expert any item of expenditure which may properly
be included in Relevant Expenditure for the year
in question but which had been inadvertently
omitted
(iv) The costs of any expert appointed shall be borne as he
shall direct Provided that in the event that the expert
determines that the Relevant Service Charge Percentage of
Relevant Expenditure in any disputed Relevant Service
Charge Account should be reduced by less than five per
cent. (5%) or should be increased the parties agree that
the costs of the expert are to be borne by the Tenant in
any event unless the Management Company
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75
shall have required the inclusion of any item pursuant to
the proviso in sub-clause (iii) above in which case the
costs of any expert shall be borne as he shall direct
(v) Notwithstanding any dispute that the Tenant shall pay the
amount demanded in respect of the Relevant Service Charge
Percentage of the Relevant Expenditure in the Relevant
Service Charge Account and in the event that the expert
determines the Relevant Service Charge Percentage of the
Relevant Expenditure to be a lower or higher sum than that
specified in the disputed Relevant Service Charge Account
then the Management Company shall forthwith issue a duly
corrected Relevant Service Charge Account and either the
Management Company shall refund within fourteen (14) days
of the issue of such corrected Relevant Service Charge
Account all service charges overpaid by the Tenant or the
Tenant shall within fourteen (14) days of receipt of the
corrected Relevant Service Charge Account pay the balance
due to the Management Company as the case may require
9.4 For the purposes of Clause 9.2 until such time as a certificate is
issued by the Relevant Surveyor pursuant to Clause 9.3 the Estate
Service Charge Percentage shall be [ %] the Car Park Service Charge
Percentage shall be [ %] and the Building Service Charge Percentage
shall be [ %]
9.5 (a) If the Relevant Service Charge Percentage of the Relevant
Expenditure for any Relevant Financial Year (after taking into
account as the case may require the Estate Appropriation the Car
Park Appropriation or the Building Appropriation) shall exceed
the Relevant Advance Payment for that Relevant Financial Year the
excess together with interest thereon at the Base Rate calculated
from and including as the case may require the Estate Computing
Date the Car Park Computing Date or the Building Computing Date
next following the end of that Relevant Financial Year until the
date of payment shall be paid by the Tenant to the Management
Company within 14 days of receipt by the Tenant of written demand
or
(b) If the Relevant Service Charge Percentage of the Relevant
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76
Expenditure for any Relevant Financial Year (after taking into
account as the case may require the Estate Appropriation the Car
Park Appropriation or the Building Appropriation) shall be less
than the Relevant Advance Payment for that Relevant Financial
Year the overpayment made by the Tenant together in each case
with interest thereon at the Base Rate calculated as aforesaid up
to the date when the next Relevant Advance Payment on Account is
due shall be credited to the Tenant against the next Estate
Payment on Account Car Park Payment on Account or Building
Payment on Account as the case may require
9.6 Any omission by the Management Company to include in Relevant
Expenditure in any Relevant Financial Year a sum expended in that
Relevant Financial Year shall not preclude the Management Company from
including such sum in Relevant Expenditure in any of the three
immediately subsequent Relevant Financial Years
9.7 (a) Each of the Estate Reserve Fund the Car Park Reserve Fund and the
Building Reserve Fund shall be held upon trust during the period
of eighty (80) years from the date of this Lease (which shall be
the perpetuity period applicable hereto) respectively for the
persons who from time to time shall be owners tenants or
occupiers of the Estate the Car Park or the Building and each
shall be held in a separately designated interest bearing bank
account (and the Landlord and/or the Management Company shall
notify the bank or procure that the bank is notified of such
trust) and the Landlord or the Management Company shall utilise
the same, with interest accruing thereon but after deducting tax
payable thereon and on such interest in defraying expenditure of
the nature referred to in Clause 9.1(b)(ii) (in the case of the
Building Reserve Fund) and in the corresponding paragraphs of the
definitions of Estate Expenditure and Car Park Expenditure (in
the case of the Estate Reserve Fund and Car Park Reserve Fund
respectively) and at the expiry of such perpetuity period the
sums standing to the credit of each of the Estate Reserve Fund
the Car Park Reserve Fund and the Building Reserve Fund and
unexpended shall be paid respectively to the persons who shall
then be the tenants of the Estate the Car Park or the Building in
shares equal to their respective Relevant Service Charge
Percentages the Management Company being
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77
entitled absolutely to any share payable in respect of:-
(i) any Lettable Area which is unlet at such time and
(ii) any Car Parking Spaces which are not allocated for use by
any persons at such time
(b) The Management Company shall procure that upon the service by the
Landlord of notice under Clause 8.6 (insofar as the same shall
relate to the Estate Services) the Estate Reserve Fund and
(insofar as the same shall relate to the Car Park Services) the
Car Park Reserve Fund and (insofar as the same shall relate to
the Building Services) the Building Reserve Fund (or in each case
so much thereof as remains after the defraying of such
expenditure as aforesaid) shall be transferred to the Landlord or
any other company nominated by the Landlord in such notice to be
held upon the relevant trusts referred to in this Clause 9.7 and
upon the terms herein mentioned
9.8 If at any time or times during the Term the Management Company
considers that circumstances have arisen making the Relevant Service
Charge Percentage or the formula for calculating the same on the basis
specified in Clause 9.1 unreasonable or inequitable the Management
Company may give written notice to the Tenant requiring a variation to
the Relevant Service Charge Percentage or the said formula which is
fair and reasonable in all the circumstances and in the event of there
being any dispute regarding such variation to the Relevant Service
Charge Percentage the matter shall be referred to a single Arbitrator
to be appointed in default of agreement upon the application of the
Management Company or the Tenant by or on behalf of the President for
the time being of the Royal Institution of Chartered Surveyors in
accordance with the provisions of the Arbitration Acts 1950 to 1979
9.9 The Management Company may in its reasonable discretion having regard
to the interests of good estate management discontinue withhold add to
commence extend vary or make any alterations to any of the Estate
Services the Car Park Services or the Building Services or any of the
items referred to in Part B of the Sixth and Seventh Schedules hereto
from time to time if the Management Company shall reasonably deem it
desirable to do so in the
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interests of (or for the comfort of) the owners and tenants on or for
the efficient management security and operation of the Estate the Car
Park or the Building (as the case may be) or for any other reason in
the interests of good estate management
9.10 The Tenant covenants with the Landlord and as a separate covenant with
the Management Company that the Tenant will pay within fourteen (14)
days of receipt by the Tenant of written demand such charge as may
reasonably be determined by the Management Company in respect of any
service (whether or not constituting an Estate Service a Car Park
Service or a Building Service) provided at the request of the Tenant to
or for the benefit of the Tenant (whether or not exclusively) at a time
or in circumstances when or in which such service would not have been
provided but for such request
9.11 The provisions of this Clause shall continue to apply notwithstanding
the expiration or sooner determination of the Term but only in respect
of the period down to such expiration or sooner determination the
Relevant Service Charge Percentage of the Relevant Expenditure payable
for that Relevant Financial Year being apportioned for the said period
on a daily basis
9.12 Notwithstanding the foregoing provisions of this Clause 9 in
calculating the Building Service Charge Percentage of the Estimated
Building Expenditure and the Building Service Charge Percentage of the
Building Expenditure the amounts payable by the Tenant shall until such
time as the Dedicated Lobby becomes part of the Common Parts of the
Building be adjusted to the intent that the Tenant shall pay the whole
of such Building Expenditure incurred by the Landlord and/or the
Management Company and properly attributable to the Dedicated Lobby and
the Dedicated Lifts and no part of such Building Expenditure
attributable to the entrance lobby at the eastern side of the Building
and the passenger lifts lift shafts and plant apparatus and equipment
relating thereto in the eastern core of the Building
9.13 Not withstanding the foregoing provisions of this Clause 9 in
calculating the Building Service Charge Percentage of the Estimated
Building Expenditure and the Building Service Charge Percentage of the
Building Expenditure the amounts payable by the Tenant shall be
adjusted to the intent that the Tenant shall
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pay the whole of such Building Expenditure incurred by the Landlord
and/or the Management Company and properly attributable to the Tanks
10. OPTION TO TERMINATE
10.1 If the Tenant desires to determine the Term on or after the expiration
of the fifteenth year of the Term it may give to the Landlord (time to
be of the essence) not less than 12 months and 1 day prior written
notice of such desire expiring on the later of the date of expiration
of the fifteenth year of the Term and the date on which any underlease
of the Demised Premises expires or is determined (provided always that
if there shall be more than one underlease of a Permitted Part then
such date shall be the latest date on which any such underlease shall
determine or expire so that for the avoidance of doubt the Tenant shall
be obliged to give vacant possession of the Demised Premises) and
thereupon the Term shall cease but without prejudice to any rights and
remedies which any party may have against any other in respect of any
antecedent breach of any of the covenants or conditions in this Lease
10.2 (a) If the Tenant shall desire to surrender and determine the Term
insofar as it relates to any one or more (but less than six)
whole consecutive and contiguous floors (commencing either with
the first floor or the sixth floor) of that part of the Demised
Premises shown edged red on all or any of plans 3 4 5 6 7 and 8
on or after the expiration of the fifteenth year of the Term it
may give to the Landlord (time to be of the essence) not less
than 12 months and 1 day prior written notice of such desire
expiring on the later of the expiration of the fifteenth year of
the Term and the date on which any underlease of any Permitted
Part being an underlease of some or all of the premises which are
the subject of the notice requiring to surrender and determine
(provided always that if there shall be more than one such
underlease affecting the premises to which the notice to
surrender and determine relates then such date shall be the
latest date on which any such underlease shall determine or
expire so that for the avoidance of doubt the Tenant shall be
obliged to give vacant possession of the part or parts of the
Demised Premises which are the subject of such notice) and
thereupon the Term insofar as it extends to that part of
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the Demised Premises which is the subject of such notice shall
thereupon be surrendered and determined but without prejudice to
any rights and remedies which any party may have against any
other in respect of any antecedent breach of any of the covenants
or conditions in this Lease
(b) The parties hereto hereby agree that following such surrender and
determination as to part a memorandum in such form as the
Landlord shall reasonably require indicating the extent and
specifying the Net Internal Area of the Demised Premises so
determined shall be signed by the parties and annexed to the
Lease and any counterparts thereof
(c) If the Tenant surrenders and determines this Lease in relation to
part of the Demised Premises pursuant to Clause 10.2(a) the
Tenant may and shall if requested by the Landlord remove that
part of the Staircase (if any) serving the part of the Demised
Premises surrendered and determined and shall make good and
reinstate to the reasonable satisfaction of the Landlord all
areas affected by such works
10.3 Following a surrender of part of the Demised Premises pursuant to
Clause 10.2 the Dedicated Lobby shall become one of the Common Parts of
the Building and henceforth shall be treated as such for the purposes
of this Lease but nonetheless after the date of such surrender the
Tenant shall be entitled to retain within the Dedicated Lobby such
security reception or other desk and such other reception facilities as
it shall require
11. LANDLORD'S FURTHER PAYMENT
11.1 If this Lease is not determined pursuant to Clause 10.1 the following
provisions of this clause shall apply
11.2 In this Clause 11 the expression "relevant part of the Demised
Premises" means such part of the Demised Premises as will remain the
subject of this Lease after determination pursuant to Clause 10.2 and
if no notice pursuant to Clause 10.2 is served shall for the avoidance
of doubt mean the whole of the Demised Premises
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81
11.3 On or after the expiration of the fifteenth year of the Term the
Landlord will pay to the Tenant in a sum equal to (pound)10 (inclusive
of Value Added Tax) for each square foot of Net Internal Area of the
relevant part of the ("the Landlord's Contribution") Demised Premises
such payment subject to clause 11.3.3 to be made in respect of any
renewal or replacement of works carried out by the Tenant by way of
refurbishment or re-fitting out of the relevant part of the Demised
Premises and such payments shall be made in accordance with the
following provisions:-
11.3.1
the Landlord shall disburse sums on account (a
"Disbursement") to the Tenant from time to time within ten
Working Days after receipt of a written request for a
Disbursement from the Tenant (such request setting forth
in reasonable detail the Costs (in this Clause 11 meaning
all costs and expenses which are properly referable to the
refurbishment or refitting works) incurred by the Tenant
which have not been the subject of a previous disbursement
by the Landlord and the relevant works which have been
incorporated into the Demised Premises) such request being
accompanied by a certificate from the Tenant's architect
(or other appropriate duly authorised professional
adviser) confirming that the amount so specified in the
request has been incurred
11.3.2
any such Disbursement by the Landlord shall not be
required to be made more frequently than every 10 Working
Days and save as provided in Clause 11.3.3 below shall not
exceed the sums incurred by the Tenant towards the
relevant Costs
11.3.3
within ten Working Days following the date of completion
of the refurbishment or refitting works which date shall
be certified in writing by the Tenant any necessary final
adjusting payment shall be made by the Landlord to the
Tenant or vice versa (as the case may be) in respect of
any under-payment or over-payment of the Landlord's
Contribution so that the Landlord's Contribution is paid
to the Tenant in full
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82
notwithstanding that amounts equal to the Landlord's
Contribution have not been spent on refurbishment and
refitting works provided that the amounts so spent are not
materially less than the Landlord's Contribution
12. SERVICE CHARGE DEED
12.1 If at any time during the Term the Tenant shall so require by service
of written notice on the Management Company the Management Company
shall within fourteen (14) days of service of that notice enter into
and complete a Service Charge Deed with such sub-tenants of the Tenant
as the Tenant shall reasonably and properly require and who shall be
named in the notice served by the Tenant subject to that person
executing a counterpart of the deed and delivering such counterpart to
the Management Company
12.2 Where the number of Service Charge Deeds in existence at any one time
exceeds five the Tenant shall pay all reasonable and proper costs
incurred by the Management Company in connection with the
implementation of each and every Service Charge Deed in excess of that
number
12.3 The obligations of the Tenant under clause 9 and the provisions of
clause 8.1 shall not be affected and shall continue to have effect
notwithstanding the completion of a Service Charge Deed save that the
Landlord and the Management Company shall not take any steps towards
proceeding against the Tenant in respect of any part of the Relevant
Service Charge Percentage of the Relevant Expenditure payable under
that Service Charge Deed until the expiry of twenty-eight (28) days
from the relevant Quarterly Day or (as the case may be) the date of
service of the first demand on the person in whose favour the Service
Charge Deed has been granted for payment of it
12.4 The Landlord or the Management Company shall accept payment by a person
referred to in 12.1 above of any sums due under its Service Charge Deed
in satisfaction pro tanto of the corresponding amount payable by the
Tenant under clause 9 of this Lease
12.5 Upon the nomination of another company or companies to undertake or
exercise all or any of the obligations rights and discretions
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83
of the Management Company contained in this Lease pursuant to clause
8.6 of this Lease the Landlord shall ensure that such company or
companies shall forthwith enter into a Service Charge Deed with any
person who at the date of such nomination was a party to a valid and
subsisting Service Charge Deed
12.6 Notwithstanding completion of a Service Charge Deed the Management
Company shall serve a copy of all Relevant Service Charge Accounts
certificates statements and other notices on the Tenant at the same
time as service of the Relevant Service Charge Account certificates
statements and notices on any person who is a party to a Service Charge
Deed
12.7 If during a Relevant Financial Year a Service Charge Deed expires or is
determined then the Landlord or the Management Company shall in the
Relevant Service Charge Account for the Demised Premises apportion the
Relevant Service Charge Percentage of the Relevant Expenditure for the
period prior to and the period after such expiry or determination and
the person who was a party to the Service Charge Deed shall be
responsible for the Relevant Service Charge Percentage of the Relevant
Expenditure for any period prior to such expiry or determination (after
deduction of the Relevant Advance Payment for that period) and the
Tenant shall be responsible for the Relevant Service Charge Percentage
of the Relevant Expenditure for any period after such expiry or
determination (after deduction of the Relevant Advance Payment for that
period) but nothing in this clause shall affect the provisions of
clause 12.3
IN WITNESS whereof this Lease has been executed by the parties as a Deed and
delivered on the day and year first above written
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FIRST SCHEDULE
RIGHTS GRANTED
1. ESTATE COMMON PARTS
The right for the Tenant and all persons expressly or by implication
authorised by the Tenant (in common with the Landlord and the Management Company
and all other persons having a like right) at all times and for all proper
purposes:-
(a) to pass and repass with or without vehicles over and along all roads
accesses egresses and pavements from time to time comprised in the
Estate Common Parts and intended for vehicular access
(b) to pass and repass on foot only over and along such areas as are from
time to time comprised in the Estate Common Parts and intended for
pedestrian access
(c) to use such parts of the Estate Common Parts as are not referred to in
sub-paragraphs (a) and (b) above
until such time (if any) as any of the same are adopted by the highway or other
relevant authority
Provided that the Landlord may in accordance with principles of good
estate management having regard to the nature and extent of the estate add to
extend vary or stop-up any of the same from time to time provided that (i) in
the case of sub-paragraphs (a) and (b) above alternative means of access to the
Demised Premises are available ensuring the continuance of access to and use and
occupation of the Demised Premises and (ii) in the case of sub-paragraph (c)
above so that the Tenant's use and occupation of the Demised Premises is not
thereby materially adversely affected
2. PIPES
The right to the free passage and running of water sewage surface water
drainage gas electricity telecommunication and other services or supplies to and
from the Demised Premises (subject to the Tenant not overloading or damaging the
same) in and through the Pipes in the Building or any Adjoining Property serving
the Demised Premises
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85
in common with the Landlord and all other persons having the like right PROVIDED
ALWAYS that the Landlord may vary the route or alter all or any such services or
supplies from time to time and the rights hereby granted shall thereupon apply
to such services and supplies as varied or altered subject to any such variation
of the route or alteration of the services or supplies not materially adversely
affecting the Demised Premises subject to the Landlord endeavouring to minimise
any disruption caused thereby and endeavouring to ensure that so far as shall be
reasonably possible no interruption in such services or supplies shall result
3. COMMON PARTS OF THE BUILDING
The right for the Tenant and all persons expressly or by implication
authorised by the Tenant (in common with the Landlord and the Management Company
and all persons having a like right):-
(a) to use for pedestrian access and egress such of the Common Parts of the
Building as shall be necessary for the use and enjoyment of the Demised
Premises for all proper purposes and
(b) to the exclusive use of the Dedicated Lifts (but upon the Dedicated
Lifts ceasing to be Dedicated Lifts to the use of such passenger lifts
in the Building as shall from time to time be designated for the
Tenant's use) for the purpose only of obtaining access to and egress
from the Demised Premises and
(c) to use such of the lavatories in the Building as shall from time to
time be designated for the Tenant's use
(d) to use any delivery area loading bay and goods lifts designated from
time to time for the Tenant's use for the purpose only of vehicular
access and egress for delivery in and out and loading and unloading of
goods and equipment and not for any other purposes
Provided always that until such time as the Dedicated Lobby forms part
of the Common Parts of the Building the Tenant shall have no right to use the
east side entrance lobby area and lifts
4. ENTRY TO OTHER PARTS OF THE BUILDING
The right (subject to the provisions of Clauses 4.18 and 4.19)
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86
for the Tenant and all other persons authorised by the Tenant in common with the
Landlord and the Management Company and all others having the like rights and
easements at all reasonable times to enter parts of the Building at all
reasonable times in order to carry out works of repair or alteration to the
Demised Premises or the Pipes serving the same on the following conditions:-
(a) the Tenant shall except in case of emergency give reasonable prior
written notice to the Landlord and the occupiers (if any) of such
adjoining premises of its intention to exercise such right
(b) the Tenant shall only exercise such rights insofar as it cannot
reasonably carry out such works of repair and alteration from within
the Demised Premises and
(c) the Tenant shall cause as little inconvenience and damage as reasonably
possible and shall without delay make good all damage thereby
occasioned to such adjoining premises or any other part of the Building
5. SUPPORT
The right of support and protection for the benefit of the Demised
Premises from any other part of the Building as now enjoyed
6. CAR PARKING
The right for the Tenant and all persons expressly or impliedly
authorised by the Tenant at all times to park:-
6.1 Fifty One (51) private motor cars within the car parking area comprised
within the Building and which shall be designated by the Landlord in
accordance with clause 6.5 and
6.2 Twenty Five (25) private motor cars within the Car Park in Cabot Square
7. LIST OF TENANT'S NAMES
The right for the Tenant and its lawful undertenants within the Demised
Premises to have their respective names and the premises occupied by them
displayed in such manner and in such location as the
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87
Tenant shall from time to time reasonably require in the main entrance hall of
the Building
8. AFFIXING OF ITEMS TO THE STRUCTURE OF THE BUILDING
The right (subject to the provisions of Clauses 4.18 and 4.19) for the
Tenant and all persons authorised by the Tenant to affix to the walls columns or
structural slabs enclosing the Demised Premises such items as will not impair
the structural integrity of such walls columns or slabs
9. RIGHTS EXERCISABLE OVER PRIVATE ROADS ON THE ISLE OF DOGS
The right for the Tenant and all persons authorised by the Tenant (in
common with the Landlord and the Management Company and all other persons having
a like right) to exercise the rights of way contained in paragraph 1 of Schedule
1 to the Transfer dated 17th July 1987 referred to in the Fifth Schedule subject
to the provisions therein contained
10. MECHANICAL SPACE
The right for the Tenant its undertenants and those authorised by it to
use the Mechanical Space Area solely for the installation use and maintenance of
such mechanical electrical and other systems as the Tenant may require together
with all necessary rights of access to such area through such parts of the
remainder of the Building as the Landlord may reasonably specify
11. RIGHTS TO USE STAIRCASE IN ATRIUM
Subject to the design and specification thereof being approved by the
Landlord (such approval not to be unreasonably withheld or delayed) a right to
construct and thereafter the exclusive right to use the staircase within the
Atrium between the third floor and the sixth floor of the Demised Premises
12. RIGHTS TO USE DEDICATED LOBBY
The exclusive right to use on foot only the Dedicated Lobby for the
purpose only of access to and egress from the Demised Premises and for any other
reasonable purpose connected to the Tenant's use and occupation of the Demised
Premises including for the avoidance of
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88
doubt the right to display its name and business in such form as it shall
require and the right to retain security and reception facilities therein
13. ATRIUM
The exclusive right to use the Atrium at any time for any reasonable
purposes provided that in so doing the Tenant does not cause any disturbance
interruption or inconvenience to other occupiers of the Building and provided
that (by way of example and not limitation) the Atrium shall not be used for the
purposes of storage placement of plant and equipment or installations therefor
or for offices
14. TANKS
The exclusive right to use the Tanks solely for the purposes of the
storage of diesel fuel together with the full and free right to inspect the
Tanks at all reasonable times and full and free right of access thereto at all
reasonable times and causing as little damage and inconvenience as reasonably
possible
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SECOND SCHEDULE
EXCEPTIONS AND RESERVATIONS
The following rights and easements are excepted and reserved out of the
Demised Premises to the Landlord and the Superior Landlord and all other persons
authorised by either of them or having the like rights and easements:-
1. PIPES
The right to the free passage and running of water sewage surface water
drainage gas electricity telecommunications and other services or supplies to
and from the Building or any Adjoining Property in and through any of the Pipes
which may at any time be in under or passing through or over the Demised
Premises
2. ENTRY
The right at all reasonable times upon reasonable prior notice except
in cases of emergency to enter the Demised Premises the Staircase (if any) and
the Dedicated Lobby in order to:-
(a) inspect cleanse maintain repair connect to remove lay renew relay
replace alter or execute any works to or in connection with the Pipes
and any other services in or accessible from the Demised Premises
(b) execute repairs decorations alterations and any other works to the
Building or any Adjoining Property or to do anything which the Landlord
or the Management Company may do under this Lease
(c) carry out the Estate Services and to carry out the Building Services
PROVIDED THAT the person exercising the foregoing rights shall cause as little
inconvenience or damage as reasonably possible and shall make good without delay
any damage thereby caused to the Demised Premises and provided further that the
Landlord or the person exercising the foregoing rights shall only do so in so
far as it or they cannot reasonably carry out such works from outside the
Demised Premises
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3. SCAFFOLDING
The right to erect scaffolding for the purposes of repairing or
cleaning the Building and any buildings now or hereafter erected on the Estate
or in connection with the exercise of any of the rights mentioned in this
Schedule provided that such scaffolding does not prevent the Tenant's means of
access to the Demised Premises
4. LIGHT AND AIR ETC.
The rights of light air and all other easements and rights now or
hereafter enjoyed by other parts of the Building or the Adjoining Property
5. SUPPORT
The right of support protection and shelter now or hereafter for the
benefit of other parts of the Building from the Demised Premises
6. FIRE ESCAPES
The right to enter the Demised Premises (in times of emergency or
during fire drills) for the purpose of obtaining access to or using any of the
routes of escape in the Building from time to time
7. BUILDING ON THE ADJOINING PROPERTY
The right at any time to build on or execute any works to the Building
or any Adjoining Property or any buildings thereon in such manner as the person
exercising the right shall reasonably think fit notwithstanding the fact that
the same may obstruct affect or interfere with the amenity of the Demised
Premises or the passage of light and air to the Demised Premises
8. ALTERATION OF COMMON PARTS
The right to extend vary or stop-up the Estate Common Parts or the
Common Parts of the Building or any part or parts thereof from time to time if
the Landlord shall reasonably deem it desirable for the efficient management
security and operation of the Estate or the Building or for the comfort of the
owners and tenants on the Estate (but not so that the Tenant's use and
occupation of the Demised Premises is thereby materially adversely affected)
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9. USE OF ESTATE COMMON PARTS AND COMMON PARTS OF THE BUILDING
The right to regulate and control the use of the Estate Common Parts
and the Common Parts of the Building and to make reasonable Regulations for that
purpose
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92
THIRD SCHEDULE
RENT REVIEWS
1. DEFINITIONS
In this Schedule the following expressions shall have the following
meanings:-
1.1 "Review Date" means each of the Review Dates specified in the
Particulars and "Relevant Review Date" shall be construed accordingly
1.2 "Adjusted Open Market Rent" means the amount calculated in accordance
with the following formula:
A = B + (C x D x E)
Where:
A = the Adjusted Open Market Rent
B = the Open Market Rent
C =
the Open Market Rent divided by the Net Internal Area of
the Assumed Premises expressed in square feet (being
325,704 square feet)
D =
the Net Internal Area of the Ground Floor Area expressed
in square feet (being [ ] square feet)
E = 25
----
100
1.3 "Assumed Premises" means the first second third fourth fifth and sixth
floors of the Demised Premises or such of those floors as on the
Relevant Review Date continue to be demised by this Lease on the
assumption that:-
(a) such floors of the Demised Premises have been constructed and
fitted out by the Landlord at its own cost in accordance
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93
with the drawings and specification annexed hereto entitled
"Minimum Standard Developer's Finish for Tenant Work" as altered
from time to time by alterations carried out by and at the
expense of the Landlord and improvements and alterations carried
out by the Tenant pursuant to an obligation to the Landlord
(b) the Tenant's Works have not been carried out
(c) the Tenant has removed all tenant's fixtures and fittings (making
good any damage caused to those floors of the Demised Premises in
so doing) and has left those floors of the Demised Premises
(constructed and fitted out as aforesaid) as clear space
1.4 "Open Market Rent" means (subject to paragraph 4 below) the yearly rack
rent at which the Assumed Premises could be expected to be let as a
whole at the Relevant Review Date by a willing landlord to a willing
tenant with vacant possession and without any premium or any
consideration other than rent for the grant thereof for a term of years
equal to the unexpired residue of the term demised by this Lease (but
not being less than 15 years) and with five yearly open market rent
reviews and otherwise on the terms and conditions and subject to the
covenants and provisions contained in this Lease other than (i) the
amount of the Rent payable hereunder (ii) the provisions of Clause
4.20(c)(i) and (n) and subject to the provisions for the review of the
Rent contained in this Schedule other than paragraph 1.10 1.11 1.12
1.13 1.14 paragraph 2 and the proviso to paragraph 4 which shall be
deemed to be deleted and making the Assumptions but disregarding the
Disregarded Matters
1.5 "the Assumptions" means the following assumptions (if not facts) at the
Relevant Review Date:-
(a) that the Assumed Premises are fit for immediate occupation and
use by any such willing tenant
(b) that no work has been carried out to the Assumed Premises by the
Tenant any undertenant or their respective predecessors in title
during the Term which has affected the rental value of the
Assumed Premises
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94
(c) that if the Assumed Premises or the Building have been destroyed
or damaged they have been fully rebuilt and reinstated
(d) that the Assumed Premises comply with all statutory and
regulatory requirements
(e) that all the covenants contained in this Lease on the part of the
Tenant have been fully performed and observed
(f) that any rent free period or period during which the rent is not
payable at the full rate or any other equivalent inducement
(whether by means of a capital payment or otherwise) which it
would be customary to grant to an ingoing tenant of premises
comparable to the Assumed Premises at the Relevant Review Date
for the purposes of fitting out only has been granted and has
expired (or the full benefit of which has been enjoyed) prior to
the Relevant Review Date
1.6 "the Disregarded Matters" means:-
(a) any effect on rent of the fact that the Tenant any undertenant or
their respective predecessors in title have been in occupation of
the Building or any part thereof
(b) any goodwill attached to the Demised Premises by reason of the
business then carried on at the Demised Premises by the Tenant
or any permitted undertenant
(c) any increase in rental value of the Assumed Premises attributable
to the existence at the Relevant Review Date of any improvement
to the Demised Premises or any part thereof carried out after the
date of this Lease otherwise than in pursuance of an obligation
to the Landlord or its predecessors in title
1.7 "Surveyor" means an independent chartered surveyor of not less than ten
(10) years' standing who is experienced in the valuation of property
similar to the Demised Premises and is acquainted with the market in
the area bounded by the M25 orbital motorway appointed from time to
time to determine the
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Open Market Rent pursuant to the provisions of this Schedule and the
Surveyor shall act as an arbitrator in accordance with the Arbitration
Acts 1950-1979
1.8 "the President" means the President for the time being of the Royal
Institution of Chartered Surveyors and includes the duly appointed
deputy of the President or any person authorised by the President to
make appointments on his behalf
1.9 "Rent Restrictions" means the restrictions imposed by any statute for
the control of rent in force on a Review Date or on the date on which
any increased rent is ascertained in accordance with this Schedule and
which operate to impose any limitation whether in time or amounts on
the assessment or the collection of any increase in rent or any part
thereof
1.10 "Base Index Date" means 1st February 2000
1.11 "Index" means the Retail Price Index (all items) published by the
Central Statistical Office of the Department of the Environment
contained in the monthly Digest of Statistics (or contained in any
official publication substituted therefor) or such other index as may
from time to time be published in substitution therefor or as may be
determined in accordance with the provisions of paragraphs 2.5 and 2.6
of this Third Schedule
1.12 "Index Review Date" means 1st February 2001 and each anniversary of
that date up to and including 1st February 2004
1.13 "Index Review Figure" means the figure first published or otherwise
agreed or determined in respect of the index for the month in which the
relevant Index Review Date shall occur
1.14 "Starting Index Figure" means the figure published in the index for the
month in which the Base Index Date falls
2. THE INDEXED RENT
2.1 From and including 1st February 2000 up to and including 31st January
2005 the Rent shall be calculated in accordance with the provisions of
this paragraph 2
2.2 The Rent for the year commencing 1st February 2000 shall be a
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sum in pounds sterling calculated as follows:-
24 pounds sterling x the Net Internal Area of the Assumed Premises
being 325,704 square feet plus 6 pounds sterling x the Net Internal
Area of the Ground Floor Area being [ ] square feet
2.3 The Rent for each subsequent year up to and including the year
commencing on 1st February 2004 shall be the greater of the Rent
payable in the year immediately prior to the relevant year and a sum in
pounds sterling calculated as follows:-
B
A x -
C
Where:-
A = the Rent as calculated in accordance with the provisions
of paragraph 2.2 of this Third Schedule
B = the Index Review Figure for the relevant Index Review
Date and
C = the Starting Index Figure
2.4 Until the Index Review Figure in respect of the relevant Index Review
Date is first published or otherwise agreed or determined the Tenant
shall continue to pay the Rent at the yearly rate payable for the year
immediately preceding the relevant Index Review Date and within seven
(7) days of service of written demand after the publication agreement
or determination of the said Index Review Figure as aforesaid ("the
Index Ascertainment Date") any additional amount of Rent for the period
commencing on the relevant Index Review Date and ending on the
Quarterly Day immediately following the Index Ascertainment Date shall
be paid by the Tenant to the Landlord together with interest at the
Base Rate from the date 7 days after service of written demand to the
Index Ascertainment Date
2.5.1 If there shall be any change in the base figure by
reference to which changes in the Index are calculated
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the figure taken to be shown in the Index after such
change shall be the figure which would have been shown in
the Index if the said base figure had been retained and
the appropriate reconciliation shall be made but if for
any reason the Index shall be otherwise altered or shall
be abolished or replaced there shall be substituted for
the purposes of this paragraph 2 of this Third Schedule
such similar index of retail price costs (including the
altered Retail Price Index) as may from time to time be
published by or under the authority of any Ministry or
Department of Her Majesty's Government and if no such
index is published or if such substitute index shall not
provide a reasonably accurate appropriate substitute index
for the purposes of this clause there shall be substituted
therefor such index or comparable method of calculating
the Rent as the parties may agree or failing such
agreement to be determined by an independent person (the
"Independent Person") who shall be a member of the
Institute of Chartered Accountants in England and Wales
appointed by the President for the time being of the
Institute of Chartered Accountants in England and Wales
upon the application of either party
2.5.2 The Independent Person shall act as an expert and the
following provisions shall have effect:-
(a) the Independent Person shall consider (inter alia)
any written representations made on behalf of any
party (if made reasonably promptly) but shall not
be bound thereby
(b) the parties hereto shall use all reasonable
endeavours to procure that the Independent Person
shall give his decision as speedily as possible
(c) the costs of appointing the Independent Person and
his costs and disbursements in connection with his
duties under this paragraph 2 of this Third
Schedule shall be shared between the parties to
the dispute in such proportions as the Independent
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Person shall determine or in the absence of such
determination then equally between the parties and
(d) if the Independent Person shall be or become
unable or unwilling to act then the procedure
hereinbefore contained for the appointment of an
expert may be repeated as often as necessary until
a decision is obtained
2.6 If any substitution for the said Retail Price Index or any index
previously substituted therefor shall occur pursuant to the provisions
of this sub-clause 2.6 the parties hereto shall endeavour to agree the
appropriate reconciliation between the index substituted on one hand
and the Retail Price Index or any index previously substituted therefor
on the other hand and any dispute or difference between the parties
hereto in relation to such matters shall be determined by the
independent person pursuant to Clause 2.5.2
3. THE RENT
From and including the Second Review Date and each Review Date
thereafter the Rent shall be equal to the higher of (i) the Rent contractually
payable immediately before the Relevant Review Date (or the Rent which would be
payable but for any abatement or suspension of Rent under this Lease) and (ii)
the Adjusted Open Market Rent (provided always that if the Adjusted Open Market
Rent cannot for any reason be ascertained pursuant to paragraph 4 below the Rent
shall be as set out in (i) of this paragraph 3
4. AGREEMENT OR DETERMINATION OF THE ADJUSTED OPEN MARKET RENT
The Open Market Rent at the Second Review Date and each Review Date
thereafter may be agreed in writing at any time between the Landlord and the
Tenant but if for any reason the Landlord and the Tenant have not so agreed then
from a date three (3) months prior to the Review Date up to the next succeeding
Review Date either the Landlord or the Tenant may by notice in writing to the
other require the Open Market Rent to be determined by the Surveyor (provided
always that the provisions of Clause 2 shall apply in respect of the First
Review Date)
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5. APPOINTMENT OF SURVEYOR
The Surveyor (in default of agreement between the Landlord and the
Tenant) shall be appointed by the President on the written application of either
the Landlord or the Tenant made not earlier than six months before the Relevant
Review Date and not later than the next succeeding Review Date
6. FUNCTIONS OF THE SURVEYOR
(a) The Surveyor shall invite the Landlord and the Tenant to submit to him
within such time limits (being not less than fifteen (15) and not more
than thirty (30) days) as he shall consider appropriate a valuation
accompanied if desired by a statement of reasons and such
representations and cross representations as to the amount of the Open
Market Rent with such supporting evidence as he may wish
(b) Within sixty (60) days of appointment or if he is unable to do so
within such period as soon as reasonably practicable the Surveyor shall
give to each of the Landlord and the Tenant written notice of the
amount of the Open Market Rent as determined by him which amount shall
be the Open Market Rent
7. FEES OF SURVEYOR
The fees and expenses of the Surveyor including the cost of his
nomination shall be payable by the Landlord and the Tenant in such proportions
as the Surveyor shall at his discretion direct or in the absence of such a
direction in equal shares
8. APPOINTMENT OF NEW SURVEYOR
If the Surveyor (acting as an expert) fails to give notice of his
determination within eighty (80) days of his appointment or if he dies is
unwilling to act or becomes incapable of acting or if for any other reason he is
unable to act then either the Landlord or the Tenant may request the President
to discharge the said Surveyor and appoint another surveyor in his place which
procedure may be repeated as many times as necessary
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9. INTERIM PAYMENTS PENDING DETERMINATION
(a) In the event that by the Relevant Review Date the Rent has not been
agreed or determined as aforesaid (the date of agreement or
determination being herein called "the Determination Date") then in
respect of the period (herein called "the Interim Period") beginning
with the Relevant Review Date and ending on the day before the
Quarterly Day following the Determination Date the Tenant shall pay to
the Landlord Rent at the yearly rate payable immediately before the
Relevant Review Date
(b) As soon as reasonably possible following the Determination Date the
Tenant shall pay to the Landlord the amount (if any) by which the Rent
paid on account by the Tenant under the provisions of paragraph 9(a)
above paid by the Tenant in respect of the Interim Period falls short
of the aggregate of Rent payable in respect of the Interim Period
together with interest on such shortfall (compounded with monthly
rests) at the Base Rate from the date of each relevant under payment to
the date of payment
10. RENT RESTRICTIONS
On each occasion that Rent Restrictions shall prevent or prohibit
either wholly or partially:-
(a) the operation of the above provisions for review of the Rent or
(b) the normal collection and retention by the Landlord of any increase in
the Rent or any instalment or part thereof
THEN in each such case:-
(i) the operation of such provisions for review of the Rent
shall be postponed to take effect on the first date or
dates thereafter upon which such operation may occur
(ii) the collection of any increase or increases in the Rent
shall be postponed to take effect on the first date or
dates thereafter that such increase or increases may be
collected and/or retained in whole or in part and on as
many occasions as shall be required to ensure the
collection of the whole increase
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AND until the Rent Restrictions shall be relaxed either partially or
wholly the Rent shall be the maximum sum from time to time permitted by
the Rent Restrictions
11. MEMORANDA OF REVIEWED RENT
As soon as the amount of any reviewed Rent has been agreed or
determined memoranda thereof shall be prepared by the Landlord or its solicitors
and thereupon shall be signed by or on behalf of the Landlord and the Tenant and
annexed to this Lease and the counterpart thereof and the parties shall bear
their own costs in respect thereof
12. TIME NOT OF THE ESSENCE
For the purpose of this Schedule time shall not be of the essence
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FOURTH SCHEDULE
COVENANTS BY THE SURETY
1. INDEMNITY BY SURETY
The Surety hereby covenants with the Landlord (and as a separate
covenant with the Management Company in relation only to payment of the sums due
under clause 9) as a primary obligation that the Tenant or the Surety shall
subject to the provisions of clause 8.17 at all times during the Term duly
perform and observe all the covenants on the part of the Tenant contained in
this Lease including the payment of the rents hereby reserved and all other sums
payable under this Lease in the manner and at the times herein specified and the
Surety shall indemnify and keep indemnified the Landlord and the Management
Company against all proper claims demands losses damages liability costs fees
and expenses whatsoever sustained by the Landlord or the Management Company by
reason of or arising directly or indirectly out of any default by the Tenant in
the performance and observance of any of its obligations or the payment of any
rents and other sums
2. SURETY JOINTLY AND SEVERALLY LIABLE WITH TENANT
(i) The Surety hereby further covenants with the Landlord and as a separate
covenant with the Management Company (in relation only to payment of
the sums due under Clause 9) that the Surety is jointly and severally
liable with the Tenant (whether before or after any disclaimer by a
liquidator or trustee in bankruptcy) for the fulfilment of all the
obligations of the Tenant under this Lease and agrees that the Landlord
or the Management Company in the enforcement of its rights hereunder
may proceed against the Surety as if the Surety was named as the Tenant
in this Lease
(ii) Notwithstanding the provisions of paragraph (i) above the Landlord
and/or the Management Company shall not take any steps to proceed
against the Surety in respect of sums due under this Lease unless such
sums are not paid within 28 days of becoming due or in respect of any
other breach unless that breach has not been remedied as soon as
reasonably possible pursuant to Clause 4
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3. WAIVER BY SURETY
Subject to paragraph 2(ii) above the Surety hereby waives any right to
require the Landlord or the Management Company to proceed against the Tenant or
to pursue any other remedy whatsoever which may be available to the Landlord or
the Management Company before proceeding against the Surety
4. POSTPONEMENT OF CLAIMS BY SURETY AGAINST TENANT
The Surety hereby further covenants with the Landlord and as a separate
covenant with the Management Company that the Surety shall during any period in
which the Tenant is in breach of this Lease not claim in any liquidation
bankruptcy composition or arrangement of the Tenant (here meaning Morgan Stanley
UK Group) in competition with the Landlord or the Management Company and shall
during any period in which the Tenant is in breach of this Lease remit to the
Landlord the proceeds of all judgments and all distributions it may receive from
any liquidator trustee in bankruptcy or supervisor of the Tenant (here meaning
Morgan Stanley UK Group) and shall hold for the benefit of the Landlord and the
Management Company all security and rights the Surety may have over assets of
the Tenant whilst any liabilities of the Tenant or the Surety to the Landlord or
the Management Company remain outstanding
5. POSTPONEMENT OF PARTICIPATION BY SURETY IN SECURITY
The Surety shall not be entitled to participate in any security held by
the Landlord or the Management Company in respect of the Tenant's obligations to
the Landlord or the Management Company under this Lease or to stand in the place
of the Landlord or the Management Company in respect of any such security until
all the obligations of the Tenant or the Surety to the Landlord and the
Management Company under this Lease have been performed or discharged
6. NO RELEASE OF SURETY
None of the following or any combination thereof shall release
discharge or in any way lessen or affect the liability of the Surety under this
Lease:-
(a) any neglect delay or forbearance of the Landlord or the Management
Company in endeavouring to obtain payment of the
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rents or other amounts required to be paid by the Tenant or in
enforcing the performance or observance of any of the obligations of
the Tenant under this Lease
(b) any refusal by the Landlord or the Management Company to accept rent
tendered by or on behalf of the Tenant at a time when the Landlord was
entitled (or would after the service of a notice under Section 146 of
the Law of Property Act 1925 have been entitled) to re-enter the
Demised Premises
(c) any extension of time given by the Landlord or the Management Company
to the Tenant
(d) any change in the identity constitution structure or powers of any of
the Tenant the Surety the Landlord or the Management Company or the
liquidation administration or bankruptcy (as the case may be) of either
the Tenant or the Surety
(e) any legal limitation or any immunity disability or incapacity of the
Tenant (whether or not known to the Landlord or the Management Company)
or the fact that any dealings with the Landlord or the Management
Company by the Tenant may be outside or in excess of the powers of the
Tenant
(f) any other act omission matter or thing whatsoever whereby but for this
provision the Surety would be exonerated either wholly or in part
(other than a release under seal given by the Landlord and/or the
Management Company as the case may be)
7. DISCLAIMER OR FORFEITURE OF LEASE
(a) The Surety hereby further covenants with the Landlord and the
Management Company that:-
(i) if a liquidator or trustee in bankruptcy shall disclaim or
surrender this Lease or
(ii) if this Lease shall be forfeited or
(iii) if the Tenant shall cease to exist (being the Tenant in whom at
the time of such cessation this Lease is vested)
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105
THEN unless the Leasehold Mortgagee exercises its rights to call for a
new lease pursuant to Clause 8.1(b) the Surety shall if the Landlord by
notice in writing given to the Surety within one hundred and eighty
(180) days after such disclaimer or other event so requires accept from
and execute and deliver to the Landlord a counterpart of a new lease of
the Demised Premises for a term commencing on the date of the
disclaimer or other event and continuing for the residue then remaining
unexpired of the Term such new lease to be at the cost of the Surety
and to be at the same rents and subject to the same covenants
conditions and provisions as are contained in this Lease
(b) If the Landlord shall not require the Surety to take a new lease the
Surety shall nevertheless within 14 days of receipt of written demand
pay to the Landlord a sum equal to the Rent and other sums that would
have been payable under this Lease but for the disclaimer or other
event in respect of the period from and including the date of such
disclaimer or other event until the expiration of one hundred and
eighty (180) days therefrom or until the Landlord shall have granted a
lease of the Demised Premises to a third party (whichever shall first
occur)
8. BENEFIT OF GUARANTEE AND INDEMNITY
Subject to Clause 8.17 this guarantee and indemnity shall enure for the
benefit of the successors and assigns of the Landlord and the Management Company
respectively under this Lease without the necessity for any assignment thereof
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106
FIFTH SCHEDULE
MATTERS TO WHICH THE DEMISED PREMISES ARE SUBJECT
So far as the same relate to and affect the Demised Premises and are
still subsisting in relation to the Demised Premises:-
1. the entries at the date hereof registered in or pending registration in
the Property and Charges Registers of Registered Title No EGL 202850
but for the avoidance of doubt not including any of the entries
relating to registered charges in favour of Lloyd's Bank Plc
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SIXTH SCHEDULE
CAR PARK SERVICES AND ESTATE SERVICES
(a) In this Schedule:-
(i) references to "maintain" shall mean maintain inspect test service
repair overhaul amend rebuild (but only where (a) it shall not be
economically viable to repair or (b) the Landlord is acting in
accordance with the principles of good estate management) renew
reinstate replace and shall include where appropriate treat wash
down cleanse paint decorate empty and drain and the expression
"maintenance" shall be construed accordingly
(ii) "Services" shall mean Car Park Services and Estate Services
jointly or individually
(iii) "Serviced Areas" shall mean the Car Park and the Estate Common
Parts jointly or individually
(b) In deciding the extent nature and quality of the relevant service or
services from time to time the Management Company shall at all times
act reasonably
(c) In performing the Services and any other services hereunder the
Management Company shall be entitled to employ or procure or permit the
employment of managers agents contractors or others
PART A
THE SERVICES
Subject to paragraphs (b) and (c) above the following services to be
carried out in accordance with the principles of good estate management shall
constitute the Services:-
1. SERVICED AREAS
To maintain the Serviced Areas
2. APPARATUS PLANT MACHINERY ETC.
To maintain and operate all apparatus plant machinery and
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equipment comprised in or otherwise serving the Serviced Areas from time to time
and the buildings housing them but (in the case of the Car Park) excluding any
apparatus plant machinery and equipment which is used exclusively for the
purposes of short-term or hourly parking
3. PIPES
To maintain all Pipes within the Serviced Areas but (within the Estate
Common Parts) only those Pipes the use of which is shared by the occupiers of
more than one building on the Estate
4. FIRE ALARMS ETC.
To maintain any smoke and/or smoke fire alarms and ancillary apparatus
and fire prevention and fire fighting equipment and apparatus and other safety
equipment and ancillary apparatus and systems comprised in the Serviced Areas
and in any event to maintain fire and smoke detection fire preventive and fire
fighting equipment including sprinklers hydrants hosereels extinguishers fire
alarms fire escapes and fire escape routes and general means of escape to the
extent required to comply in relation to the Serviced Areas with statutory
requirements and the requirements of responsible authorities or underwriters or
insurance companies
5. LIGHTING
To keep lit at appropriate times all appropriate parts of the Serviced
Areas
6. ROADS MALLS ETC OPEN
Without prejudice to any right of the Landlord or the Management
Company hereunder so far as shall be reasonably practicable to keep open and
unobstructed the access and circulation areas the roadways streets plazas malls
and other vehicular and pedestrian ways and similar areas comprised in the
Serviced Areas (subject only to:-
(a) any temporary closure from time to time or
(b) closure at certain hours for reasons of security or operational
purposes)
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7. SECURITY SURVEILLANCE AND VISITOR CONTROL
To provide security services and personnel including where appropriate
in the Management Company's discretion closed circuit television and/or other
plant and equipment for the purpose of surveillance and supervision of users of
the Serviced Areas provided that such services and personnel shall not extend to
the Building
8. PROVISION OF SIGNS AND GENERAL AMENITIES
In the Management Company's discretion to provide and maintain
direction signs and notices seats and other fixtures fittings chattels and
amenities for the convenience of tenants and their visitors and for the
enjoyment or better enjoyment of such parts of the Serviced Areas as are
available from time to time for use by the occupiers of and visitors to the
Estate and/or members of the public as the Landlord or the Management Company
may determine
9. ORNAMENTAL FEATURES GARDENS ETC
In the Management Company's discretion to provide and maintain hard and
soft landscaping and planting within the Serviced Areas including fountains
sculptures architectural artistic or ornamental features or murals and to keep
all such parts of the Serviced Areas as may from time to time be laid out as
landscaping (including water features) neat clean planted (where appropriate)
properly tended and free from weeds and the grass cut
10. FIXTURES FITTINGS ETC
To provide and maintain fixtures fittings furnishings finishes bins
receptacles tools appliances materials equipment and other things for the
maintenance appearance upkeep or cleanliness of the Serviced Areas and the
provision of the services set out in this part of the Schedule
11. WINDOWS
As often as the Management Company may consider desirable to clean the
exterior and interior of all windows and window frames in any building included
in the Serviced Areas and to provide and maintain cradles runways and carriages
in connection with such cleaning
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12. REFUSE
To provide and operate or procure the provision and operation of means
of collection compaction and disposal of refuse and rubbish (including litter
within the Serviced Areas and if necessary pest control) from the Serviced Areas
and other parts of the Estate and to provide and maintain plant and equipment
for the collection compaction treatment packaging or disposal of the same
13. TRAFFIC
(So far as the same are not for the time being the exclusive
responsibility of a public authority) to endeavour to control so far as
practicable traffic flow and parking within the Car Park and traffic on the
roads and service roads forming part of the Serviced Areas and parking therein
and for that purpose to provide such working and mechanical systems as the
Management Company considers appropriate including wheel clamping immobilising
and removal of vehicles
14. ENERGY AND SUPPLY SERVICES
To arrange the provision of water fuel oil gas heating cooling air
conditioning ventilation electricity and other energy and supply services to the
Estate Common Parts as may be required for use in running or operating any
service to the Serviced Areas or distributed to occupiers of the Estate
including so far as appropriate standby power generators and plant excluding any
such energy and supply services required to operate the apparatus plant
machinery and equipment referred to in the exclusion to paragraph 2 of this Part
of this Schedule
15. WATER AREAS AND WATERSIDE AND RIVERSIDE WALKWAYS
To use reasonable endeavours to procure that the responsible party
maintains and operates or (in the Management Company's discretion) to maintain
and operate the dock water retention system comprised in or immediately
adjoining the Estate and to endeavour to keep water areas within the Estate
Common Parts free from debris refuse and other material and (to the extent
reasonably practicable) to take reasonable steps to treat the same as necessary
and to minimise pollution therein and to provide and maintain such seating
security and safety equipment on any waterside walkways as the Management
Company considers appropriate
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16. TRANSPORT SERVICES
So far as the Landlord or the Management Company considers desirable or
appropriate to provide and (as circumstances permit) operate and maintain
vehicles or other modes of transport staff premises and equipment for a
transport service or services within or for the benefit of the Estate
17. OTHER SERVICES
To provide such other services for the benefit of the Estate or the
convenience of the users or occupiers thereof as the Landlord or the Management
Company may in accordance with the principles of good estate management consider
desirable or appropriate
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SIXTH SCHEDULE
PART B
1. STAFF
The cost of staff (including direct or indirect labour) for the
provision of services to the Serviced Areas and for the general management
(including accountancy functions) operation and security of the Serviced Areas
(including traffic control and policing) and all other incidental expenditure
including but not limited to:-
(a) salaries insurance health pensions welfare severance and other payments
contributions and premiums
(b) the cost of uniforms working clothes tools appliances materials and
furniture furnishings stationery items and equipment (including
telephones) for the proper performance of the duties of any such staff
(c) providing maintaining repairing decorating and lighting any
accommodation and facilities for staff including any residential
accommodation for staff employed on the Serviced Areas and all rates
gas electricity and other utility charges in respect thereof and any
actual or notional rent for such accommodation
but excluding all costs of staff above the grade of the Estate Manager or its
equivalent and (in respect of the Car Park) excluding the cost of those staff
whom it would not be necessary to employ if the Car Park were used exclusively
for private parking by tenants of the Estate
2. COMMON FACILITIES
The amount which shall require to be paid for or towards the costs
charges fees and expenses in making laying repairing maintaining and lighting as
the case may be any roads ways forecourts passages pavements party walls or
fences party structures Pipes or other conveniences and easements whatsoever
which may belong to or be capable of being used or enjoyed by the Estate in
common with any Adjoining Property
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3. TRANSPORTATION FACILITIES
The amount which the Landlord or Management Company pays for or towards
the costs charges fees and expenses of the maintenance operation and lighting of
or security for transportation facilities which provide services to or for the
benefit of the Estate including (without limitation) the Canary Wharf Docklands
Light Railway Station and associated premises and areas and/or the fixtures
fittings and equipment thereon
4. OUTGOINGS
All existing and future rates (including water rates) taxes duties
charges assessments impositions and outgoings (whether parliamentary parochial
local or of any other description and whether or not of a capital or
non-recurring nature) payable in respect of the Serviced Areas or any part
thereof
5. STATUTORY REQUIREMENTS
The cost of carrying out any works to the Serviced Areas required to
comply with any statute
6. REPRESENTATIONS
The cost of taking any steps deemed desirable or expedient by the
Landlord or the Management Company for complying with making representations
against or otherwise contesting the incidence of the provisions of any statute
concerning town planning rating public health highways streets drainage and all
other matters relating or alleged to relate to the Serviced Areas or the Estate
as a whole or in which occupiers within the Estate have a common interest
7. FEES OF THE ESTATE SURVEYOR AND THE ACCOUNTANT
The proper and reasonable fees costs charges expenses and disbursements
of the Car Park Surveyor the Estate Surveyor and the Accountant for or in
connection with the performance of the duties ascribed to the Car Park Surveyor
the Estate Surveyor and the Accountant respectively under the provisions of
Clause 9
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8. MANAGEMENT
(a) The proper and reasonable fees of managing agents employed or retained
by the Management Company for or in connection with the general overall
management and administration and supervision of the Estate and the Car
Park (excluding rent collection)
(b) A fee to the Management Company in connection with the management of
the Estate equal to 10% of the aggregate of the Car Park Expenditure
and the Estate Expenditure (excluding any items in this paragraph 8)
but so that if a firm of managing agents is appointed to manage the
Estate the fee chargeable by the Management Company in any Car Park
Financial Year or Estate Financial Year under this paragraph 8(b) shall
be reduced (but not below zero) by an amount equivalent to the fees
(net of Value Added Tax) charged by such managing agents and included
in Car Park Expenditure and(or) Estate Expenditure for that Car Park
Financial Year or Estate Financial Year pursuant to paragraph 8(a)
above
9. INSURANCE
(a) The cost of insuring:-
(i) the Serviced Areas against loss or damage by the Insured Risks in
such sum as shall be the full reinstatement cost thereof and
including architects' surveyors' and other professional fees (and
Value Added Tax thereon) and expenses incidental thereto the cost
of shoring up demolition and site clearance compliance with local
authority requirements and similar expenses and loss of income
(if any) for such period as shall be reasonable having regard to
the likely period required for obtaining planning permission and
reinstating the Serviced Areas
(ii) any engineering and electrical plant and machinery being part of
the Serviced Areas against sudden and unforeseen damage breakdown
and inspection to the extent that the same is not covered by
paragraph 9(a)(i) above
(iii) property owners liability and public liability or such
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other insurances as the Landlord may from time to time deem
necessary to effect
(b) The cost of periodic valuations for insurance purposes
(c) Works required to the Serviced Areas in order to satisfy the insurers
of the Serviced Areas
(d) Any amount which may be deducted or disallowed by the insurers pursuant
to the excess provision in the Landlord's insurance policy upon
settlement or adjudication of any claim by the Landlord
10. PUBLIC ACTIVITIES
The cost of any displays concerts exhibitions or other forms of public
entertainment or activity undertaken within the Serviced Areas or for the
benefit or enjoyment of the Estate or its occupiers
11. PUBLIC TOILETS
The cost of providing operating and maintaining public toilet
facilities within the Serviced Areas or for the benefit or enjoyment of the
Estate or its occupiers
12. MISCELLANEOUS ITEMS
(a) Leasing or hiring any of the items referred to in Part A or Part B of
this Schedule
(b) Interest commission and fees in respect of any moneys included in Car
Park Expenditure and/or Estate Expenditure borrowed to finance the
provision of services and any of the items referred to in Part A or
Part B of this Schedule
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SEVENTH SCHEDULE
BUILDING SERVICES
(a) In this Schedule references to "maintain" shall mean maintain inspect
test service repair overhaul amend rebuild renew (but only where (i) it
shall not be economically viable to repair or (ii) the landlord is
acting in accordance with the principles of good estate management)
reinstate replace and shall include where appropriate treat wash down
cleanse paint decorate empty and drain and the expression "maintenance"
shall be construed accordingly
(b) In deciding the extent nature and quality of the relevant service or
services from time to time the Management Company shall at all times
act reasonably
(c) In performing the Building Services and any other services hereunder
the Management Company shall be entitled to employ or procure or permit
the employment of managers agents contractors or others
PART A
BUILDING SERVICES
Subject to paragraphs (b) and (c) above the following services to be
carried out in accordance with the principles of good estate management shall
constitute the Building Services:-
1. THE RETAINED PARTS
To maintain the Retained Parts
2. COMMON PARTS OF THE BUILDING
At all times to keep clean and maintained the Common Parts of the
Building including the windows thereof and to keep the same adequately lighted
where appropriate during the Business Hours and such other hours as the
Management Company may in its discretion from time to time decide
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117
3. LIFTS
To provide a lift service by the operation of the lifts now or from
time to time installed
4. HOT AND COLD WATER
To provide an adequate supply of hot and cold water to the wash basins
in the Building
5. AIR CONDITIONING
To provide sufficient air conditioning to the Building including the
Common Parts of the Building intended to be air conditioned and to maintain all
equipment plant and machinery used in connection therewith other than such as is
the responsibility of the Tenant PROVIDED THAT the cost of the same shall only
be included within this paragraph to the extent that a charge is not made
pursuant to Clause 4.3(d) Clause 4.6(a) or Clause 4.16(c) in this Lease or the
equivalent clause or clauses in any other lease of part or parts of the Building
<PAGE> 174
118
SEVENTH SCHEDULE
PART B
1. RETAINED PARTS
The cost of lighting heating furnishing carpeting and equipping and (as
necessary) altering the Retained Parts including but not limited to the
provision in the main entrance halls and lift lobby areas of floral decorations
desks tables chairs and other fixtures and fittings
2. APPARATUS PLANT MACHINERY ETC
The cost of maintaining and operating all apparatus plant machinery and
equipment serving the Building from time to time including (without prejudice to
the generality of the foregoing and so far as for the time being serving the
Building as aforesaid) lifts lift shafts escalators travelators stand-by
generators and boilers and items relating to mechanical ventilation heating
cooling air conditioning and humidification
3. FIRE ALARMS ETC.
The cost of maintaining any fire alarms and ancillary apparatus and
fire prevention and fire fighting equipment and apparatus and other safety
equipment comprised in the Retained Parts or serving the Building and in any
event of maintaining fire and smoke detection fire preventive and fire fighting
equipment including sprinklers hydrants hosereels extinguishers fire alarms fire
escapes and fire escape routes and general means of escape to the extent
required to comply in relation to the Retained Parts with statutory requirements
and the requirements of responsible authorities or underwriters or insurance
companies
4. SECURITY AND SURVEILLANCE
The cost of providing security services and personnel including in the
Management Company's discretion closed circuit television and/or other plant and
equipment for the purpose of surveillance and supervision of users of or
visitors to the Building and for the purpose of monitoring organising and
supervising the use of any
<PAGE> 175
119
loading bays delivery areas and goods lifts within the Building Provided that
such services and personnel shall not extend to the Demised Premises
5. PROVISION OF SIGNS AND GENERAL AMENITIES
The cost of providing and maintaining direction signs and notices seats
and other fixtures fittings chattels and amenities for the convenience of
tenants and their visitors and for the enjoyment or better enjoyment of such
parts of the Common Parts of the Building as are available from time to time for
use by the occupiers of and visitors to the Building and/or members of the
public as the Landlord or the Management Company may determine
6. ORNAMENTAL FEATURES GARDENS ETC
The cost of providing and maintaining hard and soft landscaping and
planting within the Retained Parts including fountains sculptures architectural
artistic or ornamental features or murals and of keeping all such parts of the
Retained Parts as may from time to time be laid out as landscaping (including
water features) neat clean planted (where appropriate) properly tended and free
from weeds and the grass cut
7. FIXTURES FITTINGS ETC
The cost of providing and maintaining fixtures fittings furnishings
finishes bins receptacles tools appliances materials equipment and other things
for the maintenance appearance upkeep or cleanliness of the Retained Parts and
the provision of any services for the Building
8. WINDOWS
The cost of cleaning the exterior and (save where the responsibility of
a tenant) interior of all windows and window frames in the Retained Parts and of
providing and maintaining cradles runways and carriages in connection with such
cleaning
9. REFUSE
The cost of providing and operating or procuring the provision and
operation of means of collection compaction and disposal of refuse
<PAGE> 176
120
and rubbish (including litter within the Common Parts of the Building and if
necessary pest control) from the Building and of providing and maintaining plant
and equipment for the collection compaction treatment packaging or disposal of
the same
10. ENERGY AND SUPPLY SERVICES
Subject to the proviso to paragraph 5 of Part A of this Schedule the
cost of the provision of water fuel oil gas heating cooling air conditioning
ventilation electricity and other energy and supply services to the Building as
may be required for use in running or operating any service to the Building or
distributed to occupiers of the Building including so far as appropriate standby
power generators and plant
11. OTHER SERVICES
(a) The cost of providing such other services for the benefit of the
Building or the convenience of the occupiers thereof including without
limitation a receipt and dispatch centre for items delivered by courier
as the Management Company may in accordance with the principles of good
estate management consider desirable or appropriate and from which the
Tenant shall receive a benefit
(b) The cost of providing such of the services falling within the
definition of Car Park Services and the costs and expenses set out in
Part B of the Sixth Schedule as shall be appropriate to provide in
respect of any car park within the Building
12. STAFF
The cost of staff (including direct or indirect labour) for the
provision of services to the Building and for the general management (including
accountancy functions) and operation of the Building and all other incidental
expenditure including but not limited to:-
(a) salaries insurance health pension welfare severance and other payments
contributions and premiums
(b) the cost of uniforms working clothes tools appliances materials and
furniture furnishings stationery items and equipment (including
telephones) for the proper performance of the duties of any such staff
<PAGE> 177
121
(c) providing maintaining repairing decorating and lighting any
accommodation and facilities for staff including any residential
accommodation for staff employed on the Building and all rates gas
electricity and other utility charges in respect thereof and any actual
or notional rent for such accommodation
13. COMMON FACILITIES
The amount which shall require to be paid or contributed towards the
costs charges fees and expenses in making laying repairing maintaining
rebuilding decorating cleansing and lighting as the case may be any roads ways
forecourts loading docks and bays passages pavements party walls or fences party
structures Pipes or other conveniences and easements which may belong to or be
capable of being used or enjoyed by the Building in common with any Adjoining
Property but not any amounts in respect of any of the matters referred to in the
Sixth Schedule
14. OUTGOINGS
All existing and future rates (including water rates) taxes duties
charges assessments impositions and outgoings whatsoever (whether parliamentary
parochial local or of any other description and whether or not of a capital or
non-recurring nature) payable in respect of the Retained Parts of any part
thereof
15. STATUTORY REQUIREMENTS
The cost of carrying out any works to the Retained Parts required to
comply with any statute
16. REPRESENTATIONS
The cost of taking any steps deemed desirable or expedient by the
Landlord or the Management Company for complying with making representations
against or otherwise contesting the incidence of the provisions of any statute
concerning town planning rating public health highways streets drainage and all
other matters relating or alleged to relate to the Retained Parts or the
Building as a whole or in which occupiers within the Building have a common
interest
<PAGE> 178
122
17. REGULATIONS
The cost of compliance with the Regulations so far as the same relate
to the provision of the services and other items referred to in this Schedule
18. ENFORCEMENT OF COVENANTS ETC
The cost of enforcing the covenants in any other leases of Lettable
Areas within the Building for the general benefit of the tenants thereof as
determined by the Landlord or the Management Company
19. FEES OF THE BUILDING SURVEYOR AND THE ACCOUNTANT
The proper and reasonable fees costs charges expenses and disbursements
of the Building Surveyor and the Accountant for or in connection with the
performance of the duties ascribed to the Building Surveyor and the Accountant
respectively under the provisions of Clause 9 of this Lease
20. MANAGEMENT
(a) The proper and reasonable fees of managing agents employed or retained
by the Management Company for or in connection with the general overall
management and administration and supervision of the Building
(excluding rent collection)
(b) A fee to the Management Company in connection with the management of
the Building such fee being equal to 10% of the Building Expenditure
(excluding any items in this paragraph 20) but so that if a firm of
managing agents is appointed to manage the Building the fee chargeable
by the Management Company in any Building Financial Year under this
paragraph 20(b) shall be reduced (but not below zero) by an amount
equivalent to the fees (net of Value Added Tax) charged by such
managing agents and included in Building Expenditure for that Building
Financial Year pursuant to paragraph 20(a) above
21. MISCELLANEOUS ITEMS
(a) Leasing or hiring any of the items referred to in Part A or Part B of
this Schedule
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123
(b) Interest commission and fees in respect of any moneys included in
Building Expenditure borrowed to finance the provision of services and
any of the items referred to in Part A or Part B of this Schedule
22. INSURANCE
(a) Works required to the Building in order to satisfy the insurers of the
Building
(b) Any amount which may be deducted or disallowed by the insurers pursuant
to any excess provision in the Landlord's insurance policy upon
settlement or adjudication of any claim by the Landlord
23. DECORATIONS
Providing and maintaining Christmas and other special decorations for
the Building
24. NAME BOARDS
The cost of providing and installing name boards of such size and
design as the Landlord or the Management Company may in its absolute discretion
determine in the main entrance to the Building and at such other locations as
the Landlord or the Management Company may reasonably consider desirable
25. GENERALLY
Any reasonable and proper costs and expenses (not referred to above)
which the Management Company may incur in providing such other services and in
carrying out such other works as the Management Company in its absolute
discretion may deem desirable or necessary for the benefit of the Building or
any part of it or the tenants or occupiers thereof or for securing or enhancing
any amenities of or within the Building or in the interest of good estate
management
<PAGE> 180
124
EIGHTH SCHEDULE
FORM OF THE SERVICE CHARGE DEED TO BE EXECUTED UNDER CLAUSE 12
THIS DEED is made the day of 199 BETWEEN:
(1) [ ] (registration number [ ]) whose
registered office is at [ ] (the
"Management Company") and
(2) [ ] (registration number [ ]) whose
registered office is at [ ](the "Sub-tenant")
NOW THIS DEED WITNESSETH AND IT IS HEREBY AGREED AND DECLARED as follows:-
1. INTERPRETATION
1.1 In this Deed except where the context otherwise requires the following
words and expressions have the following meanings:-
"Accountant"
means a Chartered Accountant or a
firm of Chartered Accountants
appointed or employed by the
Landlord or the Management Company
to perform the functions of the
Accountant under this Deed
"Base Rate"
means the base rate for the time
being of Barclays Bank PLC or some
other London clearing bank nominated
from time to time by the Landlord
or, in the event of such base rate
being abolished, such other
reasonable comparable rate of
interest as the Landlord shall from
time to time determine
"Building"
means the land and premises known as
20 Cabot Square Canary Wharf West
India
<PAGE> 181
125
Dock Isle of Dogs London E14 being
more particularly described in the
Lease and shown edged red on Plan 1
attached to the Lease together with
the building erected thereon of
which the property demised by the
Lease forms part and of which the
Demised Premises forms part and each
and every part of them and the
appurtenances belonging to them and
all additions, alterations and
improvements to them
"Building Computing
Date"
means the first day of July in each
year and the anniversary of that
date in each succeeding year or such
other date as the Management Company
may from time to time nominate
"Building Expenditure"
means the aggregate of (avoiding
double counting):-
(i) all reasonable costs fees
expenses and outgoings
whatsoever (whether or not
of a recurring nature)
reasonably and properly
incurred in respect of or
incidental to the provision
of all or any of:-
(a) the Building Services
and
(b) the costs and
expenses set out in
Part B of the Seventh
Schedule to the Lease
(whether or not the Landlord
or the Management Company is
obliged by the Lease to
incur the same) and (when
any expenditure is incurred
in relation to the Building
and other premises) the
proportion of
<PAGE> 182
126
such expenditure which is
reasonably attributable to
the Building as properly
determined from time to time
by the Building Surveyor
(ii) such reasonable sums as the
Landlord or the Management
Company shall reasonably and
properly consider desirable
to set aside from time to
time (which setting aside
shall be deemed to be an
item of expenditure actually
incurred) for the purpose of
providing for periodically
recurring items of
expenditure, whether or not
of a capital nature and
whether recurring at regular
or irregular intervals and
for anticipated expenditure
in respect of any of the
Building Services to be
provided or other items
within Part B of the Seventh
Schedule to the Lease ("the
Building Reserve Fund")
(iii) the cost of replacement of
any item where such
replacement is reasonably
necessary whether or not the
replacement item is of a
superior quality design or
utility to the item being
replaced but where the
replacement item is of
superior quality it shall be
as near as practicable to
the quality of the item
being replaced
(iv) interest payments credited
to the Sub-tenant under
Clause 4.4(b) and credited
or paid to any tenants of
premises within the Building
under the provisions of
clauses similar
<PAGE> 183
127
to the said clause
(v) any Value Added Tax or other
tax payable on or in
connection with any such
items in paragraphs (i) (ii)
(iii) and (iv) above (so far
as not recoverable by the
Landlord or the Management
Company (as the case may
require) as an input credit)
but shall exclude:-
(aa) any capital
expenditure incurred
in the initial
construction of the
Building or for the
construction or
carrying out of any
of the works which
the Landlord agreed
to carry out in the
agreement pursuant to
which the Lease was
granted and capital
expenditure incurred
for the purpose of
the initial
establishment of the
services described in
the Seventh Schedule
to the Lease
(bb) any expenditure
referable to
operating charges and
expenses and
maintenance of any
Car Park
(cc) any costs incurred by
the Landlord in
remedying any latent
or inherent defects
or shrinkages or
other latent or
inherent faults not
apparent at the date
hereof and which
manifest themselves
(a) in the Building
during a period of 10
years or (b) in
relation to the
rebuilding or
replacement
<PAGE> 184
128
of the structure of
the Building during a
period of 15 years
from practical
completion of the
Building which
periods commenced on
22nd July 1991
and there shall be deducted
from the foregoing for the
purposes of calculating the
Building Expenditure the
following:-
(aaa) any contributions in
respect of Building
Services or the
costs set out in
Part B of the
Seventh Schedule to
the Lease
recoverable in the
relevant Building
Financial Year under
leases or agreements
for leases or other
documents imposing
obligations in
relation to Building
Services relating to
premises which for
that Building
Financial Year are
not included within
the definition of Y
for the purposes of
the definition of
Building Service
Charge Percentage
(bbb) any revenue received
from a third party
(other than a tenant
in its capacity as
such whether under
<PAGE> 185
129
any lease agreement
for lease or some
other deed relating
to Building Services
or the Building
Service Charge
Percentage or the
Building
Expenditure) derived
from the rendering
of Building Services
or any activity the
cost of which is
included in Part B
of the Seventh
Schedule to the
Lease including any
insurance proceeds
received by the
Landlord or the
Management Company
in respect of the
insurance of the
Building to the
extent that such
insurance proceeds
relate to an item
the cost of which is
included in the
Building Expenditure
and
(ccc) any contribution in
respect of the
rendering of any of
the Building
Services or any
activity the cost of
which is included in
Part B of the
Seventh Schedule to
the Lease
recoverable in the
<PAGE> 186
130
Relevant Financial
Year where any such
Building Services or
other activity was
provided at the
request of or for
the benefit of any
tenants or occupiers
of the Building and
which would not have
been provided but
for such request
whether or not such
service or activity
is of direct or
indirect benefit to
the Sub-tenant
(ddd) interest payments
received from the
Sub-tenant under
Clause 4.4(a) and
from other tenants
within the Building
under the provisions
of clauses similar
to the said clause
in relation to
Building Expenditure
(eee) interest (if any)
earned on the
deposit by the
Management Company
of on account
payments made by
tenants in respect
of Estimated
Building Expenditure
"Building Financial means the period from a Building
Year"
Computing Date to but not including the
<PAGE> 187
131
next succeeding Building Computing Date
"Building Services"
means the services set out in Part A of the
Seventh Schedule to the Lease
"Building Service means the figure calculated as follows:-
Charge Percentage"
X
- x 100
Y
where:-
"X" = the Net Internal Area of the
Demised Premises and
Y" = the aggregate Net Internal
Areas of Lettable Areas within
the Building used or intended
to be used for office purposes
or uses ancillary thereto
"Building Surveyor"
means a chartered surveyor or firm of
chartered surveyors appointed or employed by
the Landlord or Management Company to perform
the functions of the Building Surveyor
hereunder
"Car Park"
means the car parks within the Estate (other
than the car parking area (if any) within the
Building) reasonably designated as such from
time to time in writing by the Landlord
"Car Park Computing means the first day of July in each year
Date"
and the anniversary of that date in each
succeeding year or such other date as the
Landlord or the Management Company
<PAGE> 188
132
may from time to time nominate
"Car Park Expenditure" means the aggregate of:-
(i) all reasonable costs fees expenses and
outgoings whatsoever (whether or not of
a recurring nature) reasonably and
properly incurred in respect of or
incidental to the provision of all or
any of:-
(a) the Car Park Services and
(b) the costs and expenses set out in
Part B of the Sixth Schedule to
the Lease
and (when any expenditure is incurred in
relation to the Car Park and other
premises) the proportion of such
expenditure which is reasonably
attributable to the Car Park as properly
determined from time to time by the Car
Park Surveyor
(ii) such reasonable sums as the Landlord or
the Management Company shall reasonably
and properly consider desirable to set
aside from time to time (which setting
aside shall be deemed to be an item of
expenditure actually incurred) for the
purpose of providing for periodically
recurring items of expenditure whether
or not of a capital nature and whether
recurring at regular or irregular
intervals and for anticipated
expenditure in respect of any of the Car
Park Services to be provided or other
items within Part B of the Sixth
Schedule to the
<PAGE> 189
133
Lease ("the Car Park Reserve Fund")
(iii) the cost of replacement of any item
where such replacement is
reasonably necessary whether or not
the replacement item is of a
superior quality design or utility
to the item being replaced but
where the replacement item is of
superior quality it shall be as
near as practicable to the quality
of the item being replaced
(iv) interest payments credited to the
Tenant under Clause 4.4(b) and credited
or paid to any tenants of premises
within the Estate under the provisions
of clauses similar to the said clause
(v) any Value Added Tax or other tax
payable on or in connection with any
such items in paragraphs (i) (ii) (iii)
and (iv) above (so far as not
recoverable by the Landlord or
Management Company as an input credit)
but shall exclude any capital expenditure
incurred in the initial construction of the
Car Park or for the purpose of the initial
establishment of the services described in the
Sixth Schedule to the Lease and there shall be
deducted from the foregoing for the purposes
of calculating the Car Park Expenditure the
following:-
(aa) any revenue (other than revenue
derived from public
<PAGE> 190
134
parking) received from a third
party (other than a tenant in its
capacity as such) in connection
with the rendering of Car Park
Services or any activity the cost
of which is included in Part B of
the Sixth Schedule to the Lease
including any insurance proceeds
received by the Landlord or the
Management Company in respect of
the insurance of the Car Park to
the extent that such insurance
proceeds relate to an item the
cost of which is included in the
Car Park Expenditure
(bb) any contribution in respect of
the rendering of any of the Car
Park Service or activity the cost
of which is included in Part B of
the Sixth Schedule to the Lease
recoverable in the Relevant
Financial Year where any such Car
Park Services or other activity
was provided at the request or
for the benefit of any tenants or
occupiers of the Estate and which
would not have been provided but
for such request
(cc) interest payments received from
the Sub-tenant under Clause
4.4(a) and from other tenants
within the Estate under the
provisions of clauses similar to
the said clause in relation to
Car Park Expenditure
<PAGE> 191
135
(dd) interest (if any) earned on the
deposit by the Management Company
of on account payments made by
tenants in respect of Estimated
Car Park Expenditure
"Car Park Financial means the period from a Car Park
Year"
Computing Date to but not including the
next succeeding Car Park Computing Date
"Car Park Services"
means the services set out in Part A of the
Sixth Schedule to the Lease insofar as the
same are attributable to the Car Park
"Car Park Service means the figure calculated as follows:-
Charge Percentage"
X
- x 100
Y
where:-
"X" = the number of cars which the
Sub-tenant has the right to
park in the Car Park and
"Y" = the total number of car
parking spaces from time to
time in the Car Park the
number being 2014 at the date
hereof
"Car Park Surveyor"
means a chartered surveyor or firm of
chartered surveyors appointed or employed by
the Management Company or a Group Company of
the Management Company to perform the
functions of the Car Park Surveyor hereunder
<PAGE> 192
136
"Common Parts of the means those parts and amenities of the
Building"
Building which are from time to time
provided and/or properly designated by the
Landlord for common use by tenants and
occupiers of the Building with or without
others and all persons authorised by them
[including (but only after the Tenant shall
have surrendered part of the property
demised by the Lease pursuant to Clause 10
of the Lease) the Dedicated Lobby and the
Dedicated Lifts but excluding the Estate
Common Parts and the Lettable Areas]
"Dedicated Lifts"
means the passenger lifts in the west core
of the Building and includes all lift shafts
and plant apparatus and equipment relating
thereto
"Dedicated Lobby"
menus the area shown hatched [ ] on
Plan [2] of the Lease
"Demised Premises"
means [ ]
"Estate"
means the land and water areas commonly
known as Canary Wharf London E14 shown edged
green on Plan 2 to the Lease with any
additional land and water areas in which the
Landlord or a Group Company of the Landlord
acquires a freehold or leasehold interest
and which the Landlord from time to time
reasonably designates (acting in accordance
with principles of good estate management
having regard to the nature and quality of
the Estate) as part of the Estate and all
buildings and appurtenances thereon and all
additions alterations and
<PAGE> 193
137
improvements thereto
"Estate Common Parts"
means those parts of the Estate (such parts
not being publicly adopted) which are from
time to time intended for the common use and
enjoyment of the owners and tenants of the
Estate and persons claiming through or under
them and/or properly designated as such by
the Landlord (whether or not other parties
are also entitled to use and enjoy the same)
(but excluding all car parks within the
Estate) and for the avoidance of doubt
including:-
(a) roads to the point of connection with a
highway maintainable at public expense
(b) bridges kerbs pavements footpaths parks
and esplanades landscaped areas open
areas quay side areas dock water
areas and river piers
(c) plaza malls retail malls walkways
pedestrian ways concourses and
circulation areas staircases
travelators escalators elevators ramps
and lifts loading bays forecourts
service roads service areas service
decks and service bays
(d) the Pipes therein and not intended to be
the responsibility of a particular
owner or tenant or group of owners or
tenants and
(e) the foundations pilings sub-structures
floors walls roofs ramps access ways
entrances exits and
<PAGE> 194
138
other matters or things which make up those
parts of the Estate which are not and are
not intended to be the responsibility of a
particular owner or tenant or group of
owners or tenants
"Estate Computing Date"
means the first day of July in each year and
the anniversary of that date in each
succeeding year or such other date as the
Management Company may from time to time
nominate
"Estate Expenditure"
means the aggregate (avoiding double
counting) of:-
(i) all reasonable costs fees expenses and
outgoings (whether or not of a
recurring nature) reasonably and
properly incurred by the Landlord or
the Management Company in respect
of or incidental to the provision of
all or any of the Estate Services and
the costs and expenses set out in Part
B of the Sixth Schedule to the Lease
(whether or not the Landlord or the
Management Company is obliged by the
Lease to incur them) and (when any
expenditure is incurred in relation to
the Estate and other premises) the
proportion of such expenditure which
is reasonably attributable to the
Estate as reasonably determined from
time to time by the Estate Surveyor
(ii) suchreasonable sums as the Management
Company shall reasonably and properly
consider desirable to set aside from
time to time (and
<PAGE> 195
139
the amount set aside shall be treated as an
item of expenditure actually incurred) for
the purpose of providing for periodically
recurring items of expenditure whether or
not of a capital nature and whether
recurring at regular or irregular intervals
and for anticipated expenditure in respect
of any of the Estate Services to be provided
or other items within Part B of the Sixth
Schedule to the Lease (the "Estate Reserve
Fund")
(iii) the cost of replacement of any items
with an item of equivalent quality
pursuant to the Sixth Schedule to the
Lease where such replacement is
reasonably necessary (but where such
an item is of superior quality it
shall be as near as practicable to the
quality of the item being replaced)
(iv) interest payments credited to the Sub-tenant
under clause 4.4(b) and credited or paid to
any owners or tenants of premises within the
Estate under the provisions of clauses
similar to the said clause and
(v) any Value Added Tax payable on or in
connection with any such items in paragraphs
(i) (ii) (iii) and (iv) above (so far as not
recoverable by the Landlord or the
Management Company (as the case may
require)) as an input credit
<PAGE> 196
140
but shall exclude:-
(aa) any capital expenditure for the
initial construction of the Demised
Premises and any building or
erection within the Estate
(including for the avoidance of
doubt those parts of the Estate not
yet built or erected) or for the
initial creation of the Common
Parts and capital expenditure
incurred for the purpose of the
initial establishment of the
services described in the Sixth
Schedule to the Lease
(bb) any expenditure referable to
operating charges and expenses and
maintenance of any car parks in the
Estate provided however there shall
be included in the Estate
Expenditure a fair and reasonable
proportion of expenditure referable
to the maintenance of common
elements shared between any car
parks and the Common Parts
(cc) any capital expenditure incurred in
the demolition of any buildings or
erections on the Estate or the
Common Parts and any capital
expenditure incurred in any
replacement or reconstruction of
such buildings or erections save
where (in accordance with the
principles of good estate
management) such demolition
replacement or reconstruction is
necessary in connection
<PAGE> 197
141
with the provision of the Estate
Services and
(dd) any costs incurred by the Landlord
in remedying any latent or inherent
defects or shrinkages or other
latent or inherent faults in the
Common Parts of the Estate not
apparent at the date hereof and
which manifest themselves before
30th June 2001
and further there shall be deducted from the
foregoing aggregate for the purposes of
calculating the Estate Expenditure the
following:-
(aaa) any contributions in respect of
Estate Services or the costs set out
in Part B of the Sixth Schedule to
the Lease recoverable in the
relevant Estate Financial Year under
transfers leases agreements for
lease or other documents imposing
obligations in relation to the
Estate Services relating to premises
which for the Financial Year are not
included within the definition of Y
for the purposes of the definition
of Estate Service Charge Percentage
(bbb) any revenue received from a third
party (other than an owner or a
tenant in
<PAGE> 198
142
its capacity as such) (whether under
a lease agreement for lease or some
other deed relating to the Estate
Services the Estate Service Charge
Percentage or the Estate
Expenditure) derived from or in
connection with the rendering of
Estate Services or any activity the
cost of which is included in Part B
of the Sixth Schedule to the Lease
including any insurance proceeds
received by the Management Company
or the Landlord in respect of the
insurance of the Common Parts to the
extent that such insurance proceeds
relate to an item the cost of which
is included in Estate Expenditure
(ccc) any contribution in respect of the
rendering of any Estate Service or
any activity the cost of which is
included in Part B of the Sixth
Schedule to the Lease recoverable in
the relevant Financial Year where
any such Estate Service or other
activity was provided at the express
request of and to or for the benefit
of one or more owners tenants or
occupiers of the Estate at a time or
<PAGE> 199
143
in circumstances when or in which
such service or activity would not
have been provided but for such
request regardless of whether such
service or activity is of direct or
indirect benefit to the Sub-tenant
and
(ddd) interest payments received from the
Sub-tenant under clause 4.4(a) and
from other owners and tenants within
the Estate under the provisions of
clauses similar to the said clause
in relation to Estate Expenditure
(eee) interest (if any) earned on the
deposit by the Management Company of
on account payments made by tenants
in respect of Estimated Estate
Expenditure
"Estate Financial Year"
means the period from an Estate Computing
Date to but not including the next
succeeding Estate Computing Date
"Estate Services"
means the services set out in Part A of the
Sixth Schedule of the Lease insofar as the
same are attributable to the Estate
excluding the Car Park
"Estate Service Charge means the figure calculated as follows:-
Percentage"
X
- x 100
Y
<PAGE> 200
144
where:-
"X" = the Net Internal Area of the
Demised Premises and
"Y" = the aggregate Net Internal
Areas of the Lettable Areas
of the buildings built and
used or intended to be used
for Retail Use Hotel Use or
Office Use (as hereinafter
defined) on those parts of
the Estate known as parcels
B-1 DS-7 RT-1 FC-1 FC-2 FC-3
FC-4 FC-5 and FC-6
PROVIDED THAT as from each Estate Computing
Date during the Term Y shall (in addition to
the buildings referred to in the above
definition) include the Net Internal Area of
the Lettable Areas within each additional
building on the Estate used or intended to
be used for Office Use Retail Use or Hotel
Use where in respect of that building at
that Estate Computing Date either:-
(i) at least two (2) years shall have
elapsed since the issue of a practical
completion certificate for that entire
building under the building contract
relating thereto or
(ii) at least 50% of the Net Internal Area
of the Lettable Areas therein has
become occupied
and PROVIDED FURTHER that the parcels known
as B-1 DS-7 RT-1 FC-1 FC-2 FC-3 FC-4 FC-5
and FC-6 shall not be removed
<PAGE> 201
145
from the denominator
"Estate Surveyor"
has the like meaning as "Building Surveyor"
save that the word "Building" in the latter
definition shall be deleted and the word
"Estate" substituted therefor
"Estimated Building means for any Building Financial Year
Expenditure"
such sum as the Management Company shall
notify in writing to the Sub-tenant as a
fair and reasonable estimate of the Building
Expenditure for such Building Financial Year
after deducting any anticipated Building
Appropriation (as defined in Clause 4.2(a))
provided that the Management Company may
from time to time during any such Building
Financial Year notify the Sub-tenant and
other tenants and occupiers of the Building
in writing of a revised figure for the
Estimated Building Expenditure
"Estimated Car Park shall have the like meaning as
Expenditure"
"Estimated Building Expenditure" save that
the word "Building" where it appears in the
latter definition shall be deleted and the
words "Car Park" substituted therefor
"Estimated Estate shall have the like meaning as
Expenditure"
"Estimated Building Expenditure" save that
the word "Building" where it appears in the
latter definition shall be deleted and the
word "Estate" substituted therefor
"Group Company"
in relation to a company (the "Relevant
<PAGE> 202
146
Company") means a company within the same
group of companies (as that term is defined
in Section 42 of the Landlord and Tenant Act
1954) as the Relevant Company
"Hotel Use"
means use as a hotel including uses within
hotels of banqueting rooms conference
facilities and areas used for Retail Use
within hotels
"Interest Rate"
means three per cent. (3%) per annum above
the Base Rate
"Landlord"
means the Landlord from time to time under
the Lease and includes the person for the
time being entitled to the reversion
immediately expectant on the determination
of the term granted by the Lease
"Lease"
means an underlease of parts of the Ground
and the whole of the First Second Third
Fourth Fifth and Sixth floors of the
property known as 20 Cabot Square Canary
Wharf London E14 (of which the Demised
Premises forms part) dated 1995 and made
between Canary Wharf Limited (1) Canary
Wharf Management Limited (2) Morgan Stanley
UK Group (3) and Morgan Stanley Group Inc
(4) for a term of 25 years commencing on 1st
February 1995
"Lettable Areas"
means those parts of any building (including
the Building) leased or intended to be
leased to occupational tenants but excluding
any parts of such building leased or
intended to be leased
<PAGE> 203
147
to public utilities for the purposes of the
carrying out of their statutory obligations
and the corresponding parts of any building
the freehold of which has been sold
including parts of such building occupied by
the freehold owner of the building or any
Group Company of that owner
"Management Company"
means the party named as "Management
Company" in this Deed or such other company
as may be substituted therefor by the
Landlord pursuant to Clause 8.6 of the Lease
"Net Internal Area"
has the meaning given to it by the Code of
Measuring Practice published on behalf of
the Royal Institution of Chartered Surveyors
and the Incorporated Society of Valuers and
Auctioneers (Fourth Edition November 1993)
and shall be properly determined from time
to time by the Estate Surveyor (ignoring
works carried out by tenants or occupiers
during the subsistence of the lease or
underlease in existence at the time of such
determination)
"Office Use"
means use as an office and includes banking
halls and trading floors
"Pipes"
means all pipes sewers drains ducts conduits
gutters watercourses wires cables channels
flues service corridors trunking and all
other conducting media and any ancillary
apparatus
"Quarterly Day"
<PAGE> 204
148
means each of the first day of January,
first day of April, first day of July and
first day of October
"Relevant Advance shall mean (as the case may require) the
Payment"
aggregate of all Estate Payments on Account
made in any Estate Financial Year or the
aggregate of all Car Park Payments on
Account made in any Car Park Financial Year
or the aggregate of all Building Payments on
Account made in any Building Financial Year
"Relevant Estimated means all or any of the Estimated Estate
Expenditure"
Expenditure the Estimated Car Park
Expenditure and the Estimated Building
Expenditure as the case may require
"Relevant Expenditure"
means the Estate Expenditure the Car Park
Expenditure or the Building Expenditure as
the case may require
"Relevant Financial means the Estate Financial Year the Car
Year"
Park Financial Year or the Building
Financial Year as the case may require
"Relevant Service means the accounts the certificate and
Charge Accounts"
the statements referred to in Clause 4.2 for
any Relevant Financial Year
"Relevant Service means:-
Charge Percentage"
(A) in the case of the Building Expenditure
(and the Estimated Building Expendi-
ture) the Building Service Charge
Percentage
<PAGE> 205
149
(B) in the case of the Car Park Expenditure
(and the Estimated Car Park Expendi-
ture) the Car Park Service Charge
Percentage and
(C) in the case of the Estate Expenditure
(and the Estimated Estate Expenditure)
the Estate Service Charge Percentage
"Relevant Surveyor"
means the Estate Surveyor the Car Park
Surveyor or the Building Surveyor as the
case may require
"Retail Use" means use for:-
(A) all types of retailing including
hairdressers snackbars travel agents
funeral directors and showrooms
(B) banks building societies estate agents
betting offices and similar uses where
the services are provided principally to
visiting members of the public
(C) restaurants cafes public houses winebars
and food take aways
1.2 In this deed unless otherwise specified:-
(a) any reference to a clause is a reference to a clause of this Deed
and any reference to a sub-clause is to a reference to a
sub-clause of the clause in which the reference appears
(b) headings to clauses are for convenience only and do not affect
the interpretation of this Deed
(c) references to a person shall include a company or other legal
entity and words importing the singular number shall
<PAGE> 206
150
include the plural number and vice versa
(d) words importing persons include firms companies and corporations
and vice versa
(e) words and phrases used in this Deed without further definition
shall have the same meanings as are given to them in the Lease
save that any reference to "the Demised Premises" shall in this
Deed be interpreted as a reference to the Demised Premises as
defined in this Deed and
(f) reference to Value Added Tax include any tax of a similar nature
substituted for or levied in addition to Value Added Tax
2. COVENANT TO PERFORM SERVICES
The Management Company covenants with the Sub-tenant (subject in each
case as provided in Clauses 8.4 8.5 and 8.6 of the Lease) to perform and observe
or procure to be performed and observed the Building Services the Car Park
Services and the Estate Services in accordance with the provisions of the Lease
and to manage the Estate in such manner as shall be in accordance with
principles of good estate management
3. COVENANT TO PAY SERVICE CHARGES
The Sub-tenant covenants with the Management Company to pay the sums
payable in accordance with Clause 4, plus Value Added Tax at the times and in
the manner provided herein without any reduction abatement set-off counterclaim
or deduction (save those that the Sub-tenant must make by law)
4. SERVICE CHARGE
4.1 The Sub-tenant covenants with the Management Company to pay to the
Management Company:-
(A) the Relevant Service Charge Percentage (as indicated in the last
available certificate by the Relevant Surveyor issued pursuant to
Clause 4.2 but subject to the provisions of Clause 4.5 and Clause
4.7) of each of the Relevant Estimated Expenditure in advance by
equal quarterly instalments on the
<PAGE> 207
151
Quarterly Days during each Relevant Financial Year the first
payment of each being a proportionate sum in respect of the
period from and including [ ] to the next Quarterly Day to be
made on the [ ] and
(B) (if any of the Relevant Estimated Expenditure is revised as
contemplated above) within 14 days after receipt of written
demand the Relevant Service Charge Percentage of the amount by
which any such revised figure for the Relevant Estimated
Expenditure exceeds the figure previously notified to the
Sub-tenant
Each such payment made by the Sub-tenant under this Clause 4.1 being
referred to herein as (in the case of the Estimated Estate Expenditure)
an "Estate Payment on Account" (in the case of the Estimated Car Park
Expenditure) a "Car Park Payment on Account" and (in the case of the
Estimated Building Expenditure) a "Building Payment on Account"
4.2 The Management Company shall, as soon as reasonably practicable after
the end of each Relevant Financial Year prepare and send to the
Sub-tenant:-
(a) an account or accounts, each duly certified by the Accountant,
showing the Estate Expenditure the Car Park Expenditure and the
Building Expenditure for each Relevant Financial Year and the
amount (if any) which the Management Company has chosen to
utilise from the Estate Reserve Fund the Car Park Reserve Fund or
the Building Reserve Fund as the case may be in defraying
respectively Estate Expenditure Car Park Expenditure or Building
Expenditure pursuant to Clause 4.6 (respectively "the Estate
Appropriation" "the Car Park Appropriation" and "the Building
Appropriation") and containing a fair summary of the various
items comprising the Relevant Expenditure
(b) a certificate or certificates by the Relevant Surveyor showing
the Relevant Surveyor's calculation of each Relevant Service
Charge Percentage for each Relevant Financial Year containing a
fair summary of how such percentage was calculated
<PAGE> 208
152
(c) a statement or statements of each Relevant Service Charge
Percentage of each Relevant Expenditure for each Relevant
Financial Year after taking into account as the case may require
the Estate Appropriation the Car Park Appropriation or the
Building Appropriation and the same shall (save for obvious error
and subject to the provisions of sub-clause 4.2(d)) be conclusive
evidence for the purposes of this Deed of all matters of fact
referred to in each said account certificate and statement
(d) (i) Subject to the Sub-tenant paying the reasonable and proper
costs of the Landlord and the Management Company
(including but not limited to the costs of security
supervision and assistance) the Sub-tenant may in relation
to an account certificate or statement in respect of
Estate Expenditure or Building Expenditure or Car Park
Expenditure (as referred to in Clause 4.2(a)) within two
months of receiving such account certificate or statement
(time to be of the essence) by giving written notice to
the Landlord and the Management Company have access to and
to inspect the service charge books of account for (or the
electronic equivalent thereof) and all vouchers receipts
invoices and other documentation relevant to the
calculation of the relevant expenditure for that Relevant
Financial Year and the two immediately preceding Financial
Years for the purpose of inspection and verification
provided always that such right may not be exercised more
frequently than once in any period of three years
(ii) At any time within ninety (90) days after the Sub-tenant
has access to inspect the books of account pursuant to
paragraph (i) the Sub-tenant may by notice to the
Management Company dispute that Relevant Service Charge
Account on the basis that any item of expenditure or part
thereof has been improperly included in such account and
the Sub-tenant shall set out the reasons for the dispute
in such notice and the items in dispute provided that if
the Sub-tenant does not give any such notice within the
said period (as to which time shall be of the essence) it
shall be deemed to have agreed the relevant Relevant
Service Charge Account
<PAGE> 209
153
(iii) In the event that the Sub-tenant and the
Management Company are unable to agree upon the
items disputed by the Sub-tenant in this notice
under Sub-clause (ii) then either of them may
require the dispute to be referred to an
independent expert (acting as such) who shall be a
chartered surveyor with not less than ten (10)
years' experience of managing substantial
multi-tenanted properties and who shall be
appointed in default of agreement on the
application of either party by the President for
the time being of the Royal Institution of
Chartered Surveyors or his duly appointed deputy
and if such independent expert shall be or become
unable or unwilling to act the referral procedure
referred to in this clause may be repeated as many
times as may be necessary provided that for the
avoidance of doubt it is agreed that the
Management Company may require to have included in
the Relevant Service Charge Account during the
reference to the independent expert any item of
expenditure which may properly be included in
Relevant Expenditure for the year in question but
which had been inadvertently omitted
(iv) The costs of any expert appointed shall be borne as he
shall direct Provided that in the event that the expert
determines that the Relevant Service Charge Percentage of
Relevant Expenditure in any disputed Relevant Service
Charge Account should be reduced by less than five per
cent. (5%) or should be increased the parties agree that
the costs of the expert are to be borne by the Sub-tenant
in any event unless the Management Company shall have
required the inclusion of any item pursuant to the proviso
in sub-clause (iii) above in which case the costs of any
expert shall be borne as he shall direct
(v) Notwithstanding any dispute that the Sub-tenant shall pay
the amount demanded in respect of the Relevant Service
Charge Percentage of the Relevant Expenditure in the
Relevant Service Charge Account and in the event that the
expert determines the Relevant Service Charge
<PAGE> 210
154
Percentage of the Relevant Expenditure to be a lower or
higher sum than that specified in the disputed Relevant
Service Charge Account then the Management Company shall
forthwith issue a duly corrected Relevant Service Charge
Account and either the Management Company shall refund
within fourteen (14) days of the issue of such corrected
Relevant Service Charge Account all service charges
overpaid by the tenant or the Sub-tenant shall within
fourteen (14) days of receipt of the corrected Relevant
Service Charge Account pay the balance due to the
Management Company as the case may require
4.3 For the purposes of Clause 4.1 until such time as a certificate is
issued by the Relevant Surveyor pursuant to Clause 4.2 the Estate
Service Charge Percentage shall be [ %] the Car Park Service Charge
Percentage shall be [ %] and the Building Service Charge Percentage
shall be [ %]
4.4 (a) If the Relevant Service Charge Percentage of the Relevant
Expenditure for any Relevant Financial Year (after taking into
account as the case may require the Estate Appropriation the Car
Park Appropriation or the Building Appropriation) shall exceed
the Relevant Advance Payment for that Relevant Financial Year the
excess together with interest thereon at the Base Rate calculated
from and including as the case may require the Estate Computing
Date the Car Park Computing Date or the Building Computing Date
next following the end of that Relevant Financial Year until the
date of payment shall be paid by the Sub-tenant to the Management
Company within 14 days of receipt by the Sub-tenant of written
demand or
(b) If the Relevant Service Charge Percentage of the Relevant
Expenditure for any Relevant Financial Year (after taking into
account as the case may require the Estate Appropriation the Car
Park Appropriation or the Building Appropriation) shall be less
than the Relevant Advance Payment for that Relevant Financial
Year the overpayment made by the Sub-tenant together in each case
with interest thereon at the Base Rate calculated as aforesaid up
to the date when the next Relevant Advance Payment on Account is
due shall be credited to the Sub-tenant against the next Estate
Payment on Account Car Park Payment on Account or
<PAGE> 211
155
Building Payment on Account as the case may require
4.5 Any omission by the Management Company to include in Relevant
Expenditure in any Relevant Financial Year a sum expended in that
Relevant Financial Year shall not preclude the Management Company from
including such sum in Relevant Expenditure in any of the three
immediately subsequent Relevant Financial Years
4.6 (a) Each of the Estate Reserve Fund the Car Park Reserve Fund and
the Building Reserve Fund shall be held upon trust during the
period of eighty (80) years from the date of the Lease (which
shall be the perpetuity period applicable hereto) respectively
for the persons who from time to time shall be owners tenants or
occupiers of the Estate the Car Park or the Building and each
shall be held in a separately designated interest bearing bank
account (and the Landlord and/or the Management Company shall
notify the bank or procure that the bank is notified of such
trust) and the Landlord or the Management Company shall utilise
the same with interest accruing thereon but after deducting tax
payable thereon and on such interest in defraying expenditure of
the nature referred to in part (ii) of the definition of
Building Expenditure (in the case of the Building Reserve Fund)
and in the corresponding paragraphs of the definitions of Estate
Expenditure and Car Park Expenditure (in the case of the Estate
Reserve Fund and Car Park Reserve Fund respectively) and at the
expiry of such perpetuity period the sums standing to the credit
of each of the Estate Reserve Fund the Car Park Reserve Fund and
the Building Reserve Fund and unexpended shall be paid
respectively to the persons who shall then be the tenants of the
Estate the Car Park or the Building in shares equal to their
respective Relevant Service Charge Percentages the Management
Company being entitled absolutely to any share payable in
respect of:-
(i) any Lettable Area which is unlet at such time and
(ii) any Car Parking Spaces which are not allocated for use by
any persons at such time
(b) The Management Company shall procure that upon the service by the
Landlord of notice under Clause 8.6 of the Lease
<PAGE> 212
156
(insofar as the same shall relate to the Estate Services) the
Estate Reserve Fund and (insofar as the same shall relate to the
Car Park Services) the Car Park Reserve Fund and (insofar as the
same shall relate to the Building Services) the Building Reserve
Fund (or in each case so much thereof as remains after the
defraying of such expenditure as aforesaid) shall be transferred
to the Landlord or any other company nominated by the Landlord in
such notice to be held upon the relevant trusts referred to in
this Clause 4.6 and upon the terms herein mentioned
4.7 If at any time or times during the subsistence of this Deed the
Management Company considers that circumstances have arisen making the
Relevant Service Charge Percentage or the formula for calculating the
same on the basis contemplated in the definition thereof unreasonable
or inequitable the Management Company may give written notice to the
Sub-tenant requiring a variation to the Relevant Service Charge
Percentage or the said formula which is fair and reasonable in all the
circumstances and in the event of there being any dispute regarding
such variation to the Relevant Service Charge Percentage the matter
shall be referred to a single Arbitrator to be appointed in default of
agreement upon the application of the Management Company or the
Sub-tenant by or on behalf of the President for the time being of the
Royal Institution of Chartered Surveyors in accordance with the
provisions of the Arbitration Acts 1950 to 1979
4.8 The Management Company may in its reasonable discretion having regard
to the interests of good estate management discontinue withhold add to
commence extend vary or make any alterations to any of the Estate
Services the Car Park Services or the Building Services or any of the
items referred to in Part B of the Sixth and Seventh Schedules to the
Lease from time to time if the Management Company shall reasonably deem
it desirable to do so in the interests of (or for the comfort of) the
owners and tenants on or for the efficient management security and
operation of the Estate the Car Park or the Building (as the case may
be) or for any other reason in the interests of good estate management
4.9 The Sub-tenant covenants with the Management Company that the
Sub-tenant will pay within fourteen (14) days of receipt by the
Sub-tenant of written demand such charge as may reasonably be
<PAGE> 213
157
determined by the Management Company in respect of any service (whether
or not constituting an Estate Service a Car Park Service or a Building
Service) provided at the request of the Sub-tenant to or for the
benefit of the Sub-tenant (whether or not exclusively) at a time or in
circumstances when or in which such service would not have been
provided but for such request
4.10 The provisions of this Clause shall continue to apply notwithstanding
the expiration or sooner determination of the term of the lease or
other tenancy pursuant to which the Sub-tenant occupies the Demised
Premises but only in respect of the period down to such expiration or
sooner determination the Relevant Service Charge Percentage of the
Relevant Expenditure payable for that Relevant Financial Year being
apportioned for the said period on a daily basis
[4.11 Notwithstanding the foregoing provisions of this Clause 4 in
calculating the Building Service Charge Percentage of the Estimated
Building Expenditure and the Building Service Charge Percentage of the
Building Expenditure the amounts payable by the Sub-tenant shall until
such time as the Dedicated Lobby becomes part of the Common Parts of
the Building be adjusted to the intent that the Sub-tenant shall pay [a
pro-rata proportion by reference to the area of the Demised Premises to
the area of the premises demised by the Lease] of such Building
Expenditure incurred by the Landlord and/or the Management Company and
properly attributable to the Dedicated Lobby and the Dedicated Lifts
and no part of such Building Expenditure attributable to the entrance
lobby at the eastern side of the Building and the passenger lifts lift
shafts and plant apparatus and equipment relating thereto in the
eastern core of the Building]
5. SERVICE OF NOTICES ON TENANT
The Management Company shall provide to the Tenant under the Lease a
copy of every Relevant Service Charge Account and every notice which the
Management Company serves on the Sub-tenant at the same time as and whenever
such account or notice is given by the Management Company to the Sub-tenant and
such account and copy notice shall be addressed to the Tenant under the Lease at
the address last furnished to the Management Company and no notice to the
Sub-tenant shall be deemed to have been given by the Management Company unless
and until a copy thereof shall have been so given to the Tenant under the Lease
<PAGE> 214
158
and the Management Company will accept performance by the Tenant under the Lease
of any covenant condition or agreement on the Sub-tenant's part contained in
this Deed
6. TERMINATION
6.1 If during the subsistence of this Deed the Sub-tenant shall fail to
make payment of the Relevant Service Charge Percentage of the Relevant
Expenditure within twenty-eight (28) days after the relevant Quarterly
Day or (as the case may be) the date of service of the first demand on
the Sub-tenant for payment of it then the Management Company shall be
entitled to serve notice of that default on the Sub-tenant and if the
Sub-tenant has not within a period of twenty-eight (28) days from the
date of service of the notice made payment of the Relevant Service
Charge Percentage of the Relevant Expenditure the Management Company
shall be entitled to determine this Deed by notice to the Sub-tenant
but without prejudice to the rights or remedies of the Management
Company or the Sub-tenant against the other
6.2 The provisions of this Deed shall in any case terminate forthwith upon
the expiration or determination of the lease or other tenancy pursuant
to which the Sub-tenant occupies the Demised Premises unless upon such
expiration or other determination the Sub-tenant is granted a new
tenancy or enters into a new arrangement for its continued occupancy of
the Demised Premises or unless it continues to occupy pursuant to any
statutory continuation or extension of its tenancy or occupancy
arrangement
6.3 The Sub-tenant shall be entitled to determine this Deed at any time by
service of written notice on the Management Company and upon service of
such notice this Deed shall forthwith determine
7. INTEREST ON ARREARS
Without prejudice to any other right remedy or power contained in this
Deed or otherwise available to the Management Company if any sum of money
payable by the Sub-tenant to the Management Company remains unpaid for fourteen
(14) days after the date when payment was due the Sub-tenant shall pay interest
on it at the Interest Rate from and including the date on which payment was due
to the date of payment to the Management Company (both before and after any
judgment) and for
<PAGE> 215
159
the avoidance of doubt a payment under this Deed shall be deemed due from the
date of written demand for it Provided that if any such sum is not paid as a
result of a bona fide dispute between the Management Company and the Sub-tenant
then interest shall be payable at Base Rate and not at the Interest Rate from
the date on which the sum becomes payable until the end of a period of fourteen
(14) days from the date on which the dispute is resolved or determined
8. NOTICES
8.1 Any demand or notice required to be made given to or served on the
Sub-tenant under this Deed shall be in writing and shall be duly and
validly made given or served if addressed to the Sub-tenant (and if
there shall be more than one of them then any one of them) and
delivered personally or sent by pre-paid registered or recorded
delivery mail or sent by telex or fax addressed to its registered or
principal office
8.2 Any notice required to be given to or served on the Management Company
shall be in writing and shall be duly and validly given or served if
sent by pre-paid registered or recorded delivery mail or sent by telex
or fax addressed to the Management Company at its registered or
principal office
9. CHOICE OF GOVERNING LAWS
This Deed shall be governed by and construed in accordance with English
Law
10. COUNTERPART
This Deed may be executed in any number of counterparts and by the
parties on separate counterparts each of which shall constitute an original but
all the counterparts shall together constitute but one and the same document
IN WITNESS of which this Deed has been executed and has been delivered on the
date which appears first on page 1
<PAGE> 216
160
THE COMMON SEAL of the )
MANAGEMENT COMPANY was affixed to )
this Deed in the presence of:- )
Director
Director/Secretary
THE COMMON SEAL of the )
[SUB-TENANT] was affixed to this )
Deed in the presence of:- )
Director
Director/Secretary
ON LEASE
THE COMMON SEAL of CANARY )
WHARF LIMITED was affixed in )
the presence of:- )
Director
Secretary
ON COUNTERPART
THE COMMON SEAL of CANARY )
WHARF MANAGEMENT LIMITED was )
affixed in the presence of:- )
Director
Secretary
<PAGE> 217
161
THE COMMON SEAL of MORGAN )
STANLEY UK GROUP was affixed in )
the presence of:- )
Director
Director
THE CORPORATE SEAL of )
MORGAN STANLEY GROUP INC )
was affixed in the presence:- )
Director
Director
<PAGE> 218
162
ANNEXURE 2
DEED OF RELEASE
THIS DEED OF RELEASE is made the [ ] day of [ ] [ ]
BETWEEN
(1) [ ] (Company Registration No. [ ]) whose
registered office is at [ ]
(hereinafter called the "Landlord")
(2) [ ] (Company Registration No. [ ]) whose
registered office is at [ ]
(hereinafter called the "Tenant")
WHEREAS
1. This Deed is supplemental to an underlease of the premises known as part
ground and first to sixth floors of 20 Cabot Square Canary Wharf (the
"Premises") dated [ ] 19[ ] and made between Canary Wharf Limited
(1) Canary Wharf Management Limited (2) Morgan Stanley UK Group (3) and
Morgan Stanley Group Inc. (4) (the "Lease").
2. The reversion immediately expectant on the term of years granted by the Lease
[remains vested[ OR [is now vested] in the Landlord and the residue of the said
term [remains vested[ OR [is now vested] in the Tenant.
3. The Tenant was released from all future liability pursuant to the Lease in
accordance with Clause 8.17 of the Lease with effect from and including [ ]
and it is a requirement of that clause that the Landlord should enter into
this deed in order to record such release.
NOW THIS DEED WITNESSETH as follows:
1. The Landlord hereby releases absolutely with effect from and including
[ ] the Tenant from all of its obligations contained in and all liabilities
whatsoever pursuant to the Lease or any other deed or document supplemental to
the Lease and all damages
<PAGE> 219
163
actions proceedings costs claims demands and expenses arising from such
obligations and liabilities but without prejudice to any claim which the
Landlord may have in respect of any antecedent breach of covenant by the Tenant.
2. It is hereby certified that the transaction hereby effected does not form
part of a larger transaction or of a series of transactions in respect of which
the amount or value or the aggregate amount or value of the consideration
exceeds [60,000 pounds sterling].
IN WITNESS WHEREOF the parties have executed this document as a Deed the day and
year first before written.
<PAGE> 220
<TABLE>
<CAPTION>
INDEX
-----
CLAUSE PAGE
- ------ ----
<S> <C>
1. DEFINITIONS
2. INTERPRETATION
3. DEMISE AND RENTS
4. TENANT'S COVENANTS
4.1 Rents
4.2 Interest on arrears
4.3 Outgoings
4.4 Utility authorities
4.5 Repairs
4.6 Plant and machinery
4.7 Decorations
4.8 Cleaning
4.9 Yield up
4.10 Rights of entry by Landlord and the
Management Company
4.11 To comply with notices
4.12 Overloading floors and services and
installation of wiring etc.
4.13 Pipes
4.14 Cooking
4.15 Dangerous materials and use of machinery
4.16 Heating cooling and ventilation and other
systems
4.17 User
4.18 Alterations signs and visual amenity
4.19 Works carried out to the Demised Premises
4.20 Alienation
4.21 Registration of dispositions
4.22 Disclosure of information
4.23 Landlord's costs
4.24 Statutory requirements
4.25 Planning Acts
4.26 Statutory notices
4.27 Defective premises
4.28 Fire precautions and equipment etc.
4.29 Encroachments and easements
4.30 Reletting and sale notices
4.31 Value Added Tax
4.32 Regulations
4.33 Covenants affecting reversion
4.34 Notification of local employees
4.35 Docklands Light Railway
5. LANDLORD AND MANAGEMENT COMPANY'S COVENANTS
RELATING TO SERVICES
6. LANDLORD'S COVENANTS
6.1 Quiet enjoyment
6.2 Guarantee of Management Company's Obligations
6.3 Superior Title
6.4 Atrium Dedicated Lobby and Dedicated Lifts
6.5 Facilities
6.6 Notification of Numbers of Local Employees
6.7 Value Added Tax
6.8 Naming rights
7. INSURANCE
7.1 Landlord to insure
7.2 Commissions and restriction on Tenant insuring
7.3 Tenant's Works
</TABLE>
<PAGE> 221
<TABLE>
<S> <C>
7.4 Landlord's fixtures
7.5 Landlord to produce evidence of insurance
7.6 Cesser of rent
7.7 Destruction of the Building
7.8 Option to determine
7.9 Payment of insurance moneys refused
7.10 Insurance becoming void
7.11 Requirements of insurers
7.12 Notice by Tenant
8. PROVISOS
8.1 Forfeiture
8.2 No implied easements
8.3 Exclusion of warranty as to user
8.4 Landlord's and Management Company's obligations
8.5 Exclusion of Landlord's and Management Company's
liability
8.6 Right for Landlord to perform or to nominate another
company to perform Management Company's obligations
8.7 Development of Adjoining Property
8.8 Exclusion of statutory compensation
8.9 Use of premises outside Business Hours
8.10 Notices
8.11 Invalidity of certain provisions
8.12 Plans drawings etc.
8.13 Confidentiality provision
8.14 Waiver etc. of regulations
8.15 Applicable Law and Jurisdiction
8.16 Representations
8.17 Cesser of Liability
</TABLE>
9. SERVICE CHARGE
10. OPTION TO TERMINATE
11. LANDLORD'S FURTHER PAYMENT
12. SERVICE CHARGE DEED
FIRST SCHEDULE
Rights Granted
SECOND SCHEDULE
Exceptions and Reservations
THIRD SCHEDULE
Rent Reviews
FOURTH SCHEDULE
Covenants by the Surety
FIFTH SCHEDULE
Matters to which the Demised Premises are subject
SIXTH SCHEDULE
Car Park Services and Estate Services
SEVENTH SCHEDULE
Building Services
EIGHTH SCHEDULE
Form of the Service Charge Deed to be executed
under Clause 12
Annexure
Specification
<PAGE> 222
Deed of Release
Minimum Standard Developer's Finish
<PAGE> 223
LEASE PARTICULARS
<TABLE>
<S> <C>
1. DATE: day of 199
2. LEASE OR UNDERLEASE: Underlease
3. PARTIES
(a) LANDLORD:
CANARY WHARF LIMITED whose
registered office is at One
Canada Square Canary Wharf
London E14 5AB (Company
registration number
1971312)
(b) MANAGEMENT COMPANY:
CANARY WHARF MANAGEMENT
LIMITED whose registered
office is at One Canada
Square Canary Wharf London
E14 5AB (Company
registration number 2067510)
(c) TENANT:
MORGAN STANLEY UK GROUP
whose registered office is
at 25 Cabot Square Canary
Wharf London E14 8QA
(Company registration number
1281415)
(d) SURETY:
MORGAN STANLEY GROUP INC a
Corporation incorporated
under the laws of the State
of Delaware having an office
at 1251 Avenue of the
Americas New York New York
10020
4. DEMISED PREMISES:
Those parts of the Ground
and the whole of the First
Second Third Fourth Fifth
and Sixth floors of the
Building shown for the
purpose of identification
only edged red
</TABLE>
<PAGE> 224
and in part hatched green on
plans 2 3 4 5 6 7 and 8 and
after any surrender and
determination of any part of
the Demised Premises
pursuant to Clause 10 the
Demised Premises shall be
those parts of the Building
which remain subject to this
Lease
5. BUILDING:
ALL THAT land and premises
including (if any) the
dockbed and water thereover
the quayside and the parts
of the dock walls located
therein known as 20 Cabot
Square Canary Wharf West
India Docks Isle of Dogs
London E14 and more
particularly shown edged red
on Plan 1 together with the
Building erected thereon
6. TERM and TERM 25 years commencing on 1st
February
COMMENCEMENT DATE: 1995
7. INITIAL RENT:
For each of the first three
years of the Term THIRTY
SEVEN THOUSAND FIVE HUNDRED
POUNDS (37,500 pounds
sterling) and thereafter
FIVE MILLION ONE
HUNDRED AND SIXTY SEVEN
THOUSAND THREE HUNDRED AND
THIRTY EIGHT POUNDS
(5,167,338 pounds sterling)
8. RENT COMMENCEMENT DATE:
1st February 1995
9. RENT REVIEW DATES:
1st February 2005 and every
fifth anniversary of such
day during the Term
10. ESTATE SERVICE CHARGE The percentage to be
PERCENTAGE: established
pursuant to Clause 9.1(n)
(subject
<PAGE> 225
to Clause 9.8)
11. CAR PARK SERVICE CHARGE The percentage to be
PERCENTAGE: established
pursuant to Clause 9.1(i)
(subject to Clause 9.8)
12. BUILDING SERVICE CHARGE The percentage to be
PERCENTAGE: established
pursuant to Clause 9.1(d)
(subject to Clause 9.8)
13. DECORATION YEARS:
The year ending 31st January
2000 and thereafter every
subsequent fifth year of the
Term
14. PERMITTED USER:
Offices including banking
halls and trading floors
together with associated
kitchen restaurant and
recreational facilities and
any other uses ancillary to
any of these uses as
required from time to time
by the Tenant
<PAGE> 1
MORGAN STANLEY GROUP INC. Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
PRIMARY:
Common stock and common stock equivalents:
Average common shares outstanding 76,988,251 74,643,452 76,124,581
Average common shares issuable
under employee benefit plans 1,908,357 1,564,836 1,999,219
---------- ---------- ----------
Total average common and common
equivalent shares outstanding 78,896,608 76,208,288 78,123,800
========== ========== ==========
Earnings: $395 $786 $510
Net income
Less: Preferred stock dividend
requirements 65 55 49
---------- ---------- ----------
Earnings applicable to common shares $330 $731 $461
========== ========== ==========
Primary earnings per share $4.18 $9.59 $5.90
========== ========== ==========
FULLY DILUTED:
Common stock and common stock equivalents:
Average common shares outstanding 76,988,251 74,643,452 76,124,581
Average common shares issuable
under employee benefit plans 1,908,357 1,719,887 2,024,054
Common shares issuable upon conversion
of preferred stock 3,808,874 3,834,109 3,811,270
---------- ---------- ----------
Total average common and common
equivalent shares outstanding 82,705,482 80,197,448 81,959,905
========== ========== ==========
Earnings: $395 $786 $510
Net income
Less: Preferred stock dividend
requirements 62 51 42
---------- ---------- ----------
Earnings applicable to common shares $333 $735 $468
========== ========== ==========
Fully diluted earnings per share $4.03 $9.16 $5.71
========== ========== ==========
</TABLE>
<PAGE> 1
Exhibit 12
Morgan Stanley Group Inc.
Ratio of Earnings to Fixed Charges
and Ratio of Earnings to Fixed Charges and Preferred Stock Dividends
(Dollars in millions)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31, YEAR ENDED DECEMBER 31,
---------------------------------- ----------------------
1995 1994 1993 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES
Earnings:
Income before income taxes $ 594 $1,200 $ 793 $ 772 $ 470
Add: Fixed charges, net 5,916 5,055 4,397 3,963 3,759
------ ------ ------ ------ ------
Income before income taxes and
fixed charges, net $6,510 $6,255 $5,190 $4,735 $4,229
====== ====== ====== ====== ======
Fixed charges:
Total interest expense (1) $5,899 $5,020 $4,362 $3,946 $3,723
Interest factor in rents (2) 41 35 35 38 36
------ ------ ------ ------ ------
Total fixed charges $5,940 $5,055 $4,397 $3,984 $3,759
====== ====== ====== ====== ======
Ratio of earnings to fixed charges 1.1 1.2 1.2 1.2 1.1
RATIO OF EARNINGS TO FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
Earnings:
Income before income taxes $ 594 $1,200 $ 793 $ 772 $ 470
Add: Fixed charges, net 5,916 5,055 4,397 3,963 3,794
------ ------ ------ ------ ------
Income before income taxes and
fixed charges, net $6,510 $6,255 $5,190 $4,735 $4,264
====== ====== ====== ====== ======
Fixed charges:
Total interest expense (1) $5,899 $5,020 $4,362 $3,946 $3,723
Interest factor in rents (2) 41 35 35 38 36
Preferred stock dividends (3) 97 85 82 47 35
------ ------ ------ ------ ------
Total fixed charges and preferred
stock dividends $6,037 $5,140 $4,479 $4,031 $3,794
====== ====== ====== ====== ======
Ratio of earnings to fixed charges and
preferred stock dividends 1.1 1.2 1.2 1.2 1.1
</TABLE>
(1) Total interest expense for the fiscal year ended January 31, 1995 and the
years ended December 31, 1991 and December 31, 1990 includes capitalized
interest.
(2) Interest factor in rents represents one-third of rent expense, which is
considered representative of the interest factor.
(3) The preferred stock dividend amounts represent pre-tax earnings required to
cover dividends on preferred stock.
<PAGE> 1
Exhibit 13.1
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
NOTE 11
QUARTERLY RESULTS
(unaudited)
<TABLE>
<CAPTION>
Fiscal 1993 Fiscal 1994
------------------------------------------------ -------------------------------------------------
(Dollars in Millions, First Second Third Fourth First Second Third Fourth
Except Share Data) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- -------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Investment banking....... $ 379 $ 318 $ 296 $ 245 $ 260 $ 211 $ 190 $ 258
Principal transactions:
Trading................. 370 518 285 286 258 300 297 249
Investments............. 11 18 92 37 10 23 82 24
Commissions.............. 91 91 101 110 119 112 104 114
Interest and dividends... 1,282 1,478 1,573 1,327 1,561 1,525 1,714 1,606
Asset management
and administration...... 52 64 67 75 81 89 95 85
Other.................... 1 3 5 1 3 2 3 1
- -------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues........... 2,186 2,490 2,419 2,081 2,292 2,262 2,485 2,337
Interest expense......... 1,135 1,343 1,386 1,156 1,404 1,349 1,575 1,547
- -------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net revenues............. 1,051 1,147 1,033 925 888 913 910 790
- -------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Expenses excluding interes
Compensation and
benefits................ 524 572 525 428 440 460 460 373
Occupancy and
equipment............... 58 62 64 64 68 74 79 82
Brokerage, clearing and
exchange fees........... 48 44 52 52 58 59 56 57
Communications........... 24 24 26 26 29 28 31 34
Business development..... 30 32 31 41 39 41 41 44
Professional services.... 26 30 30 34 41 39 41 43
Other.................... 23 24 29 33 29 30 32 40
Relocation charge........ -- -- -- -- -- -- -- 59
- -------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total expenses
excluding interest...... 733 788 757 678 704 731 740 732
- -------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before income
taxes.................... 318 359 276 247 184 182 170 58
Provision for income
taxes.................... 119 135 94 66 67 61 52 19
- -------------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income................ $ 199 $ 224 $ 182 $ 181 $ 117 $ 121 $ 118 $ 39
========================== =========== =========== =========== =========== =========== =========== =========== ===========
Earnings applicable to
common shares (3)........ $ 187 $ 212 $ 167 $ 165 $ 101 $ 104 $ 102 $ 23
========================== =========== =========== =========== =========== =========== =========== =========== ===========
Per common share:
Primary earnings (1)..... $ 2.40 $ 2.77 $ 2.20 $ 2.18 $ 1.27 $ 1.31 $ 1.30 $ 0.29
Fully diluted
earnings (1)............ $ 2.29 $ 2.65 $ 2.10 $ 2.08 $ 1.22 $ 1.26 $ 1.25 $ 0.29
Cash dividends........... $ 0.27 $ 0.27 $ 0.27 $ 0.27 $ 0.30 $ 0.30 $ 0.30 $ 0.30
Book value............... $38.09 $40.27 $42.16 $46.14 $46.67 $47.52 $48.42 $49.77
Average common and
equivalent shares (3).... 77,889,047 76,474,964 75,944,556 75,938,109 79,828,671 79,605,505 78,354,016 77,534,004
Stock price range (2)..... $55 1/4- $59-70 1/2 $69 5/8- $69 1/4- $60 7/8- $55 5/8- $59 3/8- $55 1/4-
66 1/8 89 79 3/8 79 1/2 62 1/4 69 3/4 65 1/8
</TABLE>
(1) Summation of the quarters' earnings per common share does not equal the
annual amounts due to the averaging effect of the number of shares and share
equivalents throughout the year.
(2) Prices represent the range of sales per share on the New York Stock Exchange
for the periods indicated. The number of stockholders of record at January
31, 1995 approximated 1,350. The number of beneficial owners of common
stock is believed to exceed this number.
(3) Amounts shown are used to calculate primary earnings per share.
PAGE | SEVENTY-SEVEN
<PAGE> 1
Exhibit 13.2
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
January 31, January 31, January 31,
(Dollars in Millions, Except Share and Employee Data) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME STATEMENT:
Revenues:
Investment banking.............................. $ 919 $ 1,238 $ 965
Principal transactions:
Trading..................................... 1,104 1,459 953
Investments................................. 139 158 128
Commissions..................................... 449 393 312
Interest and dividends.......................... 6,406 5,660 4,814
Asset management and
administration................................ 350 258 200
Other........................................... 9 10 10
----------- ----------- -----------
Total revenues.............................. 9,376 9,176 7,382
----------- ----------- -----------
Interest expense................................ 5,875 5,020 4,362
----------- ----------- -----------
Net revenues................................ 3,501 4,156 3,020
----------- ----------- -----------
Expenses excluding interest:
Compensation and benefits....................... 1,733 2,049 1,457
Other........................................... 1,115 907 770
Relocation charge............................... 59 -- --
----------- ----------- -----------
Total expenses excluding
interest.................................. 2,907 2,956 2,227
----------- ----------- -----------
Income before income taxes........................... 594 1,200 793
Provision for income taxes........................... 199 414 283
----------- ----------- -----------
NET INCOME........................................... $ 395 $ 786 $ 510
=========== =========== ===========
Earnings applicable to common
shares (1)........................................ $ 330 $ 731 $ 461
=========== =========== ===========
BALANCE SHEET:
Total assets......................................... $ 116,694 $ 97,242 $ 80,353
Total capital (2).................................... $ 12,057 $ 9,813 $ 6,570
Stockholders' equity................................. $ 4,555 $ 4,469 $ 3,434
Long-term borrowings (2)............................. $ 7,502 $ 5,344 $ 3,136
Average common and equivalent
shares (1)........................................ 78,896,608 76,208,288 78,123,800
PER COMMON SHARE:
Primary earnings..................................... $ 4.18 $ 9.59 $ 5.90
Fully diluted earnings............................... $ 4.03 $ 9.16 $ 5.71
Cash dividends....................................... $ 1.20 $ 1.08 $ 0.955
Book Value........................................... $ 49.77 $ 46.14 $ 36.72
OTHER DATA:..........................................
Return on average common equity...................... 8.8% 23.7% 17.6%
Income tax rate...................................... 33.5% 34.5% 35.7%
Pre-tax margin....................................... 17.0% 28.9% 26.3%
Number of employees.................................. 9,685 8,273 7,421
CHANGE FROM PRIOR YEAR:
Net revenues......................................... (15.8)% 37.6% 5.6%
Net income........................................... (49.7)% 54.1% 7.4%
Common stockholders' equity.......................... 2.1% 28.3% 22.3%
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
(Dollars in Millions, Except Share and Employee Data) 1991 1990
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
INCOME STATEMENT:
Revenues:
Investment banking.............................. $ 823 $ 652
Principal transactions:
Trading..................................... 1,320 902
Investments................................. 19 2
Commissions..................................... 271 275
Interest and dividends.......................... 4,181 3,894
Asset management and
administration................................ 160 131
Other........................................... 11 13
----------- -----------
Total revenues.............................. 6,785 5,869
----------- -----------
Interest expense................................ 3,924 3,711
----------- -----------
Net revenues................................ 2,861 2,158
----------- -----------
Expenses excluding interest:
Compensation and benefits....................... 1,396 1,057
Other........................................... 693 631
Relocation charge............................... -- --
----------- -----------
Total expenses excluding
interest.................................. 2,089 1,688
----------- -----------
Income before income taxes........................... 772 470
Provision for income taxes........................... 297 200
----------- -----------
NET INCOME........................................... $ 475 $ 270
=========== ===========
Earnings applicable to common
shares (1)........................................ $ 447 $ 251
=========== ===========
BALANCE SHEET:
Total assets......................................... $ 63,709 $ 53,526
Total capital (2).................................... $ 5,422 $ 3,380
Stockholders' equity................................. $ 2,994 $ 2,171
Long-term borrowings (2)............................. $ 2,428 $ 1,209
Average common and equivalent
shares (1)........................................ 75,397,381 74,228,752
PER COMMON SHARE:
Primary earnings..................................... $ 5.93 $ 3.37
Fully diluted earnings............................... $ 5.61 $ 3.33
Cash dividends....................................... $ 0.795 $ 0.75
Book Value........................................... $ 30.77 $ 25.83
OTHER DATA:..........................................
Return on average common equity...................... 21.4% 13.8%
Income tax rate...................................... 38.5% 42.5%
Pre-tax margin....................................... 27.0% 21.8%
Number of employees.................................. 7,053 7,122
CHANGE FROM PRIOR YEAR:
Net revenues......................................... 32.5% (12.0)%
Net income........................................... 75.7% (39.0)%
Common stockholders' equity.......................... 25.3% 7.9%
</TABLE>
(1) Amounts shown are used to calculate primary earnings per share.
(2) These amounts exclude the current portion of long-term borrowings.
PAGE | TWO
<PAGE> 1
Exhibit 13.3
MORGAN STANLEY 1994 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Substantial positive and negative fluctuations can occur in the Company's
business due to a variety of factors, including variations in the fair value of
securities and other financial products, the volatility and liquidity of trading
markets, and the level of market activity. As a result, net income and revenues
in any particular period may not be representative of full-year results and may
vary significantly from year to year and from quarter to quarter. In addition,
results of operations in the past have been and in the future may continue to be
materially affected by many factors of a national and international nature,
including economic and market conditions; the availability of capital; the level
and volatility of interest rates; currency values and other market indices; and
the availability of credit, inflation, and legislative and regulatory
developments, as well as the size, number and timing of transactions or
assignments (including realization of returns from the Company's merchant
banking investments). Such factors, which cannot be predicted with any
certainty, generally affect the primary and secondary markets for many types of
financial products, including debt and equity securities, as well as
derivatives, and therefore may significantly affect the Company's revenues and
earnings (see "Risk Management" herein). The Company's results of operations
also may be materially affected by competitive factors, including new entrants
into the Company's traditional business activities, and its ability to attract
and retain highly skilled individuals.
After three years of strong growth, the global securities industry
experienced a setback in 1994. Rapidly rising interest rates and inflation
concerns in the United States created difficult market conditions, resulting in
a significant decline in client activity, including reduced levels of debt and
equity underwriting worldwide. These conditions, and turmoil late in the year in
Mexico and other emerging markets, contributed to the most difficult year for
the securities industry since 1990.
Although the difficult market conditions that characterized 1994 adversely
impacted revenues from the Company's underwriting and fixed income sales and
trading activities, the Company believes that the fundamental trends shaping the
worldwide economy will provide considerable opportunities for long-term growth.
In view of this, the Company continued to invest in its long-term global
competitive position during 1994 through strategically focused additions to
staff and aggressive expansion internationally. Additional hiring throughout
1994 increased employee headcount by 17% to 9,685 at January 31, 1995, and the
Company expanded its offices in Hong Kong, Shanghai, Singapore, Bombay, Paris,
Frankfurt and Toronto and opened new ones in Beijing, Montreal, Johannesburg,
Sydney and Geneva. In addition, the Company made important additional
investments in upgrading its technology, which is essential to managing risk and
maintaining long-term leadership in the increasingly competitive, integrated and
complex global financial markets. Although the Company continued to focus on
cost-containment initiatives during 1994, the additional costs associated with
its investments and global expansion contributed to the decline in the Company's
1994 results.
The Company continues to believe that its strategic investments in human
and technological resources will enhance its ability to provide value-added
service to suppliers and users of capital in the global marketplace. At the same
time, cost-control, risk management and other factors that impact profitability
will remain challenging, particularly during periods of difficult market
conditions. The Company's ongoing progress in these areas will be an important
factor in its ability to achieve acceptable return-on-equity levels and thus
will be a significant measure of the overall success of the Company's strategy.
For a description of the Company's business, including its trading in cash
instruments and derivative products, its merchant banking activities, and its
high-yield underwriting and trading policies, and their respective risks, see
Part I, Item I, of the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1995 ("Form 10-K").
The discussion which follows compares the results of operations for fiscal
1994 (February 1, 1994 to January 31, 1995) with those for fiscal 1993 (February
1, 1993 to January 31, 1994).
PAGE | THIRTY-THREE
<PAGE> 2
FISCAL 1994 COMPARED
WITH FISCAL 1993
The Company's 1994 fiscal revenues and earnings reflect an industry-wide decline
in client activity, particularly in fixed income products, driven by rising
interest rates and inflation concerns. Amounts for fiscal 1993 are given in
parentheses.
Revenues net of interest expense (net revenues) declined 16% to $3,501
million ($4,156 million), and net income totaled $395 million ($786 million), a
decline of 50%, reflecting non-interest expenses which generally remained at
prior-year levels despite the decline in revenues.
Investment banking revenues decreased 26% to $919 million ($1,238 million),
reflecting significantly reduced revenues from debt financing activity, which
partially were offset by increased revenues from merger, acquisition and
restructuring assignments.
The decline in debt financing activity reflected a significant change in
fixed income market conditions in 1994. Higher interest rates, started by the
Federal Reserve Board's early 1994 decision to raise short-term interest rates
in an attempt to curb U.S. inflation and moderate economic growth, discouraged
clients from raising additional capital in the debt market throughout 1994. As
the volume of new issues fell, the market for debt underwriting became
increasingly competitive. Aggregate revenues from debt underwriting fell 69% to
$176 million ($560 million). Within this category, primary revenues generated
from fixed income derivative products decreased to $61 million ($193 million),
resulting from the overall lower level of debt underwriting volume (which
typically is an integral component of primary structured product activity),
coupled with a decrease in investor interest.
Although equity financing activity also was negatively impacted by
difficult market conditions, the Company increased its market share for
worldwide equity underwriting and lead-managed a number of the year's largest
transactions for U.S. issuers. Therefore, despite significant deterioration in
the markets for new equity issues, the Company's revenues from equity
underwriting fell only modestly to $364 million ($380 million).
Financial advisory fees from merger, acquisition and restructuring
transactions benefited from a significant industry-wide increase in corporate
restructuring activity. The Company maintained its strong market position in
this activity as revenues from advisory assignments rose 27% to $379 million
($298 million).
Secondary revenues (combined principal trading, commissions and net
interest revenues) decreased 16% to $2,084 million ($2,492 million). Principal
transaction revenues from trading activities, including derivatives, fell 24% to
$1,104 million ($1,459 million), reflecting substantially lower revenues from
trading in fixed income products. For a discussion of the Company's derivative
trading activities, see "Derivative Financial Instruments" herein.
Fixed income trading revenues, which declined 56% to $347 million ($788
million), were adversely affected by reduced client activity driven by the
difficult market conditions discussed above. Uncertainty in the direction of
interest rates and a reduced flow of new issues into the secondary markets
coupled with downward pressure on prices discouraged client-driven sales and
trading activity. In December 1994 and January 1995, the devaluation of the
Mexican peso and concerns over Russia's economy created very difficult
conditions in emerging markets. This resulted in lower revenue levels in the
Company's global corporate, emerging market and high-yield activities. U.S.
government debt, foreign sovereign debt, and interest rate and currency
swap-trading activities were not as adversely impacted and therefore comprised a
more significant percentage of fixed income trading revenues in 1994.
Revenues from foreign exchange trading declined 28% to $148 million ($205
million), largely due to reduced client activity and lower market volatility, as
well as a weakening in the U.S. dollar relative to other major currencies.
Equity trading revenues rose 25% to $510 million ($407 million), reflecting
strong client-driven revenues arising from a wide range of cash and structured
equity products in all of the international markets in which the Company
operates.
Revenues from commodities trading rose 68% to $99 million ($59 million),
benefiting from a favorable trading environment in precious metals, energy and
agricultural products during the first half of 1994.
PAGE | THIRTY-FOUR
<PAGE> 3
MORGAN STANLEY 1994 ANNUAL REPORT
FISCAL 1994 COMPARED
WITH FISCAL 1993
(continued)
Principal transaction investment revenues aggregating $139 million were
recognized in fiscal 1994 ($158 million), including revenues related to sales of
the Company's investments in equity securities of Agricultural Minerals and
Chemicals Inc. and Coltec Industries.
Commission revenues increased 14% to $449 million ($393 million),
principally reflecting increased customer activity in the global markets for
equity securities as well as customer activity in new markets, such as Latin
America and Southeast Asia.
Interest and dividend revenues and expense are a function of the level and
mix of total assets, including financial instruments owned and resale and
repurchase agreements, and the prevailing level, term structure and volatility
of interest rates. In fiscal 1994, the Company's net interest and dividend
revenues decreased 17% to $531 million ($640 million), primarily resulting from
a substantial flattening of the U.S. yield curve as short-term rates rose faster
than long-term rates throughout much of the year. The resulting decline in
interest rate spreads adversely affected the profitability of the Company's
spread-sensitive businesses, and the flatter yield curve substantially reduced
the savings from the Company's use of swaps to effectively convert much of its
fixed rate debt to floating rate debt (see Note 3 to the Consolidated Financial
Statements). Interest and dividend revenues rose 13% to $6,406 million ($5,660
million), and interest expense increased 17% to $5,875 million ($5,020 million),
principally reflecting growth in interest-bearing assets and liabilities.
Interest and dividend revenues and expense should be viewed in the broader
context of principal trading and investment banking results. Decisions relating
to principal transactions in securities are based on an overall review of
aggregate revenues and costs associated with each transaction or series of
transactions. This review includes an assessment of the potential gain or loss
associated with a trade, the interest income or expense associated with
financing or hedging the Company's positions, and potential underwriting,
commission or other revenues associated with related primary or secondary market
sales.
Asset management and administration revenues, which include fees for asset
management and non-interest revenues earned from correspondent clearing and
custody services, increased 36% to $350 million ($258 million), reflecting
growth in both asset management activities and global clearing and custody
services resulting from the Company's continuing strategic emphasis on these
businesses. Customer assets under management increased 4% to $49 billion ($47
billion), reflecting continued growth in international and emerging market
funds. Customer assets under administration increased 25% to $90 billion ($72
billion), primarily reflecting additional assets placed under custody with the
Company.
Despite a 17% year-over-year strategically planned increase in the number
of employees (from 8,273 at January 31, 1994 to 9,685 at January 31, 1995),
total non-interest expenses fell marginally, to $2,907 million ($2,956 million).
Within that total, employee compensation and benefits expense decreased 15% to
$1,733 million ($2,049 million), due in part to reduced levels of incentive
compensation based on lower revenues and earnings. Other non-interest expenses,
excluding the non-recurring relocation charge discussed below, increased 23% to
$1,115 million ($907 million). Business development and professional service
expenses increased $75 million, reflecting significantly increased recruiting
and travel costs directly related to the strategic growth of the Company's
business in existing markets and global expansion into new markets. Occupancy
and equipment expenses increased $55 million, reflecting incremental space costs
related to growth in the number of employees and global expansion, as well as
significantly greater spending for technology equipment. Brokerage, clearing and
exchange fees increased $34 million, reflecting increased trade volumes,
business mix changes and the growing international component of the Company's
sales and trading activities.
Fourth quarter 1994 expenses include a pre-tax relocation charge of $59
million relating to the Company's decision to vacate much of its current New
York City office space at 1251 Avenue of the Americas after it completes the
relocation of staff presently occupying that space to a new headquarters
building at 1585 Broadway. The charge includes both the remaining post-move
lease commitment (expiring in 1998) and the
PAGE | THIRTY-FIVE
<PAGE> 4
FISCAL 1994 COMPARED
WITH FISCAL 1993
(continued)
write-off of the remaining net book value of improvements at the old site. The
relocation charge also includes similar charges relating to the Company's plans
to move its Tokyo office to newly leased space in 1996; the Tokyo-related
provision consists largely of the write-off of improvements and restoration
costs for the space being vacated.
The Company's fiscal 1994 effective income tax rate of 33.5% was below its
fiscal 1993 and 1992 rates of 34.5% and 35.7%, respectively, reflecting, in
part, an increase in the amount of foreign tax credits utilized against U.S.
federal income taxes.
FISCAL 1993 COMPARED
WITH FISCAL 1992
The Company's fiscal 1993 revenues and earnings reflect continued growth in
revenues from a broad range of businesses, including investment banking and
principal transaction revenues from trading. Amounts for fiscal 1992 are given
in parentheses.
Revenues net of interest expense (net revenues) were $4,156 million ($3,020
million), and net income totaled $786 million ($510 million).
Investment banking revenues increased 28% to $1,238 million ($965 million),
reflecting significantly increased revenues from structured and non-investment
grade debt financing activity, as well as higher revenues from equity
underwritings, mergers and acquisitions, and other financial advisory
activities, partially offset by substantially reduced activity in
mortgage-backed underwritings.
Secondary revenues (combined principal trading, commissions and net
interest revenues) increased 45% to $2,492 million ($1,717 million). Principal
transaction revenues from trading activities, including derivatives, were $1,459
million ($953 million), reflecting substantially higher revenues from
international fixed income products, as well as increased revenues from equity
products and commodities trading, partially offset by declines from trading in
mortgage-backed products. Principal transaction investment revenues aggregating
$158 million were recognized in fiscal 1993 ($128 million) and include revenues
from the increases in carrying value related to equity offerings by two
companies in the merchant banking portfolio: the initial public offering of
Southern Pacific Rail Corporation and the secondary offering of Kohl's
Corporation common stock.
Commission revenues increased 26% to $393 million ($312 million). This
increase reflects significantly higher levels of customer trading activity in
the equity markets. Note that customer activity results in principal trading and
interest revenues as well as commissions.
Net interest and dividend revenues increased 42% to $640 million ($452
million). Interest and dividend revenues rose 18% to $5,660 million ($4,814
million), and interest expense increased 15% to $5,020 million ($4,362 million),
principally reflecting growth in interest-bearing assets and liabilities. As
noted above in the comparison of fiscal 1994 with fiscal 1993, interest and
dividend revenues and expense reflect principal trading strategies and should be
viewed in the broader context of principal trading and investment banking
results.
Asset management and administration revenues increased 29% to $258 million
($200 million), reflecting growth in asset management activities as well as
global clearing and custody services. Customer assets under management increased
24% to $47 billion ($38 billion), reflecting growth in international and
emerging markets funds. Customer assets under administration increased to $72
billion ($27 billion), reflecting significant expansion of the Company's client
base in the global custody and clearing businesses.
Total non-interest expenses rose 33% to $2,956 million ($2,227 million).
Within that total, employee compensation and benefits expense increased 41% to
$2,049 million ($1,457 million), reflecting higher incentive compensation
related to the increases in revenues and earnings and in the number of
employees. Other non-interest expenses increased 18% to $907 million ($770
million), reflecting overall growth in the level of business activity, including
increased brokerage and clearing costs and increased spending on technology to
support higher volumes of activity as well as increased business development
expenses relating to the Company's continued expansion into new global markets.
PAGE | THIRTY-SIX
<PAGE> 5
MORGAN STANLEY 1994 ANNUAL REPORT
LIQUIDITY AND
CAPITAL RESOURCES
The Balance Sheet
The Company's total assets increased from $97.2 billion at January 31, 1994 to
$116.7 billion at January 31, 1995, principally reflecting growth in financial
instruments owned and resale and repurchase agreements. Such growth is
principally attributable to the Company's fixed income activities, most notably
U.S. government and mortgage-backed securities, as well as repurchase agreements
used in both financing such inventories and in the Company's matched book
activities. A substantial portion of the Company's total assets consists of
highly liquid marketable securities and short-term receivables arising
principally from securities transactions. The highly liquid nature of these
assets provides the Company with flexibility in financing and managing its
business. In that context, the overall size of the Company's total assets and
liabilities fluctuates from time to time and at specific points in time (such as
calendar quarter-ends) is higher than fiscal quarter-ends. Balance sheet
leverage ratios are reviewed by counterparties and creditors in order to
evaluate a securities firm's overall financial risk. Details of ending assets,
average assets and leverage ratios for fiscal 1994 and fiscal 1993 are as
follows:
<TABLE>
<CAPTION>
Assets at Average Assets at Average
January 31, Assets for January 31, Assets for
(Dollars in Millions) 1995 Fiscal 1994 1994 Fiscal 1993
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash, deposits and receivables $ 12,104 $ 14,299 $11,254 $ 10,657
Financial instruments owned 47,109 49,236 39,844 49,006
Securities purchased under
agreements to resell and
securities borrowed............ 55,955 64,921 45,029 55,745
Property, equipment and
leasehold improvements
and other assets............... 1,526 1,626 1,115 880
-------- -------- ------- --------
Total assets.................... $116,694 $130,082 $97,242 $116,288
======== ======== ======= ========
Leverage ratios:
Total assets/equity............ 25.6x 29.0x 21.8x 31.1x
Net assets(1)/equity........... 17.7x 19.4x 15.3x 21.3x
</TABLE>
(1) Net assets represent total assets less the lower of securities purchased
under agreements to resell or securities sold under agreements to
repurchase.
Funding and Capital Policies
The Company's Finance and Risk Committee, which includes senior officers from
each of the major capital commitment areas, among other things, establishes the
overall funding, capital and credit policies of the Company, reviews the
Company's performance relative to these policies, allocates capital among
business activities of the Company, monitors the availability of sources of
financing, and oversees the liquidity and interest rate sensitivity of the
Company's asset and liability position.
Many of the Company's businesses are capital-intensive. Capital is required
to finance, among other things, the Company's securities inventories,
underwriting and merchant banking activities, and investments in fixed assets.
As a policy, the Company attempts to maintain sufficient capital and funding
sources in order to have the capacity to finance itself on a fully
collateralized basis at all times. Currently, the Company believes that it has
sufficient capital to meet its needs. In addition, the Company attempts to
maintain total equity, on a consolidated basis, at least equal to the sum of all
its subsidiaries' equity. Subsidiary equity capital requirements are determined
by regulatory requirements, asset mix, leverage considerations and earnings
volatility. The Company actively manages its consolidated capital position based
upon, among other things, capital availability, business opportunities and rates
of return together with internal capital policies, regulatory requirements and
rating agency guidelines and therefore may, in the future, expand or contract
its capital base to address the changing needs of its businesses.
The Company funds its balance sheet on a global basis. The Company's
funding needs are satisfied from capital, including equity and long-term debt;
medium-
PAGE | THIRTY-SEVEN
<PAGE> 6
LIQUIDITY AND
CAPITAL RESOURCES
(continued)
term notes; internally generated funds; repurchase agreements; U.S., Canadian,
French and Euro commercial paper; German Schuldschein loans; securities lending;
buy/sell agreements; municipal reinvestments; master notes; deposits; and
committed and uncommitted lines of credit. All repurchase transactions and a
portion of the Company's bank borrowings are made on a collateralized basis.
The Company practices a funding strategy which ensures that the tenor of
the Company's liabilities equals or exceeds the expected holding period of the
assets being financed. Short-term funding generally is obtained at rates related
to U.S. or Euro money market rates for the currency borrowed. Repurchase
transactions are effected at negotiated rates. Other borrowing costs are
negotiated depending upon prevailing market conditions (see Note 2 to the
Consolidated Financial Statements).
The Company maintains borrowing relationships with a broad range of banks,
financial institutions, counterparties and others from which it draws funds in a
variety of currencies. The volume of the Company's borrowings generally
fluctuates in response to changes in the amount of resale transactions
outstanding, the level of the Company's securities inventories and overall
market conditions. Availability and cost of financing to the Company can vary
depending upon market conditions, the volume of certain trading activities, the
Company's credit ratings and overall availability of credit to the securities
industry. Pursuant to its liquidity policy, the Company attempts to maintain
cash and unhypothecated marketable securities equal to at least 110% of
short-term unsecured borrowings. In addition, the Company has in place a
contingency funding strategy which provides a comprehensive one-year action plan
in the event of a severe funding disruption; the plan is updated annually.
The Company views long-term debt as a stable source of funding and
therefore attempts to maintain a long-term debt-to-capitalization ratio of at
least 60% based upon the current composition of its balance sheet. In general,
fixed assets are financed with fixed rate long-term debt, and inventories and
all current assets are financed with a combination of short-term funding and
floating rate long-term debt. The Company uses derivative products (primarily
interest rate and currency swaps) to assist in asset and liability management
and to reduce borrowing costs (see Note 3 to the Consolidated Financial
Statements).
The Company's reliance on external sources to finance a significant portion
of its day-to-day operations makes access to global sources of financing
important. The cost of such financing is dependent on the Company's short-term
and long-term debt ratings. In addition, the Company's debt ratings can have a
significant impact on certain trading revenues, particularly in those businesses
where longer term counterparty performance is critical, such as over-the-counter
derivative transactions. The Company's short-term and long-term senior debt
ratings as of March 31, 1995 are as follows:
<TABLE>
<CAPTION>
Agency Short-Term Rating Long-Term Rating
- -------------------------------------------------------------------------------
<S> <C> <C>
Moody's Investor's Services........... P1 A1
Standard & Poor's..................... A1+ A+
IBCA.................................. A1+ AA-
Thomson Bankwatch..................... TBW1 AA
Dominion Bond Rating Service(1)....... R1 (Middle) n/a
</TABLE>
(1) Dominion Bond Rating Service rates the Company's Canadian commercial paper
program.
On March 28, 1995, Standard & Poor's Corporation ("S&P") affirmed the
short- and long-term ratings of the Company. However, in light of continuing
difficult conditions in the industry, S&P revised the long-term rating outlook
for six securities firms, including the Company, from stable to negative.
Noting the cyclical nature of the industry, S&P indicated that ratings may
remain unchanged for individual firms that adjust costs downward while avoiding
serious instability in trading results, but may be lowered for individual firms
if profitability worsens or if continued market turbulence aggravates trading
risk.
PAGE | THIRTY-EIGHT
<PAGE> 7
MORGAN STANLEY 1994 ANNUAL REPORT
LIQUIDITY AND
CAPITAL RESOURCES
(continued)
Fiscal 1994 and Subsequent Activity
During the fiscal year ended January 31, 1995, the Company took several steps to
extend the maturity of its liabilities, reduce its reliance on unsecured
short-term funding and increase its capital. These steps resulted in a net
increase in capital of $2,244 million to $12,057 million at January 31, 1995.
The additions to capital included net issuances of senior notes and subordinated
debt aggregating $1,334 million. As of January 31, 1995, the aggregate
outstanding principal amount of the Company's Senior Indebtedness (as defined in
the Company's public debt shelf registration statements) was approximately $15
billion.
In fiscal 1994, Morgan Stanley & Co. Incorporated ("MS&Co."), the Company's
U.S. broker-dealer subsidiary, issued $357 million of Series A subordinated
notes due in 2002 and $243 million of Series B subordinated notes due in 2005
(collectively, the "Notes") to a group of institutional investors. The Notes
have been structured to qualify as regulatory capital for purposes of the net
capital rule of the Securities and Exchange Commission.
In fiscal 1994, the Company and Morgan Stanley Finance plc, a U.K.
subsidiary ("MS plc"), issued 9,200,000 7.80% Capital Units in an aggregate
amount of approximately $230 million. Each Capital Unit consists of (a) a
Subordinated Debenture of MS plc guaranteed by the Company, and (b) a related
Purchase Contract issued by the Company requiring the holder to purchase one
Depositary Share representing ownership of a 1/8 interest in a share of the
Company's 7.80% Cumulative Preferred Stock.
Subsequent to January 31, 1995, additional senior notes aggregating
approximately $557 million through March 31, 1995 were issued. These notes have
a weighted average coupon rate of 7.0% and maturities from 1997 to 2005. The
Company also issued 5,767,200 9.00% Capital Units in an aggregate amount of
approximately $144 million. The Company filed a shelf registration statement
which became effective in March 1995 for up to $4 billion of additional debt
securities, warrants to purchase debt securities, preferred stock and depositary
shares.
The Company maintains a senior revolving credit agreement with a group of
banks. Under the terms of the credit agreement, the banks are committed to
provide up to $2.5 billion for up to 364 days. Any loans outstanding on the
commitment termination date will mature on the first anniversary of the
commitment termination date.
The Company recently established a master collateral facility that will
enable MS&Co. to pledge certain collateral to secure loan arrangements, letters
of credit and other financial accommodations. As part of this facility, MS&Co.
also entered into a secured committed credit agreement with a group of banks
that are parties to the master collateral facility under which such banks are
committed to provide up to $1 billion for up to 364 days. Any loans outstanding
on the commitment termination date will mature on the first anniversary of the
commitment termination date.
The Company also maintains short-term agreements with three non-U.S. banks
which commit the banks to provide on a collateralized basis up to deutsche marks
("DM") 250 million (approximately $164 million), French francs ("FRF") 500
million (approximately $95 million) and $100 million (or its equivalent in DM,
FRF, Swiss francs or European Currency Units), respectively.
There were no borrowings outstanding under any of the foregoing facilities
at January 31, 1995; however, the Company anticipates utilizing these facilities
for short-term funding from time to time (see Note 2 to the Consolidated
Financial Statements).
During the fiscal year ended January 31, 1995, the Company repurchased
shares of its common stock at an aggregate cost of $287 million. On February 28,
1995, the Board of Directors authorized the purchase, in the open market or
otherwise, subject to market conditions and certain other factors, of an
additional $150 million of the Company's common stock. Common stock repurchases
subsequent to January 31, 1995 aggregated $37 million through March 31, 1995;
the unused portion of its stock repurchase authorization at such date was
approximately $279 million. The Company also issued shares of common stock and
options to purchase shares of common stock pursuant to employee compensation and
benefit plans (see Note 8 to the Consolidated Financial Statements).
Certain assets of the Company, such as real property, equipment, leasehold
improvements, certain equity investments made in connection with the Company's
PAGE | THIRTY-NINE
<PAGE> 8
LIQUIDITY AND
CAPITAL RESOURCES
(continued)
merchant banking and other principal investment activities, high-yield debt
securities, emerging market debt, and certain collateralized mortgage
obligations and mortgage-related loan products, are not highly liquid. In
connection with its merchant banking and other principal investment activities,
the Company has equity investments (directly or indirectly through funds managed
by the Company) in privately or publicly held companies. As of January 31, 1995,
the aggregate carrying value of the Company's equity investments in privately
held companies (including direct investments and partnership interests) was $252
million, and its aggregate investment in publicly held companies was $136
million.
In its capacity as an underwriter of and a market-maker in mortgage-backed
securities, collateralized mortgage obligations and related instruments, and a
market-maker in commercial, residential and real estate loan products, the
Company carries certain related assets with reduced levels of liquidity. The
carrying value of such assets approximated $1,193 million at January 31, 1995.
In addition, at January 31, 1995, the aggregate value of high-yield debt
securities and emerging market loans and securitized instruments held in
inventory was $1,160 million (a substantial portion of which was subordinated
debt) with not more than 8%, 12% and 11% of all such securities, loans and
instruments attributable to any one issuer, industry or geographic region,
respectively. Non-investment grade securities generally involve greater risk
than investment grade securities due to the lower credit ratings of the issuers,
which typically have relatively high levels of indebtedness and are, therefore,
more sensitive to adverse economic conditions. In addition, the market for
non-investment grade securities and emerging market loans and securitized
instruments has been, and may in the future continue to be, characterized by
periods of illiquidity. The Company has in place credit and other risk policies
to control total inventory positions and risk concentrations for non-investment
grade securities and emerging market loans and securitized instruments.
The Company also has commitments to fund certain fixed assets and other
less liquid investments, including at January 31, 1995 approximately $223
million in connection with its merchant banking and other principal investment
activities, and current estimates are $290 million for fit-out and related costs
associated with a building located at 1585 Broadway in New York City that the
Company purchased in fiscal 1993 and $90 million for a building located at 750
Seventh Avenue in New York City that the Company purchased in fiscal 1994.
Additionally, the Company has provided and will continue to provide financing,
including margin lending and other extensions of credit to clients (including
subordinated loans on an interim basis to leveraged companies associated with
its merchant banking and other principal investment activities), that may
subject the Company to increased credit and liquidity risks.
The gross notional and fair value amounts of derivatives used by the
Company for asset and liability management and as part of its trading activities
are summarized in Notes 3 and 5, respectively, to the Consolidated Financial
Statements. See also "Derivative Financial Instruments" herein.
Regulatory Capital Requirements
MS&Co. is a registered broker-dealer and a registered futures commission
merchant and, accordingly, is subject to the minimum net capital requirements of
the Securities and Exchange Commission and the Commodities Futures Trading
Commission. It consistently has operated in excess of these requirements (see
Note 7 to the Consolidated Financial Statements).
Certain other U.S. and non-U.S. subsidiaries are subject to various
securities, commodities and banking regulations, and capital adequacy
requirements promulgated by the regulatory and exchange authorities of the
countries in which they operate. At January 31, 1995, these subsidiaries were in
compliance with all applicable securities regulations and local capital
adequacy requirements. In addition, Morgan Stanley Derivative Products Inc., a
Triple-A rated subsidiary through which the Company conducts some of its
derivatives activities, has established certain operating restrictions which
have been reviewed by various rating agencies.
PAGE | FORTY
<PAGE> 9
MORGAN STANLEY 1994 ANNUAL REPORT
EFFECTS OF INFLATION AND
CHANGES IN FOREIGN
EXCHANGE RATES
Because the Company's assets are, to a large extent, liquid in nature, they are
not significantly affected by inflation. However, inflation may result in
increases in the Company's expenses, which may not be readily recoverable in the
price of services offered. To the extent inflation results in rising interest
rates and has other adverse effects upon the securities markets and on the value
of financial instruments, it may adversely affect the Company's financial
position and profitability.
A significant portion of the Company's business is conducted in
currencies other than the U.S. dollar. Non-U.S. dollar assets typically are
financed by direct borrowing or swap-based funding in the same currency.
Changes in foreign exchange rates affect non-U.S. dollar revenues as well as
non-U.S. dollar expenses. Those foreign exchange exposures not hedged by
offsetting non-U.S. dollar revenues and expenses are actively managed by the
Company to minimize risk of loss due to currency fluctuations.
DERIVATIVE FINANCIAL
INSTRUMENTS
The Company actively offers to clients and trades for its own account a variety
of financial instruments described as "derivative products" or "derivatives."
These products generally take the form of futures, forwards, options, swaps,
caps, collars, floors, swap options and similar instruments which derive their
value from underlying interest rates, foreign exchange rates or commodity or
equity instruments or indices. All of the Company's trading-related business
units use derivative products as an integral part of their respective trading
strategies, and such products are used extensively to manage the market exposure
that results from a variety of proprietary trading activities (see Note 5 to the
Consolidated Financial Statements). In addition, as a dealer in certain
derivative products, most notably interest rate and currency swaps, the Company
enters into derivative contracts to meet a variety of risk management and other
financial needs of its clients. Given the highly integrated nature of derivative
products and related cash instruments in the determination of overall business
unit profitability and the context in which the Company manages its trading
areas, it is not meaningful to allocate trading revenues between the derivative
and underlying cash instrument components. Moreover, the risks associated with
the Company's derivative activities, including market and credit risks, are
managed on an integrated basis with associated cash instruments in a manner
consistent with the Company's overall risk management policies and procedures
(see "Risk Management" herein).
The total notional value of derivative trading contracts outstanding as of
January 31, 1995 was $835 billion (as compared with $740 billion as of January
31, 1994). While these amounts are an indication of the Company's degree of use
of derivatives for trading purposes, they do not represent the Company's
exposure to market or credit risk. The Company's exposure to market risk relates
to changes in interest rates, foreign currency exchange rates or the fair value
of the underlying financial instruments or commodities (see "Risk Management"
herein). The Company's exposure to credit risk at any point in time is
represented by the fair value of such contracts reported as assets. Total fair
value outstanding as of January 31, 1995 was $8.6 billion. Approximately 80% of
that credit risk exposure was with counterparties rated single-A or better, and
another 5% was fully collateralized (see Note 5 to the Consolidated Financial
Statements).
The Company also uses derivative products (primarily interest rate and
currency swaps) to assist in asset and liability management and to reduce
borrowing costs (see Note 3 to the Consolidated Financial Statements).
The Company believes that derivatives are valuable tools that can provide
cost-effective solutions to complex financial problems and remains committed to
providing its clients with innovative financial products. In January 1994, the
Company established Morgan Stanley Derivative Products Inc., a Triple-A rated
subsidiary, to offer derivative products to clients that will enter into
derivative transactions only with Triple-A rated counterparties. In addition,
the Company, through its continuing involvement with activities such as the
International Swaps and Derivatives Association Inc. (ISDA), the Group of 30
and, most recently, as one of the six U.S. securities firms of the Derivatives
Policy Group, is providing leadership in the development of a framework for
voluntary industry self-regulation of derivative activities in order to maintain
confidence in the markets for derivative products, which is critical to the
Company's ability to assist clients in meeting their overall financial needs.
PAGE | FORTY-ONE
<PAGE> 10
RISK MANAGEMENT
Risk is an inherent part of the Company's business, and the extent to which the
Company properly and effectively identifies, assesses, monitors and manages each
of the various types of risks involved in its activities is critical to its
success and profitability. The Company seeks to maintain a broad-based portfolio
of business activities to minimize the impact that volatility in any area or
related areas may have on its net revenues as a whole. From an operational
perspective, the Company seeks to actively manage the principal risks involved
in each area of business activity: market risk, credit risk, operational risk
and legal risk. Risk management at the Company is an integrated process with
independent oversight which requires constant communication, judgment and
knowledge of specialized products and markets. The Company's senior management
takes an active role in the risk management process and has developed policies
and procedures that require specific administrative and business functions to
assist in the identification, assessment and control of various risks. The
Company's risk management policies and procedures are continually evolving to
address the increasingly global nature of the financial services business as
well as the continual development of sophisticated financial products with more
varied and complex risk profiles.
The Company has developed a multi-tiered approach for monitoring and
managing its risk. With respect to the Company's major trading businesses,
senior division risk managers monitor positions and set the overall division
risk profile within established limits, verify that position hedges are
appropriate and well-maintained, and report unusual market and position events.
The base level of control is at the trading desks where desk risk managers and
traders perform similar functions with respect to a product area or particular
product. The Firm Risk Management Group has operational responsibility for
reporting to senior management on the Company's exposure to risk.
The Firm Risk Management Group consists of three departments that are all
independent of the Company's business areas: the Market Risk and Exposure
Management Department monitors certain divisional, geographic and product-line
market risks; the Credit Department establishes and monitors counterparty
exposure limits and collateral requirements to support counterparty contractual
commitments; and the Internal Audit Department, which also reports to the Audit
Committee of the Board of Directors, assesses the Company's operations and
control environment through periodic examinations of business and operational
areas. Other departments within the Company that also are independent of the
Company's business areas and are actively involved in monitoring the Company's
risk profile include the Controllers Department, the Operations Department, and
the Legal and Compliance Department.
In addition, the Company has certain standing committees, composed of a
cross section of the Company's senior officers from various disciplines, that
are involved in managing and monitoring the risks associated with the Company's
diverse businesses. The High-Yield Commitment Committee and Equity Commitment
Committee determine whether the Company should participate in a transaction
involving the underwriting or placement of high-yield or equity securities,
respectively, where the Company's capital and reputation may be at risk and
evaluate the potential revenues and risks involved with respect to a particular
transaction. The Company's Finance and Risk Committee, as previously indicated,
among other things, establishes and reviews performance against the Company's
funding, liquidity and capital policies.
The Company manages the various risks associated with its activities on an
individual product basis, on a divisional level and on a Company-wide basis.
Specific risk limits are assigned to each trading area of the Company and
trading desks within trading areas, and these limits are reviewed periodically
and are adjusted as required. Market-making positions generally are hedged (that
is, covered by similar, offsetting positions) to remove all or part of a
position's exposure to price or yield movements. The Credit Department reviews
all counterparties to establish appropriate exposure limits for a variety of
transactions. In addition, the Company actively manages the credit exposure
relating to its trading activities by entering into master netting agreements
when feasible; monitoring the creditworthiness of counterparties and the related
trading limits on an ongoing basis and requesting
PAGE | FORTY-TWO
<PAGE> 11
MORGAN STANLEY 1994 ANNUAL REPORT
RISK MANAGEMENT
(continued)
additional collateral when deemed necessary; diversifying and limiting exposure
to individual counterparties and geographic locations; and limiting the duration
of exposure. The Company's Controllers and Operations Departments monitor
position, profit/loss and balance sheet information on a daily basis through
rigorous reconciliation procedures, and business unit profitability, position
market prices and aged positions are analyzed. The Company also has established
legal standards and procedures on a worldwide basis that are designed to ensure
compliance with all applicable statutory and regulatory requirements. For a
detailed discussion of the Company's risk management policies and procedures,
see Item I, Part I, of the Form 10-K.
The Company's divisional risk managers and the Market Risk and Exposure
Management Department evaluate the impact of changes in market conditions on the
value of the Company's financial instrument portfolios in order to determine the
potential gains or losses that would arise from normal and abnormal movements in
interest rates, foreign exchange rates, equity prices and commodity prices. This
quantification of potential gains and losses under varying scenarios and
situations is an integral component of the Company's risk management procedures.
The hypothetical results of these analyses, however, are not necessarily
indicative of future results. Historical results, while also not indicative of
future results, provide a more meaningful measure of the Company's effectiveness
in managing the risks inherent in its various businesses, including market risks
related to its global portfolios of financial instruments. The diversification
of the Company's activities within and across business lines and prudent risk
management have helped the Company reduce volatility in net revenues. The
Company's underwriting and sales and trading businesses (which include fixed
income, equity, commodities and foreign exchange) historically have been more
volatile than its fee-based businesses (which include investment banking
advisory services, securities services and asset management).
The Company's performance in mitigating volatility is demonstrated by the
following weekly distribution of its underwriting and sales and trading net
revenues for fiscal 1994 and fiscal 1993:
[One Bar Chart -- See EDGAR Appendix]
PAGE | FORTY-THREE
<PAGE> 12
RISK MANAGEMENT
(continued)
The Company's management of the volatility in revenues from its
underwriting and sales and trading activities is complemented by its continuing
strategic emphasis on more stable fee-based businesses. The Company's recent
record of lower volatilities and continuing growth in these fee-based businesses
is presented in the charts below which provide a weekly distribution of
fee-based net revenues for fiscal 1994 and fiscal 1993 and a three-year summary
of fee-based and underwriting and sales and trading net revenues.
[Two Bar Charts -- See EDGAR Appendix]
PAGE | FORTY-FOUR
<PAGE> 13
GRAPHICS APPENDIX LIST
EDGAR VERSION
-------------
Form 10-K for the fiscal year ended January 31, 1995, Exhibit 13.3 -
(Selected Portions of Morgan Stanley's 1994 Annual Report to Stockholders)
Page 43 -- One bar chart omitted
Page 44 -- Two bar charts omitted
TYPESET VERSION
---------------
Form 10-K for the fiscal year ended January 31, 1995, Exhibit 13.3 -
(Selected Portions of Morgan Stanley's 1994 Annual Report to Stockholders)
Page 43 -- A bar chart depicting Distribution of Underwriting and Sales and
Trading Net Revenues (including commissions and net interest revenues) for
fiscal 1994 and fiscal 1993. The bars in the chart illustrate the number of
weeks that such net revenues fell within the specified dollar ranges for each
area presented below. All dollar amounts are expressed in millions.
$(5) - 0 $0 - 10 $10 - 20 $20 - 40 $40 - 60 More than $60
Equity 3 34 60 7
Fixed Income 6 9 23 39 18 9
Commodities 14 90
Foreign 100 4
Exchange
Page 44 -- Two bar charts depicting Distribution of Fee-Based Net Revenues (for
fiscal 1993 and fiscal 1994) and Net Revenues (excluding merchant banking net
revenues) (for fiscal 1992, fiscal 1993 and fiscal 1994), respectively.
The bars in the chart depicting Distribution of Fee-Based Net Revenues
illustrate the number of weeks that such net revenues fell within the specified
dollar ranges for each area presented below. All dollar amounts are expressed
in millions.
$0 - 10 $10 - 20 More than $20
Investment Banking
Advisory Services 83 17 4
Securities Services 103 1
Asset Management 104
The bars in the chart depicting Net Revenues illustrate a three-year summary of
Fee-Based and Underwriting and Sales and Trading Net Revenues as follows:
Fee-based net revenues were $.4 billion, $.7 billion and $ 1 billion for fiscal
1992, fiscal 1993 and fiscal 1994, respectively. Underwriting and sales and
trading net revenues were $2.5 billion, $3.4 billion and $2.4 billion for
fiscal 1992, fiscal 1993 and fiscal 1994, respectively.
<PAGE> 1
Exhibit 13.4
REPORT OF INDEPENDENT AUDITORS
The Stockholders and
Board of Directors of
Morgan Stanley Group Inc.
We have audited the accompanying consolidated statement of financial condition
of Morgan Stanley Group Inc. as of January 31, 1995 and January 31, 1994 and the
related consolidated statements of income, cash flows and changes in
stockholders' equity for the years ended January 31, 1995, January 31, 1994 and
January 31, 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Morgan Stanley
Group Inc. at January 31, 1995 and January 31, 1994, and the consolidated
results of its operations and its cash flows for the years ended January 31,
1995, January 31, 1994 and January 31, 1993, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
February 28, 1995
PAGE | FORTY-FIVE
<PAGE> 2
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
January 31, January 31,
(Dollars in Millions, Except Share Data) 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and interest-bearing equivalents........................ $ 2,510 $ 1,925
Cash and securities deposited with clearing
organizations or segregated under federal and
other regulations (securities at market value of
$1,507 in fiscal 1994 and $108 in fiscal 1993)............. 2,116 662
Financial instruments owned:
U.S. government and agency securities...................... 9,107 7,926
Other sovereign government obligations..................... 12,932 12,002
Corporate and other debt................................... 10,545 8,572
Corporate equities......................................... 5,483 4,587
Derivative contracts....................................... 8,622 6,474
Physical commodities....................................... 420 283
Securities purchased under agreements to resell.............. 35,913 28,708
Securities borrowed.......................................... 20,042 16,321
Receivables:
Customers.................................................. 4,823 4,216
Brokers, dealers and clearing organizations................ 1,376 3,290
Interest and dividends..................................... 731 851
Fees and other............................................. 548 310
Property, equipment and leasehold
improvements, at cost, net of accumulated
depreciation and amortization of $364
in fiscal 1994 and $338 in fiscal 1993..................... 1,061 778
Other assets................................................. 465 337
-------- -------
Total assets................................................. $116,694 $97,242
======== =======
</TABLE>
See Notes to Consolidated Financial Statements.
PAGE | FORTY-SIX
<PAGE> 3
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
January 31, January 31,
1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term borrowings.......................................................... $ 10,273 $ 8,566
Financial instruments sold, not yet purchased:
U.S. government and agency securities........................................ 6,177 3,530
Other sovereign government obligations....................................... 7,251 5,967
Corporate and other debt..................................................... 1,174 1,143
Corporate equities........................................................... 3,006 2,144
Derivative contracts......................................................... 7,322 5,764
Physical commodities......................................................... 377 580
Securities sold under agreements to repurchase................................. 50,123 41,467
Securities loaned.............................................................. 2,860 2,202
Payables:
Customers.................................................................... 11,588 11,001
Brokers, dealers and clearing organizations.................................. 953 1,059
Interest and dividends....................................................... 825 747
Other liabilities and accrued expenses....................................... 458 1,124
Accrued compensation and benefits.............................................. 938 669
Long-term borrowings........................................................... 8,814 6,810
-------- -------
112,139 92,773
-------- -------
Commitments and contingencies
Stockholders' equity:
Preferred stock.............................................................. 819 820
Common stock, $1.00 par value; authorized 300,000,000 shares; issued
79,774,278 shares in fiscal 1994 and 78,277,538 shares in fiscal 1993...... 80 78
Paid-in capital.............................................................. 706 817
Retained earnings............................................................ 3,338 3,094
Cumulative translation adjustments........................................... (10) (3)
-------- -------
Subtotal............................................................. 4,933 4,806
Less:
Note receivable related to sale of preferred stock to ESOP............... 100 109
Common stock held in treasury, at cost (4,477,495 shares in fiscal
1994 and 3,801,687 shares in fiscal 1993).............................. 278 228
-------- -------
Total stockholders' equity........................................... 4,555 4,469
-------- -------
Total liabilities and stockholders' equity..................................... $116,694 $97,242
======== =======
</TABLE>
See Notes to Consolidated Financial Statements.
PAGE | FORTY-SEVEN
<PAGE> 4
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
January 31, January 31, January 31,
(Dollars in Millions, Except Share Data) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Investment banking................................... $ 919 $ 1,238 $ 965
Principal transactions:
Trading.......................................... 1,104 1,459 953
Investments...................................... 139 158 128
Commissions.......................................... 449 393 312
Interest and dividends............................... 6,406 5,660 4,814
Asset management and administration.................. 350 258 200
Other................................................ 9 10 10
----------- ----------- -----------
Total revenues................................... 9,376 9,176 7,382
Interest expense..................................... 5,875 5,020 4,362
----------- ----------- -----------
Net revenues..................................... 3,501 4,156 3,020
----------- ----------- -----------
Expenses excluding interest:
Compensation and benefits............................ 1,733 2,049 1,457
Occupancy and equipment.............................. 303 248 228
Brokerage, clearing and exchange fees................ 230 196 165
Communications....................................... 122 100 90
Business development................................. 165 134 102
Professional services................................ 164 120 98
Other................................................ 131 109 87
Relocation charge.................................... 59 -- --
----------- ----------- -----------
Total expenses excluding interest................ 2,907 2,956 2,227
----------- ----------- -----------
Income before income taxes............................. 594 1,200 793
Provision for income taxes............................. 199 414 283
----------- ----------- -----------
Net income............................................. $ 395 $ 786 $ 510
=========== =========== ===========
Preferred stock dividend requirements.................. $ 65 $ 55 $ 49
=========== =========== ===========
Earnings applicable to common shares (1)............... $ 330 $ 731 $ 461
=========== =========== ===========
Average common and common equivalent shares
outstanding (1)...................................... 78,896,608 76,208,288 78,123,800
=========== =========== ===========
Primary earnings per share............................. $ 4.18 $ 9.59 $ 5.90
=========== =========== ===========
Fully diluted earnings per share....................... $ 4.03 $ 9.16 $ 5.71
=========== =========== ===========
</TABLE>
(1) Amounts shown are used to calculate primary earnings per share.
See Notes to Consolidated Financial Statements.
PAGE | FORTY-EIGHT
<PAGE> 5
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
January 31, January 31, January 31,
(Dollars in Millions) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................... $ 395 $ 786 $ 510
Adjustments to reconcile net income to net
cash (used for) provided by operating activities:
Non-cash charges included in net income:
Deferred income taxes................................... (128) (266) (110)
Compensation payable in common
or preferred stock.................................... 116 408 190
Depreciation and amortization........................... 104 64 61
Relocation charge....................................... 59 -- --
Changes in assets and liabilities:
Cash and securities deposited with
clearing organizations or segregated
under federal and other regulations................... (1,454) 726 (513)
Financial instruments owned, net of
financial instruments sold, not yet
purchased............................................. (1,086) 445 4,576
Securities borrowed, net of securities loaned........... (3,063) (3,601) 5,890
Receivables and other assets............................ 1,076 (2,889) (1,452)
Payables and other liabilities, net of
deferred liabilities.................................. 258 4,614 1,537
------- ------- -------
Net cash (used for) provided by operating activities............ (3,723) 287 10,689
Cash flows from investing activities:
Net payments for:
Property, equipment and leasehold
improvements.............................................. (415) (290) (66)
------- ------- -------
Net cash used for investing activities.......................... (415) (290) (66)
Cash flows from financing activities:
Net proceeds (payments) related to short-term borrowings...... 1,707 878 (3,061)
Securities sold under agreements to repurchase,
net of securities purchased under agreements
to resell................................................... 1,451 (3,803) (7,091)
Proceeds from:
Issuance of preferred stock............................... -- 194 145
Issuance of common stock.................................. 20 27 28
Issuance of long-term borrowings.......................... 3,185 3,477 752
Payments for:
Redemption of preferred stock............................. -- -- (250)
Repurchases of common stock............................... (287) (245) (99)
Repayments of long-term borrowings........................ (1,202) (636) (43)
Cash dividends................................................ (151) (134) (103)
------- ------- -------
Net cash provided by (used for) financing activities............ 4,723 (242) (9,722)
------- ------- -------
Net increase (decrease) in cash and interest-bearing
equivalents................................................... 585 (245) 901
Cash and interest-bearing equivalents,
at beginning of period........................................ 1,925 2,170 1,269
------- ------- -------
Cash and interest-bearing equivalents, at end of period......... $ 2,510 $ 1,925 $ 2,170
======= ======= =======
</TABLE>
Cash payments for income taxes totaled $657 million, $299 million and $295
million in fiscal 1994, fiscal 1993 and fiscal 1992, respectively.
Cash payments for interest approximated interest expense for all periods.
See Notes to Consolidated Financial Statements.
PAGE | FORTY-NINE
<PAGE> 6
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Common
(Dollars in Millions, Except Share Data) Stock Stock
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Balance, January 31, 1992....................................... $ 722 $76
Issuance of 8-3/4% Cumulative Preferred Stock................. 150
Redemption of Market Auction Preferred Stock.................. (250)
Conversion of ESOP Preferred Stock............................ (1)
Issuance of common stock...................................... 1
Repurchases of common stock...................................
Compensation payable in common stock..........................
ESOP shares allocated, at cost................................
Net income....................................................
Cash dividends................................................
Translation adjustments.......................................
----- ---
Balance, January 31, 1993....................................... 621 77
Issuance of 7-3/8% Cumulative Preferred Stock ................ 200
Conversion of ESOP Preferred Stock ........................... (1)
Issuance of common stock...................................... 1
Repurchases of common stock...................................
Compensation payable in common stock..........................
ESOP shares allocated, at cost................................
Net income....................................................
Cash dividends................................................
Translation adjustments.......................................
----- ---
Balance, January 31, 1994 ...................................... 820 78
Conversion of ESOP Preferred Stock ........................... (1)
Issuance of common stock...................................... 1
Repurchases of common stock...................................
Compensation payable in common stock.......................... 1
ESOP shares allocated, at cost................................
Net income....................................................
Cash dividends................................................
Translation adjustments.......................................
----- ---
Balance, January 31, 1995 ...................................... $ 819 $80
===== ===
</TABLE>
See Notes to Consolidated Financial Statements.
PAGE | FIFTY
<PAGE> 7
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Note
Receivable
Related Common
to Sale of Stock
Cumulative Preferred Held in
Paid-in Retained Translation Stock Treasury,
(Dollars in Millions, Except Share Data) Capital Earnings Adjustments to ESOP at Cost Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1992............................. $ 341 $2,035 $ 13 $(124) $ (36) $3,027
Issuance of 8-3/4% Cumulative Preferred Stock....... (4) 146
Redemption of Market Auction Preferred Stock........ (250)
Conversion of ESOP Preferred Stock.................. 1 0
Issuance of common stock............................ 30 (3) 28
Repurchases of common stock......................... (99) (99)
Compensation payable in common stock................ 183 (1) 182
ESOP shares allocated, at cost...................... 8 8
Net income.......................................... 510 510
Cash dividends...................................... (103) (103)
Translation adjustments............................. (15) (15)
----- ------ ---- ----- ----- ------
Balance, January 31, 1993............................. 551 2,442 (2) (116) (139) 3,434
Issuance of 7-3/8% Cumulative Preferred Stock ...... (6) 194
Conversion of ESOP Preferred Stock ................. 1 0
Issuance of common stock............................ (130) 156 27
Repurchases of common stock......................... (245) (245)
Compensation payable in common stock................ 401 401
ESOP shares allocated, at cost...................... 7 7
Net income.......................................... 786 786
Cash dividends...................................... (134) (134)
Translation adjustments............................. (1) (1)
----- ------ ---- ----- ----- ------
Balance, January 31, 1994 ............................ 817 3,094 (3) (109) (228) 4,469
Conversion of ESOP Preferred Stock ................. 1 0
Issuance of common stock............................ 19 20
Repurchases of common stock......................... (287) (287)
Compensation payable in common stock................ (131) 237 107
ESOP shares allocated, at cost...................... 9 9
Net income.......................................... 395 395
Cash dividends...................................... (151) (151)
Translation adjustments............................. (7) (7)
----- ------ ---- ----- ----- ------
Balance, January 31, 1995 ............................ $ 706 $3,338 $(10) $(100) $(278) $4,555
===== ====== ==== ===== ===== ======
</TABLE>
PAGE | FIFTY-ONE
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Consolidated Financial Statements include the accounts of Morgan Stanley
Group Inc. and its U.S. and international subsidiaries (collectively, the
"Company"), including Morgan Stanley & Co. Incorporated ("MS&Co.") and Morgan
Stanley & Co. International Limited ("MSIL"). All material inter-company
accounts and transactions have been eliminated in consolidation. Certain
amounts in the Consolidated Financial Statements for prior years have been
reclassified to conform with the fiscal 1994 presentation.
CHANGE IN FISCAL YEAR-END
On February 28, 1995, the Company announced a change in its fiscal year-end from
January 31 to November 30, effective November 30, 1995. As such, the 10-month
period from February 1, 1995 through November 30, 1995 is referred to as fiscal
1995 in the Consolidated Financial Statements.
FINANCIAL INSTRUMENTS USED FOR TRADING AND INVESTMENT
Financial instruments, including derivatives, used in the Company's trading
activities are recorded at fair value, and unrealized gains and losses are
reflected in trading revenues. Interest revenue and expense arising from
financial instruments used in trading activities are reflected in the
Consolidated Statement of Income as interest income or expense. The fair values
of the trading positions generally are based on listed market prices. If listed
market prices are not available or if liquidating the Company's positions would
reasonably be expected to impact market prices, fair value is determined based
on other relevant factors, including dealer price quotations and price
quotations for similar instruments traded in different markets, including
markets located in different geographic areas. Fair values for certain
derivative contracts are derived from pricing models which consider current
market and contractual prices for the underlying financial instruments or
commodities, as well as time value and yield curve or volatility factors
underlying the positions. Purchases and sales of financial instruments are
recorded in the accounts on trade date. Unrealized gains and losses arising from
the Company's dealings in over-the-counter ("OTC") financial instruments,
including derivative contracts related to financial instruments and commodities,
are presented in the accompanying Consolidated Statement of Financial Condition
net-by-counterparty in cases where there is a legal right of set-off and the
Company has obtained an enforceable netting agreement, which is consistent with
Financial Accounting Standards Board ("FASB") Interpretation No. 39, "Offsetting
of Amounts Related to Certain Contracts."
Equity securities purchased in connection with merchant banking and other
principal investment activities are initially carried in the Consolidated
Financial Statements at their original cost; the carrying value of such
investments is adjusted upward only when changes in the underlying fair values
are readily ascertainable, generally as evidenced by substantial transactions
occurring in the marketplace which directly affect their value. Downward
adjustments relating to such equity securities are made in the event that the
Company determines that the eventual realizable value is less than the carrying
value. Loans made in connection with such activities are carried at unpaid
principal balances less any reserves for estimated losses.
FINANCIAL INSTRUMENTS USED FOR ASSET AND LIABILITY MANAGEMENT
The Company uses interest rate and currency swaps to manage the interest rate
and currency exposure arising from certain borrowings. Swaps used to hedge debt
are designated as hedges and are matched to the debt as to notional amount and
maturity. The periodic receipts or payments from each swap are recognized
ratably over the term of the swap as an adjustment to interest expense. The
Company also uses foreign exchange forward contracts to manage the currency
exposure relating to its net investment in non-U.S. dollar functional currency
subsidiaries. In accordance with Statement of Financial Accounting
PAGE | FIFTY-TWO
<PAGE> 9
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Standards ("SFAS") No. 52, the gain or loss from revaluing these contracts is
deferred and reported within cumulative translation adjustments in stockholders'
equity, net of tax effects, with the related unrealized amounts due from or to
counterparties included in receivables from or to brokers, dealers and clearing
organizations.
COLLATERALIZED SECURITIES TRANSACTIONS
Securities purchased under agreements to resell and securities sold under
agreements to repurchase (principally government and agency securities) are
treated as financing transactions and are carried at the amounts at which the
securities will subsequently be resold or reacquired as specified in the
respective agreements; such amounts include accrued interest. Reverse repurchase
and repurchase agreements are presented net-by-counterparty in the accompanying
Consolidated Statement of Financial Condition where net presentation is
permitted by FASB Interpretation No. 41, "Offsetting of Amounts Related to
Certain Repurchase and Reverse Repurchase Agreements." It is the Company's
policy to take possession of securities purchased under agreements to resell.
The Company monitors the fair value of the underlying securities as compared
with the related receivable or payable, including accrued interest, and, as
necessary, requests additional collateral. Where deemed appropriate, the
Company's agreements with third parties specify its rights to request additional
collateral.
Securities borrowed and securities loaned are carried at the amounts of
cash collateral advanced and received in connection with the transactions. The
Company measures the fair value of the securities borrowed and loaned against
the cash collateral on a daily basis. Additional cash is obtained as necessary
to ensure such transactions are adequately collateralized.
TRANSLATION OF FOREIGN CURRENCIES
Assets and liabilities of operations having non-U.S. dollar functional
currencies are translated at year-end rates of exchange, and the income
statements are translated at weighted average rates of exchange for the year. In
accordance with SFAS No. 52, gains or losses resulting from translating foreign
currency financial statements, net of hedge gains or losses and related tax
effects, are reflected in cumulative translation adjustments, a separate
component of stockholders' equity. Gains or losses resulting from foreign
currency transactions are included in net income.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Depreciation of property and equipment is provided on a straight-line basis over
the estimated useful lives of the related assets. Amortization of leasehold
improvements is provided on a straight-line basis over the lesser of the
estimated useful life of the asset or, where applicable, the remaining life of
the lease.
COMMON SHARE DATA
Earnings per share is based on the weighted average number of common shares and
share equivalents outstanding and gives effect to preferred stock dividend
requirements.
STATEMENT OF CASH FLOWS
The Company considers all highly liquid debt instruments purchased and not held
for resale, with an original maturity of three months or less, to be
interest-bearing equivalents for purposes of this statement.
INCOME TAXES
Income taxes are provided in accordance with SFAS No. 109, "Accounting for
Income Taxes," which the Company adopted in fiscal 1993. SFAS No. 109 requires
the calculation of deferred taxes using the asset and liability method. Under
this method, deferred tax balances must be adjusted to reflect enacted changes
in income tax rates, and deferred taxes generally must be provided on book and
tax basis differences. The effect of the adoption of SFAS No. 109 was not
material to the Company's fiscal 1993 financial statements.
PAGE | FIFTY-THREE
<PAGE> 10
NOTE 2
SHORT-TERM BORROWINGS
Short-term funding generally is obtained at rates related to U.S. or Euro money
rates for the currency borrowed and includes loans payable on demand. Secured
borrowings included in these loans were $2,694 million and $185 million at
January 31, 1995 and January 31, 1994, respectively. Short-term borrowings at
January 31, 1995 and January 31, 1994 also included commercial paper of $5,228
million and $4,414 million, respectively, with approximate weighted average
interest rates of 6.3% and 3.9%, respectively.
The Company maintains a senior revolving credit agreement with a group of
banks. Under the terms of the credit agreement, the banks are committed to
provide up to $2.5 billion for up to 364 days. Any loans outstanding on the
commitment termination date will mature on the first anniversary of the
commitment termination date. The agreement contains restrictive covenants which
require, among other things, that the Company maintain stockholders' equity of
at least $3,090 million as of January 31, 1995.
In fiscal 1994, the Company established a master collateral facility that
will enable MS&Co. to pledge certain collateral to secure loan arrangements,
letters of credit and other financial accommodations. As part of this facility,
MS&Co. also entered into a secured committed credit agreement with a group of
banks that are parties to the master collateral facility under which such banks
are committed to provide up to $1 billion for up to 364 days. Any loans
outstanding on the commitment termination date will mature on the first
anniversary of the commitment termination date. The credit agreement contains
restrictive covenants which require, among other things, that MS&Co. maintain
specified levels of consolidated stockholders' equity and Net Capital, as
defined.
The Company also maintains short-term agreements with three non-U.S. banks
which commit the banks to provide on a collateralized basis up to deutsche marks
("DM") 250 million (approximately $164 million), French francs ("FRF") 500
million (approximately $95 million) and $100 million (or its equivalent in DM,
FRF, Swiss francs or European Currency Units), respectively.
There were no borrowings outstanding under any of the foregoing facilities
at January 31, 1995; however, the Company anticipates utilizing these facilities
for short-term funding from time to time.
NOTE 3
LONG-TERM BORROWINGS
MATURITIES AND TERMS
Long-term borrowings at fiscal year-end consist of the following:
<TABLE>
<CAPTION>
U.S. Dollar Non-U.S. Dollar(1)
------------- ------------------ January 31, January 31,
Fixed Floating Fixed Floating 1995 1994
(Dollars in Millions) Rate Rate Rate Rate Total Total
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Due in fiscal 1994...... $ -- $ -- $ -- $ -- $ -- $1,466
Due in fiscal 1995...... 254 679 -- 126 1,059 682
Due in fiscal 1996...... 529 919 11 338 1,797 1,407
Due in fiscal 1997...... 483 736 244 7 1,470 181
Due in fiscal 1998...... 523 30 -- 30 583 1,237
Due in fiscal 1999...... 356 220 215 -- 791 18
Thereafter.............. 2,769 10 285 50 3,114 1,819
------ ------ ---- ---- ------ ------
Total................... $4,914 $2,594 $755 $551 $8,814 $6,810
====== ====== ==== ==== ====== ======
Weighted average
coupon at January 31 8.0% 6.3% 4.5% 5.3% 7.0% 6.0%
</TABLE>
(1) Weighted average coupon was calculated utilizing non-U.S. dollar interest
rates.
PAGE | FIFTY-FOUR
<PAGE> 11
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
NOTE 3
LONG-TERM BORROWINGS
(continued)
Included in U.S. dollar fixed rate debt are an aggregate of $352 million of
Capital Units issued by the Company and Morgan Stanley Finance plc., a U.K.
subsidiary ("MS plc"). A Capital Unit consists of (a) a Subordinated Debenture
of MS plc guaranteed by the Company, and (b) a related Purchase Contract issued
by the Company requiring the holder to purchase one Depositary Share
representing ownership of a 1/8 interest in the Company's Cumulative Preferred
Stock.
U.S. dollar contractual floating rate debt bears interest based on a
variety of money market indices, including London Interbank Offered Rates
("LIBOR") and Treasury bill rates. Non-U.S. dollar contractual floating rate
debt bears interest based on the Euro floating rates.
Certain of the Company's term debt is redeemable prior to maturity at the
option of the holder. These notes contain certain provisions which effectively
enable noteholders to put the notes back to the Company at six-month intervals
and therefore are scheduled in the foregoing table to mature in fiscal 1996. The
stated maturities of these notes, which aggregate $560 million, are from 1996 to
1998.
The Company's U.S. broker-dealer subsidiary, MS&Co., issued $357 million of
fixed rate subordinated Series A notes and $243 million of fixed rate
subordinated Series B notes in fiscal 1994. The Series A notes pay interest of
8.22% and mature on March 1, 2002. The Series B notes pay interest of 8.51%
and mature on March 1, 2005. The terms of such notes contain restrictive
covenants which require, among other things, that MS&Co. main-tain specified
levels of Consolidated Tangible Net Worth and Net Capital, each as defined.
ASSET AND LIABILITY MANAGEMENT
A substantial portion of the Company's fixed rate long-term debt is used to fund
highly liquid marketable securities and short-term receivables arising from
securities transactions. The Company uses interest rate swaps to more closely
match the term of this debt to the terms of the assets being funded and to
minimize interest rate risk. These swaps effectively convert certain of the
Company's fixed rate debt into floating rate obligations. In addition, for
non-U.S. dollar currency debt that is not used to fund assets in the same
currency, the Company has entered into currency swaps which effectively convert
the debt into U.S. dollar obligations. The Company's use of swaps for asset and
liability management reduced its interest expense and effective average
borrowing rate as follows:
<TABLE>
<CAPTION>
(Dollars in Millions) 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net reduction in interest expense from swaps
for the year ended January 31................... $ 93 $ 93 $ 79
Weighted average coupon of long-term
debt at January 31(1)........................... 7.0% 6.0% 7.2%
Effective average borrowing rate for
long-term debt after swaps at January 31(1)..... 6.7% 4.2% 4.6%
</TABLE>
(1) Included in the weighted average and effective average calculations are
non-U.S. dollar interest rates.
PAGE | FIFTY-FIVE
<PAGE> 12
NOTE 3
LONG-TERM BORROWINGS
(continued)
The table below summarizes the notional or contract amounts of these swaps by
maturity and weighted average interest rates to be received and paid as of
January 31, 1995:
<TABLE>
<CAPTION>
(Dollars in Millions) U.S. Dollar Non-U.S. Dollar(3)
- -------------------------------------------------------------------------------------
Receive Pay Receive Pay
Fixed Floating Fixed Floating
Pay Receive Pay Receive
Floating Floating Floating Floating(1) Total
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maturing in fiscal 1995......... $ 124 $150 $ -- $ 85 $ 359
Maturing in fiscal 1996......... 484 106 11 -- 601
Maturing in fiscal 1997......... 334 -- 235 -- 569
Maturing in fiscal 1998......... 354 -- -- -- 354
Maturing in fiscal 1999......... 156 210 206 -- 572
Thereafter...................... 970 -- 285 30 1,285
---- --- --- --- ------
Total........................... $2,422 $466 $737 $115 $3,740
====== ==== ==== ==== ======
Weighted average at January 31, 1995(2):
Receive rate 7.4% 6.6% 4.0% 3.7%
Pay rate 6.2% 6.4% 5.9% 8.2%
</TABLE>
(1) These amounts include currency swaps used to effectively convert debt
denominated in one currency into obligations denominated in another
currency.
(2) The table was prepared under the assumption that interest rates remain
constant at year-end levels. The variable interest rates to be received or
paid will change to the extent that rates fluctuate. Such changes may be
substantial. Variable rates presented generally are based on LIBOR or
Treasury bill rates.
(3) The differences between the receive rate and the pay rate may reflect
differences in the rate of interest associated with the underlying currency.
The estimated fair value of the Company's long-term debt, based on rates
available to the Company at January 31, 1995 for debt with similar terms
and maturities, and the aggregate carrying value of this debt are presented in
the following table:
<TABLE>
<CAPTION>
January 31, January 31,
(Dollars in Millions) 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C>
Fair value of long-term debt.......................... $8,642 $7,127
Unrecognized gain (loss).............................. 172 (317)
------ ------
Carrying value of long-term debt...................... $8,814 $6,810
====== ======
</TABLE>
As noted above, the Company uses interest rate and currency swaps to modify the
terms of its existing debt. The notional value and fair value of these swap
contracts used by the Company for asset and liability management are summarized
in the table below:
<TABLE>
<CAPTION>
(Dollars in Millions)
- -------------------------------------------------------------------------------
<S> <C>
Notional value at January 31, 1994.................................. $3,649
Additions........................................................... 931
Matured............................................................. (859)
Effect of foreign currency translation on non-U.S. dollar
notional values................................................... 19
------
Notional value at January 31, 1995.................................. $3,740
======
Unrecognized loss at January 31, 1995............................... $ (3)
======
</TABLE>
The Company also uses interest rate swaps to modify certain of its repurchase
financing agreements. As of January 31, 1995, the Company had interest rate
swaps with a notional value of approximately $3.8 billion and an unrecognized
loss of approximately $47 million for such purpose. The unrecognized loss on
these swaps was offset by unrecognized gains on certain of the Company's
repurchase financing agreements.
PAGE | FIFTY-SIX
<PAGE> 13
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
NOTE 4
COMMITMENTS AND CONTINGENCIES
LEASES AND RELATED COMMITMENTS
The Company incurred rent expense under operating leases in the amounts of $113
million, $101 million and $104 million in fiscal 1994, fiscal 1993 and fiscal
1992, respectively. Minimum remaining rental payments, excluding amounts related
to the Company's termination of certain leased office space as described below,
are approximately as follows:
<TABLE>
<CAPTION>
Fiscal Year (Dollars in Millions)
- ---------------------------------------
<S> <C>
1995.......................... $ 90
1996.......................... 90
1997.......................... 80
1998.......................... 74
1999.......................... 57
Thereafter.................... 293
</TABLE>
Rentals are subject to periodic escalation charges.
During 1995, the Company will relocate approximately 4,100 of its New York
City employees from existing leased space at 1221 and 1251 Avenue of the
Americas to space in the Company's newly purchased headquarters buildings at
1585 Broadway and 750 Seventh Avenue that were purchased in fiscal 1993 and
fiscal 1994, respectively. The total investment in these two buildings will
aggregate approximately $700 million, which is being capitalized and depreciated
over the useful lives of the individual assets comprising the investment.
During 1994, the Company recognized a pre-tax charge of $59 million ($39
million after tax, which reduced primary and fully diluted earnings per share by
$.50 and $.47, respectively). The charge was in connection with the Company's
pending move to the New York City facilities and to new leased office space in
Tokyo. The charge specifically covers the Company's termination of certain
leased office space and the write-off of remaining leasehold improvements in
both cities.
OTHER COMMITMENTS AND CONTINGENCIES
At January 31, 1995, securities (principally government and agency securities)
with a fair value of approximately $9 billion had been pledged to counterparties
as collateral against securities borrowed from these counterparties with an
approximately equal fair value.
The Company had approximately $2,651 million of letters of credit
outstanding at January 31, 1995 to satisfy various collateral requirements.
Financial instruments sold, not yet purchased represent obligations of the
Company to deliver specified financial instruments at contracted prices, thereby
creating commitments to purchase the securities in the market at prevailing
prices. Consequently, the Company's ultimate obligation to satisfy the sale of
financial instruments sold, not yet purchased may exceed the amounts recognized
in the Consolidated Statement of Financial Condition.
The Company and its subsidiaries have been named as defendants in certain
legal actions and have been involved in certain investigations and proceedings
in the ordinary course of business. It is the opinion of management, based on
current knowledge and after consultation with counsel, that the outcome of such
matters will not have a material adverse effect on the Company's Consolidated
Financial Statements contained herein.
PAGE | FIFTY-SEVEN
<PAGE> 14
NOTE 5
TRADING ACTIVITIES
TRADING REVENUES
The Company manages its trading businesses by product groupings and
therefore has established distinct business units having responsibility for
equity, fixed income, foreign exchange and commodities products. Because of the
integrated nature of the markets for such products, each product area trades
cash instruments as well as related derivative products (i.e., options, swaps,
futures, forwards and other contracts with respect to such underlying
instruments or commodities). Revenues related to trading are summarized below
by business unit. The "Total" column includes all trading revenues plus the
portion of those commission and interest revenues and expenses which result
from trading activities. Commissions and Net Interest (interest revenues less
interest expense) as reported in the Company's Consolidated Statement of Income
also include results from the Company's securities services business and other
business activities:
<TABLE>
<CAPTION>
(Dollars in Millions) Trading Commissions Net Interest Total
- -----------------------------------------------------------------------------------
FISCAL 1994
<S> <C> <C> <C> <C>
Equities...................... $ 510 $351 $ (60) $ 801
Fixed Income.................. 347 60 419 826
Foreign Exchange.............. 148 1 4 153
Commodities................... 99 2 5 106
------ ---- ---- ------
Trading-related revenues...... 1,104 414 368 1,886
Securities services
and other................... -- 35 163 198
------ ---- ---- ------
$1,104 $449 $531 $2,084
====== ==== ==== ======
FISCAL 1993
Equities...................... $ 407 $312 $ 7 $ 726
Fixed Income.................. 788 54 544 1,386
Foreign Exchange.............. 205 1 (1) 205
Commodities................... 59 1 13 73
------ ---- ---- ------
Trading-related revenues...... 1,459 368 563 2,390
Securities services
and other................... -- 25 77 102
------ ---- ---- ------
$1,459 $393 $640 $2,492
====== ==== ==== ======
FISCAL 1992
Equities...................... $347 $253 $ (16) $ 584
Fixed Income.................. 337 48 472 857
Foreign Exchange.............. 230 -- -- 230
Commodities................... 39 -- 10 49
------ ---- ---- ------
Trading-related revenues...... 953 301 466 1,720
Securities services
and other................... -- 11 (14) (3)
------ ---- ---- ------
$ 953 $312 $452 $1,717
====== ==== ==== ======
</TABLE>
PAGE | FIFTY-EIGHT
<PAGE> 15
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
NOTE 5
TRADING ACTIVITIES
(continued)
The Company's trading activities are both proprietary and client-driven. The
Company enters into specific contracts and carries inventories to meet the needs
of its clients. Its trading portfolios also are managed with a view toward the
risk and profitability of the portfolios to the Company. The nature of the
equities, fixed income, foreign exchange and commodities activities conducted by
the Company, including the use of derivative products in these businesses, is
discussed below. In addition, all of the activity discussed below is subject to
position limits and credit risk management policies and procedures.
EQUITIES
The Company makes markets and trades in the global secondary markets for
equities and convertible debt and is a dealer in equity warrants, exchange
traded and OTC equity options, index futures, equity swaps and other
sophisticated equity derivatives. The Company's activities as a dealer primarily
are client-driven, with the objective of meeting clients' needs while earning a
spread between the premiums paid or received on its contracts with clients and
the cost of hedging such transactions in the cash market or with other
derivative transactions. The Company limits its market risk related to these
contracts, which stems from underlying equity/index price and volatility
movements, by employing a variety of hedging strategies, such as delta hedging
(delta is a measure of a derivative contract's price movement based on the
movement of the price of the security or index underlying the contract). The
Company also takes proprietary positions in the global equity markets by using
derivatives, most commonly futures and options, in addition to cash positions,
intending to profit from market price and volatility movements in the underlying
equities or indices positioned.
Equity option contracts give the purchaser of the contract the right to buy
(call) or sell (put) the equity security or index underlying the contract at an
agreed-upon price (strike price) during or at the conclusion of a specified
period of time. The seller (writer) of the contract is subject to market risk,
and the purchaser is subject to market risk (to the extent of the premium paid)
and credit risk. Equity swap contracts are contractual agreements whereby one
counterparty receives the appreciation (or pays the depreciation) on an equity
investment in return for paying another rate, often based upon equity index
movements or interest rates. The counterparties to the Company's equity
transactions include commercial banks, other investment banks, broker-dealers,
investment funds and industrial companies.
FIXED INCOME
The Company is a market-maker for U.S. and non-U.S. government securities,
corporate bonds, money market instruments, medium-term notes and Eurobonds,
high-yield securities, emerging market debt, mortgage-and other asset-backed
securities, preferred stock and tax-exempt securities. In addition, the Company
is a dealer in interest rate and currency swaps and other related derivative
products, OTC options on U.S. and foreign government bonds and mortgage-backed
forward agreements ("TBA"), options and swaps. In this capacity, the Company
facilitates asset and liability management for its customers in interest rate
and currency swaps and related products and OTC government bond options.
Swaps used in fixed income trading are contractual agreements to exchange
interest payment streams (i.e., an interest rate swap may involve exchanging
fixed for floating interest payments) or currencies (i.e., a currency swap may
involve exchanging yen for U.S. dollars in one year at an agreed-upon exchange
rate). The Company profits by earning a spread between the premium paid or
received for these contracts and the cost of hedging such contracts. The Company
manages the market risk of its swap portfolio, which stems from interest rate
and currency movements and volatility, by seeking to balance risks within its
portfolio using modeling that quantifies the sensitivity of its portfolio to
movements in interest rates and currencies and by adding positions to or
PAGE | FIFTY-NINE
<PAGE> 16
NOTE 5
TRADING ACTIVITIES
(continued)
selling positions from its portfolio as needed to minimize such sensitivity.
Typically, the Company adjusts its positions by entering into additional swaps
or interest rate and foreign currency futures, foreign currency forwards and
underlying government bonds. The Company manages the risk related to its option
portfolio by using a variety of hedging strategies such as delta hedging, which
includes the use of futures and forward contracts to hedge market risk. The
Company also is involved in using debt securities to structure products with
multiple risk/return factors designed to suit investor objectives.
The Company is an underwriter of and a market-maker in mortgage-backed
securities and collateralized mortgage obligations ("CMO") as well as
commercial, residential and real estate loan products. The Company also
structures mortgage-backed swaps for its clients, enabling them to derive the
cash flows from an underlying mortgage-backed security without purchasing the
cash position. It earns the spread between the premium inherent in the swap and
the cost of hedging the swap contract through the use of cash positions or TBA
contracts. The Company also uses TBAs in its role as a dealer in mortgage-backed
securities and facilitates customer trades by taking positions in the TBA
market. Typically, these positions are hedged by offsetting TBA contracts or
underlying cash positions. The Company profits by earning the bid-offer spread
on such transactions. Further, the Company uses TBAs to ensure delivery of
underlying mortgage-backed securities in its CMO issuance business. As is the
case with all mortgage-backed products, market risk associated with these
derivatives results from interest rate fluctuations and changes in mortgage
prepayment speeds. The counterparties to the Company's fixed income transactions
include investment advisors, banks, insurance companies, investment funds and
various companies.
FOREIGN EXCHANGE
The Company is a market-maker in a number of foreign currencies. In this
business, it actively trades currencies in the spot and forward markets earning
a dealer spread. The Company seeks to manage its market risk by entering into
offsetting positions. The Company conducts an arbitrage business in which it
seeks to profit from inefficiencies between the futures, spot and forward
markets. The Company also makes a market in foreign currency options. This
business largely is client-driven and involves the purchasing and writing of
European and American style options and some sophisticated products to meet
specific client needs. The Company profits in this business by earning spreads
between the options' premiums and the cost of the hedging of such positions. The
Company limits its market risk by using a variety of hedging strategies,
including the buying and selling of the currencies underlying the options based
upon the options' delta equivalent. Foreign exchange option contracts give the
purchaser of the contract the right to buy (call) or sell (put) the currency
underlying the contract at an agreed-upon strike price at or over a specified
period of time. Forward contracts and futures represent commitments to purchase
or sell the underlying currencies at a specified future date at a specified
price. The Company also takes proprietary positions in major currencies to
profit from market price and volatility movements in the currencies positioned.
The majority of the Company's foreign exchange business relates to major
foreign currencies such as deutsche marks, yen, pound sterling, French francs,
Swiss francs, lire and Canadian dollars. The balance of the business covers a
broad range of other currencies. The counterparties to the Company's foreign
exchange transactions include commercial banks, other investment banks,
broker-dealers, investment funds and industrial companies.
COMMODITIES
The Company, as a major participant in the world commodities markets, trades in
physical precious metals, energy products (principally oil and natural gas) and
soft commodities as well as a variety of derivatives related to these
commodities such as futures, forwards and exchange traded and
PAGE | SIXTY
<PAGE> 17
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
NOTE 5
TRADING ACTIVITIES
(continued)
OTC options and swaps. Through these activities, the Company provides clients
with a ready market to satisfy end users' current raw material needs and
facilitates their ability to hedge price fluctuations related to future
inventory needs. The former activity requires the positioning of physical
commodities. Derivatives on those commodities, such as futures, forwards and
options, often are used to hedge price movements in the underlying physical
inventory. The Company profits as a market-maker in physical commodities by
capturing the bid and offer spread inherent in the physical markets.
To facilitate hedging for its clients, the Company often is required to
take positions in the commodity markets in the form of forward, option and swap
contracts involving oil, natural gas and electricity. The Company generally
hedges these positions by using a variety of hedging techniques such as delta
hedging, whereby the Company takes positions in the physical markets and/or
positions in other commodity derivatives such as futures and forwards to offset
the market risk in the underlying derivative. The Company profits from this
business by earning a spread between the premiums paid or received for these
derivatives and the cost of hedging such derivatives.
The Company also maintains proprietary trading positions in commodity
derivatives, including futures, forwards and options in addition to physical
commodities, to profit from price and volatility movements in the underlying
commodities markets. Forward, option and swap contracts on commodities are
structured similarly to like-kind derivative contracts for cash financial
instruments. The counterparties to OTC commodity contracts include precious
metals producers, refiners and consumers as well as central banks, oil, gas
and electricity producers, shippers, and coffee producers and consumers.
RISK MANAGEMENT
Risk management at the Company is an integrated process with independent
oversight. The Company's senior management takes an active role in the risk
management process and controls the various risks associated with the Company's
business areas through a variety of separate but complementary procedures. Since
managing risk involves constant communication, judgment and knowledge of
specialized products and markets, the Company's senior management has developed
policies and procedures that require specific administrative and business
functions to assist in the identification, assessment and control of various
risks.
The Company has developed a multi-tiered approach for monitoring and
managing its risks. With respect to the Company's major trading businesses
(fixed income, equity, commodities and foreign exchange), senior division risk
managers monitor positions and set the overall division risk profile within
established limits, verify that position hedges are appropriate and
well-maintained, and report unusual market and position events to the Firm Risk
Management Group (described below). The base level of control is at the trading
desks where desk risk managers and traders perform similar functions with
respect to a product area or particular product.
The Firm Risk Management Group has operational responsibility for reporting
to senior management on the Company's exposure to risk. The Company's Senior
Risk Manager, who heads the Firm Risk Management Group and reports to the
President of the Company, assists senior management in monitoring and
controlling the Company's overall risk profile. The Firm Risk Management Group
includes the Market Risk and Exposure Management Department ("MREM"), the Credit
Department and the Internal Audit Department, all of which are independent of
the Company's business areas. MREM monitors certain divisional, geographic and
product-line market risks. The Credit Department establishes and monitors
counterparty exposure limits and collateral requirements to support counterparty
contractual commitments. The Internal Audit Department, which also reports to
the Audit Committee of the Board of
PAGE | SIXTY-ONE
<PAGE> 18
NOTE 5
TRADING ACTIVITIES
(continued)
Directors, assesses the Company's operations and control environment through
periodic examinations of business and operational areas.
Other departments within the Company, which are independent of the
Company's business areas, also are actively involved in monitoring the Company's
risk profile: the Controllers Department monitors, reviews and reports trading
positions (including inventory aging) and performs independent verification of
the values of trading positions; the Operations Department monitors trading
positions and verifies and processes executed trades; and the Legal and
Compliance Department advances senior management's policies concerning legal and
regulatory requirements, conduct, ethics and business practices and establishes
policies and procedures addressing a variety of legal issues, including contract
enforceability.
In addition, the Company has certain standing committees that are involved
in managing and monitoring the risks associated with the Company's diverse
businesses. These committees are composed of a cross section of the Company's
senior officers from various disciplines. The High-Yield Commitment Committee
and Equity Commitment Committee determine whether the Company should participate
in a transaction involving the underwriting or placement of high-yield or equity
securities, respectively, where the Company's capital and reputation may be at
risk and evaluate the potential revenues and risks involved with respect to a
particular transaction. The Company's Finance and Risk Committee, among other
things, establishes the overall funding, capital and credit policies of the
Company; reviews the Company's performance relative to these policies; allocates
capital among business activities of the Company; monitors the availability of
sources of financing; and oversees liquidity and interest rate sensitivity of
the Company's asset and liability position.
The Company's risk management policies and procedures are continually
evolving to address the increasingly global nature of the financial services
business as well as the continual development of sophisticated financial
products with more varied and complex risk profiles.
MARKET RISK
The Company manages the market risk associated with its trading activities on an
individual product basis, on a divisional level and on a Company-wide basis.
Specific risk limits are assigned to each trading area of the Company and
trading desks within trading areas. These limits are reviewed periodically and
are adjusted as required. The Company uses analytic and quantitative tools, such
as option pricing and hedge models, to quantify market risk for comparison, by
product, to specific internal risk limits and to assess the sensitivity of
positions at risk to changes in market conditions.
The Company also regularly uses a variety of measures to reduce and control
the market risk associated with trading proprietary positions and making
markets. Market-making positions generally are hedged (that is, covered by
similar, offsetting positions). Hedges may be designed to remove all or part of
a position's exposure to price or yield movements and are chosen using analytic
tools similar to those used to determine the risk of the positions being hedged.
The Company attempts to match the risk profiles of each portfolio of securities
and any related hedges as closely as possible and to accomplish this often uses
futures, options or other derivative products. Exposures in proprietary
positions are managed by customizing trades to respond only to specific market
movements, establishing limits and monitoring procedures, and regularly marking
positions to market.
CREDIT RISK
The Credit Department reviews trading transactions in order to ensure that
credit exposures are appropriate for the particular counterparty with whom
business is conducted. All counterparties are reviewed on a regular basis to
establish appropriate exposure limits for a variety of transactions. In certain
cases, specific transactions are analyzed
PAGE | SIXTY-TWO
<PAGE> 19
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
NOTE 5
TRADING ACTIVITIES
(continued)
to determine the amount of potential exposure that could arise, and the
counterparty's credit is reviewed to determine whether it supports such
exposure. In addition to the counterparty's credit status, the Credit Department
analyzes market movements that could affect exposure levels. The Credit
Department considers four main factors that may affect trades in determining
trading limits: the settlement method; the time it will take for a trade to
settle (i.e., the maturity of the trade); the volatility that could affect the
value of the securities involved in the trade; and the size of the trade. In
addition to determining trading limits, the Company actively manages the credit
exposure relating to its trading activities by entering into master netting
agreements when feasible; monitoring the creditworthiness of counterparties and
the related trading limits on an ongoing basis and requesting additional
collateral when deemed necessary; diversifying and limiting exposure to
individual counterparties and geographic locations; and limiting the duration of
exposure. In certain cases, the Company also may close out transactions or
assign them to other counterparties when deemed necessary or appropriate to
mitigate credit risk.
The Credit Department also actively participates in reviewing fixed income
securities underwritings in which the Company engages and has adopted certain
procedures for reviewing both discrete debt offerings and continuously offered
securities, including commercial paper.
CONCENTRATION RISK
The Company is subject to concentration risk by holding large positions in
certain types of securities or commitments to purchase securities of a single
issuer, including sovereign governments and other entities, issuers located in a
particular country or geographic area, public and private issuers involving
developing countries or issuers engaged in a particular industry. Financial
instruments owned by the Company include U.S. government and agency securities
and securities issued by other sovereign governments (principally Japan,
Germany, France and Italy), which, in the aggregate, represented approximately
19% of the Company's total assets at January 31, 1995. The Company's positions
in Japanese government securities amounted to approximately $7 billion, or 6% of
total assets, as of January 31, 1995. In addition, substantially all of the
collateral held by the Company for resale agreements or bonds borrowed, which
together represented approximately 37% of the Company's total assets at January
31, 1995, consists of securities issued by the U.S. government, federal agencies
or non-U.S. governments. Positions taken and commitments made by the Company,
including positions taken and underwriting and financing commitments made in
connection with its merchant banking activities, often involve substantial
amounts and significant exposure to individual issuers and businesses, including
non-investment grade issuers. The Company seeks to limit concentration risk
through the use of the systems and procedures described in the preceding
discussions of market and credit risk.
CUSTOMER ACTIVITIES
The Company's customer activities involve the execution, settlement, custody and
financing of various securities and commodities transactions on behalf of
customers. Customer securities activities are transacted on either a cash or
margin basis. Customer commodities activities, which include the execution of
customer transactions in commodity futures transactions (including options on
futures), are transacted on a margin basis.
The Company's customer activities may expose it to off-balance sheet credit
risk. The Company may have to purchase or sell financial instruments at
prevailing market prices in the event of the failure of a customer to settle a
trade on its original terms or in the event cash and securities in customer
margin accounts are not sufficient to fully cover customer losses. The Company
seeks to control the risks associated with customer activities by requiring
customers to maintain margin collateral in compliance with various regulations
and Company policies.
PAGE | SIXTY-THREE
<PAGE> 20
NOTE 5
TRADING ACTIVITIES
(continued)
NOTIONAL/CONTRACT AMOUNTS AND FAIR VALUES OF DERIVATIVES
The gross notional or contract amounts of derivative instruments and fair value
(carrying amount) of the related assets and liabilities at January 31, 1995 and
January 31, 1994, as well as the average fair value of those assets and
liabilities for the year ended January 31, 1995, are presented in the table
which follows. Fair value represents the cost of replacing these instruments and
is further described in Note 1. Future changes in interest rates, foreign
currency exchange rates or the market values of the financial instruments,
commodities or indices underlying these contracts may ultimately result in cash
settlements exceeding fair value amounts recognized in the Consolidated
Statement of Financial Condition. Assets represent unrealized gains on purchased
exchange traded and OTC options and other contracts (including interest rate,
foreign exchange and other forward contracts and swaps) in gain positions net of
any unrealized losses owed to these counterparties on offsetting positions in
situations where there is a legal right of set-off and the Company has an
enforceable netting agreement. Similarly, liabilities represent net amounts owed
to counterparties. These amounts will vary based on changes in the fair values
of underlying financial instruments and/or the volatility of such underlying
instruments:
<TABLE>
<CAPTION>
Year-End Average
Year-End Fair Values(2) Fair Values(2)(3)
Gross Notional/ ------------------------- ------------------
Contract Amount Assets Liabilities Assets Liabilities
(Dollars in Billions, ---------------------------------------------
1994 1993 at January 31)(1) 1994 1993 1994 1993 1994 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$299 $225 Interest rate
and currency swaps
and options
(including caps,
floors and swap options)...... $3.9 $3.1 $2.2 $2.6 $3.8 $2.4
170 193 Foreign exchange
forward and futures
contracts and options......... 1.1 1.0 1.3 1.1 1.3 1.5
39 53 Mortgage-backed
securities forward
contracts, swaps
and options................... 0.2 0.1 0.1 -- 0.1 0.1
235 203 Other fixed income
securities contracts
(including futures
contracts and options)........ 0.4 0.1 0.6 -- 0.7 1.3
57 37 Equity securities
contracts (including
equity swaps, futures
contracts, and warrants
and options).................. 1.1 0.7 1.2 0.7 1.1 1.1
35 29 Commodity forwards,
futures, options
and swaps .................... 1.9 1.5 1.9 1.4 1.8 1.7
- ---- ---- ---- ---- ---- ---- ---- ----
$835 $740 Total......................... $8.6 $6.5 $7.3 $5.8 $8.8 $8.1
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
(1) The Company has a very limited number of leveraged transactions. The
notional amounts of derivatives have been adjusted to reflect the effects of
leverage, where applicable.
(2) These amounts represent carrying value (exclusive of collateral) at January
31, 1995 and January 31, 1994, respectively, and do not include receivables
or payables related to exchange traded futures contracts.
(3) Amounts are calculated using a monthly average.
PAGE | SIXTY-FOUR
<PAGE> 21
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
NOTE 5
TRADING ACTIVITIES
(continued)
The gross notional or contract amounts of these instruments are indicative of
the Company's degree of use of derivatives for trading purposes but do not
represent the Company's exposure to market or credit risk. Credit risk arises
from the failure of a counterparty to perform according to the terms of the
contract. The Company's exposure to credit risk at any point in time is
represented by fair value of the contracts reported as assets. These amounts are
presented net-by-counterparty in cases where there is a legal right of set-off
and the Company has obtained an enforceable netting agreement, but are not
reported net of collateral, which the Company obtains with respect to
certain of these transactions to reduce its exposure to credit losses. The
Company monitors the creditworthiness of counterparties to these transactions
on an ongoing basis and requests additional collateral when deemed necessary.
The Company believes that the ultimate settlement of the transactions
outstanding at January 31, 1995 will not have a material effect on the
Company's financial condition.
The remaining maturities of the Company's swaps and other derivative
products at January 31, 1995 are summarized in the following table, showing
notional values by year of expected maturity:
<TABLE>
<CAPTION>
Less than 1 to 3 3 to 5 Greater than
(Dollars in Billions) 1 Year Years Years 5 Years Total
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest rate and currency swaps
and options (including caps,
floors and swap options)......... $ 74 $108 $68 $49 $299
Foreign exchange forward and
futures contracts and options.... 163 7 -- -- 170
Mortgage-backed securities
forward contracts, swaps
and options...................... 35 1 1 2 39
Other fixed income securities
contracts (including futures
contracts and options)........... 152 68 15 -- 235
Equity securities contracts
(including equity swaps,
futures contracts, and
warrants and options)............ 50 5 1 1 57
Commodity forwards, futures,
options and swaps................ 30 4 1 -- 35
---- ---- --- --- ----
Total.............................. $504 $193 $86 $52 $835
---- ---- --- --- ----
Percent of total................... 61% 23% 10% 6% 100%
==== ==== === === ====
</TABLE>
PAGE | SIXTY-FIVE
<PAGE> 22
NOTE 5
TRADING ACTIVITIES
(continued)
The credit quality of the Company's trading-related derivatives at January 31,
1995 is summarized in the table below, showing the fair value of the related
assets by counterparty credit rating. The actual credit ratings are determined
by external rating agencies or by equivalent ratings used by the Company's
Credit Department:
<TABLE>
<CAPTION>
Collater-
alized Other
Non- Non-
Invest- Invest-
ment ment
(Dollars in Millions) AAA AA A BBB Grade Grade Total
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest rate
and currency
swaps and options
(including caps,
floors and swap
options)............... $ 723 $1,617 $ 965 $182 $294 $ 78 $3,859
Foreign exchange
forward contracts
and options............ 409 345 251 76 -- 46 1,127
Mortgage-backed
securities forward
contracts, swaps
and options............ 14 69 75 28 -- 22 208
Other fixed income
securities contracts
(including options).... 302 26 42 26 -- 19 415
Equity securities
contracts
(including equity
swaps, warrants
and options).......... 379 188 217 188 145 18 1,135
Commodity forwards,
options and swaps..... 300 216 667 490 -- 206 1,879
------ ------ ------ ---- ---- ---- ------
Total................... $2,127 $2,461 $2,217 $990 $439 $389 $8,623
====== ====== ====== ==== ==== ==== ======
Percent of total........ 25% 29% 26% 11% 5% 4% 100%
====== ====== ====== ==== ==== ==== ======
</TABLE>
PAGE | SIXTY-SIX
<PAGE> 23
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
NOTE 6
PREFERRED STOCK
Preferred stock is composed of the following issues:
<TABLE>
<CAPTION>
Shares Outstanding at Balance at
January 31, January 31, January 31, January 31,
(Dollars in Millions) 1995 1994 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ESOP Convertible Preferred
Stock, liquidation preference
$35.88........................ 3,795,588 3,819,889 $136 $137
9.36% Cumulative Preferred
Stock, stated value $25....... 5,500,000 5,500,000 138 138
7-3/8% Cumulative Preferred
Stock, stated value $200...... 1,000,000 1,000,000 200 200
8.88% Cumulative Preferred
Stock, stated value $200...... 975,000 975,000 195 195
8-3/4% Cumulative Preferred
Stock, stated value $200...... 750,000 750,000 150 150
--- ---
Total......................... $819 $820
==== ====
</TABLE>
Each issue of preferred stock ranks in parity with all other preferred stock. In
fiscal 1993, the Company issued 8,000,000 Depositary Shares, representing
1,000,000 shares of 7-3/8% Cumulative Preferred Stock, in an aggregate amount
of $200 million. Each Depositary Share represents 1/8 of a share of such
preferred stock.
NOTE 7
COMMON STOCK AND
STOCKHOLDERS' EQUITY
During the period ended January 31, 1995, the Company repurchased or acquired
shares of its common stock at an aggregate cost of $287 million. The Company's
unused portion of its stock repurchase authorization at January 31, 1995 was
approximately $166 million. On February 28, 1995, the Board of Directors
authorized the purchase, in the open market or otherwise, subject to market
conditions and certain other factors, of an additional $150 million of the
Company's common stock.
MS&Co. is a registered broker-dealer and a registered futures commission
merchant and, accordingly, is subject to the minimum net capital requirements of
the Securities and Exchange Commission ("SEC"), the New York Stock Exchange
("NYSE") and the Commodities Futures Trading Commission. MS&Co. has consistently
operated in excess of these requirements with aggregate net capital, as defined,
totaling $844 million at January 31, 1995, which exceeded the amount required by
$689 million. MSIL, a London-based broker-dealer subsidiary, and Morgan Stanley
Japan Limited ("MSJL"), another broker-dealer subsidiary, also are subject to
certain net capital requirements of their respective regulatory agencies.
Certain other U.S. and non-U.S. subsidiaries are subject to various securities,
commodities and banking regulations, and capital adequacy requirements
promulgated by the regulatory and exchange authorities of the countries in which
they operate. At January 31, 1995, these subsidiaries were in compliance with
all applicable securities regulations and local capital adequacy requirements.
Advances, dividend payments and other equity withdrawals from MS&Co., MSIL,
MSJL and other regulated subsidiaries are restricted by the regulations of the
SEC, NYSE, other regulatory agencies and subordinated noteholders. Morgan
Stanley Derivative Products Inc., the Company's Triple-A rated derivative
products subsidiary, has certain restrictions on dividend payments and other
equity withdrawals. At January 31, 1995, approximately $1,528 million of equity
of the Company's subsidiaries may be restricted as to the payment of dividends
and advances.
Cumulative translation adjustments include gains or losses resulting from
translating foreign currency financial statements from their
PAGE | SIXTY-SEVEN
<PAGE> 24
NOTE 7
COMMON STOCK AND
STOCKHOLDERS' EQUITY
(continued)
respective functional currencies to U.S. dollars, net of hedge gains or
losses and related tax effects. The Company uses foreign currency contracts and
designates certain non-U.S. dollar currency debt as hedges to manage the
currency exposure relating to its net investment in non-U.S. dollar functional
currency subsidiaries (the "Company's Net Foreign Investment"). Increases or
decreases in the value of the Company's Net Foreign Investment generally are
tax-deferred for U.S. purposes, but the related hedge gains and losses are
taxable currently. Therefore, the gross notional amounts of the contracts and
debt designated as hedges exceed the Company's Net Foreign Investment to result
in effective hedging on an after-tax basis. The Company attempts to protect its
net book value from the effects of fluctuations in currency exchange rates on
its investment in non-U.S. dollar subsidiaries by selling the appropriate
non-U.S. dollar currency in the forward market. However, under some
circumstances, the Company may elect not to hedge its net investment in
certain foreign operations due to market conditions, including the availability
of various currency contracts at acceptable costs. Information relating to the
Company's net investment in non-U.S. dollar functional currency subsidiaries
and hedging activity and their effects on cumulative translation adjustments is
summarized below:
<TABLE>
<CAPTION>
January 31, January 31,
1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C>
Net investment in non-U.S. dollar functional
currency subsidiaries................................ $1,122 $ 974
====== ======
Gross notional amounts of foreign exchange contracts
and non-U.S. dollar debt designated as hedges (1).... $1,960 $1,597
====== ======
Cumulative translation adjustments resulting from net
investments in subsidiaries with a non-U.S. dollar
functional currency.................................. $ 188 $ 111
Cumulative translation adjustments resulting from
realized or unrealized gains or losses on hedges,
net of tax........................................... (198) (114)
------ ------
Total cumulative translation adjustments............... $ (10) $ (3)
====== ======
</TABLE>
(1) Notional amounts represent the contractual currency amount translated at
respective year-end spot rates.
PAGE | SIXTY-EIGHT
<PAGE> 25
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
NOTE 8
EMPLOYEE BENEFIT PLANS
CAPITAL ACCUMULATION PLAN
Under the Capital Accumulation Plan ("CAP"), vested units consisting of
unsecured rights to receive payments based on notional interests in existing and
future risk-capital investments made directly or indirectly by the Company ("CAP
Units") are granted to key employees. The value of the CAP Units awarded for
services rendered in fiscal 1994, fiscal 1993 and fiscal 1992 was approximately
$14 million, $15 million and $21 million, respectively, all of which relate to
vested units.
CARRIED INTEREST PLAN
Under the Carried Interest Plan, certain key employees effectively participate
in a portion of the Company's realized gains from certain of its equity
investments in merchant banking transactions. Compensation expense for fiscal
1994, fiscal 1993 and fiscal 1992 related to this plan aggregated $24 million,
$29 million and $22 million, respectively.
EQUITY INCENTIVE COMPENSATION PLAN
Pursuant to the 1988 Equity Incentive Compensation Plan ("EICP"), stock units
representing employees' rights to receive unrestricted common shares ("Stock
Units") are awarded annually to key employees; compensation expense for all
such awards (including those subject to forfeiture) recorded in fiscal 1994,
fiscal 1993 and fiscal 1992 was determined based on the fair value of the
Company's common stock as defined in the plan.
Stock Units generally will convert to shares of the Company's common stock
within five or 10 years from the award date (or earlier in the event of the
holder's death or retirement, as defined). Holders of Stock Units generally have
all the rights of a common stockholder, subject to restrictions on transfer of
ownership of the units for the five- or 10-year period. Holders of the Stock
Units generally will forfeit ownership only in certain limited situations,
including termination for cause during the restriction period. Holders of the
Stock Units having a 10-year restriction period, which were first awarded in
respect of fiscal 1992 services, will forfeit ownership of a portion of their
Stock Units if their employment is terminated before the end of the 10-year
restriction period.
Activity related to Stock Units accrued pursuant to the EICP is as follows:
<TABLE>
<CAPTION>
Stock Units
-----------------------------------------------
Fiscal 1994(1) Fiscal 1993(1) Fiscal 1992(2)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of period..... 12,017,505 6,813,165 3,680,183
Awarded................................ 2,257,815 5,341,403 3,189,281
Issued as unrestricted shares(3)....... (181,274) (82,827) (21,027)
Forfeited.............................. (179,679) (54,236) (35,272)
---------- ---------- ---------
Outstanding at end of period........... 13,914,367 12,017,505 6,813,165
========== ========== =========
</TABLE>
(1) Approximately 24% and 21% of the Stock Units awarded in fiscal 1994 and
fiscal 1993, respectively, were subject to a 10-year restriction period.
(2) Amounts listed include January 1992 activity.
(3) Amounts represent awards of Stock Units exchanged for unrestricted common
shares.
PAGE | SIXTY-NINE
<PAGE> 26
NOTE 8
EMPLOYEE BENEFIT PLANS
(continued)
On May 2, 1991, the Company's stockholders approved the reservation of
24,000,000 shares of common stock for awards under the Company's equity-based
employee benefit plans. At January 31, 1995, approximately 5,000,000 shares
reserved for future awards under the employee benefit plans remain (net of
fiscal 1994 awards).
STOCK OPTION AWARDS
The Company's 1986 Stock Option Plan provides for the granting of stock options
having an exercise price not less than the fair value of the Company's common
stock (as defined in the plan) on the date of grant. Such options generally
become exercisable over a three-year period and expire 10 years from the date
of the grant. The EICP also provides for the award of options; options awarded
under this plan are exercisable at a price equal to the average fair value of
the Company's common stock for the five trading days preceding the date of
grant or the end of the fiscal year and will expire seven years (for options
awarded for fiscal 1993 service and prior) or 10 years (for options awarded
for fiscal 1994 service) from the date of award.
Exercise prices for all options deemed outstanding at January 31, 1995,
January 31, 1994 and January 31, 1993 ranged from $18.83 to $75.85. The
following table sets forth activity relating to the number of shares covered by
stock options:
<TABLE>
<CAPTION>
Fiscal 1994 Fiscal 1993 Fiscal 1992(1)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at beginning of period.. 7,246,924 7,567,487 8,757,261
Granted..................................... 5,638,854 606,000 --
Exercised................................... (495,528) (906,214) (1,169,985)
Forfeited................................... (35,750) (20,349) (19,789)
---------- --------- ---------
Options outstanding at end of period 12,354,500 7,246,924 7,567,487
========== ========= =========
Options exercisable at end of period 9,137,329 6,922,574 7,232,855
</TABLE>
(1) Amounts listed include January 1992 activity.
PROFIT SHARING
The Company has a qualified non-contributory profit sharing plan covering
substantially all U.S. employees and also provides cash payment of profit
sharing to employees of its international subsidiaries. Contributions are made
at the discretion of management. Total profit sharing expense for fiscal 1994,
fiscal 1993 and fiscal 1992 (excluding Company contributions to the Employee
Stock Ownership Plan) was $23 million, $21 million and $21 million,
respectively.
EMPLOYEE STOCK OWNERSHIP PLAN
In July 1990, the Company's Board of Directors authorized the establishment of a
$140 million leveraged employee stock ownership plan, funded through an
independently managed trust. The Morgan Stanley Group Inc. and Subsidiaries
Employee Stock Ownership Plan ("ESOP") was established to broaden internal
ownership in the Company and allow it to provide benefits to its employees in a
cost-effective manner. Each of the 3,795,588 preferred shares outstanding at
January 31, 1995 is held by the ESOP trust, is convertible into one share of the
Company's common stock and is entitled to annual dividends of $2.78 per share.
The ESOP trust funded its stock purchase through a loan of $140 million from the
Company. The ESOP trust note, due September 19, 2010 (extendable at the option
of the ESOP trust to September 19, 2015), bears a 10-3/8% interest rate per
annum with principal payable without penalty on or before the due date. The ESOP
trust expects to make principal and interest payments on the note from funds
provided by dividends on the shares of convertible preferred stock and
contributions from the Company. The note receivable from the ESOP trust is
reflected as a reduction in the Company's stockholders' equity.
Contributions to the ESOP by the Company and allocation of ESOP shares to
employees are made annually at the discretion of the Board of
PAGE | SEVENTY
<PAGE> 27
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
NOTE 8
EMPLOYEE BENEFIT PLANS
(continued)
Directors. The cost of shares allocated to participants' accounts amounted to
$10 million in fiscal 1994, $7 million in fiscal 1993 and $8 million in fiscal
1992. The ESOP debt service costs for fiscal 1994, fiscal 1993 and fiscal 1992
were paid from dividends received on preferred stock held by the plan and from
Company contributions. Shares allocated to employees generally may not be
withdrawn until the employee's death, disability, retirement or termination.
Upon withdrawal, each share of ESOP preferred stock generally will be converted
into one share of the Company's common stock. If the fair value of a common
share at conversion is less than the $35.88 liquidation value of an ESOP
preferred share, the Company will pay the withdrawing employee the difference in
additional common shares or cash.
POSTRETIREMENT BENEFITS
Effective January 1, 1992, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." Expense recognized
for these benefits totaled $4 million for fiscal 1994, fiscal 1993 and fiscal
1992, respectively. The accumulated benefit obligation was $28 million and $31
million for fiscal 1994 and fiscal 1993, respectively. The accrued
postretirement benefit cost recognized by the Company was $26 million and $23
million for fiscal 1994 and fiscal 1993, respectively. The difference between
the accumulated benefit obligation and the accrued postretirement benefit cost
at January 31, 1995 and January 31, 1994 is due to changes in the assumptions
used to calculate the accumulated benefit obligation which is being deferred in
accordance with SFAS No. 106.
POSTEMPLOYMENT BENEFITS
Effective February 1, 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." Among its provisions, SFAS No. 112
establishes accounting standards for employers who provide benefits to former or
inactive employees after employment but before retirement. Postemployment
benefits include, but are not limited to, salary continuation, supplemental
unemployment benefits, severance benefits, disability-related benefits, and
continuation of benefits such as health care benefits and life insurance
coverage. The effect of the adoption of SFAS No. 112 was not material to the
Company's Consolidated Financial Statements.
PENSION PLANS
Substantially all of the employees of the Company and its U.S. affiliates are
covered by a non-contributory pension plan qualified under Section 401(a) of the
Internal Revenue Code (the "Qualified Plan"). Two unfunded supplementary plans
(the "Supplemental Plans") cover certain executives. In addition to the
Qualified Plan and the Supplemental Plans (collectively, the "U.S. Plans"), the
Company also maintains a separate pension plan which covers substantially all
employees of the Company's U.K. subsidiaries (the "U.K. Plan"). Seven other
international subsidiaries also have pension plans covering substantially all of
their employees. These pension plans generally provide pension benefits that are
based on each employee's years of credited service and compensation during the
final years of employment. The Company's policy is to fund the accrued cost of
the Qualified Plan, the U.K. Plan and the other international plans currently.
Liabilities for benefits payable under the Supplemental Plans are accrued by the
Company and are funded when paid to the beneficiaries.
PAGE | SEVENTY-ONE
<PAGE> 28
NOTE 8
EMPLOYEE BENEFIT PLANS
(continued)
<TABLE>
<CAPTION>
Pension expense for fiscal 1994, fiscal 1993 and fiscal 1992 includes the
following components:
(Dollars in Millions) Fiscal 1994 Fiscal 1993 Fiscal 1992
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Plans
Service cost, benefits earned
during the period...................... $ 8 $ 6 $ 6
Interest cost on projected
benefit obligation..................... 11 10 9
Return on plan assets.................. 1 (16) (7)
Difference between actual and
expected return on assets.............. (15) 3 (5)
Net amortization....................... (3) (4) (4)
--- --- ---
Total U.S. Plans....................... 2 (1) (1)
U.K. Plan
Service cost, benefits earned
during the period...................... 6 5 4
Interest cost on projected
benefit obligation..................... 2 2 2
Return on plan assets.................. -- (10) (3)
Difference between actual and
expected return on assets.............. (3) 8 1
Net amortization....................... -- -- --
--- --- ---
Total U.K. Plan 5 5 4
Other international plans 5 3 --
--- --- ---
Total pension expense $ 12 $ 7 $ 3
==== ==== ===
</TABLE>
The following table provides the assumptions used in determining the projected
benefit obligation for the U.S. Plans and the U.K. Plan as of January 31, 1995,
January 31, 1994 and January 31, 1993:
<TABLE>
<CAPTION>
January 31, 1995 January 31, 1994 January 31, 1993
--------------------- --------------------- ---------------------
U.S. Plans U.K. Plan U.S. Plans U.K. Plan U.S. Plans U.K. Plan
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted-average
discount rate........ 8.5% 9.0% 8.0% 9.0% 8.5% 9.0%
Rate of increase in
future compen-
sation levels........ 5.0% 7.0% 5.0% 7.0% 5.0% 7.0%
Expected long-term
rate of return on
plan assets.......... 9.0% 9.0% 9.0% 9.0% 9.0% 9.0%
</TABLE>
PAGE | SEVENTY-TWO
<PAGE> 29
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
NOTE 8
EMPLOYEE BENEFIT PLANS
(continued)
The following table sets forth the funded status of the U.S. Plans and the
U.K. Plan as of January 31, 1995 and January 31, 1994:
<TABLE>
<CAPTION>
January 31, 1995 January 31, 1994
------------------------------ --------------------------------
U.S. Plans U.K. Plan U.S. Plans U.K. Plan
------------------ --------- ------------------ ---------
Supple- Supple-
Qualified mental Qualified mental
(Dollars in Millions) Plan Plans Plan Plans
- ---------------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Actuarial present
value of vested
benefit obligation....... $(75) $(19) $(25) $(71) $(19) $(20)
==== ==== ==== ==== ==== ====
Accumulated benefit
obligation............... $(84) $(34) $(25) $(80) $(33) $(20)
Effect of future
salary increases......... (22) (12) (6) (23) (9) (5)
--- --- --- --- --- ---
Projected benefit
obligation............... (106) (46) (31) (103) (42) (25)
Plan assets at fair
market value
(primarily listed
stocks and bonds)........ 160 -- 35 164 -- 30
--- --- --- --- --- ---
Projected benefit
obligation (in excess
of) or less than
plan assets.............. 54 (46) 4 61 (42) 5
Unrecognized net
(gain) or loss........... (9) (2) (11) (18) (1) (10)
Unrecognized prior
service cost............. (1) (1) -- 1 (4) --
Unrecognized net
(asset) obligation at
January 1, 1987, net of
amortization............. (16) 5 -- (20) 6 --
--- --- --- --- --- ---
Prepaid (accrued)
pension cost at fiscal
year-end................. $ 28 $(44) $ (7) $ 24 $(41) $ (5)
==== ==== ==== ==== ==== ====
</TABLE>
PAGE | SEVENTY-THREE
<PAGE> 30
NOTE 9
INCOME TAXES
Effective February 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes." The cumulative effect of the adoption of SFAS No. 109 was not
material. The provision for income taxes consists of:
<TABLE>
<CAPTION>
Liability Liability Deferral
Method Method Method
(Dollars in Millions) 1994 1993 1992
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
U.S. federal............................ $165 $266 $ (2)
U.S. state and local.................... 142 175 9
Non-U.S................................. 20 239 386
--- --- ---
327 680 393
--- --- ---
Deferred:
U.S. federal............................ (75) (161) 120
U.S. state and local.................... (64) (97) 68
Non-U.S................................. 11 (8) (298)
--- --- ---
(128) (266) (110)
--- --- ---
$199 $414 $283
==== ==== ====
</TABLE>
The following table reconciles
the provision to the U.S. federal
statutory income tax rate:
<TABLE>
<CAPTION>
Liability Liability Deferral
Method Method Method
(Dollars in Millions) 1994 1993 1992
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. federal statutory income tax rate .. 35.0 % 35.0 % 34.0 %
U.S. state and local income taxes, net of
U.S. federal income tax benefits ...... 8.5 4.2 6.4
Lower tax rates applicable to
non-U.S. earnings...................... (9.1) (5.7) (4.1)
Reduced tax rate applied to dividends ... (0.6) (0.6) (0.8)
Other ................................... (0.3) 1.6 0.2
---- ---- ----
33.5% 34.5% 35.7%
==== ==== ====
</TABLE>
Lower tax rates applicable to non-U.S. earnings include the benefit of foreign
tax credits utilized against U.S. federal income taxes. The Company intends to
permanently reinvest earnings of international subsidiaries or repatriate such
earnings only when it is tax effective to do so. U.S. federal income taxes that
would be payable upon repatriation are estimated to be $400 million.
PAGE | SEVENTY-FOUR
<PAGE> 31
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
NOTE 9
INCOME TAXES
(continued)
Under SFAS No. 109, deferred income taxes reflect the net tax effects of
temporary differences between the financial reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates and laws that will
be in effect when such differences are expected to reverse. Significant
components of the Company's deferred tax assets and liabilities as of January
31, 1995 and January 31, 1994 are as follows:
<TABLE>
<CAPTION>
January 31, January 31,
(Dollars in Millions) 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Employee benefit plans................ $467 $429
Accrued expenses not yet deductible
for tax purposes.................... 51 35
Other................................. -- 13
--- ---
Total deferred tax assets............... 518 477
--- ---
Deferred tax liabilities
Valuation of inventory, investments
and receivables..................... 260 364
Depreciation and amortization......... 65 54
Other................................. 6 --
--- ---
Total deferred tax liabilities.......... 331 418
--- ---
Net deferred tax assets................. $187 $ 59
==== ====
</TABLE>
The components of the provision for deferred
income taxes for the year ended January 31, 1993
are as follows:
<TABLE>
<CAPTION>
Deferral Method
(Dollars in Millions) January 31, 1993
- ---------------------------------------------------------------------------------------
<S> <C>
Valuation of inventory, investments and receivables........... $ (15)
Employee benefits............................................. (89)
Other, principally accruals not deductible currently for
tax purposes................................................ (6)
----
$(110)
=====
</TABLE>
Not included above are currency hedging-related income tax benefits of $72
million in fiscal 1994, $57 million in fiscal 1993 and $3 million in fiscal
1992, credited directly to the cumulative translation adjustments component of
consolidated stockholders' equity. Also not included above are income tax
benefits of $9 million in fiscal 1994, $13 million in fiscal 1993 and $17
million in fiscal 1992, attributable to the vesting of stock unit awards and
the exercise of stock options, credited directly to paid-in capital; and $10
million in fiscal 1994, $8 million in fiscal 1993 and $7 million in fiscal
1992, attributable to stock unit and ESOP dividends, credited directly to
retained earnings.
PAGE | SEVENTY-FIVE
<PAGE> 32
NOTE 10
GEOGRAPHIC AREA DATA
The Company's business activities are highly integrated and constitute a single
industry segment for purposes of SFAS No. 14. Total revenues, net revenues,
income before taxes and identifiable assets of the Company's operations by
geographic area are as follows:
<TABLE>
<CAPTION>
Total Revenues Net Revenues
---------------------------------------- ----------------------------------------
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended Ended Ended Ended
---------------------------------------- ----------------------------------------
1994 1993 1992 1994 1993 1992
-----------------------------------------------------------------------------------
International
<S> <C> <C> <C> <C> <C> <C>
Europe.............................. $ 3,942 $ 4,617 $ 3,369 $ 776 $ 1,466 $ 814
Asia................................ 603 468 392 475 396 308
----- ----- ------ ------ ------ -----
Total............................... 4,545 5,085 3,761 1,251 1,862 1,122
North America....................... 8,332 6,341 5,616 2,516 2,538 2,037
Eliminations........................ (3,501) (2,250) (1,995) (266) (244) (139)
----- ----- ------ ------ ------ -----
Total............................... $ 9,376 $ 9,176 $ 7,382 $ 3,501 $ 4,156 $ 3,020
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Income before Taxes Identifiable Assets
---------------------------------------- -----------------------------------------
Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended Ended Ended Ended
---------------------------------------- -----------------------------------------
1994 1993 1992 1994 1993 1992
------------------------------------------------------------------------------------
International
<S> <C> <C> <C> <C> <C> <C>
Europe.............................. $ 11 $ 720 $ 280 $ 65,110 $ 63,279 $ 40,771
Asia................................ 56 24 10 18,413 15,910 8,530
----- ----- ------ ------ ------ ------
Total............................... 67 744 290 83,523 79,189 49,301
North America....................... 527 456 503 120,360 100,483 92,027
Eliminations........................ -- -- -- (87,189) (82,430) (60,975)
----- ----- ------ ------- ------ ------
Total............................... $ 594 $ 1,200 $ 793 $116,694 $ 97,242 $ 80,353
====== ======= ====== ======== ======== ========
</TABLE>
Because of the international nature of the financial markets and the resulting
geographic integration of the Company's business, the Company manages its
business with a view to the profitability of the enterprise as a whole, and, as
such, profitability by geographic area is not necessarily meaningful.
PAGE | SEVENTY-SIX
<PAGE> 33
MORGAN STANLEY GROUP INC. AND SUBSIDIARIES
NOTE 11
QUARTERLY RESULTS
(unaudited)
<TABLE>
<CAPTION>
Fiscal 1993 Fiscal 1994
------------------------------------------------ -------------------------------------------------
(Dollars in Millions, First Second Third Fourth First Second Third Fourth
Except Share Data) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- -------------------------- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Investment banking....... $ 379 $ 318 $ 296 $ 245 $ 260 $ 211 $ 190 $ 258
Principal transactions:
Trading................. 370 518 285 286 258 300 297 249
Investments............. 11 18 92 37 10 23 82 24
Commissions.............. 91 91 101 110 119 112 104 114
Interest and dividends... 1,282 1,478 1,573 1,327 1,561 1,525 1,714 1,606
Asset management
and administration...... 52 64 67 75 81 89 95 85
Other.................... 1 3 5 1 3 2 3 1
- -------------------------- -----------------------------------------------------------------------------------------------------
Total revenues........... 2,186 2,490 2,419 2,081 2,292 2,262 2,485 2,337
Interest expense......... 1,135 1,343 1,386 1,156 1,404 1,349 1,575 1,547
- -------------------------- -----------------------------------------------------------------------------------------------------
Net revenues............. 1,051 1,147 1,033 925 888 913 910 790
- -------------------------- -----------------------------------------------------------------------------------------------------
Expenses excluding interest:
Compensation and
benefits................ 524 572 525 428 440 460 460 373
Occupancy and
equipment............... 58 62 64 64 68 74 79 82
Brokerage, clearing and
exchange fees........... 48 44 52 52 58 59 56 57
Communications........... 24 24 26 26 29 28 31 34
Business development..... 30 32 31 41 39 41 41 44
Professional services.... 26 30 30 34 41 39 41 43
Other.................... 23 24 29 33 29 30 32 40
Relocation charge........ -- -- -- -- -- -- -- 59
- -------------------------- -----------------------------------------------------------------------------------------------------
Total expenses
excluding interest...... 733 788 757 678 704 731 740 732
- -------------------------- -----------------------------------------------------------------------------------------------------
Income before income
taxes.................... 318 359 276 247 184 182 170 58
Provision for income
taxes.................... 119 135 94 66 67 61 52 19
- -------------------------- -----------------------------------------------------------------------------------------------------
Net income................ $ 199 $ 224 $ 182 $ 181 $ 117 $ 121 $ 118 $ 39
========================== =====================================================================================================
Earnings applicable to
common shares (3)........ $ 187 $ 212 $ 167 $ 165 $ 101 $ 104 $ 102 $ 23
========================== =====================================================================================================
Per common share:
Primary earnings (1)..... $ 2.40 $ 2.77 $ 2.20 $ 2.18 $ 1.27 $ 1.31 $ 1.30 $ 0.29
Fully diluted
earnings (1)............ $ 2.29 $ 2.65 $ 2.10 $ 2.08 $ 1.22 $ 1.26 $ 1.25 $ 0.29
Cash dividends........... $ 0.27 $ 0.27 $ 0.27 $ 0.27 $ 0.30 $ 0.30 $ 0.30 $ 0.30
Book value............... $38.09 $40.27 $42.16 $46.14 $46.67 $47.52 $48.42 $49.77
Average common and
equivalent shares (3).... 77,889,047 76,474,964 75,944,556 75,938,109 79,828,671 79,605,505 78,354,016 77,534,004
Stock price range (2)..... $55 1/4- $59-70 1/2 $69 5/8- $69 1/4- $60 7/8- $55 5/8- $59 3/8- $55 1/4-
66 1/8 89 79 3/8 79 1/2 62 1/4 69 3/4 65 1/8
</TABLE>
(1) Summation of the quarters' earnings per common share does not equal the
annual amounts due to the averaging effect of the number of shares and share
equivalents throughout the year.
(2) Prices represent the range of sales per share on the New York Stock Exchange
for the periods indicated. The number of stockholders of record at January
31, 1995 approximated 1,350. The number of beneficial owners of common
stock is believed to exceed this number.
(3) Amounts shown are used to calculate primary earnings per share.
PAGE | SEVENTY-SEVEN
<PAGE> 1
EXHIBIT 21
MORGAN STANLEY GROUP INC. SUBSIDIARIES
As of April 24, 1995
<TABLE>
<CAPTION>
JURISDICTION OF YEAR OF
INCORPORATION INCORPORATION
--------------- -------------
<S> <C> <C>
MORGAN STANLEY GROUP INC. DELAWARE 1975
FOURTH STREET DEVELOPMENT CO. INCORPORATED DELAWARE 1990
FOURTH STREET LTD. DELAWARE 1990
JOLTER INVESTMENTS INC. DELAWARE 1989
MORGAN RUNDLE INC. DELAWARE 1978
MR VENTURES INC. DELAWARE 1982
MORGAN STANLEY ADVISORY PARTNERSHIP INC. DELAWARE 1985
MORGAN STANLEY ASSET MANAGEMENT INC. DELAWARE 1980
MORGAN STANLEY BASEBALL, INC. DELAWARE 1989
MORGAN STANLEY CAPITAL GROUP INC. DELAWARE 1984
MORGAN STANLEY CAPITAL I INC. DELAWARE 1985
MORGAN STANLEY CAPITAL (JERSEY) LIMITED JERSEY, CHANNEL IS. 1987
MORGAN STANLEY CAPITAL PARTNERS III, INC. DELAWARE 1993
MORGAN STANLEY CAPITAL SERVICES INC. DELAWARE 1985
MORGAN STANLEY COMMERCIAL MORTGAGE CAPITAL, INC. DELAWARE 1994
MORGAN STANLEY COMMODITIES MANAGEMENT, INC. DELAWARE 1992
MORGAN STANLEY DERIVATIVE PRODUCTS INC. DELAWARE 1994
MORGAN STANLEY DEVELOPING COUNTRY DEBT II, INC. DELAWARE 1991
MORGAN STANLEY EMERGING MARKETS INC. DELAWARE 1990
MORGAN STANLEY EQUITY INVESTORS INC. DELAWARE 1988
MORGAN STANLEY FINANCE (JERSEY) LIMITED JERSEY, CHANNEL IS. 1990
MORGAN STANLEY GLOBAL ADVISORY SERVICES INC. DELAWARE 1992
MORGAN STANLEY GLOBAL SECURITIES SERVICES INCORPORATED DELAWARE 1987
MORGAN STANLEY BANK LUXEMBOURG S.A. LUXEMBOURG 1989
MORGAN STANLEY INSURANCE AGENCY INC. DELAWARE 1985
MORGAN STANLEY (JERSEY) LIMITED JERSEY, CHANNEL IS. 1986
MORGAN STANLEY LEF I, INC. DELAWARE 1989
MORGAN STANLEY LEVERAGED CAPITAL FUND INC. DELAWARE 1985
MORGAN STANLEY LEVERAGED EQUITY FUND II, INC. DELAWARE 1987
MORGAN STANLEY CAPITAL PARTNERS ASIA LIMITED HONG KONG 1992
MORGAN STANLEY LEVERAGED EQUITY HOLDINGS INC. DELAWARE 1987
MORGAN STANLEY MARKET PRODUCTS INC. DELAWARE 1987
MORGAN STANLEY MORTGAGE CAPITAL INC. NEW YORK 1984
MORGAN STANLEY REAL ESTATE HOLDINGS INC. DELAWARE 1990
MORGAN STANLEY REAL ESTATE HOLDINGS II, INC. DELAWARE 1994
MORGAN STANLEY REAL ESTATE INVESTMENT MANAGEMENT INC. DELAWARE 1990
MORGAN STANLEY REAL ESTATE FUND, INC. DELAWARE 1989
MORGAN STANLEY REAL ESTATE INVESTMENT MANAGEMENT II, INC. DELAWARE 1994
MORGAN STANLEY REALTY INCORPORATED DELAWARE 1969
BROOKS HARVEY & CO., INC. DELAWARE 1971
MORGAN STANLEY REALTY OF CALIFORNIA INC. CALIFORNIA 1970
MORGAN STANLEY REALTY OF ILLINOIS INC. DELAWARE 1989
BROOKS HARVEY OF FLORIDA, INC. FLORIDA 1978
BROOKS HARVEY & CO. OF HAWAII, INC. DELAWARE 1981
MORGAN STANLEY REALTY JAPAN LTD. JAPAN 1991
BH-MS REALTY INC. DELAWARE 1983
BH-MS LEASING INC. DELAWARE 1983
BH-SARTELL INC. DELAWARE 1983
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
MORGAN STANLEY GROUP INC. (CONTINUED)
THE MORGAN STANLEY SCHOLARSHIP FUND INC.
(NOT-FOR-PROFIT) DELAWARE 1985
MORGAN STANLEY SERVICES INC. DELAWARE 1988
MORGAN STANLEY TECHNICAL SERVICES INC. DELAWARE 1989
MORGAN STANLEY TECHNICAL SERVICES MB/VC INC. DELAWARE 1993
MORGAN STANLEY TRUST COMPANY NEW YORK 1992
MS PROSPECT & CO. DELAWARE 1993
MORGAN STANLEY VENTURE CAPITAL INC. DELAWARE 1984
MORGAN STANLEY VENTURE CAPITAL II, INC. DELAWARE 1992
MORGAN STANLEY VENTURES INC. DELAWARE 1984
MORSTAN DEVELOPMENT COMPANY, INC. DELAWARE 1971
MORANTA, INC. GEORGIA 1979
PORSTAN DEVELOPMENT COMPANY, INC. OREGON 1982
MS 10020, INC. DELAWARE 1994
MS DATA SERVICES INC. DELAWARE 1990
MS FINANCING INC. DELAWARE 1986
MORGAN STANLEY 750 BUILDING CORP. DELAWARE 1994
MS TOKYO PROPERTIES LTD. JAPAN 1989
MS URBAN HORIZONS, INC. DELAWARE 1994
MS VENTURE CAPITAL (JAPAN) INC. DELAWARE 1989
MSCP III HOLDINGS, INC. DELAWARE 1994
MSPL CO. INC. DELAWARE 1990
MSREF II, INC. DELAWARE 1994
MS/USA LEASING INC. DELAWARE 1993
PG HOLDINGS, INC. DELAWARE 1991
PG INVESTORS, INC. DELAWARE 1991
PIERPONT POWER, INC. NEW YORK 1987
ROMLEY COMPUTER LEASING INC. DELAWARE 1985
MORGAN STANLEY & CO. INCORPORATED DELAWARE 1969
HRJ CORPORATION DELAWARE 1986
MORGAN STANLEY FLEXIBLE AGREEMENTS INC. DELAWARE 1992
MORGAN STANLEY SECURITIES TRADING INC. DELAWARE 1986
MORGAN STANLEY STOCK LOAN INC. DELAWARE 1986
MS SECURITIES SERVICES INC. DELAWARE 1981
NRSD CORPORATION DELAWARE 1988
MORGAN STANLEY INTERNATIONAL INCORPORATED DELAWARE 1963
BANK MORGAN STANLEY AG SWITZERLAND 1973
MORGAN STANLEY & CO. (PTY) LIMITED SOUTH AFRICA 1994
MORGAN STANLEY AOZT RUSSIA 1995
MORGAN STANLEY ASIA (CHINA) LIMITED HONG KONG 1993
MORGAN STANLEY ASIA HOLDINGS I INC. DELAWARE 1990
MORGAN STANLEY ASIA HOLDINGS II INC. DELAWARE 1990
MORGAN STANLEY ASIA HOLDINGS III INC. DELAWARE 1990
MORGAN STANLEY ASIA HOLDINGS IV INC. DELAWARE 1990
MORGAN STANLEY ASIA HOLDINGS V INC. DELAWARE 1990
MORGAN STANLEY ASIA HOLDINGS VI INC. DELAWARE 1990
MORGAN STANLEY ASIA LIMITED HONG KONG 1984
MORGAN STANLEY ASIA (SINGAPORE) PTE LTD REP. OF SINGAPORE 1992
MORGAN STANLEY ASIA (TAIWAN) LTD. REP. OF CHINA 1990
MORGAN STANLEY ASSET MANAGEMENT SINGAPORE LTD REP. OF SINGAPORE 1990
MORGAN STANLEY AUSTRALIA LIMITED AUSTRALIA 1989
MORGAN STANLEY CANADA LIMITED CANADA 1982
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C> <C>
MORGAN STANLEY GROUP INC. (CONTINUED)
MORGAN STANLEY INTERNATIONAL INCORPORATED (CONTINUED)
MORGAN STANLEY CAPITAL SA FRANCE 1989
MORGAN STANLEY CAPITAL GROUP (SINGAPORE) PTE LTD REP. OF SINGAPORE 1990
MORGAN STANLEY CAPITAL (LUXEMBOURG) S.A. LUXEMBOURG 1993
MORGAN STANLEY DEVELOPING COUNTRY DEBT, LTD. BERMUDA 1991
MORGAN STANLEY FINANCIAL SERVICES BETEILIGUNGS GMBH GERMANY 1993
MORGAN STANLEY FUTURES (HONG KONG) LIMITED HONG KONG 1988
MORGAN STANLEY FUTURES (SINGAPORE) PTE LTD REP. OF SINGAPORE 1992
MORGAN STANLEY GROUP (EUROPE) PLC ENGLAND 1988
MORGAN STANLEY ASSET MANAGEMENT LIMITED ENGLAND 1986
MORGAN STANLEY CAPITAL GROUP LIMITED ENGLAND 1993
MORGAN STANLEY (EUROPE) LIMITED ENGLAND 1993
MORGAN STANLEY FINANCE PLC ENGLAND 1993
MORGAN STANLEY PROPERTIES LIMITED ENGLAND 1986
MORGAN STANLEY PROPERTY MANAGEMENT (UK) LIMITED ENGLAND 1987
MORGAN STANLEY SERVICES (UK) LIMITED ENGLAND 1993
MORGAN STANLEY UK GROUP ENGLAND 1976
MORGAN STANLEY & CO. INTERNATIONAL LIMITED ENGLAND 1986
MORGAN STANLEY INTERNATIONAL NOMINEES LIMITED ENGLAND 1994
MORGAN STANLEY & CO. LIMITED ENGLAND 1987
MORGAN STANLEY SECURITIES LIMITED ENGLAND 1986
MORSTAN NOMINEES LIMITED ENGLAND 1986
MS LEASING UK LIMITED ENGLAND 1991
MS VOLATILITY FUND N.V. NETHERLANDS ANTILLES 1993
MORGAN STANLEY HONG KONG NOMINEES LIMITED HONG KONG 1988
MORGAN STANLEY HONG KONG SECURITIES LIMITED HONG KONG 1988
MORGAN STANLEY INDIA SECURITIES PRIVATE LIMITED INDIA 1995
MORGAN STANLEY INTERNATIONAL INSURANCE LTD. BERMUDA 1995
MORGAN STANLEY INVESTMENT ADVISORY CO., LIMITED JAPAN 1987
MORGAN STANLEY JAPAN (HOLDINGS) LTD. CAYMAN ISLANDS 1984
MORGAN STANLEY JAPAN LIMITED HONG KONG 1993
MORGAN STANLEY LATIN AMERICA INCORPORATED DELAWARE 1994
MS CARBOCOL ADVISORS INCORPORATED DELAWARE 1995
MORGAN STANLEY MAURITIUS COMPANY LIMITED MAURITIUS 1993
MORGAN STANLEY ASSET MANAGEMENT INDIA PRIVATE LIMITED INDIA 1993
MORGAN STANLEY OFFSHORE INVESTMENT COMPANY LTD. CAYMAN ISLANDS 1987
MORGAN STANLEY OVERSEAS SERVICES (JERSEY) LIMITED JERSEY, CHANNEL IS. 1986
MORGAN STANLEY PACIFIC LIMITED HONG KONG 1987
MORGAN STANLEY S.A. FRANCE 1992
MORGAN STANLEY SICAV MANAGEMENT S.A. LUXEMBOURG 1988
MORGAN STANLEY (STRUCTURED PRODUCTS) JERSEY LIMITED JERSEY, CHANNEL IS. 1994
MS ITALY (HOLDINGS) INC. DELAWARE 1990
BANCA MORGAN STANLEY S.P.A. ITALY 1990
MS LDC, LTD. DELAWARE 1991
MSL INCORPORATED DELAWARE 1976
</TABLE>
3
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report on Form 10-K
of Morgan Stanley Group Inc. of our report dated February 28, 1995, included in
the 1994 Annual Report to Stockholders of Morgan Stanley Group Inc.
Our audits also included the financial statement schedule of Morgan Stanley
Group Inc. listed in item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on the basic
financial statements based on our audits. In our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 33-57833, Form S-3 No. 33-51067, Form S-3 No. 33-51413, Form S-8
No. 33-13177, Form S-8 No. 33-37652, Form S-8 No. 33-18184, and Form S-8 No.
33-42464) of Morgan Stanley Group Inc. and in the related Prospectuses of our
report dated February 28, 1995, with respect to the consolidated financial
statements and schedule of Morgan Stanley Group Inc. included and incorporated
by reference in this Annual Report on Form 10-K for the year ended January 31,
1995.
/s/ Ernst & Young LLP
New York, New York
April 26, 1995
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
TO THE DIRECTORS OF MORGAN STANLEY GROUP INC.
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-42464) pertaining to the Morgan Stanley UK Group Profit Sharing
Scheme and in the related Prospectus of our report dated 19 April 1995, with
respect to the financial statements of the Morgan Stanley UK Group Profit
Sharing Scheme included in this Annual Report on Form 10-K for the year ended 31
December 1994.
Ernst & Young
Chartered Accountants
Registered Auditor
London
26 April 1995
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at January 31, 1995 and the
Consolidated Statement of Income for the Twelve Months Ended January 31, 1995
and is qualified in its entirety by reference to such consolidated financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-START> FEB-01-1994
<PERIOD-END> JAN-31-1995
<CASH> 4,626
<RECEIVABLES> 7,478
<SECURITIES-RESALE> 35,913
<SECURITIES-BORROWED> 20,042
<INSTRUMENTS-OWNED> 47,109
<PP&E> 1,061
<TOTAL-ASSETS> 116,694
<SHORT-TERM> 10,273
<PAYABLES> 13,824
<REPOS-SOLD> 50,123
<SECURITIES-LOANED> 2,860
<INSTRUMENTS-SOLD> 25,307
<LONG-TERM> 8,814
<COMMON> 80
0
819
<OTHER-SE> 3,656
<TOTAL-LIABILITY-AND-EQUITY> 116,694
<TRADING-REVENUE> 1,104
<INTEREST-DIVIDENDS> 6,406
<COMMISSIONS> 449
<INVESTMENT-BANKING-REVENUES> 919
<FEE-REVENUE> 350
<INTEREST-EXPENSE> 5,875
<COMPENSATION> 1,733
<INCOME-PRETAX> 594
<INCOME-PRE-EXTRAORDINARY> 594
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 395
<EPS-PRIMARY> 4.18
<EPS-DILUTED> 4.03
</TABLE>
<PAGE> 1
EXHIBIT 99
MORGAN STANLEY UK GROUP PROFIT
SHARING SCHEME
Report and Financial Statements
31 December 1994 and 1993
<PAGE> 2
REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS
TO THE MORGAN STANLEY GROUP INC. UK PROFIT SHARING COMMITTEE
AND PARTICIPANTS IN THE MORGAN STANLEY UK GROUP PROFIT SHARING SCHEME
We have audited the accompanying statement of financial condition of the Morgan
Stanley UK Group Profit Sharing Scheme as of 31 December 1994 and 1993 and the
related statement of income and changes in plan equity for the years ended 31
December 1994, 1993 and 1992. These financial statements are the responsibility
of the Scheme s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial condition of the Scheme as of 31 December
1994 and 1993 and the income and changes in plan equity for the years ended 31
December 1994, 1993 and 1992 in conformity with United States generally accepted
accounting principles.
Ernst & Young
Chartered Accountants
Registered Auditor
London
19 April 1995
<PAGE> 3
Morgan Stanley UK Group Profit Sharing Scheme
- --------------------------------------------------------------------------------
STATEMENT OF THE FINANCIAL CONDITION
at 31 December 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
Notes $ $
<S> <C> <C> <C>
ASSETS
Investments at market value Morgan Stanley
Group Inc. Common Stock 2,3 8,096,334 8,257,162
Amounts due from trustee 43,112 32,149
Employee contributions receivable 2,371,487 1,834,116
---------- ----------
10,510,933 10,123,427
========== ==========
LIABILITIES AND PLAN EQUITY
Dividend income, net of withholding taxes, payable
to participants 41,020 30,589
Taxes withheld in respect of dividend income 2,090 1,558
Plan equity 10,467,823 10,091,280
---------- ----------
10,510,933 10,123,427
========== ==========
</TABLE>
See notes to the financial statements.
- --------------------------------------------------------------------------------
2
<PAGE> 4
Morgan Stanley UK Group Profit Sharing Scheme
- --------------------------------------------------------------------------------
STATEMENT OF INCOME AND CHANGES IN PLAN EQUITY
for the years ended 31 December 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
Notes $ $ $
<S> <C> <C> <C> <C>
CASH DIVIDEND
Distribution from Morgan Stanley Group
Inc. Common Stock 167,520 127,435 103,469
Less: United States tax withheld 25,105 19,115 15,507
---------- ---------- ----------
NET DIVIDENDS 142,415 108,320 87,962
Gain on sale/transfer of Morgan Stanley Group
Inc. Common Stock 2 183,380 465,762 58,822
Change in unrealised appreciation of
investments 3 (1,791,131) 1,287,954 (965,281)
EMPLOYEE CONTRIBUTIONS
Current year 2,371,487 1,834,116 1,340,903
---------- ---------- ----------
INCOME FOR THE YEAR 906,151 3,696,152 522,406
Less: Dividend income payable to participants 134,006 100,238 77,617
Income tax payable 8,409 8,082 10,343
Withdrawals disbursed to employees 289,513 486,901 117,641
Value of shares transferred to employees 97,680 403,774 -
Foreign Exchange loss - - 825
---------- ---------- ----------
INCREASE IN PLAN EQUITY 376,543 2,697,157 315,980
PLAN EQUITY AT 1 JANUARY 10,091,280 7,394,123 7,078,143
---------- ---------- ----------
PLAN EQUITY AT END OF YEAR 10,467,823 10,091,280 7,394,123
========== ========== ==========
</TABLE>
See notes to the financial statements.
- --------------------------------------------------------------------------------
3
<PAGE> 5
Morgan Stanley UK Group Profit Sharing Scheme
- --------------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 1994, 1993 and 1992
SCHEME DESCRIPTION
On 12 November 1987, the Morgan Stanley UK Group Profit Sharing Scheme was
established in the United Kingdom by a trust deed made between Morgan Stanley
Group Inc., its subsidiary Morgan Stanley UK Group and Noble Lowndes
Settlement Trustees Limited. The scheme allows employees of Morgan Stanley
UK Group to accumulate pre-tax profit share contributions in the form of
shares of Morgan Stanley Group Inc. common stock.
ELIGIBILITY
Full time employees of Morgan Stanley UK Group with at least one year of
service, commencing from the first of the month after the date of joining,
are eligible to participate in the scheme. Employees may elect to
participate in the scheme for the full amount of their profit share, up to
a maximum of the lesser of 10% of UK base salary or L.8,000.
FUNDING POLICY
Amounts invested by employees are invested by Noble Lowndes Settlement
Trustees Limited, as trustee, in Morgan Stanley Group Inc. shares which are
held by the trustee in their name on the employee's behalf. Shares in
respect of the previous qualifying period are appropriated to employees
within two weeks of 31 December (the qualifying date). Trustee fees and
brokerage commissions are borne by Morgan Stanley UK Group, the employer.
During the first two years after allocation (the Retention Period) certain
statutory restrictions apply limiting members ability to deal in or withdraw
their shares. After the Retention Period, members may withdraw their shares
or instruct the trustees to sell their shares and withdraw the cash
proceeds. The cost of withdrawals from the scheme is determined on a first
in first out basis within the relevant employee allocation.
TAXATION
The United Kingdom Board of Inland Revenue has approved the scheme under
Schedule 9, UK Finance Act 1978 and the scheme is thus exempt from taxation.
Employee contributions to the scheme are not liable to income tax if shares
are held by the Trustees for at least five years after appropriation. If
employees shares are sold prior to the end of the five year period, some or
all of the income tax benefits are lost.
1. ACCOUNTING POLICIES
FOREIGN CURRENCIES
Monetary assets and liabilities denominated in currencies other than US
dollars are translated at the rate of exchange ruling at the balance sheet
date except for employee contributions receivable, which are translated at
the rate ruling at the time of share purchase, which occurs shortly after
the balance sheet date. Transactions in foreign currencies are translated
at the approximate rate of exchange ruling at the date of the transaction.
VALUATION OF INVESTMENTS
The investments are recorded at market value based on the closing market
prices on the New York Stock Exchange.
DIVIDEND INCOME
Dividend income is recorded when the applicable dividends are declared.
Dividends are received net of US withholding tax and are allocated to
participants according to their shareholdings.
- --------------------------------------------------------------------------------
4
<PAGE> 6
Morgan Stanley UK Group Profit Sharing Scheme
- --------------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 1994, 1993 and 1992
2. CHANGES IN HOLDINGS OF MORGAN STANLEY GROUP INC COMMON STOCK
<TABLE>
<CAPTION>
Average
Number cost Total
of shares per share cost
<S> <C> <C> <C>
At 1 January 1992 88,910 26.506 2,356,676
Add: Purchase, January 1992 21,599 65.269 1,409,305
--------------- --------------- ---------------
110,509 34.079 3,765,981
Less: Sales of shares during the year (2,174) 27.056 (58,819)
--------------- --------------- ---------------
At 31 December 1992 108,335 34.219 3,707,162
Add: Purchase, January 1993 23,947 55.995 1,340,903
--------------- --------------- ---------------
132,282 38.161 5,048,065
Less: Sales of shares during the year (8,474) 15.436 (130,802)
Transfer of shares during the year (7,099) 41.430 (294,111)
--------------- --------------- ---------------
At 31 December 1993 116,709 39.613 4,623,152
Add: Purchase January 1994 26,280 69.791 1,834,116
--------------- --------------- ---------------
142,989 45.159 6,457,268
Less: Sales of shares during the year (4,297) 25.933 (111,436)
Transfer of shares during the year (1,466) 63.013 (92,377)
--------------- --------------- ---------------
At 31 December 1994 137,226 45.570 6,253,455
=============== =============== ===============
</TABLE>
Each stock purchase was made in one transaction representing more than 5% of
the current value of the scheme at the beginning of the year.
Sale/transfer of shares in Morgan Stanley Group Inc Common Stock:
<TABLE>
<CAPTION>
1994 1993 1992
$ $ $
<S> <C> <C> <C>
Aggregate proceeds of sales 289,513 486,901 117,641
Aggregate cost of sales (111,436) (130,802) (58,819)
--------------- --------------- ---------------
Net gain on sales 178,077 356,099 58,822
--------------- --------------- ---------------
Aggregate proceeds of transfers 97,680 403,774 -
Aggregate cost of transfers (92,377) (294,111) -
--------------- --------------- ---------------
Net gain on transfers 5,303 109,663 -
--------------- --------------- ---------------
183,380 465,762 58,822
=============== =============== ===============
</TABLE>
Cost has been determined on a first in, first out basis within the relevant
employee allocation.
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5
<PAGE> 7
Morgan Stanley UK Group Profit Sharing Scheme
- --------------------------------------------------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 1994, 1993 and 1992
3. CHANGE IN UNREALISED APPRECIATION OF INVESTMENTS
At 31 December 1994 the closing price on the New York Stock Exchange for
Morgan Stanley Group Inc common stock was $59.00 per share.
<TABLE>
<CAPTION>
Average
Number cost Total
of shares per share cost
<S> <C> <C> <C>
Market value at 31 December 1994 137,226 59.000 8,096,334
Average cost at 31 December 1994 137,226 45.570 6,253,455
-----------
Unrealised appreciation at 31 December 1994 1,842,879
Unrealised appreciation at 31 December 1993 3,634,010
-----------
Decrease in unrealised appreciation (1,791,131)
===========
Market value at 31 December 1993 116,709 70.750 8,257,162
Average cost at 31 December 1993 116,709 39.613 4,623,152
-----------
Unrealised appreciation at 31 December 1993 3,634,010
Unrealised appreciation at 31 December 1992 2,346,056
-----------
Increased in unrealised appreciation 1,287,954
===========
Market value at 31 December 1992 108,335 55.875 6,053,218
Average cost at 31 December 1992 108,335 34.219 3,707,162
-----------
Unrealised appreciation at 31 December 1992 2,346,056
Unrealised appreciation at 31 December 1991 3,311,337
-----------
Decrease in unrealised appreciation (965,281)
===========
</TABLE>
4. NUMBER OF PARTICIPANTS
There were 548 participants as of 31 December 1994, 406 participants as of 31
December 1993 and 354 participants as of 31 December 1992.
- --------------------------------------------------------------------------------
6
